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eBay Buys Into Flipkart And Gifts It eBay India, Too

10 Apr, 2017
Why eBay CEO sold eBay India and poured dollar 500 million into the country top Amazon rival

eBay is one of the founding pillars of the startup – and it thus knows the criticality of pivoting at the right time, and the harmlessness of swallowing one’s ego for larger gain.

The multinational e-commerce megabrand that facilitates online consumer-to-consumer and business-to-consumer sales, sold its India business to Flipkart – an e-commerce player that has time and again proved to be the bigger of the two, in the Indian market.

Despite the drubbing, in a demonstration that shareholder value superceded any such emotional bondage, like “hard feelings”. the sale happened as a part of a larger, USD 1.4 billion deal.

The deal includes multiple funding rounds, starting with the first purse of USD 500 million that eBay is currently putting into Flipkart. The deal also includes an exclusive arrangement in which eBay merchants outside of India will be able to sell to Flipkart shoppers and even more interestingly, Flipkart sellers can sell to eBay shoppers outside of India.

Even though rumors about the deal had been making rounds for a little while now, it’s official mention did come as a surprise to most of the world. Primarily because eBay also owns 5% stake in Snapdeal, which is a competitor to the both, Flipkart and eBay India.

Intriguing, this move might just be part of eBay’s larger plan to line up all of it’s resources against global arch-rival, Amazon. Clearly they’ve been reading  Sun Tzu’s Art Of War and are embarking on a long-standing desire to challenge Amazon, by strengthening the biggest of it’s competitors.

So, the decision to wind up their own India business, and the decision to invest in a rival to Snapdeal, a company they already have stakes in, to then join hands with Flipkart… where exactly is it coming from?

The process started almost a year ago with us looking at the Indian market and seeing who was winning and who was losing and what the next few years were going to be like. We were evaluating both eBay India and Snapdeal“, said Devin Wenig, eBay’s CEO.

Well, the Indian market is indeed a very strong commerce market. There is growing wealth, tech adoption increasing and getting better by the day, too much demand for goods and thus a manifest supply-demand imbalance; thus making the market quite a dynamic place for any company to be in.

However, what is also true is that in the last couple years, there has been a boom of sorts in the Indian e-commerce market; the market has now become “overheated”, if you will.

Simple economics explain the tug-of-war. There are far too many companies in the market right now, and there is thus over-investment of funding, to a large degree; a lot of the companies are running on their funding and not on profits, and that makes for a bad dynamic for any market.

So, something had to happen. Consolidation is the best of those “some” things; a few players joining hands to stand against the bigger one.

Flipkart had a very strong close to last year and they are starting to pull away. So if we are serious about the market, I want to invest in — and be partners with — those that are going to win,” said Wenig.
“…there weren’t going to be 10 winners, but maybe only one or two. And Flipkart — given all of that — was the natural party to align with
“.

As far as going up against Amazon is concerned, eBay has been doing that for years now, in the international market.
The two e-commerce giants started going toe to toe first in the American market, back when the e-commerce boom had just started.
Today, in the India market, Amazon is the bigger player, even though it has been around for only about five years; its competitor Flipkart has been around for twice as long. And eBay, who came to India before either one of these was even born, today seems to have receded to the back of a dark, forgotten alley of the Indian marketplace.

Putting the eBay India business with Flipkart will make it a bigger business, they’ll co-populate their inventory, share their buyers and just have more scale,” said Wenig.

That is true, two giants sharing resources are always better than one. But what’s in it for Flipkart, in addition to eliminating competition?

Well, Flipkart’s war chest has been drying up slowly over the years. This deal gives them more investment, for starters, and that too quite a big one.
In addition to the obvious, it also gives Flipkart a candy for their sellers – their sellers suddenly and unexpectedly have access to the global markets, and can now export inventory around the world. And Flipkart gets rich without doing a thing!

As for the interest in Snapdeal is concerned, Wenig said: “I would say we still own five percent of Snapdeal and it’s not like we’re giving up on them“. That said, Snapdeal’s on the market right now, looking to be bought out in entirety. The word on that is not confirmed yet, but it does seem like their time in the market is limited.

So, eBay’s seemingly conflicted interests may not remain so for too long.