India e-commerce - Game Set Match ?

India e-commerce - Game Set Match ?

by Pininvest Analysis

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Commonly used at the conclusion of a tennis match to indicate that a competitor has won, the title of this note may appear foolhardy

Highly competitive companies are still fully engaged in India’s emerging and fast expanding e-commerce markets and government policies should never be discounted to change the rules of the game midway

The country's internet users, expected to reach 800 million within the next two years from approx. 350 million in 2020, are the ultimate prize

It remains to be seen how the e-commerce contenders will play their cards

...with 4 main players, and as many distinctive strategies

However, billions of equivalent dollars in investments later, one may wonder who placed winning bets on the huge potential of the Indian e-commerce market

None of the players should be ignored and each one of them has a make or break stake in reaching the famed ‘one billion consumers’ of India, closing in on 1.4 billion people


In ‘an American high-roller in India’, we quoted the founder of Amazon , J. Bezos, and his words are a proper summary of the strategy the American firm implemented, at least in the first years following the relaxation of the foreign direct investment rules (FDI) in India, in 2016

India is another example of how we globalize an offering like marketplace…” J. Bezos, Letter to Shareholders 2015


Having learned the hard way of the difficulty in catching up with an installed e-commerce competitor in the U.S., Walmart , America’s largest mass retailer pounced on an established Indian e-commerce giant, Flipkart, to secure its international growth by investing $16 billion for a 77% stake  in 2018 and leading another investment round of $1.2 billion in July '20 (increasing its own stake in the process)


As discussed in ‘the meaning of Mukesh Ambani’, India’s premier businessman has not only the benefit of home turf but has also been inordinately successful in implementing a tightly scripted strategy in digital communications, on the back of the  400 miillion subscribers of his firm's Jio mobile phone services and  of a network of 12 000 Reliance retail stores

Holding the ‘digital keys to Indian e-commerce’, the fourth team is formed by third-party digital payment processors who, if China’s experience is any guide, could end up with considerable influence over the ways the e-commerce game plays out

Google entered digital payments in India on the back of its popular search tool – building a 40% market stake within a year of introducing GooglePay in September ‘17 and crushing Paytm, the Indian (and mostly foreign owned) processor – controlling the market today with PhonPe, owned by Flipkart-Walmart


In the background, and notably cautious to take on the dominant role to be expected of their outsized success in China

  • E-commerce giant Alibaba has limited its forays in India to Paytm 30% minority investments – transferred to its financial subsidiary Ant Group – and to services and logistics firms in India while its majority-owned e-commerce venture – Paytm Mall – has failed to gain traction. Its desultory market share, estimated at 3.3% according to 2018 data, does not seem to have budged
  • Tencent has shown even more reservation in expanding beyond the great following its gaming catalogue has garnered
    As we suggested in Aug. ’18, Tencent was betting on riding the fast mobile phone adoption in India to gain market share – which was indeed a winning strategy
    Our assumption that, from a strong position in gaming, the firm would expand in closely connected social media and payment systems did not seem to play out


All the parties have committed large investments to occupy unassailable moats on the Indian market, hoping to benefit from an economic growth pattern which in time may surpass China’s success

…or may be not in the foreseeable future…

The bet on promising riches sets apart the strongest contenders, willing to cement their grip on the Indian consumer at almost any cost because loss of retail market share today could prove deadening for their future global growth prospects

Outsiders on the e-commerce battleground are the deep-pocketed contenders who rely on attractive social networks to establish a dominant presence in the minds – and the pocketbooks of the Indian consumers


We will argue in our follow-up reports how the combination of a strong presence in e-commerce with indispensable digital services could turn out to be the most likely winning strategy

Behind the baseline of this imaginary tennis court, Amazon and Flipkart dominate e-commerce, for now... and on the other site, Jio's phone business and Google's success in digital payments are no less impressive

With every intention to gain the upperhand, these players still may not reach the highest stage of the podium....

...unless two popular networks turn out to be king makers to win the tie break - Paytm, the third-party digital payment processor under Ant Group's minority control, and Facebook's   400 million WhatsApp subscribers in India


But then, India's government is always itching to move the goalposts mid-game...