Flipkart vs Amazon: Bugle call

Written by Anushree Bhattacharyya | Updated: Jun 3 2014, 19:05pm hrs
FlipkartFlipkart founders Binny Bansal (L) and Sachin Bansal
WHEN India's biggest e-commerce company Flipkart bought lifestyle e-commerce portal Myntra in a cash-and-stock deal last month, it wasn't just one big company acquiring a rival to become bigger and better. Touted as the biggest deal in the short history of the Indian internet business, the deal was actually Flipkart's way of preparing itself for a formidable future a future dominated by the aggressive moves of international biggies such as Amazon. With a new government in place, policies such as foreign direct investment (FDI) in e-commerce which were stuck till now are expected to get cleared. In a way Flipkart is readying itself to fight a battle against international giants such as Amazon and eBay, said Ashvin Vellody, partner, KPMG in India, a management consultancy.

Since Amazon entered India last June, Flipkart has been on its toes trying to keep one step ahead. Last December, Flipkart followed in the footsteps of Amazon and introduc-ed single day guaranteed delivery aptly called 'In a day guarantee'. Within days of the Myntra acquisition, Flipkart pumped up its war chest with an investment of around $210 million by Russian investment firm DST Global.

Industry watchers put the Flipkart-Myntra deal at $250-350 million. To begin with, Flipkart will invest $100 million in building the fashion category. The e-commerce market in India is still in its early stage and is growing steadily. The acquisition of Myntra allows us to take a bigger market share in the e-commerce category, where fashion and lifestyle is a big part of the eco-system, said Binny Bansal, co-founder and chief operating officer, Flipkart.

Sandeep Ladda, India technology leader, PwC India, an audit firm, says that the deal will give Flipkart an upper hand in the fashion and fashion accessories segment which is Myntras core area. This is also an area where Flipkart was focusing of late but it had failed to surpass Myntra. Additionally, this segment is one of the fastest growing verticals in the e-commerce space, he added.

Observers believe that the deal comes at a time when the e-commerce sector is gearing up for consolidation. The category has seen a lot of new online companies mushrooming in the last one year, many of them me-too ventures. One of the implications of the deal is that only niche and/or players with good financial muscle will survive while the rest are gobbled up by their bigger rivals. The Flipkart-Myntra deal will force e-commerce players to re-look at their business models. As both the portals together sell very much everything, from here onwards the category will witness the rise of e-commerce portals with unique or niche offerings, said Vellody.

Smaller fashion portals spy a silver lining in the deal. Shivani Poddar, co-founder of FabAlley, a fashion and fashion accessories e-commerce portal, says the Flipkart-Myntra deal will further help in building the fashion and lifestyle category online. While the acquisition of Myntra will help expand the fashion category, Myntra which follows the discount model may switch to the model followed by Flipkart which does not provide huge discounts on products. This will help smaller players who can now come up with interesting offers for consumers, added Poddar.

Even as smaller players launch new propositions, at the end of the day it is the customer who is going to benefit from the deal.

The consumer is definitely going to benefit with Flipkart and Myntra joining hands, as the focus will now shift to providing services related to sales, said Vellody. For example, Flipkart is piloting a try-and-buy concept in Bangalore, under which customers can order three or four pieces of the same product in different hues and sizes to try out at home.