The Davids that fell…
A tale of Indian e-commerce shutdowns and M&As
“Am I a dog that you come at me with sticks? Come here and I’ll give your flesh to the birds and the wild animals”- This may very well be what the Indian e-commerce Goliaths have been doing to the puny Davids that come their way. Flipkart, Jabong.com, Snapdeal, Amazon, Makemytrip and other e-commerce giants today do not seem to allow new startups to come up, small retailers to survive and established ones to flourish in this ever so Darwinian realm of sales.
Although it is true that India has been witnessing a boom in the e-commerce sector in last five years (with Modi’s national digital initiative sure to boost e and m-commerce) but experts believe that only one out of five such startups gives good returns, while three do not give any return or simply fold up. To substantiate this, let us have a look at some of the Davids and some not-so-Davids too that faced the brunt of these trends-
- Letsbuy.com- In February 2012, Letsbuy.com, the country’s second-largest online electronics retailer was bought by Flipkart for US$25 million in cash and equity and later on, all traffic to Letsbuy was diverted to Flipkart.
- Taggle.com- In December 2011, online retailer Taggle shut its operations attributing its demise to irrational price wars. “E-commerce ventures are being very aggressive when it comes to price in order to consolidate their customer base. They want to play the last man standing game” said Rutvik Doshi, the CEO of Taggle.
- Muziboo- Muziboo, an online community for music creators shut down last October due to several DMCA notices related to copyright infringement. With 543076 registered members then, Muziboo is another lobby-less victim of that powerful predatory cabal that is the music industry.
- Redbus.in- Redbus.in was taken over by the Ibibo Group in June 2013 for $138 Million. The founders sold their stake in the venture to the Ibibo Group even though Redbus was writing a success story by the day at that time. Not surprisingly, the market share soared to that of a super healthy 65 percent after this.
- Dealsmagic.com- Dealsmagic.com, a website specialising in group buying deals too closed owing to challenges related to getting bulk customers. With super high barriers to scale group buying, sites with deep pockets like Groupon India are able to survive while others perish. Or, as the mantra of Darwin goes, those who adapt, stay. For example what Mydala.com did by modifying its role instead of transforming it altogether. By building a marketing platform that was more helpful and centred on the merchants, it still goes on in the race.
- Indiaplaza- Indiaplaza ,one of the pioneers in the online shopping space in India, rung down the curtain in 2012-2013 when they were not able to raise funding. The company used to receive angel funding from The Indigo Monsoon Group (IMG).
- SherSingh- In November 2012, SherSingh, a website that specialised in sports and lifestyle apparel was acquired by Myntra.com for cash and equity. With this acquisition, Sher Singh’s senior management team along with its employees got absorbed into Myntra.
- Myntra.com- In May 2014, Myntra.com got merged with Flipkart to compete against Amazon which entered the Indian market in June 2013. Sachin Bansal, The co-founder of Flipkart, called it “a 100 per cent acquisition” while the transaction was valued at close to $300 million by Reuters. Inspite of this, Myntra continues to operate as a separate entity with its co-founder and CEO Mukesh Bansal joining Flipkart board and heading the fashion business.
Numerous other small players like HutK.com, Travelocity.co.in, Wopshop.com, KoolKart.com, Fetise.com, Goodlife, SeventyMM have too gotten shut down in last 2-3 years or so.
Why are all these companies closing down or not being able to firmly set themselves in spite of revolutionary growth in numbers of Internet users, smartphone users and an increasing proportion of web-savvy, young population? Of course, the pressures from the billion dollar firms play a critical role but there are other significant factors at play too.
Most important among these is the inability of such startups to get second round of funding or their finding it hard to continue further after the funding. When the initial investors don’t seem to get an exit partially or fully at subsequent fund raising rounds, they take to other secondary means and M&As which is more or less profitable to them as compared to being a part of a dead company. While this is downright true per se, Sachin Bansal, founder of Flipkart believes that raising venture money early brings its own challenges because it undermines the need for getting the fundamentals of business discipline right.
In addition to this, getting customers to pay for services in time is also a driving factor. Another important reason is the underrated need for back-end supply chains for e-commerce. While the technological aspects of e-retail are understood by these startups, they oversee this ground reality. With large retailers having set the bar of shipping, tracking and customer service way too high, these startups don’t seem to match up to their standards in the measure of customer satisfaction. Also, with highly sophisticated malware, hackers are targeting small players more because they can't fight it. Now, if these small players employ too many layers of security in their transactions, they stand the chance of losing valuable customers!
These Davids thus are getting grilled to say the least in the realm of e-commerce today. While there are almost no barriers to entry in this business, you cannot just build a website and dream about it getting transformed into another Flipkart.
Having said that, there is no intention to discourage the upcoming dreamers or vilify those who have ‘fallen’ in this war. To quote Mukund Mohan, CEO in residence at Microsoft Accelerator-
“It’s certainly not for the faint-hearted, but kudos to all who tried, failed and are living to tell the story”
This piece is a tale of those who fell and must be used as a caution to try and learn the intricacies that come up and the need to find means of tackling the same. After all, from what we have read and learnt, David beats Goliath.