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It's hard not to blame Softbank for its desire to see Amazon wedded to Flipkart. It slapped down $2.5 billion last year for a 24-percent stake in the Indian e-commerce leviathan, hoping that it could build a larger, potent force in India through the marriage of one of its other children, PayTM, a payments solution company, with Flipkart.
It would have been a perfect fit. PayTM, the king of digital payments in India, is spreading its tentacles to financial services such as mutual funds and insurance, as well as becoming a growing e-commerce presence (PayTM Mall). Most importantly, for Softbank, it is a company 40 percent owned by Amazon's alter ego in China, Alibaba, of which Soft bank owns 28 percent. (This stands as perhaps one of the greatest bets in recent venture capital lore -- where the Japanese company's $20 million has translated into a $78 billion holding). Therefore, folding Flipkart and PayTM into one entity, with deep pockets, to rival Amazon in India would have been a master move.
Amazon -- as is the nature of Amazon -- wants to be the biggest, baddest river of opportunity in every possible sphere of human consumption as we well know, forfeiting profits and instead using the free cash it generates to conquer as many strands of business as it possibly can.
Yet, despite boasting gargantuan accomplishments and brazen ambition, Amazon couldn't eke out even a modest presence in the one place it was desperate to do so -- China. There, it failed miserably, thanks in part to the clever way in which government restrictions have stifled overseas investments in internet properties (Facebook, WhatsApp, and Google are blocked), and the unstoppable combination of e-commerce juggernauts Alibaba and JD.com have reduced Amazon's market share for gross merchandise value in the country to a hard-to-believe, sub 1-percent figure.
Which brings us to India, the only other place in the world that the Seattle-based company can make up this lost opportunity. With e-commerce estimated to balloon to $200 billion by 2026, Amazon has adopted a take-no-prisoners attitude in the country and slapped down $5 billion in investments over just the past few years and made rival Flipkart sweat.
Flipkart and Amazon have been going head-to-head ever since Amazon dipped its toes into Indian waters. While Flipkart has suffered an occasional bruising (the Amazon customer experience has long since been acclaimed superior by users and industry observers), it has somehow managed to stay ahead in gross sales. The company has also had trouble in the recent past raising money and suffered some ignominious valuation haircuts, so you can imagine the keen interest -- if not desperate desire -- its early investors (Tiger Global, Naspers, and Accel Partners) would harbor in cashing out for a tidy sum instead of continuing to battle a fierce rival with seemingly bottomless pockets.
So, when Walmart -- a firm itself stumbling to navigate the e-commerce terrain in the US and repeatedly put to the sword by a rampaging Amazon -- came along as a suitor, it was clear that there would instantly be a conflict of interest between its array of investors. Softbank, having watched its potential fantasy of a PayTM-Flipkart marriage destroyed, is now in it only for the money, having invested as late as last year and paying a relative premium for its stake. With Amazon apparently willing to pay at least 10 percent more than Walmart's roughly $20 billion offer, it would stand to gain a cool $500 million or more, and no investor in their right mind would want to stand this offer up.
Flipkart's early investors on the other hand are well aware that the Competition Commission of India (CCI) is scrutinizing the deal carefully as we speak, and they may put a spanner in the spokes of one that unites the two biggest existing players with over 80-percent market share and a clout that no one can hope to compete with in the future. These investors are also apparently not convinced that Amazon will not eventually back out of the deal and ruin everything.
For them, the Walmart deal is without doubt the best offer on the table, one they cannot afford to watch getting torpedoed. But it looks like Softbank has other ideas.
Previous and related coverage
Walmart need's SoftBank's go-ahead to invest in Flipkart, but SoftBank will not be keen to exit such a prized investment so early.