Battle Royale: Amazon Vs. Flipkart. Can Snapdeal Survive? (Part 1/4)

Amazon, the largest online retailer in the world, is not the market leader in India. At least not yet. That honor belongs to Flipkart which by all accounts still leads Amazon, especially when one adds the sales of its fashion subsidiaries - Myntra and Jabong. However, such has been the ferocity of Amazon’s onslaught that it has left the market leader worried. So worried that Flipkart recently made a plea to the Indian government for help in the form of protectionism just as the Chinese government offers it to Chinese startups.

Online retail in India is about 10 years old. In 2007, Sachin Bansal and Binny Bansal (unrelated) quit their jobs at Amazon and started Flipkart. Snapdeal was started in 2008 by Kunal Bahl and Rohit Bansal with the vision of revolutionizing discount couponing. After changing its business model a few times, Snapdeal finally settled on its current marketplace model in 2012 (inspired by the success of Alibaba in China). Amazon started its India operations fairly late in 2013. But credit to Jeff Bezos and his team in India for making up for lost time. According to reports, Amazon is within striking distance of the market leader.

India: The last unconquered frontier

India is one of the largest economies in the world. Millions of new users move online each year. It is interesting to note that India had around the same number of internet users (280 million) in 2015 as China had in 2008. If India follows the same trajectory as China, by the early part of the next decade the number of internet users in India will be 2.5 times current levels. That is a massive potential market for selling goods. No wonder every global investor worth his salt wants to be in India. During the heady days of 2014 and 2015, investors opened their wallets and drove valuations of internet-based companies sky-high.

As the graphic here shows, an unusually large number of companies (not just in India) achieved “unicorn” status during this period (“Unicorn" is a private company valued at one billion dollars or more). However, things have cooled down since. Investors have started asking tough questions about unit economics and have drastically curtailed fresh investments in startups.

This is the environment in which Flipkart finds itself. It has till date raised a massive 3.2 billion dollars in capital. At the current burn rate of approximately 40 million dollars per month, industry analysts estimate that Flipkart has enough cash to last another two years. However, given that Amazon is burning approximately 90 million dollars per month, both Flipkart and Snapdeal need to raise fresh capital to combat the spending power of Amazon.

Unfortunately, given the slowdown in the funding environment, they are unable to find any investor who will fund them at anywhere close to their peak valuation. They can try to preserve capital by reducing discounts and curtailing investments. But herein lies the dilemma. Any reduction in discounts or investments will see them ceding even more market share to Amazon.

Amazon in contrast has no problems accessing funds. Just last month, Amazon India received a fresh capital injection of about 300 million dollars from its US parent. It is one of those rare companies blessed with a set of highly patient and risk-taking shareholders. Jeff Bezos has convinced his investors that Amazon is out to conquer the world of retail and profits are nothing but a mere distraction. This has made life extremely uncomfortable for both Snapdeal and Flipkart.


There’s more to this story as Mr. Chakraborty takes a closer look at why Snapdeal is flailing:

“Snapdeal appears to have developed a habit of coming up with a new tagline every year. It was ‘Dil Ki Deal’(a deal that tugs at your heartstrings) in 2015 while in 2014 the tagline was ‘Bachaate Raho’ (keep saving). Was the re-branding exercise the best use of its rapidly shrinking war chest?”

Read more here.