Taking on Amazon: eBay in talks to sell its India unit to Flipkart

The deal will be part of a $500 mn investment from the US firm to hold minority stake in Flipkart

Online e-commerce giant eBay is in talks to sell its under-performing India unit to Flipkart as part of a deal that could see the US company invest $500 million for a minority shareholding in the Indian firm.

The investment will be part of a $1.5-2 billion funding round, out of which Flipkart has already secured $1 billion from China’s Tencent and Microsoft. Flipkart is being valued at close to $11 billion for the latest funding round, lower than its previous high of around $15 billion.

Business Standard had reported about the merger talks between Flipkart and eBay India on March 21, stating that it would give the firm a chance to play in India’s consumer-to-consumer (C2C) e-commerce market. Flipkart’s biggest rival Amazon owns peer-to-peer marketplace Junglee and recently integrated the services with its main platform.

Despite eBay having a first mover advantage in India after acquiring Baazee.com in 2004 and making an entry into the market in 2005, it has been relegated to the sidelines. The company is outranked not just by Flipkart and Amazon, but also by younger local firms Snapdeal, Paytm and Shopclues.

While undergoing one of its biggest transformations globally, eBay has been showing lesser and lesser interest towards its India marketplace. The company’s current focus is towards once again becoming relevant to users in developed markets such as the US and Europe.

With its investment in Flipkart, the US firm plans to remain a stakeholder in India’s fast-growing e-commerce marketplace that hit a high of $18 billion in 2016.

Signs of this waning interest were seen when eBay reported a one per cent decrease in the growth of active buyers globally, citing the folding of a campaign to acquire new users in India as the reason for this development. “Specific to the deceleration, it's really driven by lapping a campaign we did last year in India,” said Scott Schenkel, CFO at eBay, in a call with investors to discuss the company’s Q4-16 earnings.

For Flipkart, the investments from eBay, Tencent and Microsoft give it the firepower to take on Amazon’s fast-paced expansion in India. The company underwent tremendous stress in the past 18-24 months with a complete top management overhaul. However, it seems to be settling in for the upcoming fight with Amazon and Chinese giant Alibaba.

As for the C2C e-commerce market in India, it is currently dominated by players such as Quikr and OLX. Snapdeal, the number three e-commerce player in India, recently exited the C2C business when it shut Shopo. However, Amazon continues to remain bullish about this market.