What Does An eBay-Flipkart Merger Mean For Amazon?
Reports in the media suggest that eBay (NASDAQ:EBAY) India is in talks with Indian e-commerce major Flipkart to merge their e-commerce operations, as part of the latter’s new plan to raise $2 billion. While eBay entered the Indian market long before Flipkart, Amazon (NASDAQ:AMZN) and Alibaba (NASDAQ:BABA), the company could not establish itself as a strong player – and this could be a way for eBay’s Indian operations to make further inroads in the competitive Indian e-commerce space. (Read more here)
Last week, Flipkart also reportedly finalized a fresh $1 billion round of funding led by Microsoft, eBay and Chinese Internet giant Tencent, and has reportedly had talks with Wal-Mart to raise funding as well. In any event, it is clear that the long-anticipated consolidation among the top players in the Indian e-commerce space is starting to take shape.
The top three e-commerce companies currently in India– Amazon, Flipkart and Snapdeal – command a nearly 75% share in the market, leaving little room for smaller competitors. If Flipkart acquires eBay India, it is likely to become a three-way fight between Flipkart, Amazon and Alibaba-backed Paytm, considering the current third-largest player Snapdeal is itself rumored to be looking for a buyer. Consistent discount-deals are putting pressure on e-commerce players, and a fresh round of capital for Flipkart is likely aimed at fighting off competition from competitors Amazon and Paytm.
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eBay’s Stake In Snapdeal And Flipkart
Interestingly, Alibaba has a 40% stake in Paytm’s e-commerce business, and both eBay and Alibaba have considerable stakes in Snapdeal. eBay’s investment in Flipkart could signal an alliance between the biggest Indian e-commerce players against behemoth Amazon. Things could get difficult for Amazon going forward if the other players collectively move away from a discount-based selling model to a services-based model focusing on customer stickiness and loyalty. This could cause a longer battle for supremacy in the Indian e-commerce market than earlier anticipated, leading to a longer break-even timeline for Amazon’s e-commerce business in India, as well as international markets in general.
Impact On Amazon
In 2016, Amazon’s International segment reported an 86% year-over-year increase in revenues and an 84% rise in operational losses. The division’s contribution to Amazon’s overall top line was 32% compared to its [-31%] contribution to operating profits. The consolidation among other e-commerce players in India could lead to this trend continuing over the next 2-3 years.
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