As Flipkart Completes Merger eBay India is Acquired Yet Independent
Acquired. It’s the wrong word to use when it’s a major ecommerce brand with revenue just for 2016 at 9 billion dollars growing at 5 percent (on as-reported basis), with gross merchandise value at 84 billion dollars, serving over 167 million global active buyers customers while providing 2 million new, active buyers (across all platforms) just in the last quarter FY 2016.
eBay was founded in 1995 and started India dedicated operations in 2004 (upon acquiring what was formerly an entity named Bazee.com). eBay founder, Pierre Omidyar is now worth over 8 billion dollars; he became a billionaire the instant eBay started trading on the NASDAQ in 1998.
Maybe it’s not accurate to say things never took off in India. Maybe it was a lack of aggression. Aggression in how much money eBay invested in India. Compared to the billions Flipkart (founded in 2007) and Snapdeal raised, and the 5 billion dollars Amazon says it has dedicated to India, eBay never put in money that hit those heights - to become a big dominant marketplace, to penetrate markets, to acquire customers or sellers.
It’s reflected in their slowing revenue growth. Media reports from January 2016 reveal Registrar of Companies (RoC) records show that eBay earnings rose 23 percent to Rs.132.10 crore in FY15. But in FY 14, revenue had risen 33 percent to Rs.107.60 crore from Rs.81 crore the previous year.
RoC records for FY15 show that Flipkart revenue was Rs 772.49 crore. Previous year’s revenue was Rs 179 crore. Damning evidence that heavy cash burn has its perks.
In April 2017, it was announced that Flipkart will be acquiring eBay India operations. Analysts believe it was not so much about eBay as much as it was about Flipkart being able to bolster its artillery against Amazon (and the $5Bn). The acquisition was announced as part of a 1.4 billion dollar investment from Tencent and Microsoft along with 500 million dollars from eBay and its entire operations in the country.
One analyst said, “eBay is a large global brand and is one of the early movers of Internet Commerce in India. They have been catering to a certain set of customers and have a strong refurbished market place. With this acquisition, Flipkart would gain access to a set of customers in India who have been traditionally catered to by eBay as well as the ones interested in the market for refurbished products. eBbay could benefit from the wide seller pool of Flipkart in the electronics and accessories space, and offer a larger variety to their customers. By leveraging some of the key operational elements like logistics and supply chain, eBay could benefit further.”
eBay and Flipkart are not only merging in India, but it will be an opportunity for Flipkart to go global. The two companies have agreed to form an exclusive partnership – eBay merchants anywhere in the world can reach Indian customers via Flipkart while Flipkart merchants get to sell to eBay buyers anywhere in the world.
As the founders of Flipkart, the unrelated-by-blood Bansals, had said in a statement, “This is a landmark deal for Flipkart and for India as it endorses our tech prowess, our innovative mindset and the potential we have to disrupt traditional markets.”
eBay will continue to act as an independent entity. To make the integration with Flipkart smooth, the company is going to great lengths. eBay told media that on 3 July it received permission from Department of Commerce to transfer some of its assets in Bengaluru under Special Economic Zone rules, to an entity called ES Online which eBay created especially to make the integration smoother.
One could argue so much care is being taken because the company is still incredibly bullish on the country. In an interview to a Silicon Valley tech website, eBay CEO Devin Wenig had said, “…if I want to be in a market, I want to win. And I realize it’s not going to happen only organically through eBay, so partnerships are critically important.”So whether by integrating with Flipkart or through its 5 percent stake in Snapdeal, the billion dollar global ecommerce giant that even claims PayPal, is committed to being known, present and winning in India.
“The word is merger. These are not called acquisitions – at least not inside the organization. M&As aren’t surgical, clinical and objective. Even though they seem that when you read about them in austere pink financial newspapers. M&As are emotional affairs wrought with the anxiety of detaching yourself from an almost living, breathing entity that you helped build. It’s a stressful and emotional time for everyone from the top most management right down to the novice employees,” said Perry Madan, director of Praaxis Consultants, a talent search and HR consulting firm.
Perry won’t say it. But it could be a little bit about protecting feelings and egos. If leaders from what’s seen as the smaller company has to be displaced during M&As with a larger company, they might simply leave. No company can afford to lose such critical talent. It’s fun for head hunters, but it’s a grave situation for the companies.
And that’s something eBay and Flipkart’s management, leadership, investor boards, their veteran M&A specialists are strongly aware of. When Kalyan Krishnamurthy took over as Flipkart CEO, he also brought HR under his domain. Clearly he know how important talent retention is. Especially now in the light of former Flipkart COO Nitin Seth issuing a legal notice (reported on 13 July) to the firm citing ‘wrongful termination’. Add to that the long list of top level Flipkart exits of head of their logistics arm, a CMO, a senior VP of Product Management, a CFO, and a chief product officer – all between 2016 to now.
From his 15 years as a HR professional, Perry knows the talent at eBay is great and they cannot afford to lose any of it. “These are the people who are directly in charge of customer acquisition, whether in the form of attracting more seller sign ups or buyers to the site. So you wouldn’t want to lose these people,” Perry said.
Internally there may be integration of processes. But to you and me on the outside, eBay will remain the go to brand for refurbished products. And Flipkart will retain its own brand identity as one the biggest marketplaces.
Perry feels such mergers or integrations will take at least 3 years to settle down and smoothen out. But so far eBay and Flipkart has done a good job. It’s mutually beneficial. eBay gets access to a company in touch with Indian nuances and Flipkart gets to combine with a company that has a global presence, and a more capable candidate to beat Amazon.
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