Economy

Why e-commerce consolidation is no panacea

It’s all about execution, they say. And that’s truer nowhere else than in the consumer Internet business. Multiple firms attack the market with the same idea. Some get lucky with timing, follow up with great execution and attract disproportionate capital to distort market dynamics in their favour. That’s how the winners are decided.

So no matter how sound an idea may be or how rational a decision may appear, what really matters are these.

l How well were things executed?

l Was a seamless customer experience delivered?

l Did the customer feel delighted?

l From the vendor’s standpoint, was the transaction economically viable and sustainable in the long run?

Consider Flipkart’s $70 million in-cash deal to acquire Jabong. Everybody talks of how Flipkart “pipped its rivals”. But if you step back and think about it for a moment, firms were negotiating to buy a haemorrhaging asset at the lowest possible price and best terms.

Everybody who bid for Jabong would have tried to minimize their bids. For instance, offer a combination of stock and cash, or deferred stock, or alternatively ask for several indemnities and warranties on the state of the business which kick in post the deal (unfortunately, this fine print never makes it to the news and everyone touts the big headline valuation number). Presumably, Flipkart has negotiated these protections even in the all-cash deal that Jabong accepted.

This acquisition can play out in several ways:

The optimistic scenario: competitive intensity lowers, good execution

At worst, Flipkart would have knocked out a competitor in Jabong, which would have been dangerous in the hands of Snapdeal; for that matter even in the hands of an offline leader like the Future Group or Aditya Birla Group, both of whom were in the reckoning—if they had gotten their hands on it at $70 million. This allows Myntra, a Flipkart group company, the breathing room to build an even larger lead, with Jabong being assimilated in some form as a brand within Myntra.

At best, Flipkart can craft distinctive positions for Myntra and Jabong, fuel both businesses to sustainability, and build a position as the largest online apparel destination with commanding market share.

[“Source-Livemint”]

About the author

sristy

Powered by themekiller.com anime4online.com animextoon.com