Amidst all of this, Sameer had kept in touch with Binny. Flipkart had always wanted to establish a payments business but had failed to come up with an attractive product. The advent of UPI and the technological expertise of Sameer and Rahul seemed a compelling proposition to Binny, who offered to buy out PhonePe even before its app had even been designed. The negotiations continued for many weeks, as Sameer sought assurances that the constant volatility at Flipkart wouldn’t derail PhonePe’s advance. Finally, at the end of March, a deal was agreed. While PhonePe would become a subsidiary of Flipkart, it would function independently. The transaction was structured in a mutually beneficial way – as PhonePe expanded, it would trigger increasing amounts of stock payouts to Sameer, Rahul and their colleagues. The bigger PhonePe got, the more wealth its executives would accumulate, making it an overall win for Flipkart.
Sameer extracted one critical concession: if Flipkart replaced its current CEO, the stock payouts due to Sameer and his PhonePe colleagues would be accelerated.
BY EARLY 2016, the euphoria around Indian startups had all but vanished. Venture capitalists found that they had vastly overestimated the size of the internet market as well as the speed at which startups could be built here. They had seen many companies devour capital and still produce only meagre revenues. After realizing that many of their portfolio companies had no future, investors turned tail. Instead of finalizing a deal in days, they dwelt over decisions for months. The balance of power that had fleetingly moved in favour of entrepreneurs was now restored to the side of the venture capitalists. An engineering degree from an IIT plus a bright idea were no longer enough to attract millions in capital. Startups that had already raised capital were ordered by their patrons to cut losses. This proved to be fatal for many firms, whose business models had not been set up for self-sustenance. As soon as the supply of capital was severed, small and mid-size internet startups immediately diminished in size. Several startups wound down like pricked balloons. Some were sold at cut-price deals. Thousands of startup employees lost their jobs.9
For now, the biggest startups had enough capital to avoid such an outcome. Far too much money had already been invested in these companies. The fate of their investors hinged on their survival. And so, these companies, too, faced a reckoning. The most prominent among them was Snapdeal. In August 2015, Kunal Bahl had claimed that Snapdeal would overtake Flipkart by the end of the year. A few months later, it had come nowhere close. Snapdeal had relied on incessant discounting to win market share. By the end of 2015, it had become clear to SoftBank as well as Snapdeal’s other shareholders that persisting with this approach would lead to destruction. Amazon wasn’t going to lose a price war. Flipkart, too, had far more capital. Never mind toppling Flipkart, Snapdeal would now have to fight for its life. The only means of survival was to reduce costs, discounts, salaries, marketing, everything.
Discounted phones had comprised a large part of Snapdeal’s sales. As soon as the discounts were lowered, customers deserted the platform. To nobody’s surprise, a big chunk of Snapdeal’s business vanished. While Flipkart and even Amazon had dangled low prices to lure customers, Snapdeal’s dependence on this tactic was the highest. And unlike its rivals, Snapdeal lacked a substantial infrastructure of warehousing and logistics; in effect, it was simply a website showcasing goods.
In normal circumstances, Snapdeal’s loss should have been Flipkart’s gain. But Flipkart was slow to react, too busy sorting itself out to accept the gift. The business that Snapdeal lost forever in early 2016 went instead to Amazon. As Snapdeal’s smartphone sales collapsed, it was overtaken by Amazon almost overnight. It marked a stunning turn for the American retailer in India. Even though it had launched many years after Flipkart and Snapdeal, Amazon had already accumulated the widest range of products. It offered about fifty-five million products as opposed to Flipkart’s forty million and Snapdeal’s thirty-five million offerings. Among the three, its sales composition was the most diverse and well-balanced. It had built up a massive network of e-commerce infrastructure. It now operated twenty-one warehouses and supported fifty others owned by its sellers. Flipkart had just seventeen.10 Now that it had overtaken Snapdeal, Amazon had Flipkart within its sight.
Amazon had already persuaded Xiaomi to break its exclusivity pact with Flipkart in late 2015. A few months later, it even lured away Motorola from its rival. And apart from spending on infrastructure, Amazon splurged tens of millions of dollars every month on discounts, marketing and subsidized order deliveries. The company believed it had, in all likelihood, lost out in China because it hadn’t invested enough in expanding its operations there. It wouldn’t make that mistake in India. Amazon’s ascent to the top of the Indian e-commerce market seemed unstoppable.
At Flipkart, Binny wasn’t overly bothered by Amazon’s rise. Flipkart was nimbler than its greatest rival, which, after all, was just an outpost of a large multinational company with its attendant bureaucracy. Flipkart, on the other hand, was an agile startup, a local company, created by Indians, for Indian customers. Binny believed that Flipkart’s understanding of the market was far more nuanced. He took great pride in Flipkart’s record of coming up with market-changing innovations. Though the company had lost its way for a few months, its business was largely intact, unlike the case with Snapdeal. It had held on to its position as market leader, if only by a thread. Binny was convinced that if Flipkart resolved its problems, the company would easily prevail over Amazon.
Unfortunately for him, the first five months of 2016 happened to be an especially vexatious period in e-commerce, even worse than the second half of 2012 when Flipkart’s business had suffered a
