Should Flipkart have bought Snapdeal?

Firstly, let me start by apologizing for writing a piece on a subject that you’ve probably had enough of. Secondly, we got no gossip for you. Sorry. We know nothing about board room battles, founders fighting, investors colluding or anything else you may have heard.
But we thought it would be good to bring some data to the conversation and present to you a glimpse of the e-commerce world as it appears to us.
Let’s start with a look at the reach by app installs of various e-commerce apps in the country over the last 12 months:
Since earlier this year, Snapdeal has witnessed a secular fall in reach – implying that customers are either leaving the app or not downloading it. I’m not sure if this is a result of falling ad spends or indicative of lower customer confidence but in January 2017 something changed and its impact is plain to see.
How does this affect market share by App installs? The 2 charts below provide some insight.
Snapdeal wasn’t the only company to reduce its App Footprint over the last one year. Almost all e-commerce platforms barring Amazon witnessed negative growth in reach and by association market share by app installs.
In e-commerce and other transaction driven businesses, however, reach and market share by app downloads are what you might call ‘leading indicators’ or ‘a measurable factor that changes before the economy starts to follow a particular pattern or trend’ (to paraphrase from Google).
The real reflection of market share is given by transactions. These account for both desktop and mobile (web & app) purchases.
The info graphic below gives a 3 month rolling average of market share by transaction volumes across the major e commerce companies in India.
Snapdeal has lost more than half of its market share between July – 16 and May – 17. Presumably, this is a trend that will continue unabated if no one throws the reverse gear (which we hear is going to happen now with Snap Deal 2.0).
As Snapdeal plans to pursue an ‘independent path’ – the question is have they gone too far down this one to turn back? Most importantly, have board members come to the conclusion that this is not a time for pay outs but patience? If so how what will it take to reverse the trend? Certainly, a great deal of money of the very least.
For Flipkart was there a downside to seeing the deal fall apart? There is certainly value in the back end infrastructure (warehousing & logistics) and customer data that Snapdeal has but in an environment of falling customer retention and reducing transactions would it really have been worth it?  Many would say that paying $900 million for ~ 5% market share isn’t a bad deal if you have a long term vision.  But I Suspect there will be other buying opportunities in the future with less baggage. The market share gains Flipkart would have made from this transaction have reduced for every month that the deal has been in negotiation. At this point, Flipkart can afford to let this transaction slide or not do it at all since any delay will only work to their advantage and reduce the value of residual assets.


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