Snapdeal investment fuels e-commerce war in India

The raging e-commerce wars in India just got a little more intense overnight. E-commerce site Snapdeal, a competitor to Flipkart and Amazon, received a US$500 million injection that was led by China's Alibaba, Taiwan's Foxconn, and Japan's Softbank, making it the second biggest round of cash raised by the company.

Contract manufacturer Foxconn, which only last week announced an ambitious $5 billion plan to set up manufacturing facilities in the state of Maharashtra, waded into the great Indian e-commerce game by putting up $200 million into Snapdeal, which included the absorption of part of eBay's stake in the Indian e-commerce site that's worth $50 million.

Snapdeal, which considers itself an Indian version of Alibaba, had earlier raised $627 million from Japanese firm Softbank, which had been aggressively investing in Indian companies over the last year. Existing investors Temasek, BlackRock, Myriad, and Premji Invest also participated in the round. Collectively, Snapdeal raised more than $800 million across three rounds in February, August, and October last year; valuing the company, according to media speculation, between $4.5 to $5 billion. Market leader Flipkart has so far raised over $2.5 billion.

These may seem enormous sums of money for a market that is yet to demonstrate its true potential, with valuations stratospheric enough to seem almost fantastical. Observors of the e-commerce landscape in the country continue to point to non-existent profitability models and think that so far, hefty investments in the space are simply following the 'greater fool' theory where an existing investment is rescued by the next biggest fool who buys into the game.

And yet, for those who stick it out and survive the long game, the prospects are mouth watering. Online retail is pegged to reach $60 billion by 2020 from $4.47 billion last year, according to a report by investment bank UBS. So steady has been the migration by consumers to the web, that Indian newspapers are abound with reports of existing retailers also stampeding to the net after seeing retail sales being impacted by their online brethren.

The race has never been as frenetic as it has in the last several months and promises to get more cut-throat. The US major Amazon has in a short space of time given both Flipkart and Snapdeal a run for their money, already infusing over $500 million into its Indian subsidiary within a year of CEO Jeff Bezos promising a $2 billion investment in India. This has had an enormous impact on its competitiveness in India.

Apparently, the US-based Amazon registered a massive fourfold increase in sales figures in the June quarter, and threefold compared to the same quarter a year ago -- figures reportedly "net of discounts, product returns and taxes." Sales figures for Flipkart and Snapdeal have logged a 150 percent and 222 percent increase respectively, compared to the same quarter last year, although these figures apparently do not reflect discounts or returns.

The period from October to December, which contains the holiday period of Diwali, will be a time of reckoning for these three firms; battling each other as they rake in half of their annual earnings when Indians habitually splurge on everything from cars to phones.

Experts say that market share leader Flipkart and Snapdeal, third in the rankings, will have to up their game in order to compete with an Amazon that is benefitting from over a decade and a half of pioneering this field, making it equipped with cutting-edge technology and data analytics.