Industry Trend Analysis - Flipkart-eBay India Deal Just The Start of e-Commerce Expansion - JUNE 2017
BMI View : Flipkart ' s acquisition of eBay India highlights two key aspects of doing business in the country ' s fast-growing but highly challenging e-commerce market. Firstly, returns on investment will be elusive, even in the long-term, due to the low-value capital-intensive nature of the Indian market. Secondly, consolidation in the short term will not starve the market of competition.
Amid rumours of a concerted effort by Amazon to expand its presence in India, Flipkart - the country's leading e-commerce platform - raised USD1.4bn from backers including Tencent, eBay and Microsoft to defend its market share and has swallowed up eBay India as part of the financing package. Even so, this may not be sufficient to discourage the global online shopping giant from looking to disrupt the Indian market and expectations are high that Flipkart will make a pre-emptive strike to acquire the second-largest player, Snapdeal, before Amazon. Although being acquired would be a positive development for Snapdeal, it will not solve Flipkart's most fundamental problem: profitability. It would also relieve pressure on Amazon to buy the more established Snapdeal and instead force it to consider less well-known, but more sustainable smaller players.
Despite the robust growth in demand for online auction and 'deal of the day' e-commerce services, Snapdeal has struggled to grow its operating revenues and its net losses are steadily deepening. Its business model is not too dissimilar from that of eBay; it generates income from sellers' listing and completed sales fees as well as from selling advertising space on its website. However, items sold on Snapdeal tend to fetch low prices and payment is rarely made online as Indian consumers continue to prefer payment on delivery in a market where safe receipt of goods bought remotely cannot be guaranteed. The company has also proved less adept at monetising advertising.
|Revenue Growth Masks Huge Losses For e-commerce Giants|
|Flipkart And Snapdeal Key Financials (INRmn)|
|Source: Company press statemements|