Doing business is nothing different from a war. It just replaces a military general with business titans. It’s always interesting to know how businesses play their games to win their market battle. India is witnessing an interesting battle these days in e-commerce. Unlike two players in war, there are actually four titans and all of them are equally strong. These all are unicorns and are leaders in their areas of dominance.
All of these titans are gnawing their teeth to capture the strategically important Indian e-commerce market. What is bad is that there will only one player who will survive.
Let’s understand this battle strategy better. The first player is Flipkart, India born e-commerce startup, it’s operational cost is $50 million per month which is coming directly from the investor’s corpus. Despite that, the company keeps losing the market share. This gives founders limited room to flex their muscles.
Its founders have already realized that they are trying to fight a battle that they have already lost. They have cashed out their shares and they are investing in many other startups. It’s a strange situation when we are clearly seeing its military generals are leaving the battlefield. It’s also like the captain has worn a life jacket abandoning the ship. Flipkart is one such company that has sold its employee trust fund.
Flipkart in 2015 aimed to “double the gross merchandise value of the products sold on its platform to $8 billion,” according to the Evening Standard.
The second player, Amazon, is the global player and best positioned to win the e-commerce war. Apart from financial strength, it has an experience of two decades to build technology and team which puts it in a unique pedestal. Flipkart is spending a huge money to build a great team by splurging money on executives from Google and Twitter, but it’s simply is not helping them.
Now take the case of Snapdeal, another prominent e-commerce player in the Indian market. It lost $206 million. It’s CTO and CFO deserted the ship last year only. But wait, don’t make a farfetched guess. Unlike Flipkart, Snapdeal has mastered the art of scaling up without spending much on customers. They have been able to grow their customer size month after month.
It’s able to judiciously spend their money compared to their desi rival Flipkart. Unlike Flipkart, are actually adding customers every month. It appears Snapdeal has learned how to scale without spending too much per customer. The best measure of a business model, after all, is not how much money the company spends, but how much it accomplishes with the money spent.
Source: ComScore ( No of visitors in Diwali, the festival of light)
There is another interesting player in the battle—Paytm. It’s backed by Alibaba, Chinese e-commerce titan. It’s a mobile payment platform, but the role is fast changing with the expansion of its online marketplace.
So, strategically, Snapdeal, Amazon and Paytm have an advantage. Now, there is another interesting fact. Though, both Snapdeal and Paytm are seems competing with each other, but the point to understand is both of them are backed by same set of investor –which is Softbank. Paytm is backed by Alibaba and this Chinese e-commerce startup is backed by Softbank.
On the other hand Snapdeal has also been backed by Softbank. Now the likely scenario will be: Amazon and Flipkart will not shift their positions on the battlefield.
After burning millions of dollars per month, the patience of Tiger Global management will end and it will have to go to Amazon. The next phase of battle will be between Flipkart/Amazon and SnapPay. Such a scenario is nothing new for Amazon. It has gobbled up many e-commerce players in the U.S. It acquired its ultimate rival Zappos in 2009.
There is another twist to the story. Shopclues, another underdog in the Indian e-commerce sector has announced that it will be first pure play e-commerce player to turn profitable in 2017.
This is nothing new for In the U.S., many of the top e-retailers have been bought by Amazon, which most notably acquired Zappos in 2009. It seems that Amazon will be the ultimate winner. Amazon, with its huge technological expertise, and rich coffers is the biggest threat to Flipkart.
The policy of deep discount is another pain point for e-commerce players. Rakesh Jhunjhunwala, a leading stock investor, says, ““I will believe in it (the e-commerce model) when they (e-commerce firms) sell at an economical price. You are in a capitalist society. Can someone keep operating at a loss? And how much loss can someone keep funding?”
“The cost of doing business for Future Group is at 12-14% compared with 4-5% of the kirana wala (corner store owner). For e-commerce companies, the cost of doing business is 53%,” says Kishor Biyani, Future Group CEO.
The crux is Amazon is best poised to win the Indian e-commerce battle. But it will be interesting to see how it plays its cards.
(Source: Economic times, Livemint, Business Standard and Morgan Stanley Report)