Who will be India's Alibaba, SnapDeal or Flipkart?

SnapDeal founder Kunal Bahl admits that it will be impossible to match Alibaba's $248 billion volume. Size of the local economy matters and India is still has a long way to go before it can catch up to its Asian peer. But that won't be the only reason

Prince Thomas
Updated: Jun 19, 2014 01:49:23 PM UTC

Even as Chinese e-commerce behemoth Alibaba prepares for the biggest American IPO since Facebook's $16 billion listing in 2012, the race for online supremacy is heating up in India. Will it be the Bansal-duo of Flipkart or the Bahl-Bansal team of SnapDeal that will go on to match Jack Ma, the founder of Alibaba?

This morning, over a sumptuous breakfast on top the iconic Hotel Oberoi overlooking Delhi Golf Course, SnapDeal founders Kunal Bahl and Rohit Bansal spelled out why they are the best positioned to do an Alibaba in India.

It is not surprising that they would want to be in news with peers Sachin Bansal and Binny Bansal ruling the headlines for the past few days. After acquiring Myntra last week, Bansals turned news makers again on Monday as they announced another round of fund raising at $210 million.

If Bahl and Bansal were perturbed by their bigger rival's aggressiveness, the two school friends didn't show it. "Alibaba has a market-based model and has zero inventory. We have a similar model," said Bahl. He and Bansal can rightly claim to that distinction for being the first to adopt a marketplace model when others led by Flipkart, were adopting the inventory-based model.

As Bahl took the small group of journalists through his presentation, a few statistics were noteworthy. In 2005-2006, e-commerce comprised of 0.2 per cent of China's retail business. Today it has grown to 8 per cent. "The Indian e-commerce industry is currently at the same stage," said Bahl. The share of e-commerce of the total retail industry in India is just 0.5 per cent and pales when compared to the US (close to 10 per cent of total) and South Korea (14 per cent).

Jack Ma best captured the e-commerce boom in his country and Alibaba today accounts for 80 per cent of online retail transactions in China. As this story in Business Standard points out  "the value of all merchandise sold on Alibaba exceeded $248 billion, more than the volume on eBay and Amazon combined."

Bahl admits that it will be impossible to match Alibaba's $248 billion volume. Size of the local economy matters and India is still has a long way to go before it can catch up to its Asian peer. But that won't be the only reason.

Jack Ma is fortunate that Alibaba's closest competitor JD.com is much smaller and had a gross merchandise of $20 billion last year. Alibaba has a monopoly. It is not the same with Indian e-commerce scene where the competition is much tighter.

In March, Flipkart said that its gross merchandise had crossed the $1 billion mark. This morning Bahl told me that while earlier SnapDeal was estimated to breach that target next year, he expects the company to achieve it in 2014 itself. "We are growing much faster than the market. While we grew by over 600 per cent last year, the market grew by close to 90 per cent."

But the Myntra deal has surely put the scales in favour of Flipkart right now. Myntra is expected to cross the $1 billion-mark in 2015 and puts Flipkart much ahead of SnapDeal.

Kunal Bahl though would be hoping that their business model, which continues to resemble Alibaba and eBay (one of its investors), will benefit them. Like Alibaba, SnapDeal has also let brands like Puma to open their own "stores" on its platform. SnapDeal's TrustPay, its payment system, closely mirrors Alibaba's Alipay.

Bahl's presentation further pointed out that 51 per cent of the sellers on Alibaba come from tier 3 and below cities and 30 per cent of the sellers on Snapdeal come outside of the top 10 cities of the country. And  customers residing in Tier 2 and below cities account for over 60% of sales on both Snapdeal and Alibaba.

And aided by eBay, Bahl and Bansal are now focusing on developing their mobile platform and on their "seller ecosystem" to up the ante. "Last year, 5 per cent of our transactions were from mobile. Today it is more than 50 per cent and will reach 75 per cent within a year. It is no longer e-commerce but m-commerce for us," says Bansal. He and Bahl are now in talks with technology startups that will give them edge on the mobile front.

Secondly, the duo are developing "enablers" that will help their sellers to expand business. One is by creating infrastructure. SnapDeal yesterday launched Snapdeal Plus service for sellers. "The company has opened 40 fulfillment centers across 15 cities in the country and is thereby, further enabling expansion of same day delivery service for its 30,000+ sellers," SnapDeal said in a statement. Bahl added that the company will spend Rs 350 crore this year to further expand this infrastructure.

Bahl and Bansal are also helping their sellers, whose number will increase to a lakh by the end of this year, to access cheap credit. "Our sellers are growing fast and need credit to expand their own capacities. We are talking to NBFCs and banks to help them get cheaper credit," said Bahl.

These initiatives apart, the two founders are looking for acquisitions. But Bahl underlined that "We are not looking to acquire an e-commerce company." Instead, he is looking for technology startups that will add teeth to SnapDeal's offering.

Like Bansal says, "even though e-commerce in India is in its infancy, it is already an industry." And with every round of fund raising and acquisition, stakes are becoming higher. Flipkart might have its nose a little ahead of SnapDeal right now but then, the final word is yet to be said.

The thoughts and opinions shared here are of the author.

Check out our end of season subscription discounts with a Moneycontrol pro subscription absolutely free. Use code EOSO2021. Click here for details.

Post Your Comment
Required, will not be published
All comments are moderated