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Business News/ Companies / Start-ups/  Why Amazon’s $3 billion India bet goes beyond Flipkart, Snapdeal rivalry
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Why Amazon’s $3 billion India bet goes beyond Flipkart, Snapdeal rivalry

Amazon's $3 billion investment in its Indian unit isn't just meant as challenge for Flipkart and Snapdeal, but also as a 'take that' gesture to Alibaba

Jack Ma, founder and executive chairman of Alibaba Group Holdings, and Jeff Bezos, founder and chief executive of Amazon. Photo: BloombergPremium
Jack Ma, founder and executive chairman of Alibaba Group Holdings, and Jeff Bezos, founder and chief executive of Amazon. Photo: Bloomberg

Bengaluru/New Delhi: Amazon.com Inc, the world’s largest online retailer, said on Wednesday that it would invest another $3 billion in India after the company exhausted its earlier pledge of $2 billion.

The announcement isn’t just an indication that the US firm is going in for the kill in its market share battle with local rivals Flipkart Ltd and Snapdeal (Jasper Infotech Pvt. Ltd), but a “take that" gesture to Alibaba Group Holding Ltd which recently announced its entry into India. And unlike in China, where it entered late, Amazon has made all the right moves in India.

Is it too late for Alibaba?

Perhaps not, say analysts, although Amazon has used its early-mover advantage to good effect, building a large base of sellers, and a large and efficient delivery and customer service infrastructure.

Alibaba hasn’t exactly been idle in India. It has investments in Snapdeal (in which SoftBank, Alibaba’s largest shareholder, is the largest investor) and payment services provider and marketplace Paytm (One97 Communications Ltd), and its own marketplace should be off the ground by the time this year’s festive season (the period between September and January, when most Indian festivals are concentrated) comes around. The Chinese firm already runs a business-to-business (B2B) platform in the country. It has also started to build its team in India and is scouting for partnerships. Last month, it hired former Bain Consulting executive Bharati Balakrishnan as the head of its Indian operations. Alibaba has even held funding talks with Flipkart, Mint reported on 4 February. Indeed, some analysts have suggested that Alibaba would do well to consolidate its presence in India, with a helping hand from Softbank, and effect a merger between Snapdeal and Paytm’s marketplace, instead of launching on its own.

Alibaba, Flipkart and Snapdeal did not respond to Mint’s emailed queries, while Paytm declined to comment.

Alibaba’s marketplace will launch three years after Amazon’s. The US firm recently celebrated its third anniversary in India, and the announcement of the $3 billion investment was strategically timed with this as well as Prime Minister Narendra Modi’s US visit.

Mint has reached out to both Amazon and Alibaba for comment and this article will be updated with their responses shortly.

Alibaba’s moves will add a new dimension to the hitherto three-cornered fight in the marketplace space in India.

In July 2014, Flipkart and Amazon announced investments of $1 billion and $2 billion, respectively, dramatically raising the stakes in India’s booming e-commerce market. Three months later, Japan’s SoftBank Group, enriched from the record-breaking initial public offering of Alibaba, put its weight behind dark horse Snapdeal, pumping $627 million into the online marketplace.

Indian shoppers never had it so good as they did in the next year. Discounts of up to 90%, speedy delivery and a wide range of products across the three large online retailers became the norm.

Starting late last year, however, the party came to an end. Amazon was winning market share from Flipkart and Snapdeal, and the finances of all three companies were in shambles. Amazon, however, wasn’t bothered. For the time being, it only cares about becoming the most popular e-commerce brand in India, especially after losing to Alibaba in China. Investors at Flipkart and Snapdeal, however, started pulling back late last year. Stung by the massive losses at these two companies and by the rapid expansion of Amazon, both existing and potential new investors have altered their rosy outlook on the two largest Indian e-commerce start-ups. The two are struggling to raise fresh funds at their preferred valuations, Mint reported on 14 April.

Consequently, forced to start cutting back on discounts and advertising, sales at both companies have suffered. It’s a classic vicious cycle: if you don’t raise money, you cut discounts and advertising, which translates into lower sales, which in turn means lower valuations and a struggle to attract investors.

At the same time, the apparent ease with which Amazon India can access funds must terrify its two Indian rivals.

Analysts say that if Flipkart, which still has more than an estimated $1 billion in cash, can turn around its business under new chief executive officer Binny Bansal this year, it has sufficient time to ride out the downturn in the investment cycle. Snapdeal, however, is unlikely to find it easy to raise a new, large round of funds, at least not at its current valuation of $6.5 billion.

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Published: 09 Jun 2016, 02:49 AM IST
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