 "Pecking order of ecommerce cos may change soon")
In the next 12-18 months, American e-commerce major Amazon has the potential to be at the top in the India market, executives at three prominent international analyst firms told Business Standard. But there’s a caveat. If Amazon focuses more on gross merchandise value (GMV) of the goods sold on its platform than it has so far, and if Flipkart and Snapdeal move towards profitability, the current pecking order in market share may change, analysts said.
The strategy that these online marketplace companies follow in the next few months will determine whether Amazon gets to be the leader in 2017 or not, according to an executive at one of the analyst firms.
Kunal Bahl-led Snapdeal has already stated that GMV is not a metric, it is chasing. Retaining and adding high-quality users would be Snapdeal’s goal, Bahl had said in a recent media interview.
A report published by Bank of America-Merrill Lynch (BAML) in May 2015 had placed Flipkart on top of the table with 43% market share, followed by Snapdeal at 30% and Amazon at 18%. One year later, things have moved, pointed out analysts without giving any specific figures. Market share is typically based on GMV in the absence of timely revenue figures, which are posted to Registrar of Companies (RoC) with a significant time lag making them almost irrelevant, explained industry trackers.
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In 2015, industry estimates pegged Flipkart’s GMV at around $10 billion, Snapdeal’s at $4 billion and Amazon’s at $2 billion. One of the analysts, that this newspaper spoke to, projected the 2017 GMV at $12 billion for Flipkart, $9 billion for Snapdeal and $6.3 billion for Amazon. However, he added that the math could alter and Amazon could cross Snapdeal’s GMV while moving closer to Flipkart or even overtaking it, depending on how the three players choose the GMV versus profitability play.
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Indeed, GMV has been an important metric for e-commerce players for getting a higher valuation and attracting the next round of funds from investors. In the process, some companies have even inflated their GMV figures, according to an analyst. However, a company such as Amazon does not need to inflate its GMV because it does not depend on investors’ money, but gets funded by the parent, he added.
How a company moves in certain categories will also determine the next pecking order of the market share. So, de-emphasising electronics as a category will help a company in attaining profitability faster, according to experts. Although electronics fetches higher GMV than others like clothes and accessories because of the higher price of the products, the margins and therefore revenues are much lower in that category. Against a margin of 2-3% in electronics, fashion apparel commands a margin of 10-15%. Also, repeat buying is very low in electronics. By shifting the focus from electronics, an e-commerce player will move quicker towards profitability, a demand that is being increasingly made by investors pumping in funds into the internet-led business. But that may also imply a fall in the GMV pecking order that determines market share.
Apart from GMV marketshare, some other metrics are also used by e-commerce companies to show leadership. For instance, a comScore analysis had pegged Flipkart on the top with 50 million to 100 million app downloads recently, followed by Snapdeal and Amazon at 10 million to 50 million. Another latest monthly visitor data (without taking into account mobile transactions) shows Flipkart is maintaining the lead, while Paytm has picked up traction, it is learnt.
In 2014, Amazon had committed $2 billion for the India market. And recently after its first quarter earnings numbers, the group said India was one of the most important markets for it and it would invest what it takes. ‘’It’s an open cheque book,’’ is how Amazon India head Amit Agarwal had described the investment plans of the group into this market.
Flipkart has raised $2.6 billion since May 2014 and Snapdeal $2 billion since the start of 2014 from marque international investors. Both are learnt to be in talks with investors for raising more funds. Earlier this year, Morgan Stanley, an investor in Flipkart, had marked down the value of its holding by 27% in the Sachin Bansal-led firm. This in turn brought down the valuation of Flipkart to $11 billion from $15 billion.
Flipkart’s valuation markdown is seen as a benchmark for the entire e-commerce industry. But according to reports, Flipkart continued to talk to investors pegging its earlier valuation at $15 billion, while Snapdeal too stuck to $6.5-billion valuation.
None of the ecommerce companies commented on market share issues.