Indian e-commerce needs to jump, now

June 20, 2014 § Leave a comment

There is an interesting, although a little too elaborate, theory on Pando Daily that suggests that eBay and its founder Pierre Omidyar had a significant influence in India’s likely decision to open e-commerce to 100% foreign direct investment. Pando also has an equally stretched theory that Omidyar and eBay were also contributors to Modi’s election victory. Corporate and private benefactors for political parties are not limited in India, and electoral financing reforms are nowhere mature for anyone to effectively trace where election funding comes from. So to suggest that someone like eBay had an impact on election decisions seems far-fetched. For now though, let’s get back to their thoughts on the e-commerce FDI.

As we reported, the longtime managing director and partner for Omidyar Network India Advisors, Jayant Sinha, began working to help elect Modi since at least 2012, while publicly doling out tens of millions of Omidyar’s money to for-profits and to non-profits, at least one of which was involved in an anti-corruption campaign that undermined the center-left ruling government, and benefited Modi’s far-right BJP party.

Omidyar’s top India man also concurrently served as a director in a powerful BJP think tank, the India Foundation, chaired by Modi’s hardline National Security Advisor, Ajit Doval — “a giant among spies” according to the Hindustan Times. After stepping down from Omidyar Network in February of this year, Sinha worked full-time for Modi, the India Foundation, and for his own successful run as a BJP candidate for parliament.

Jayant Sinha, to add more context, is son of Yashwant Sinha, former finance minister under past BJP government. His professional background is quite stellar: IIT Delhi, Harvard Business School, 20+ years as VC/PE investor (including Omidyar Network as mentioned above). But his political career seems largely borne out of inheritance. What Pando is suggesting is that now that Sinha and Omidyar Network have done their bit, Modi is essentially reciprocating their support with opening up of the e-commerce segment. The reason this seems far-fetched, is while Jayant Sinha comes with quite a background, he or his father have no strong influence on government policies.

eBay and Snapdeal

eBay does not really have a strong presence in India. But it has made smart moves by investing in, second largest domestic player after Flipkart, and the only other significant competition to Amazon India (The numbers around these companies are rather unwieldy to make any definitive comparison). eBay has invested ~$190 million in Snapdeal so far, which should make it among the largest shareholders after the founders. Snapdeal was also the first Indian player to implement large-scale marketplace in India, after “pivoting” from Groupon like coupons business, a model eBay follows its B2C business elsewhere. It doesn’t have a C2C platform though, with eBay not finding much success in that area against local players like OLX and Quickr.

So from eBay’s perspective, a more straightforward way to expand its exposure to India is increasing its holdings in Snapdeal, and to maintain/expand its presence at the top of the market. Although, there are reports that Snapdeal is planning IPO, possibly on international bourses, to attract more foreign funding. So Pando is right over here: e-commerce FDI opening will directly benefit eBay. But eBay will not be the only one who will benefit from it.


Amazon, in last 24 months, has made its India strategy clear in two aspects:

  • That it plans to treat the Indian market at the same level as that of its core markets by offering its trademark services such as one-day delivery and eventually Amazon Prime. They are also keen on developing more innovative delivery solutions, such as customer pick-up options through local partners. Soon after Amazon launched these services, both Flipkart and Snapdeal, the only two players strong enough to compete with Amazon launched these services as well. But if anecdotal evidences are to be followed (and I typically ignore them) they have been not as successful
  • That it is more than happy with organic expansion. Amazon started in India with, a price comparison/marketplace portal for books and electronics. After moving to, it has added around 15 categories at the rate of one-cateogy-per-month. It has done that with no significant acquisitions, and has reached a traffic level in comparison with Flipkart and Snapdeal. Just a few years ago Amazon passed on the option of buying into Flipkart, and making India a very obvious two-way fight between eBay vs. Amazon. Looking at its current state, Amazon seems even less likely to have any substantial inorganic plans

So, if e-commerce FDI were to open up, Amazon would rather put money directly into expanding its current business and essentially dominate the market. It would perhaps put in more money into supply chain and direct sourcing, eliminating the middle-man driven marketplace model that impacts both consumer experience and margins.


