ADVERTISEMENT

Marketplace will become a 'big boys' club' eventually, say experts

The entry of e-commerce giant Amazon.com into India has been a talking point among industry players over the past few days. Although such high-profile entries are good for the market, investors and competitors are waiting to see how Amazon's entry will actually affect the market.

Techcircle.in talked to a few industry veterans – both investors and entrepreneurs. Everybody agreed on one point—that this, the vertical is going to be the next area of consolidation. However, they offered different views on how this is going to impact the market.

"There is no point when everyone sets up a marketplace for others to sell, but there are no others to sell on it," said Mahesh Murthy, founding partner, SeedFund, which has invested in e-commerce firm Fetise.com. "Eventually even the marketplace piece will only have room for one or two players. It is not just the fault of the companies, but is the fault of the government which has a myopic stance on FDI in e-commerce. As the government opens up to FDI in e-com, as it must, a majority of the marketplaces will either shut down or become e-tailers once again," Murthy said.

Murthy, however, added that it is a short-term phenomenon and that this segment will not witness high-value M&As anytime soon. "There's little IP (intellectual property) and differentiation in a marketplace, if everyone sells the same things from the same retailers. The marketplaces with value and valuation will be those who sell unique products from unique retailers or those who reach out to the SME e-tailers and handle them uniquely and can build customer loyalty through all this. I don't see this as any significant area for high-value M&A anytime soon," Murthy said.

Echoing what Murthy said, 5ideas' founder Pearl Uppal said, "Marketplace will not be able to handle all the players; so shutdown and M&As will definitely happen. Besides, consolidation is the natural consequence of any high-growth market after a certain stage." She said Amazon's expansion into India is definitely good for the market, despite regulations not being in favour of investment in e-commerce. "It is a clear validation especially when people are expecting doom for the e-commerce sector in India." 5ideas is a seed fund-cum-accelerator. Uppal is the former co-founder and CEO of Smile Group's flash sales site Fashionandyou.com.

According to Alok Mittal, managing director, Canaan Partners, marketplace will see consolidation and only a few players will survive. "Most e-commerce companies existing in India started with an inventory model and turned to marketplace later. Amongst the 10-plus leading marketplaces in India, those who can figure out what a customer really requires will survive. I feel that companies like Snapdeal.com and ShopClues.com have a huge potential."

Vijay Kumar Ivaturi, member, Indian Angel Network, an active angel network in India, opined that marketplace will eventually become a 'big boys' club'. "As it is true for any industry, horizontal players get consolidated for achieving scale and cost optimisation. As more players enter, it is quite possible that marketplace will become big boys' club. However, I see some niche plays here. For example, it is an entirely different game to do marketplace for groceries or even fresh food compared with other non-perishable items."

"Amazon's entry will do two things," Murthy said. "One, the broad e-com businesses that were funded on the belief that Amazon will buy them someday will have to now worry about survival or some other sort of exit, or they will turn into niche superstars, ceding the broad e-com business to Amazon. Two, more e-com businesses in India will get serious about making money instead of running like non-profit organisations. This may mean higher prices for consumers in the short term, but that is a necessary price to pay for the benefit of running a viable business."

However, Amazon's competitors such as ShopClues are not worried, as they say that they have a different market opportunity. "Amazon's entry is great because it is another endorsement about the opportunity of marketplace model in India," said Sandeep Aggarwal, co-founder and CEO, ShopClues, an online marketplace. "We are not worried about competition. Our market opportunities are different. About 65 per cent of our business comes from unstructured categories such as clothing, shoes and accessories, health and beauty as well as home and garden while Amazon's focus is structured categories such as electronics, mobile and appliances. People who need to worry about Amazon are open marketplace like eBay who has electronics and mobiles as big categories like Snapdeal."

"To top it all, Amazon has not been successful in the past in cracking markets like China, Latin America, Turkey, Japan and Korea. For Amazon, it is localisation but for local players it is their key business market and laser focus. So, I feel the laser focus has and will always win over localisation-focussed expansion," Aggarwal said.

Praveen Sinha, MD, Jabong, agreed that Amazon's entry is good for the market but it is too early to predict the impact it is going to make. "As of now, the online commerce market in India is at a nascent stage and all the players are working towards building the market, develop a supply chain and vendor ecosystem and trying to convert the buying habits of the people. This is a long drawn and expensive process. In that sense, it would really help if strong competitors like Amazon enter the fray. We believe that Amazon's entry would help in expanding the market. It might be too early for that. India has a unique set of complexities and processes to handle specific demands. We see little impact as each merchant wants to sell from as many channels and platforms as possible."

(Edited by Joby Puthuparampil Johnson)

Share this Post

Comment(s)

ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT