By Alisha Singhal
The $6.5 billion valued Snapdeal is India’s first unicorn to have tasted success on the e-commerce platform. The Japanese investor, SoftBank has had a critical role to play with its 900 million investment in Snapdeal, marking its foothold in India. However, now it could not have been more eager for the much anticipated Snapdeal-Flipkart merger. The deal has been finalised at a revised takeover offer of up to $950 million, which includes only the marketplace business of Snapdeal and not their logistics arm, Vulcan or online payment system, Freecharge.
What went down before the announcement
Snapdeal’s biggest investor, SoftBank will take an equity stake in the post-merger Flipkart, to gain from India’s booming online industry. The merger was announced after quite a bit of complication, with Infibeam showing an interest in Snapdeal’s acquisition by a $700 million share-swap offer. Snapdeal owners, Kunal Bahl and Rohit Bansal showed an inclination towards that since they would have been able to retain their positions and also avoid losing too many employees. On the other hand, the Snapdeal online payment system, Freecharge is being acquired by Axis Bank in a $60 million offer.
The completed merger between these two giants will give rise to one of the largest e-commerce start-ups in the country. Mergers and acquisitions are not new in the start-up world. Not long back, Jabong and Myntra had been saved when Flipkart acquired them. This was a time when Flipkart, too, was dealing with problems of its own. Acquisition of these portals gave an edge to Flipkart in terms of the fashion category, thus saving the giant’s image in front of its rival company, Amazon.
The market scenario
Although in early 2015, Snapdeal owners had predicted that it would surpass Flipkart in terms of sales, not all has been well for it since then. Problems started with the combination of errors made by its co-founders and its largest investors—SoftBank, Kalaari and Nexus. The problems began in September 2015 with a massive re-branding exercise it undertook, investing Rs 200 crore for the same to somehow cover up for losing market share against Amazon and Flipkart. Heavy discounts and marketing gimmicks caused a cash crunch, wiping out almost all the funding it had raised, amounting to $1.4 billion since October 2014. Lack of further funding and boardroom issues led to the large-scale firing of employees and poor management.
Fierce competition among rivals
With a scenario like this, the e-commerce industry is heading towards a consolidation with arch rivals Flipkart and Amazon dominating the mass markets. Both companies aim to battle it out aggressively, by defending their market share and targeting the growth markets along with driving penetration to increase user base. Flipkart’s second biggest investor, South Africa’s Naspers Ltd has declared Flipkart to be a market leader with a valuation of $15 billion. What is significant is the way Amazon has transformed the e-commerce scenario in India by bringing in local and global innovations to reach out to consumers beyond the metro cities as well. With its services like Prime, one-day delivery and Prime Video, delivering from a bouquet of 100 million products to 97% serviceable pin codes is no easy feat. Now both Amazon and Flipkart plan to expand their food and grocery category along with entering into brick and mortar spaces to enhance customer shopping experience.
Flipkart is a perfect example of how a change in management can cause wonders for a company’s resurgence. Now with the Snapdeal acquisition and under its newly appointed CEO, Kalyan Krishnamurthy, who came in early January this year, Flipkart is surely headed to change the e-commerce landscape once again in India.
Featured Image Source: Pixabay
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