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Bangalore: eBay Inc. is investing heavily in an Indian company that works on a similar business model as the US-based online marketplace, seeking to forge a meaningful presence in a country where it has struggled despite being an early mover and where its global rival Amazon.com Inc. is expanding rapidly.

eBay said late on Wednesday that it led a fund infusion of $133.7 million into Jasper Infotech Pvt. Ltd, which runs Snapdeal.com. eBay first led a $50 million funding in Snapdeal last April. Snapdeal’s other investors including Bessemer Venture Partners and Kalaari Capital also committed funding in both rounds.

eBay may eventually buy Snapdeal, seeing an acquisition as the company’s best, and probably the only, chance of building a large online presence in India, analysts said. India doesn’t allow foreign direct investment in online retail, but it allows it in online marketplaces; that’s why most Indian e-commerce firms are structured as marketplaces.

“eBay’s approach in India has been to look at year-on-year, incremental growth. Others have moved much, much faster and been way more aggressive and now it looks like an acquisition or inorganic growth is the only way for them to get exponential growth," said Harminder Sahni, managing director at Wazir Advisors, a consulting firm.

Snapdeal, which offers a wide range of products including apparel, electronics and books through third-party merchants on its site, along with Flipkart, Myntra and Jabong, is among the leaders in India’s fledgling e-commerce market.

These firms, which have all raised between $50 million and $360 million over the past eight months, have overtaken eBay despite starting out years after the US-based company launched operations in India in 2005.

“At this stage, why would they want to keep waiting if there’s an attractive business to be acquired?" said Ashish Jhalani, founder at eTailing India, an e-commerce consultancy. “An acquisition saves time, money and learnings. This is a strategic investment and I think they will acquire Snapdeal over time."

It wasn’t immediately clear how the latest fund-raising would affect Snapdeal chief executive officer Kunal Bahl’s stated plan of an initial public offering.

Snapdeal and eBay declined to comment.

A top eBay executive indicated in an interview with technology website Recode that eBay may eventually buy Snapdeal, which started out as a group deals site in 2010 and later switched its business model to that of a marketplace.

“When we make an investment and are cooperating with a third-parties like Snapdeal, we hope to be successful and hope eventually we can take the next step. We have a history of making minority investments where at times it works well and we take the next step and end up acquiring the target," Devin Wenig, president of eBay Marketplaces, was quoted in the Recode article published on Wednesday night.

Wenig later wrote in a post on Twitter that India was a “huge opportunity" and that multiple brands working together improved the “overall chance of success".

“We are excited to grow eBay India under a great management team, and to invest in the complementary marketplace Snapdeal," Wenig wrote on the social networking site.

Revenue at eBay’s India unit for the year ended 31 March 2012 was just 50.8 crore, according to documents available with the ministry of corporate affairs. In comparison, both Flipkart, which generated wholesale revenue of over 1,200 crore for the year ended March 2013, as well as Snapdeal are targeting gross sales (value of goods sold on the sites) of over $1 billion (around 6,200 crore) each in the coming financial year. The sites get to keep a cut of that $1 billion.

Competition in India’s e-commerce space has been increasing rapidly with the entry of the world’s largest online retailer Amazon.com, which launched its India’s marketplace in June last year. Analysts said eBay is in danger of being made irrelevant unless it significantly increases its investment in India.

The Indian e-commerce market is worth $3.1 billion, excluding travel, and is estimated to grow to $22 billion in five years, according to a report by CLSA in November.

“eBay’s investment recognizes the value of an entrepreneur-led business in Indian e-commerce. To succeed here you need to have a local management with local experience," said Deepak Srinath, director, Allegro Capital Advisors, an investment bank. “It also shows they are hedging their bets—if their unit doesn’t succeed, they have another option."

Some analysts disagreed that eBay needs to buy Snapdeal.

“eBay has enough time and money to build an independent business in India. I don’t think they need to buy Snapdeal," said Rutvik Doshi, an e-commerce investor with Inventus Capital Partners. “eBay’s business model is also different from most firms’ in India in the sense that they are way more focused on profitability. If you compare them with Amazon, they have a fraction of Amazon’s revenues but are much, much more profitable. So you have to look at their revenues in India in that context," Doshi said.

eBay’s funding of Snapdeal marks a significant investment by a global e-commerce firm in an Indian counterpart.

India’s e-commerce sites have largely been funded by private equity (PE) firms. Apart from PE firms, South African media company Naspers, which has investments in e-commerce globally, has bought the online bus ticket seller Redbus.in as well as a large stake in Flipkart.

“This will change market dynamics in a positive way and make the ecosystem grow faster. eBay has the global expertise, and they will bring in efficiencies and help establish a path to profitability in the market which has been lacking till now," eTailing’s Jhalani said.

eBay’s large investment also paves the way for the company to share its technology and strategy expertise with Snapdeal.

“They can bring in more valuable learnings on things such as strategy, technology and operations as compared with PE firms—and global learnings. eBay has a presence in emerging markets as well, not just in the US. So it’s not surprising that Snapdeal, or for that matter even Flipkart, has brought in e-commerce experts rather than just PE firms," Allegro Capital’s Srinath said.

MIH India, a part of the Naspers Group, said in a report on its website in November that it bought an additional 8.6% stake in Flipkart Pvt. Ltd in July for 851.7 crore, taking its stake to 16.7%.

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