In the $3.1-billion Indian e-commerce market (excluding travel), scale will matter.

 Thursday’s tea party featuring Flipkart.com founders Sachin and Binny Bansal and Mukesh Bansal, the charismatic founder of fashion e-retailer Myntra, proves that Indian e-commerce players will pull out all stops in their drive to bankroll expansion plans. The biggest buyout in the Indian e-commerce space will give ‘Myntkart’ an edge over Snapdeal, Homeshop18, Jabong and eBay, not to mention Amazon, who have been snapping at Flipkart’s heels. Consolidation in the industry is desirable in a situation where only 18 of the 52 e-commerce startups in India, who raised $700 million in venture capital in three years ending 2012, have successfully raised follow-on investments. Hence, the trend of smaller players forced to merge with bigger rivals who have access to capital – Flipkart raised $360 million last year – and strong pricing power.

Conversely, there lies the growth conundrum. E-commerce has grown on the back of payment and delivery convenience for a middle class hard-pressed for time; growth has been slow, though not spectacular enough. The online fashion market has been equally laggardly, while Amazon and eBay have been adding new product categories and slashing prices to Flipkart’s consternation. Besides, a big ticket deal between two companies who have not shown profits in seven years of operations will provoke gibes on dotcom-style valuations and returns on investment. When the transaction comes in at approximately Rs 1,800 crore, going by investment banker information, the question of breakeven is clearly not to be ignored. Flipkart is keen on replicating its success in the pivotal electronics vertical with fashion as well. 

Both Flipkart founders who are former Amazon staffers, have sidestepped comparisons with the Seattle-based online biggie, and prefer to be graded with China’s Alibaba, an e-commerce behemoth whose sales may surpass $180 billion this year. Such an aspiration is understandable, though premature. Amplifying Flipkart’s presence will require the Bansals to make every rupee put into Myntra count by way of scaling up supply chain efficiency, investing in third party warehousing facilities and rapidly expanding delivery tie-ups in the Asian market to cater to overseas buyers of Indian fashion clothing and accoutrements.