Current Public Administration Magazine (May - 2016) - India’s e-commerce Industry

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India’s e-commerce Industry

App-based cab service provider Ola shutting down TaxiForSure, which it had acquired for $ 200 million in March 2015, and online retailer Snapdeal doing the same to fashion portal,, point to a clear trend of consolidation now underway in India’s e-commerce industry. The underlying driver is a drying up of fund flows to a sector where firms are largely start-ups with young promoters having little money to put in themselves and, hence, overwhelmingly reliant on private equity or venture capital investors. Indian e-commerce firms raised a record $ 8.4 billion of capital in 2015, against $ 6 billion the previous year, according to the financial services giant Goldman Sachs. Such funding has, however, dipped by around a quarter this year, as investors are now hesitant to put money into start-ups who use it for even day-to-day operations. This kind of “cash burn” cannot obviously be sustained too long; businesses at some point have to generate revenues that can at least cover operating expenses, even if not fresh investments.

The closure of TaxiForSure and signifies a new phase — of investors forcing not just mergers and acquisitions among e-commerce players, but also ensuring that the resultant entities emerge leaner with fewer employees and consolidated portfolios (both Ola and Snapdeal have termed their latest moves as “integration”). This isn’t a bad thing. Consolidation is inevitable, be it in cement, telecom or airlines, and may actually be a sign of maturity of that particular industry. That it is happening in e-commerce, too, shows how some segments within the sector may have reached an inflexion point, wherein continued growth requires fewer players with the capacity for scaling up and making further investments. While that may suit private equity/venture capital investors, as it gives them an opportunity to cash out, consumers also stand to gain from companies having the requisite size and scale, ultimately leading to lower operational costs and improved quality of services.

Consolidation in e-commerce is already a reality in many countries. Amazon and eBay, for instance, dominate the online marketplace space in the US. Alibaba enjoys a near-monopoly of China’s e-retail market, while Uber’s recent decision to exit has bestowed a similar status to its rival home-grown taxi-hailing app company Didi Chuxing. India, on the other hand, may well have at least two players in each sector: Say, Amazon and Flipkart (not to forget Snapdeal, Alibaba, Paytm and the likes of BigBasket) in online retail, Uber and Ola in cab aggregation, Makemytrip and in travel booking, etc. That, plus an overall environment which will allow for “creative destruction” and keep the doors open for potential disruptors (be it new entrants or even new technologies), should be enough to safeguard consumer interest.

(Source- The Indian Express)

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