BIRLA|INSTITUTE|OF|MANAGEMENT|TECHNOLOGY

AUGUST 28, 2018

A D IT I V I KR A M

LAKSHIKA RANAWAT

KAVYA KAPOOR

DEEPTHI THOMAS

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The idea of ‘one size fits all’ backfired for a firm that could have been a
market leader: Featuring eBay

eBay entered the Indian market way back in 2004, when the concept of online shopping was
unheard of for a large number of Indians. The only sites that existed then was
Indiatimesshopping.com and Bazee.com. Today, e-commerce has become the new normal for
several Indian shoppers, who buy not only clothes, but also houses online.
Several former eBay executives and market experts, who on condition of anonymity, said eBay
failed to feel the pulse of Indian consumers. Its idea of ‘one size fits all’ backfired for a company
that could have been a leader in Indian e-commerce since it had the first-mover advantage.

India E-Commerce Industry

India's e-commerce market was worth about $3.9 billion in 2009, it went up to $12.6 billion in
2013. In 2013, the e-retail segment was worth US$2.3 billion. About 79% of India's e-commerce
market is travel related. According to Google India, there were 35 million online shoppers in
India in 2014 Q1 and was expected to cross 100 million mark by end of year 2016. CAGR vis-à-
vis a global growth rate of 8–10%. Electronics and Apparel are the biggest categories in terms of
sales.

India's retail market was expected to grow to $675 billion by 2016 and $850 billion by 2020, –
estimated CAGR of 10%. According to Forrester, the e-commerce market in India was set to
grow the fastest within the Asia-Pacific Region at a CAGR of over 57% between 2012–16.As
per "India Goes Digital", a report by Avendus Capital, the Indian e-commerce market is
estimated at Rs 28,500 Crore ($6.3 billion) for the year 2011. Online travel constitutes a sizable
portion (87%) of this market today. Overall e-commerce market had reached Rs 1, 07,800 crores
(US$24 billion) by the year 2015.
A new sector in e-commerce is online medicine, selling complementary and alternative medicine
or prescription medicine online. There are no dedicated online pharmacy laws in India and it is
permissible to sell prescription medicine online with a legitimate license. Online sales of luxury
products like jewelry also increased over the years. Most of the retail brands have also started
entering into the market and they expect at least 20% sales through online in next 2–3 years.

eBay failed to capitalize on its first-mover advantage in India

American online marketplace eBay, one of the first to offer consumers a platform to buy, sell and also pay
for purchases digitally, was also the first global e-commerce major to set up shop in India over a
decade ago. But the Nasdaq-listed company did not capitalize on its first-mover advantage in one
of the world's fastest growing markets for digital commerce, now dominated by
India's Flipkart and America's Amazon.

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In its most significant move in India, eBay said it would invest about Rs 3,200 crore ($500
million) to buy a stake in Flipkart joining technology giant Microsoft in a $1.5-billion funding
round led by China's Tencent. The company will also fold its Indian arm, set up when it bought
local e-commerce startup Baazee.com for Rs 230 crore in 2004, into India's largest ecommerce
company. eBay India head Vidmay Naini, the head of its domestic business Naveen Mistry, and
director of category management and seller services Pankaj Ukey, will join the Flipkart
leadership team. Experts are of the view that the company, which has delivered a fortune to its
philanthropist founder Pierre Omidyar, did not do enough in terms of marketing and strategy to
keep users hooked to its marketplace model in India. It also lagged behind in promoting 'fashion'
as a category, which commands 25-35% margins for e-commerce marketplaces in the country.

“When the (online retail) market turned in India during 2011 and 2012, they did not invest,“ said
a former executive who worked at eBay India and estimates the company currently has gross
sales of below $300 million, mostly in the electronics category. Meanwhile, Amazon has
committed $5 billion to its Indian operations while Flipkart has now raised a total of $4.6 billion
in funding. eBay's most high-profile bet in India, until the latest Flipkart deal, was the investment
in Delhi-based Snapdeal, where it first led a $34-million round in 2013 at a valuation of $210
million.

The online marketplace is estimated to have sold most of its stake for a profit to players like
China's Foxconn and Canada Ontario Teachers' Pension in the last two years, when Snapdeal's
value ballooned to $6.5 billion. Post the merger with Flipkart, the eBay India marketplace will
continue to operate as a separate brand until the backend operations of both companies are
integrated according to people aware of the specifics of the deal.

The Gurgaon-based company has 45,000 merchants selling to Indian customers, while the retail
export business has 25,000 merchants registered on the global marketplace. The marketplace also
lists products from global merchants for Indian consumers. “eBay's sellers in India will have
access to more buyers in the market, and Flipkart sellers will, for the first time, be able to sell to
global consumers,“ said an eBay spokesperson in response to an email query sent by ET.

The India analytics team in Bengaluru will continue to work independently. The local product
engineering team and the business offices in Mumbai, Delhi and Jaipur will see some of the
employees transitioning to Flipkart according to company executives. The exact number of
employees under each vertical was not confirmed by eBay India. Ebay India recorded 52%
increase in losses to Rs 262 crore for FY 2015-16, while revenues went up three fold to Rs 392
crore. If we consider certain causes as to why such a failure occurred, a more suitable answer can
be found.

LACK OF INVESTMENTS

According to him, the Pierre Omidyar-founded global giant would have invested only about $250
million in India till about 2016, whereas its global competitor, Amazon, has committed about $5
billion ever since it entered the market in 2013. Besides, home-grown Flipkart, which started off

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about three years after eBay, has invested close to $2 billion in growing the market and spreading
awareness on online shopping.

Tiger Global-backed Flipkart has now bought eBay India operations for less than $300 million.
Flipkart recently raised about $1.4 billion from Chinese major Tencent, Microsoft and eBay, and as a
part of the deal had to merge the eBay India business with it. Sources said the eBay merger doesn’t
positively impact Flipkart since eBay was hardly doing any business in the country. They said the
total team at eBay India at the time of acquisition would have been around 50. In 2016, eBay laid off
over 300 employees from its R&D centre in Bengaluru. Its India head Latif Nathani also silently quit
the company and went back to the US.

CHANGE OF GUARD

According to another former employee, multiple change of guards also, to a large extent, resulted
in poor management.
Rajan Mehra, who was the first India head, quit the company in 2008 making way for Amabreesh
Murty, who ran the company for five years before quitting the company in 2012 to ride on the e-
commerce boom. He went to found online furniture company Pepperfry.
While Murty did not comment on BusinessLine’s query on eBay’s performance during 2008-2012, as
that was the peak for many players including Flipkart, Myntra, Jabong, and Snapdeal, it is understood
that eBay’s “playbook” was not working in India. According to market experts, the Indian e-
commerce ecosystem has undergone sea change with companies pivoting their models as per
government regulations and also changing market dynamics.

AVERSE TO CHANGE

“However, eBay didn’t change. It was trying to do things in India that it did globally; but the
playbook was not working at all,” said another India official adding that the country was not a
priority market for the global team.
eBay, however, saw a few changes during 2008-12. The company set up a development team in India
with a focus on indigenisation. It had a shopping cart for the first time in 2008 and its first payment
services called PaisaPay.
The company, according to a few current employees, grew 100 per cent year-on-year at a time when
the market was growing 20 per cent. But with the advent of new-age companies such as Flipkart anḍ
Snapdeal, who had no legacy issues, eBay started to show decline in business when Indian e-
commerce activity was at its peak (2012-14). India is not the only country where eBay failed to
create magic; eBay China sold its entire operations to Alibaba in 2005.

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Exhibit 1 Indian E-Commerce sector

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