ADVERTISEMENT

Is eBay the best bet for reviving Paytm Mall’s fortunes?

Is eBay the best bet for reviving Paytm Mall’s fortunes?
Photo Credit: Thinkstock

The word on the street is that global e-commerce firm eBay Inc is mulling a third strategic bet on an Indian online marketplace by pumping money into Paytm Mall. 

A potential investment of $160-170 million has raised a few eyebrows given that the e-commerce arm of the Vijay Shekhar Sharma-led Paytm group is currently struggling for relevance in the face of Flipkart and Amazon’s dominance. In addition, its biggest investors -- Chinese e-commerce giant Alibaba and Japanese investment behemoth SoftBank -- appear to have cooled their interest amid mounting losses.

Paytm Mall is in the midst of a pivot. Thus far, a cashback model has been central to Paytm Mall’s pure-play e-commerce strategy. But both the company and its key investors now seem to be realising that this game plan has not worked.

While dismissing reports of a shutdown earlier this year, Sharma had said that Paytm Mall would generate the bulk of its business from the online-to-offline (O2O) segment, with the rest coming from warehoused items and its newly-launched wholesale vertical.

Sharma had also said that Paytm Mall was expected to double its gross merchandise volume (GMV) to $2 billion by March this year. GMV is the total value of all goods sold on a platform.

But according to The Economic Times, which reported eBay's potential investment, Paytm Mall’s shipments fell drastically from 1.5 lakh a day last October to 35,000 last month. In addition, its market share has also reportedly halved since 2017.

“A true marketplace is a myth. It can't happen in a broken ecosystem like India.” said a serial entrepreneur who has previously worked with a top venture capital firm. “I would think twice about pumping money into Paytm Mall; it has not shown any execution prowess so far.” 

Paytm Mall was launched in 2017. In April last year, TechCircle reported that Paytm Mall’s parent firm Paytm E-Commerce Pvt. Ltd was raising $446 million (Rs 2,892.50 crore then) from Alibaba and SoftBank. In all, it has raised more than $600 million so far.

Paytm Mall’s losses mounted to Rs 1,787.5 crore for the financial year ended March 2018. Operating revenue, however, rose to Rs 744.1 crore in 2017-18.

This was the second year of operations for Paytm Mall as an independent identity after a restructuring exercise in 2016. The e-commerce arm earns from a service fee it charges merchants as well as advertising revenue.

“Paytm Mall has always been looking to open the gates of its pure-play marketplace model -- along the lines of Alibaba’s TMall -- where it does not want to hold inventory and end up replicating Flipkart or Amazon,” said Satish Meena, senior analyst with market research firm Forrester Inc. 

“So far, the strategy seems to have not worked in Paytm’s favour, with issues like quality and consumer experience being a thorn. So it is quite telling that Paytm has to shift gears and change its e-commerce strategy,” he added. 

The change in focus coincides with a management rejig at Paytm Mall. In the recent past, the online marketplace has appointed new heads for its finance and marketing departments, certain unstructured categories and the groceries vertical. In addition, senior vice-presidents Saurabh Vashishtha and Amit Bagaria have quit.

But apart from fresh faces, experts say that what Paytm Mall really needs at the moment is more investors. While eBay may not pump in a significant amount for a company of Paytm Mall’s scale, an investment could still serve as a breath of fresh air. In addition, US-based eBay’s expertise of running a global marketplace could help bring about effective changes in the way business is done at Paytm Mall.

“There are two sides to this potential investment deal, which is a bit of a symbiotic one,” said Meena. “For eBay, it is about making a re-entry into the India market. For Paytm Mall, it is about securing the backing of a new set of investors to stay in the hunt.”

While eBay had an early-mover advantage in India, its pure-play marketplace model struggled to cope in the face of heavy investments from younger rivals Flipkart, Snapdeal, and Jeff Bezos-led Amazon. It later decided to make strategic investments in Flipkart and Snapdeal. 

eBay sold its holdings in Flipkart for about $1.1 billion after the Indian e-tailer was acquired by US retail giant Walmart last year. 

The online selling platform also ended its strategic relationship with Flipkart in the process and terminated the homegrown e-tailer's licence to use the eBay.in brand. eBay later re-launched its Indian operations in a new avatar focusing on cross-border trade. 

While eBay recorded gains on its investment in Flipkart, it had written down its investment in Snapdeal in 2017. eBay had invested Snapdeal in 2014 and made a partial exit in 2016 at a profit. 

But with eBay suffering growth pangs globally, the characteristics of the Indian e-commerce market remain an attractive proposition.

“The broad strategy is to use this investment as a means of re-entering Indian commerce through a collaboration with Paytm,” said Meena. “As its struggles continue in other markets, it has to expand into new markets which are fast-growing in terms of the internet and digital penetration.”

However, there are still question marks over whether both parties have the wherewithal to cope with the complexities of India’s e-commerce landscape. It also remains to be seen whether eBay will have a significant say in the boardroom of Paytm Mall. 

That said, recent media reports suggest that eBay could end up with a double-digit minority stake. In such a scenario, eBay can bring in more value with its expertise and could perhaps engineer a turnaround for Paytm Mall and potentially take a bigger share of the Indian firm in the future.

Share this Post

Comment(s)

ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT