SoftBank's $2.5 bn Flipkart deal makes Indian e-tail hot again, it's no longer a cakewalk for Amazon

Finally, home-grown e-commerce company Flipkart can stand up to Jeff Bezos’s Amazon and not allow it a free-run in India. With its latest round of funding, the company says it has excess cash of $4 billion in the kitty as against Bezos's $5 billion.

SoftBank Vision Fund, the world’s largest technology-focused investment fund, on Thursday made an "undisclosed" investment in Flipkart. The transaction, claimed to be biggest-ever private investment in an Indian technology company, will make the fund one of the largest shareholders in the e-commerce leader in India. However, according to media reports, the investment amounts to $2.5 billion.

The investment is part of the previously announced financing round, where Flipkart had raised capital from three of the world’s premier technology companies - Tencent, eBay and Microsoft.

Until Thursday (yesterday), it was believed, and rightly so, that Amazon has an advantage over Flipkart in that it has deep pockets unlike the latter which has to get investors’ approval to scale up.

Though Flipkart’s market share has grown to 57 percent in March 2017 from 45 percent in June 2016 thus maintaining a lead over the other top players in the sector, it was then felt that it was only a matter of time before Amazon outperforms and claims the leading position, said Devangshu Dutta, chief executive of Third Eyesight, a consulting firm. However, it won’t be a walk-over for Amazon now.

Flipkart co-founders Binny Bansal and Sachin Bansal.

Flipkart co-founders Binny Bansal and Sachin Bansal.

Amazon India recently said it invested an additional Rs 1,680 crore in India as part of its commitment to invest $5 billion. The global major has said it will continue to invest in expanding infrastructure and bringing in solutions to enhance consumer and seller experience in the country.

India has close to 500 million Internet users. As per market research, the Indian e-commerce market is expected to grow at a five-year CAGR in excess of 30 percent.

What money can buy for Flipkart
With the funds in place, Flipkart will need to still get the structure in place, upgrade their technology, cost structure and customer acquisition.

“I suspect that with the funds at hand and the fund crunch hurdle now crossed, Flipkart will be able to infuse some fresh talent. They do not need to focus on unit economics now,” said Paula Mariwala, Partner, Seedfund, and Co-Founder, Stanford Angels.

Though Amazon has been investing hugely in the Indian e-commerce space, Flipkart has been able to answer it fittingly at every step, Mariwala said. “Flipkart is solid on paper for sure and now they can do planned thinking with Paytm through Alibaba. Unlike Alibaba which has protection from the Chinese government, Flipkart with its kitty full can now compete on a level playing field with Amazon,” Mariwala said.

Amazon will have to re-chart the India blueprint in the e-commerce market as now it is no longer the only player with deep pockets. “With the leading two e-commerce players flush with money, it is a good time all around with advertising spend going up, logistics getting a boost and customers getting discounts,” said Arvind Singhal, Chairman and Managing Director, Technopak Advisors, a Delhi-based management consultancy firm.

The e-commerce market in India has changed with discounting being no longer the name of the game. The focus is on margin realisations and customers are willing to pay for services like delivery charges as they see value in it. But with Flipkart now in a happy space with excess cash, it will be back to mega discountrs during festival time, believe anaysts.

If the name of the game is to offer discounts, then Mariwala hopes that Flipkart will ensure that people will continue to buy more as customer acquisition through discounts hasn’t worked for it and cannot be the name of the game in e-commerce. “With money at their disposal they can do planned thinking and improve the game,” she said.

Thriving e-commerce space
What SoftBank fund’s investment in Flipkart basically means is that the potential of the Indian e-commece space is now beginning to be understood and no one is giving anyone an open uncontested field. In that sense, say analysts, India is one of the very few markets left in the e-commerce world where Amazon was threatening to stay ahead by investing heavily here.

Sachin Bansal and Binny Bansal acknowledged the promise of India’s e-commerce market in their statement released to the press on Thursday. “This is a monumental deal for Flipkart and India. Very few economies globally attract such overwhelming interest from top-tier investors. It is recognition of India’s unparalleled potential to become a leader in technology and e-commerce on a massive scale,” the duo said.

But the latest round of funding changes the game that now poses a challenge for Amazon.

The e-commerce space is also populated with start-ups and not just vendors and manufacturers. Vision Fund’s latest financial boost to Flipkart will have many ripples with more jobs being created, with logistics and last mile delivery business being given a boost.

There will be additions to talent at Flipkart. A lot of its top talent had resigned. After Kalyan Krishnamurthy took over as CEO, at least three top executives had resigned -- Saikiran Krishnamurthy, head of Ekart; Surojit Chatterjee, senior vice-president of product management; and Samardeep Subandh, chief marketing officer, according to a report in the Business Standard.

The management structure was getting confusing at Flipkart, says Harish HV, Partner, India Leadership Team, Grant Thornton India LLP, with people leaving. "Yet, Flipkart responded to challenges from Amazon in the marketplace. Now with funds at their disposal, they will be able to get the right people and up the game," he said.

He believes that this funding has changed the game making it very tough for a third player to match Amazon and Flipkart.

Before this fresh round of funding from the SoftBank fund, many thought the e-commerce space would be dominated by Amazon with Alibaba giving it a tough competition. But the rules of the game have changed. “However, it would be wrong to believe that the Indian e-commerce arena will be dominated by Amazon and Flipkart. Alibaba is in the game with Paytm and in 12-18 months time, there are reports that Reliance Industries is expected to enter this market” says Singhal.

Clearly, Indian e-commerce is hotting up again. And it is indeed good news for customers.


Published Date: Aug 11, 2017 07:47 am | Updated Date: Aug 11, 2017 12:49 pm


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