Snapdeal and flipkart, two of India’s most famous e-commerce sites had decided to forge a deal that would revive both the companies. Unfortunately, the deal has been called off.
“Snapdeal has been exploring strategic options over the last several months. The company has now decided to pursue an independent path and is terminating all strategic discussions as a result”, said a Snapdeal spokesperson, without mentioning Flipkart explicitly.
The deal has been in work for a long time now, Moneycontrol first reported about Softbank being in possible talks about selling Snapdeal to Flipkart or Paytm. Paytm withdrew its interest by March 29. Amid anxiety surrounding employee layoffs at Snapdeal, Flipkart’s management and board were largely in favor of the merger. SoftBank looked to hold at least 20 percent in the merged entity. It had offered to buy out founders Kunal Bahl and Rohit Bansal’s stake in Snapdeal for USD 50 million. Squabbles between Snapdeal’s internal investors cause a delay. Snapdeal recently sold off Freecharge for Rs.385 crores, one-sixth the price it bought the mobile payment solutions company in 2015, to Axis Bank.
As a solo entity, Snapdeal now has a long way to go. Analysts think that Snapdeal will have a hard time trying to keep up with other e-commerce giants like Flipkart and Amazon. Japan based investors SoftBank, had faced resistance from early investors in Snapdeal- Kalaari Partners and Nexu Venture Partner, over valuation issues. Softbank later managed to get Kalaari Partners on board for the planned Snapdeal sale.
The remaining work force at Snapdeal were looking forward to the Snapdeal-Flipkart merger as it would provide them an opportunity to hold onto their jobs. With Flipkart taking an out, and the selling of Freecharge, the firm has decided to sack around 1000 employees out of their present workforce of 1200 and carry on with the rest. That is almost 80% of its workforce. The sale of Freecharge was to salvage the losses that the company had to go through last year, but the attempt at revival has gone awry. The flipkart merger, would have given Snapdeal a sure boost in confidence for a go ahead.
With the backing of the aforementioned Softbank, Snapdeal looks to unveil their revamped Snapdeal 2.0 strategy. “We respect the decision to pursue an independent strategy. We look forward to the results of the Snapdeal 2.0 strategy, and to remaining invested in the vibrant Indian e-commerce space”,said the Softbank group in a statement.
Being Snapdeal’s largest investor, SoftBank has been pushing the talks for a sale for the past few months. The deal however did not have the backing from Snapdeal founders Kunal Bahl and Rohit Bansal.
“This will be a seller-centrist marketplace similar to Alibaba-owned Taobao in China and eBay in the US. The management has been working on this plan for the past two months,” a person with direct knowledge of the company’s plans explained.
Online commerce companies, such as eBay (now part of Flipkart) and Alibaba-backed Paytm Mall, have been operating on the pure marketplace model, i.e., they act merely as a seller-buyer platform and don’t store any goods. However, most e-tailers in India, including Flipkart and Amazon, operate what is called a ‘managed marketplace’ or hybrid model. It’s a mix of marketplace and inventory-involved e-commerce operations. In fact, even Snapdeal ran a pure marketplace till Amazon’s onslaught forced it and its arch-rival Flipkart and Snapdeal to go hybrid.
A company official said on the condition of anonymity that Snapdeal won’t be competing with the likes of Amazon or Flipkart any more. “It will be more like Taobao and it will be much easier for sellers to sell. In the segment Snapdeal choses to operate, it will be more of a local e-commerce, asset-light player. It will not be making fancy “one-day or two-day delivery” promises. A lot of efficiency will be built in, and that’s the plan,” he elaborated.
Whatever, might have been the reasons to the failure of the said merger, Snapdeal’s founders are sure of their footing and are actively looking to revive their company. The e-commerce sector is brutal, even mighty giants like Amazon saw a drop of 77 percent in profits. Snapdeal will have to raise money quickly if it plans to survive.