Flipkart pulls the plug on Letsbuy.com; Is it the right strategy for e-com consolidation in India?

29 May, 2012

The fate of Letsbuy.com, one of the more buzzing e-commerce brands in India till a few months ago, was sealed after Flipkart acquired it in February this year. Late Monday night, Letsbuy has shut down its operations as an independent e-tailer, making it the second case of e-commerce acquisition where the target firm has breathed its last (in another such case, Snapdeal has just downed the shutters on eSportsBuy.

Here's a short recap of Letsbuy before the acquisition took place. The e-com startup was founded in 2009 by Hitesh Dhingra (founder and CEO) and Amanpreet Bajaj (co-founder and COO). Manish Vij, the co-founder of Vun Network, and Nitin Gupta (former country manager, South Asia, at MasterCard and former president and COO at Rediff.com) had made angel investments in the firm. It also received $6 million in venture capital funding from Helion Venture Partners, Accel Partners and Tiger Global (Accel and Tiger Global are also investors in Flipkart).

We have been hearing about the lack of moves to put across a growth roadmap for Letsbuy post-acquisition. And we were surprised when more than a month after the deal, Letsbuy co-founder Hitesh Dhingra told Techcircle.in, "This was a pretty premature announcement as we are yet to sit with the Flipkart management – figuring out integration plans and strategising organisational changes."

The question was whether Flipkart, as an established brand selling pretty much the same things as Letsbuy, needed to have a dual-brand strategy online. "We feel it is too premature to talk about the future as far as the Flipkart-Letsbuy integration is concerned. Currently, we can't comment on the same," a Flipkart spokesperson told Techcircle.in.

The management has now clarified and this is what Letsbuy has to say to its customers:

Dear Visitor,

Thank you for your valuable patronage to letsbuy.com. In order to further improve your shopping experience, we have integrated our operations with the largest player in the category – FLIPKART.COM. We are redirecting all our visitors to Flipkart.com where you can avail the same exciting offers on the entire range of products.

For our existing customers, your order history and status remains secure with us. You can get all details about your existing orders by dialling: 0124 4901234 (from 8 AM to 9 PM).

We once again thank you for your continued patronage and look forward to providing even better shopping experience, now through Flipkart.

Yours sincerely,

The Letsbuy team

While Letsbuy is not auto-directing to Flipkart, the links to specific product categories have been tagged to Flipkart's respective categories/sub-categories. Therefore, clicking on the mobile section on Letsbuy takes a user to the mobile section of Flipkart.

But the question which needs to be answered is what did Flipkart gain out of the whole deal, besides the team at Letsbuy and vendor relationship?

Experts Speak:

Mahesh Murthy of Seedfund, says there is no particular consumer-driven need for consolidation, but there seems to be an 'investor-driven' need. "This is because investors are queasy about completely writing off their investments in unsustainable e-commerce ventures - and are trying hard to exchange their big load of shares in sinking businesses for small amounts of shares in still-floating businesses."

He goes on to add: "My view on this? The bechaara promoters are repaying the favour their investors did them by taking on companies that are in most cases probably not worth the equity. It's just a little favour on the side for them."

Murthy went back to Letsbuy acquisition by Flipkart and said he assumed, at first, there was a rational reason with Letsbuy's focus on electronics. "But then I noticed there was really no material change to Flipkart's electronics portfolio. Then I wondered if Flipkart wanted their traffic. But seeing Google trends reports, one saw Letsbuy traffic falling like a brick once they stopped advertising, and that doesn't seem to be a material issue now either. So I had to contend with the probability that both the companies had two common investors and they simply wanted to exchange one set of equity for another."

What is interesting though is that even with all that ad spend from LetsBuy, the acquirers didn't believe it was a brand worth keeping, Murthy added.

"It would have been impossible for Flipkart to create a sustainable differentiation for Letsbuy. To finance and spend marketing dollars for Letsbuy which is also hugely loss making would have been potentially disastrous," said Arindam Bose, co-founder of Timtara, another electronics e-tailer. He added the only other alternative would have been to make Letsbuy an only electronic e-tailer and to keep Flipkart out of electronic sales.

K Vaitheeswaran, founder and CEO of Indiaplaza.in said, "More than marketing acquisition, it was a financial acquisition (Flipkart's acquisition of Letsbuy). The common investors played a very important role. Both the companies were not profit making, hence the best option was to get merged."

Sandeep Aggarwal, founder of ShopClues, who was earlier an analyst for tech businesses, said: "This is not consolidation but paving way for Flipkart to make it to categories, which Letsbuy handled better than them.  With Letsbuy around, Flipkart found it difficult to penetrate mobile, electronic and home appliance categories."

Unlike Snapdeal, which acquired a lesser-known e-com brand, Flipkart acquired one of the most prominent vertical e-tailers specialising in electronics and with a few million unique visitors a month. Acquiring to kill a brand is not unusual in consumer products and services business, but the speed with which Letsbuy, as a brand, was killed shows that Flipkart is keen to strengthen the mother brand, rather than carry the baggage, and bear the cost of running another e-com site. Is that the right strategy for e-commerce consolidation in India?

Murthy of Seedfund says: "What are the choices? Letsbuy's traffic was largely ad spend dependent. That ad spend was burning holes through the company. Flipkart didn't want to subsidise e-commerce any more than it already is doing so. So it didn't want to support Letsbuy's losses. So that ad spend was cut. Hence LetsBuy's traffic plummeted. And with it, plummeted the perceived value of the brand and the business. And one day, poof! it's gone."

He added, "Sad, but somewhat Darwinian. I would believe Flipkart has enough fires of its own to fight to worry about putting out even more. And this isn't just on the cost side of Letsbuy -I understand there are severe non-delivery and customer service issues that haven't really been looked into."

"In an ideal world you buy a brand for the value therein. But in this crazy environment, not much value was perceived there," signed off Murthy.

What do you think?

For more on consolidation in Indian e-commerce space, also read: RIP Dealivore.com & Other Deal Sites Who Have Quietly Pulled The Plug On Their E-com Ventures