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Home > My Thoughts, Start Up, Strategy > Why Snapdeal merging with Flipkart or Amazon will not make sense? Or might.

Why Snapdeal merging with Flipkart or Amazon will not make sense? Or might.


 

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Last couple of days have been ripe with rumors of Snapdeal reaching out to Flipkart and Amazon for a merger/buyout. YEstreday Kunal Bahl poked fun at these rumors with a tweet on the name that the merged venture will have. Fun aside, lets see is this kind of acquisition/merger would actually make sense or not.

On the face of it, acquiring Snapdeal will not make any sense for Flipkart or Amazon. Take the case of Amazon’s attempt of acquiring Jabong in late 2014. Rocket Internet (at that time I was leading one of Rocket Internet’s ventures in South East Asia) was looking at a valuation of $1.2b whereas Amazon was in no mood to pay more than $700m. Within weeks of the talks falling through, Amazon launched Amazon Fashion to counter Jabong. Later Jabong bled to its on death and was acquired by Myntra (a Flipkart group company) for $70m. That’s peanuts.

Jabong acquisition actually made some sense as Amazon was not very strong in the Fashion category. Snapdeal on the otherhand is a smaller Amazon. Learning from the Jabong experience, I don’t think amazon would even consider bidding for Snapdeal.

Now for the same reason, it does not make sense to acquire Snapdeal. Why would either of them not wait for Snapdeal to bleed weak till it dies or can be bought at a much lower valuation (just for the brand) as in the case of Jabong-Myntra deal.

Now, can it make sense as well? Remember when Ola acquired Taxi for Sure a couple of years ago for $200m? That deal not only helped Ola become the undisputed champion of ride-hailing space in India, but also removed an irritating competitor who was forcing to burn much more cash than what Ola would have liked to. Is Snapdeal that kind of rival for Amazon and Flipkart? The answer is- Yes. Do they want to remove Snapdeal from the competition? The answer is- definitely Yes. But do they want to right now? The answer is- No. Paying $200m for Taxi for Sure was peanuts as compared to the benefits it brought. Snapdeal is a unicorn. I don’t think either Amazon or Flikpart’s investors would ever agree to shell that kind of money ever. Even buying a small stake in Snapdeal would be equal to a billion dollar funding round for the two larger rivals.

So, let the rumors be rumors. I am not sure if anything is going to happen on this beyond being just rumors.

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