Why forced mergers in the eCommerce space is a good thing

Right now there are many distraught entrepreneurs and industry watchers who are either a) saying “I told you so” or b) saying “this is bad for startups”, when they read the latest “forced merger” between several eCommerce companies. While many felt it started with Flipkart and Letsbuy, the most recent BabyOye and Hoopos has more commentary on the negative side.

While we in India, have been witness to these mergers only in the last few years, this has been happening in the valley for eons  The new age name given to some of these funded startup exits is acqui-hire. Somehow acqui-hire in the valley is great and forced mergers in India is not.

There are and were many naysayers when there was a raft of funding in the eCommerce space a few years ago. Many folks were right about unsustainable business models, rampant discounting, unsustainable customer acquisition costs, etc. To them I say:

From Alfred Lord Tennyson’s poem In Memoriam : 27, 1850

“‘Tis better to have loved and lost
Than never to have loved at all.”

The eCommerce bubble in India has created a new set of entrepreneurs. They did it with other people’s money. No one really lost except for the LP’s who I am sure are now once bitten, twice shy about returns from Indian startups.

Honestly though, I have talked to 5 Limited partners at large organizations who are disappointed with returns from Indian Venture capital, but also realize they dont really have much of a choice but to stay invested.

There are some that claim that other deserving entrepreneurs, who were working on non eCommerce startups, were ignored during the eCommerce bubble. That’s absolutely nonsense.

In India over the last 3-5 years, if you were a good entrepreneur with a good business, great team and chasing a large market, you were able to raise money. The ones that did not get funding, either were chasing smaller markets, were going to grow slowly or were not sufficiently good teams.

Now what do I claim that mergers are good for Indian startups?

1. They help companies and their employees consolidate to create one large player in a mid-sized to big market, instead of 10 players chasing the same market and being extremely competitive.

2. They provide a means of employment for the many employees at those companies who were not the founders or the investors.

3. They give hope to the many entrepreneurs in the making that you can have a “failure” and still be considered for another opportunity in a startup.

4. It provides the investors an opportunity to consolidate their portfolio and hence double down on their winners, without spreading themselves too thin. That way the remaining portfolio companies win.

5. It frees up time from several investors having to spend time on middle-of-the-road companies, and gives them more time to spend chasing new opportunities.

6. It is easier to merge a company in India than it is to shutdown. The process to shutdown a company is also a lot more expensive.

Anything I missed on the other goodness from the eCommerce forced mergers?

6 thoughts on “Why forced mergers in the eCommerce space is a good thing”

  1. Nice post! Could another good thing coming out of this consolidation be a potential rise in new age, highly-focused, vertically integrated, niche and refreshingly different online stores in India? US parallels to this would be Internet retailers like DiamondCandles, NatureBox, LittleBlackBag, Ice, Fab etc.

  2. Well written. I think the other big point is that with fewer players the businesses can focus on becoming viable businesses. eCom companies have been undercutting each other for market-share – and they now have to focus on surviving and thriving with at least break-even unit economics.
    Consumers should buy from eCommerce companies for reasons of convenience and access – not necessarily price – and with fewer players the real benefits of eCommerce will need to be better appreciated.

  3. Hi Mukund – have you ever worked at an eCommerce startup in India? Where on Earth did you come up with this line – “They provide a means of employment for the many employees at those companies who were not the founders or the investors.”

    I worked for an extremely-well-funded startup in Delhi from Jan-Aug 2012, which squandered most of its $17M in funding on beer, parties, wrong-hirings, models and celebs without practically doing anything RIGHT – and guess what? I jumped ship when I knew the worse is gonna come – and soon the company got canned, the 2 US-Indian owners exited with millions in their pocket – and a few Senior management guys (like myself) joined someplace else. The acquisition which was forced by India’s biggest VC (in top3) with another major player – closed down both offices in Delhi & NY, and sacked 90% of the employees. I was there when we had to fire over 300+ employees in 1 day, in a few hours time. All were crying and so much pandaemonium. Had to pull my strings at other companies and got some of my friends placed in some other eCommerce companies.

    You’re a learned man and full of wisdom (I believe).
    But please STOP writing non-sense and misleading people.
    Its understood you are working at an Accelerator, so startups and Indian eComm industry is your daily bread-and-butter, but don’t write non-sensical stuff.

    Here’s my take on the job market right now.
    I get loads of messages daily – so compiled this post.
    Your posts are good to read but are fantasy. You’re optimistic.
    Mine are hard facts but reality. I’m a realist.

    URL: http://fewrandomrantings.wordpress.com/2013/03/31/word-of-caution-questions-to-ask-before-joining-an-ecommerce-startup-in-india/

    1. Subhasish I take it you had a bad experience with your eCommerce startup. To answer and address some of your questions. Yes, I ran an eCommerce startup in India. Jivity. We were merged forcibly as well. Most employees ended up at the new entity. Same for the 4 other eCommerce startups I have known personally. There are always exceptions to the rule like you mention. There are always bad eggs, but that does not make all eggs bad.

      Regarding me being an optimist, I am unabashedly one. Always will be. Entrepreneurs mostly are.

  4. Great post Mukund, a realistic take on M&A, versus the doomsday or holier-than-thou narratives that I keep seeing about Indian e-commerce.

    IMHO, from a product and UX perspective, many of these e-commerce startups have helped elevate the quality of the overall ecosystem. While there are many e-comm startups which clone product and UX models from other markets, there are folks like Cleartrip, Zomato, Urban Ladder and others who have invested in getting on board not just top talent, but also good processes.

    From a UX perspective, the ecosystem in India would have been far poorer if we didn’t have all these e-commerce plays being funded. Good talent needs a home to flourish and e-commerce companies attracted a talent pool, which otherwise often joined BigCo and stayed there forever. After the market shakeups this hardened talent is now available for other tech startups or the Googles/Facebooks ops in India. Every week I hear from some startup or the other wanting to find the right designer, and most of these entrepreneurs want distinct user experiences. E-commerce furnaces have certainly helped expand the good designer pool in India : – )

    Its evolution at play and faster unlocking of value. E-commerce M&A activity is just one of the mechanisms for India’s product space to keep evolving faster.

  5. Great article. Ultimately, the business has to work for the company and its investors and products / offerings add value to the customers. A synergistic forced merger will help grow the business and chip away duplicate effort. In addition to the point on market, the concept will also help consolidate supply side ( if part of the business model ) and better negotiating power as the demand side is amplified. Depending on the evolutionary stage of the merging entities, the demand side merger and brand could be a single browser or left as separate browsers for a greater market share ( to avoid cannibalization ). E.g. Expedia has made several acquisitions but they remain separate brands.

    However, an important aspect to consider is the integration and risk of failure arising out of the same. It requires a lot of maturity on everyone’s part to make things on the ground work. There are dynamics of cultures, people, styles, even egos that will come to play. As long as each stakeholder understands that central supreme pillar is the business which is non-negotiable, it will bind everyone to a common cause and help everyone move move towards a greater chance of success. The boards and investors will probably have a bigger role to make things work. .

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