CEOs of Flipkart and Snapdeal stuck in tough ecommerce battle
The exchange of barbs between Flipkart\'s executive chairman Sachin Bansal and Snapdeal CEO Kunal Bahl on Twitter Friday evening wasn\'t merely a spillover of their rivalry but emblematic also of the significant pressure they are under with investors\' becoming tightfisted. It portends more ugly confrontations.
The exchange of barbs between Bansal and Bahl was emblematic of the significant pressure they are under with investors’ becoming tightfisted.
Three months into 2016 and the battle lines between India's top two e-commerce companies are being drawn deeper.
The exchange of barbs between Flipkart's executive chairman Sachin Bansal and Snapdeal CEO Kunal Bahl on Twitter Friday evening wasn't merely a spillover of their rivalry but emblematic also of the significant pressure they are under with investors' becoming tightfisted. It portends more ugly confrontations.
"While in 2014 it looked like the game had consolidated between Flipkart and Amazon, the market suddenly opened with Snapdeal, Paytm and Shopclues jumping into the fray," said Harminder Sahni, founder of retail consulting firm Wazir Advisors. "Now investors are evaluating (e-commerce firms) closely... so it becomes (important to establish) not only how good you are but also how bad the other players are."
This year is widely expected to be an inflection point for Flipkart and Snapdeal, which, along with Amazon, have dominated India's $23-billion (Rs 1.5 lakh crore) ecommerce market but are yet to show paths to profitability, having focused excessively on gaining market share and winning customers.
Investors who have poured billions of dollars into Flipkart and Snapdeal are pressurising the firm's managements to optimise their operations, curb discounts and focus on improving margins as they seek ways to sell their investments and maximise returns. Both Flipkart and Snapdeal are scouting for new investors to back them as they compete for top honours in India's ecommerce industry, among the fastest-growing globally, while staving off the challenge from the deep-pocketed Amazon.
Flipkart has been in the market awhile to raise $1.4 billion and, according to media reports, had approached Alibaba for funding, but investors have become fussy amid growing uncertainty globally around the soaring valuations of private technology startups.
Snapdeal, in which Japan's SoftBank and Alibaba are investors, was able to raise $200 million in February in funding led by Ontario Teachers' Pension Plan at a valuation of about $6.5 billion. A lot of that money, though, went to existing investors selling their shares in the company.
Bansal touched a nerve when he wrote on Twitter that Alibaba's recent decision to begin operations directly in India indicated how badly its investments in the country had fared. Bahl retorted sharply by pointing to Morgan Stanley's recent markdown of its shareholding in Flipkart by 27%, in effect dropping the Bengaluru-headquartered firm's worth to about $11 billion from its stated valuation of $15.2 billion.
"The pressure is too much," said Sahni. "I don't think we have seen this kind of a public spat between people from the industry in the modern times. Back in the 1980s-90s we saw this when the polyester wars were on between Mr Dhirubhai Ambani (Reliance Industries) and Mr Nusli Wadia (Wadia Group). But those were industrialists at the time of 'License Raj;' these are professionals who do not even have publicly listed companies but have built businesses on funding."
India's e-commerce industry, though, is not in a position of uncertainty. In February, Morgan Stanley raised its forecast for the gross merchandise value of Indian online retailers - key to deriving the valuation of an e-commerce firm - to $119 billion by 2020 from its earlier estimate of $102 billion, indicating that more consumers are buying online.
Gross merchandise value, however, is a hotly disputed metric as it refers to the total value of goods sold on a marketplace without factoring in discounts and product returns, and not the actual commissions on transactions that these firms earn as revenue.