[But now, financing is slowing and several online
retailers are shutting down. Analysts say the industry is consolidating, with
the victors emerging. “The e-commerce landscape in India is becoming clearer,”
said Deepak Srinath, an Allegro partner. “It’s a two-horse race; it’s Snapdeal
and Flipkart.”]
By Mark Bergen
 |
| Courtesy of SnapdealKunal Bahl, chief executive of Snapdeal, one of India’s largest online marketplace. |
But lately, Kunal Bahl, the young chief
executive of Snapdeal, has been drawing parallels with another e-commerce
juggernaut, Alibaba of China. India lags well behind China in e-commerce shoppers;
incomes, credit card use and Internet penetration are lower as well. But the
Indian e-commerce market has headroom, and its leaders are trying to convince
the global finance world that Alibaba’s success can be replicated in India.
Mr. Bahl, 30, recently toured Silicon Valley,
where the New Delhi-based company is said to be seeking $100 million in investment
to give it a valuation of $750 million to $1 billion.
Eight years ago, Mr. Bahl, a graduate of the
Wharton business school, was settling into corporate life in the United States,
first with Deloitte, then Microsoft. But in 2007, his visa renewal was
rejected, forcing him to return to India.
“It was a blessing in disguise,” he said in a
recent interview in Bangalore. After starting Snapdeal, the baby-faced
entrepreneur became a poster boy for the faults of American visa policy,
landing at the center of an 2011 USA Today article on the technology
brain drain in the United States.
At that time, Snapdeal had about 400 employees.
Now, its staff of 1,300 coordinates deliveries to about 4,000 towns and cities
in India. The company, incorporated as Jasper Infotech, has altered its shape
along the way.
When Mr. Bahl started his company with Rohit
Bansal, a high school friend, the pair focused on online coupons, a model
similar to Groupon’s. They tried other iterations of deals and discount cards,
with little momentum.
“For the first two years or so, we were
struggling,” Mr. Bahl recalled.
On Feb. 4, 2010, Snapdeal.com began operations
primarily as a website for restaurant discounts. A year later, the company
received its first significant investment, from Nexus Venture Partners, and
morphed into its current form, a marketplace for Indian sellers and buyers to
find one another. Today, it lists goods from about 20,000 merchants in a
variety of categories and has about 20 million registered users.
Mr. Bahl, whose father ran a small automotive
parts business, casts Snapdeal as a champion of tiny enterprises in the
country. “Irrespective of who you may be, you have a level playing field
against anyone in the market,” he said.
Estimates of the size of this market vary. The
brokerage firm CLSA suggests Indian e-commerce will expand to $22 billion, from
$3.1 billion, in five years. Flipkart, a Bangalore company that sells books,
clothes and electronics online, predicts a market of $70 billion by 2020.
As the projections have grown rosier, technology
investors have poured in funds. In a May 2013 report, Allegro Advisors, an investment bank,
said 53 e-commerce companies in India had secured $853 million in venture
capital funds in the previous three years.
But now, financing is slowing and several online
retailers are shutting down. Analysts say the industry is consolidating, with
the victors emerging. “The e-commerce landscape in India is becoming clearer,”
said Deepak Srinath, an Allegro partner. “It’s a two-horse race; it’s Snapdeal
and Flipkart.”
Flipkart has netted about $540 million in
funding since it began in 2007, including a $160 million investment in October.
(In November 2012, a government agency began investigating whether Flipkart,
which had received venture funds from American firms, had violated foreign
investment laws.)
Flipkart previously sold to consumers from an
affiliated seller, WS Retail, before turning into a full merchant marketplace
in April. So far, its marketplace has 1,000 sellers and 14 million registered
users, well below Snapdeal’s totals. For the past fiscal year, which ended in
March 2013, Flipkart posted revenues of $190 million.
Mr. Srinath says Flipkart is leading in name
recognition — a crucial category in India, where brand and service matter
immensely. When Motorola introduced its newest phone in India, on Feb. 6, it
chose Flipkart as its exclusive vendor for early sales.
“It’s almost like e-commerce is synonymous with
Flipkart,” Mr. Srinath said.
Mr. Bahl’s company is now compared most often
with eBay, whichled a $50 million round of strategic funding in
Snapdeal in June. Since 2011, the company has raised more than $200 million
from investors, including Intel Capital and Nexus Venture Partners.
Mr. Bahl said Snapdeal planned to go public but
would not specify a date. In an interview with VentureBeat, he said he
was planning an initial public offering in the United States.
An I.P.O. would come after the company reached
$1 billion in sales, he told India Ink. “We’ll be there in a matter of months,”
he said.
Likewise, Flipkart has broadcast its desire to
file an I.P.O., although it has no “fixed timelines,” a company spokeswoman in
India said in an email. The company expects to hit $1 billion in sales by 2015.
The two firms may be racing to go public for an
unspoken reason. One technology industry adviser suggests that India’s online
shopping potential is being oversold, saying that e-commerce firms may be
increasing their sales but are not adding new users as quickly as they claim.
To warrant a large valuation, either company
would need to mimic Alibaba’s spectacular success and quickly reach 100 million
Indian shoppers. This is unlikely, said the adviser, who asked for anonymity
because his data on the companies was not public.
If that truth surfaces with one I.P.O., a second
would fetch much less interest, he said. In short, India won’t produce an
Alibaba, let alone two.
Until either company goes public, parsing their
financial data is very difficult, said Aditya Rath, an associate director at
PricewaterhouseCoopers India. “I would not be overly enthusiastic about sales,”
he cautioned.
For Snapdeal, he added, a bigger question
lingers: “When are they going to meet their investment targets?”
Snapdeal has set ambitious goals before. In
a 2010 interview, Mr. Bahl pledged that the
company would soon be expanding to Sri Lanka, Bangladesh and Singapore. Those
plans were shelved; the company is focused solely on India now.
At the moment, India’s surviving online
retailers are sheltered from competition abroad, thanks to the government. In
September 2012, India’s cabinet opened its retail sector to foreign direct
investment but excluded e-commerce.
Amazon, which entered India in June, spent some
of its lobbying funds in the United States on issues related to India’s foreign
direct investment laws, according to the company’s latest disclosure. Industry experts do not
expect the law to change soon, particularly not before the May elections.
But Amazon isn’t holding back. On Feb. 5, the
company added luggage, video games and music to its product list in India. The
list now encompasses 900,000 items, excluding books, and it has 2,300 sellers
in India. It is working with the postal service to ship to remote areas and has
started same-day delivery in six Indian cities.
In its latest earnings report, Amazon posted $74.5 billion
in global sales in 2013, with a market capitalization more than twice that —
dwarfing both Flipkart and Snapdeal.
Still, analysts noted that Indian companies
would not necessarily be plowed under if foreign e-commerce arrived in full
force. India’s market is diverse and complex, traits that give local companies
a leg up. A total of 65 percent of Snapdeal’s customers pay in cash; other
companies see even higher rates. And India’s poor roads and highways make
logistics difficult.
Mr. Bahl insisted that Snapdeal, as it grew and
shape-shifted, had adapted enough to the peculiarities of India to handle
competition. When asked about his better-funded rivals, Mr. Bahl offered a
boastful verdict on his industry.
“It’s not about the money that you have in the
bank; it’s how you spend it,” he said. “This is a game of execution. India’s
not an easy market to execute in.”
Mark Bergen is a freelance journalist based in
Bangalore. Follow him on Twitter @mhbergen.
