New gold rush in e-commerce
Earlier this week, Kunal Bahl, founder-CEO of e-commerce site Snapdeal.com bought out eSportsbuy.com for an estimated Rs 50 crore. Vivek Sinha and Tejeesh NS Behl report. E-merging trend?business Updated: Apr 07, 2012 15:56 IST
Earlier this week, Kunal Bahl, founder-CEO of e-commerce site Snapdeal.com bought out eSportsbuy.com for an estimated Rs 50 crore. Bahl has a $20-million (Rs 100-crore) stash for acquisitions — significant because Snapdeal is itself a startup — but a rich one. It has raised $52 million from venture funds.
Bahl is not alone who is scouting for potential suitors. In February this year aggressively growing online shopping site Flipkart.com acquired rival Letsbuy.com. Early last year, US-based social buying site Groupon acquired India’s SoSasta.com and renamed it as Crazeal.com.
And so it seems that e-commerce is not about customers buying goods. It is about firms shopping for others.
Industry trackers say leading sites are gobbling up rivals to build size, or acquiring customer niches either to add product segments or to get technologies that help efficient operations.
In the game in which future share issues are on the radar for bigger players, the smaller ones often prefer to cash out than be crushed in lonely pursuits in an aggressively competitive game.
At stake is a huge market with growing potential because India has 900 million mobile phones, with a big chunk of that growing up from voice talk to Internet, while the current Web user base at more than 100 million is in itself a significant number.
Industry estimates say India’s e-commerce market will zoom from the current Rs 51,100 crore to Rs 10,20,000 crore in revenues by 2020. The race to lead this game is leading to buyouts – often at the cost of profitability.
"At present sites are falling over each other to offer deep discounts, but you do not survive only through discounts. This only creates a disloyal discount shopper who moves from one site to another in search of the cheapest deal,” said Mahesh Murthy, managing partner of investment firm Seedfund Advisors. Murthy added that sites without a credible differentiation strategy and loyal customer base would bleed –and will be up for grabs.
Experts say acquisition of other sites is also a good strategy to build brand and broaden a loyal customer base.
Snapdeal.com snapped up eSportsbuy.com to get access to its large catalogue of sports and fitness products. Flipkart.com started out with books, added cameras and mobile handsets and then got Letsbuy.com to acquire muscle in electronic goods, while Groupon’s buyout was to enter India.
“There is no room for newer players in the general category but there is space for niche category players,” observes Prashanth Prakash, partner at Accel Partners, which has invested in Flipkart.com.
Private equity is doing a huge amount of work backstage.
Consider this. Venture capitalists say they more than doubled the funding level in e-commerce over the past year, and the average size of investment has ranged from $20 to 40 million.
However, having a deep pocket is no guarantee to success.
“Money can only delay your death. The only key to survive is to have a credible differentiation strategy,” Murthy said.
Size is not everything, but could help if investors have a sense of timing.
“As the e-commerce companies grow and get brand loyalty the valuations are expected to increase even further. It will be the time when we can offload our stake for hefty profits,” a venture capitalist with significant stake in a leading e-commerce site told HT.
Hundreds of Internet startups went bust in 2000 and 2001 in the “dotcom bubble” –and comparing the current e-commerce rush to that may not be far-fetched said Shailen Amin, co-founder and CEO of footwear sites Bestylish.com.
“There are a lot of guys in this business who don’t have a retail background. They are from either consulting or technology. So one should ask if they are really qualified to run e-retail businesses,” he points out.
In the world where old-fashioned retail meets high-technology and innovative management, the winners could well be those who understand all dimensions.