NEW DELHI: As India's leading ecommerce players fight it out for the top spot they are attracting more overseas investment which they are using to attract greater numbers of customers with discounts.
This year has seen a frenzy of fund-raising. In May, Flipkart raised $210m on a valuation of $3bn, with a further $1bn following in August when its valuation had risen to $7bn. It is now reported to be seeking a third round of financing at a valuation of $10bn.
Japan's Softbank has invested significant amounts in Snapdeal, which also raised $627m recently. And Amazon has announced $2bn of investment in its Indian operations.
The Economic Times noted how these three alone had "guzzled about half a billion dollars of investor money doling out lavish discounts during their much publicised Diwali promotions" and argued that Indian consumers were in effect being subsidised by investors on Wall Street.
According to one media planner, the top six ecommerce businesses have together spent around $200m on advertising, a figure that puts them among the top 25 advertisers in the country.
Nor is it just the big names that are chasing investment and custom. The Business Standard listed a number of niche players which had raised between $100,000 and $10m in multiple rounds of funding. And an ecommerce portal for personalised invitations and stationery business launched in October has just picked up $1.5m in seed funding as it targets the $1bn event invitation market.
The use of heavily promoted discounts to attract new consumers is fuelling growth at the expense of profitability, a situation few expect to last longer than two or three years before there is some consolidation within the sector.
"Is Indian e-tail really growing that fast that a firm which was valued at $1bn in November 2013 is now being valued at $10bn a year later?" asked FirstBiz.
Arvind Singhal, chairman of retail consultancy firm Technopak, said the current valuations of ecommerce companies defied logic. But he thought that "three years from now, the dust will have settled with fewer players and a return to normalcy".
Data sourced from Economic Times, Business Standard, FirstBiz; additional content by Warc staff