The question is: Will SoftBank and Alibaba, both of which have significant investments in leading e-commerce players in India, come together to fight bigger rival Amazon?
India’s e-commerce market has become a complex web of alliances, with SoftBank, Alibaba, and Amazon — the three global internet giants with considerable business interests in India — investing massive dollars into leading e-commerce firms. Now, with SoftBank injecting a whopping US$2.5 billion into Flipkart last week, the scene has become more complicated.
To put things in perspective:
- Amazon, Flipkart, Paytm, ShopClues, and Snapdeal are the leading players in India.
- SoftBank is an investor in Flipkart, Snapdeal and Paytm, while Alibaba has significant stake in Paytm and Snapdeal.
- Interestingly, SoftBank is an investor in Alibaba, and they hope to replicate their success in China in India.
Amazon, with its fast-growing marketshare, is the only hurdle. With its dream run, Amazon continues to shatter SoftBank’s dreams and is bleeding SoftBank’s interests in India. Its first victim is Snapdeal, and its other investment Ola is not doing good either. SoftBank wanted Snapdeal to merge with Flipkart, but it did not happen. Now, SoftBank’s last ray of hope is Flipkart, the only company capable of beating Amazon.
But it is not easy. Amazon has the money power and has years of experience. So the only way forward is the coming-together of Flipkart, Paytm and Snapdeal.
But is this possible?
“Maybe,” says e-commerce veteran K Vaitheeswaran. “In every field, smaller rivals are joining forces to beat bigger rival, and it is likely to happen in e-commerce as well. If you look at the cab hailing market, everybody is coming together to fight Uber. In politics, all are coming together to fight the ruling Bharatiya Janata Party (BJP). In e-commerce, everyone is coming together to fight Amazon.”
He adds: “My view is that even if this alliance (among Flipkart, Snapdeal and Paytm) happens, companies like Amazon will win because it removes any distraction for them. It will now have only a single enemy to fight against. As of now, Amazon has four-five different competitions and their energy is getting distracted. Now, with the alliance, they will have only a single rival to beat. I think these companies are playing into Amazon’s hands if they come together.”
He, however, believes that Amazon is a clear winner in e-commerce, and no competitor is even close to beating it. “The person who wins the Indian market is not the company which raises more money because most of them have enough money, but the company which executes better. Amazon is clearly ahead of all these firms when it comes to execution,” says Vaitheeswaran, who authored a book ‘Failing to Succeed – The story of India’s first commerce company‘.
Vaitheeswaran, who is also founder of India’s first e-commerce company IndiaPlaza,com, added that for Flipkart to win, it needs to create a clear differentiator.
“Flipkart now has more time and money to battle Amazon, and I only hope Flipkart uses this money to build a solid differentiator with Amazon. That said, after raising all this money, a consumer still has no reason to prefer Flipkart over Amazon. Unless Flipkart executes a better execution strategy, then two-three years later, they will again run out of money and will be back to the same situation and raise more money. They should create a reason for customers to shop and those reasons will come out of merchandising and retailing — not out of tech, not out of hiring more people, not out of raising more money, not out of doing more PR, or not out of providing longer maternity leave,” he says.
Also Read: E-commerce giant Flipkart raises US$1.4B in funding led by Tencent; acquires eBay India
Vaitheeswaran, however, says that while SoftBank’s US$2.5 billion investment gives Flipkart a lot more time to battle the former. Still, nothing is going to change in the e-commerce market, because neither Flipkart nor Amazon sell anything differently. They sell the products and brands from the same vendors to the same customers at the same prices. There is no difference.
Samir Kumar, Managing Director of Inventus Capital (India), a leading VC firm, echoes similar views, saying the one who executes better will win the game, but the coming-together of the three main players is unlikely.
“I think Snapdeal has refused to merge with Flipkart, enabled by the cash they got from the sale of Freecharge. So it’s now hard to see them becoming a part of Flipkart. Paytm is another story. I do not see their payment bank as synergistic with their e-commerce business. So to me, if their focus is the payment bank, they could potentially merge their e-commerce business with Flipkart. With Alibaba being the dominant investor in Paytm, and given the good relationship between SoftBank and Alibaba, this merger could be more easily managed than the Snapdeal-Flipkart one was,” Kumar tells us.
“As far as Amazon is concerned, my belief is that India will not be a one player market like some of the other global markets, and hence there is room for a second and third and maybe, even a fourth player to be around and do well,” Kumar continues. “However, if who will be No. 1 is the question, then the answer lies in pure execution. So far, Amazon has executed well, but with the resources that Flipkart now has, they have a real opportunity to focus more strongly on their customers, build strong technology capabilities to deliver world class customer service, and out execute Amazon.”
He, however, added that only time will tell who wins, but for now, he would not bet against either Amazon or Flipkart being the No. 1 three years down the line. “I can’t see anyone else competing against these two,” he adds.
Kunal Khattar, General Partner of Mumbai-based AdvantEdge Partners, has a different view on the e-commerce war in India. He says SoftBank is hedging its bets they know that there will only be one winner in this space. “With this massive investment SoftBank seems to be backing Flipkart at this point. They would have liked to have consolidated its Snapdeal holding before committing such a large check— but clearly that didn’t work out. Having a stake on all the three players, excluding Amazon, also gives it the ability to gain insights into the markets and also influence consolidation options and reduce changes of a repeat of the Snapdeal fiasco.”
Nitin Sharma, former Principal at Lightbox Venture Partners, expects the e-commerce war to only intensify. “Given the lessons of the 2014-16 binge, one would expect a more rational war between the two large e-commerce conglomerates for the next two years. Overall e-commerce market growth should return to higher numbers as both parties create more demand, and hopefully this is accomplished primarily through investments in customer and seller experience, product and data rather than discounting. A fair bit of capital will go towards strengthening moats via payments, financing, logistics, broader consolidation and in-house brands and private labels.”
“Obviously, this will make it extremely hard for vertical players, but I think there’s still a large space for independent online, vertically integrated brands that can become sizeable and profitable, or differentiated models that are bridging things across offline and online channels,” Sharma says.
One thing is clear. SoftBank is in a quandary and is desperate for a win. It have already lost its investment in Snapdeal, but still cannot afford to miss out on the massive opportunities offered by India, the last largest market available in the globe. It hopes Flipkart will make up for the loss it incurred due to Snapdeal’s collapse. Amazon is the only hurdle on the path. So, coming together is the only option but it is hard.
So who is going to win this game?
“When they all come together, Amazon will have just one company to knock over. They will do easily, because at the end of the day the best e-commerce company is the company that executes better. Nobody can even come close to Amazon when it comes to execution — not even Alibaba, Flipkart, Snapdeal, or Paytm,” Vaitheeswaran concluded.
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