Flipkart, unfortunately, is the one most likely to suffer. After its success with books, electronics, etc., it has struggled with gain top choice as the online shopping in India matured- it moved to include apparels and accessories. It tried to answer this by throwing money at the problem: buying at first and now Myntra. The Flipkart-Myntra “merger” shows just how big a problem Amazon is for Indian players.It was borne out of problems for both the companies– Flipkart had the money but needed a stronger foothold in the growing apparel/accessories segment; Myntra is the strongest in this segment but was running out of money. One theory suggests that the merger is driven by common PE interests who are looking to a) consolidate their risks across the two investments b) looking to become strong enough to compete with Amazon.

This might make store integration a lot trickier for Flipkart, than it did in earlier acquisitions. It would not want to lose the brand pull of Myntra for selected set of customers. Whether it can manage a disjointed storefront with integrate back-end is something to look out for in the future. Rightly exploiting its self-developed distribution reach, a distinguished strength for Flipkart may be the key for them to go further.

Given all this, where does the FDI policy put Flipkart? It would give them faster access to funding they would need over next several months. But even this is not going to go on for long- sooner or later (my guess is next 15-30 months) they will have to go for a public offering, most likely on NYSE/Nasdaq (à la MakeMyTrip in India and Alibaba from China). It seems increasingly unlikely that either of Amazon or eBay would consider it a takeover target. Only other multinationals which are strong enough are the Chinese ones- viz. Alibaba and JD. With both listed, they are going to be under pressure to maintain the revenue/earnings growth and there is a limit to which they can do that in a single market. On its own, Flipkart will find it increasingly difficult to maintain the level of competition with Amazon.

Government imperative: The Retail “Jump”

On the second day after the swearing-in, Nirmala Sitharaman, the new commerce and industries minister stated that the new government will stick to its pre-poll stand against large foreign retail investments, and would possibly rollback the legislations brought in by the last government in October 2012. While this was a good confrontation point against old government, it was uncharacteristic of pro-business, pro-foreign investment agenda of the BJP. So while being against large foreign retail, why would the government go for FDI in e-commerce?

One really good justification I can think of is the push for a “retail jump”. The developed markets went through the process of mom-pop stores to organised large retail to e-commerce. These e-commerce companies are now driving organised large retail to extinction in developed markets. So, for a market like India, instead of going through this gradual progress, why not (for the most part) skip the organised retail step and make e-commerce as the key retail channel for consumers and businesses.

This won’t be the first time Indian market would go through such a change- India skipped the fixed-line telecom infrastructure phase and witnessed an explosion in mobile telephony; it similarly looking to go past the television cable infrastructure needs and make satellite television a norm.

There are some clear advantages of such a jump:

  1. Organised retail is just way too expensive and slow to create the kind of growth impetus that the government would want to create in the market. E-commerce companies can create the reach much faster, and with less sophisticated requirements around aspects such as real estate
  2. The consumer benefits are realised almost immediately: today, my father (who lives in a mid-tier city) can buy Nike sneakers from Myntra, even as Nike’s store presence is yet to reach his town. The choices accessible to consumers would grow exponentially
  3. This would also benefit the smaller traders and businessman. The marketplace model is the way to go to fast expansion, and e-commerce sites will look to tie up with local suppliers/distributors across India to improve their reach. This group, incidentally, would be the ones who would be most hurt with organised retail and also happen to be a core voter group for the BJP
  4. The job boost. With IT/ITeS sector maturing, retail (apart from manufacturing) should be the most important sector for the new government to ensure job promises. Services and in that retail are largest job creators in any fast growing economy.


The government will also have to be careful about what it means by “e-commerce” when it comes to setting FDI policy. Are we only talking about B2C selling for goods only? Would it include large B2B marketplace like Alibaba, or the one that Walmart is looking to start later this year? What about content providers such as Netflix and Spotify? One might argue that even they are providing electronic commercial services. So even if there is such a FDI policy in works, expect it to be a very complex regulation. But one that most of the major players will find a way to effectively navigate.

Further reading:


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