In Feb 2015, one of the largest e-commerce of India, Snapdeal acquired FreeCharge in the largest M&A deal worth around $400 Million. This was the largest deal in consumer internet space in India. After this deal, both entities have claimed to be the largest mobile commerce platform with over 40 million customers.
FreeCharge and Snapdeal both have been founded in 2010 in Mumbai and Delhi by their founders Kunal Shah and Kunal Bahal Respectively. FreeCharge is India’s leading mobile commerce platform where users can pay their mobile, DTH and utility payments across most major operators. Every day 75 million mobile recharges are done in India by a section of India’s 800 million mobile phone subscribers, out of which currently only 3 million recharges are done online. Snap deal is the one of the biggest online marketplace of the country. They offer around 10 million products of different category to the customers.
As both the start up giants, FreeCharge and Snapdeal have started their journey in 2010. Both of them are the biggies in their business, what makes Snapdeal to go for the acquirement of FreeCharge. For no doubt the deal with FreeCharge has made the Snapdeal to stand much ahead of its competitors. Business Alligators has consolidated few more points behind this biggest M&A Deal:
1. Building an E-Commerce Ecosystem
This deal between two startup giants has a great impact on the current market. E-Commerce Ecosystem is the next future of Indian e commerce which is nothing but a complex network of different business processes. Before dealing with FreeCharge, Snapdeal had already acquired small entity businesses like RuppeePower, GoJavas, Exclusively.com . After this biggest M&A deal, Snapdeal claims to be the largest e-commerce ecosystem of India. Snapdeal is sneakily following the steps of Alibaba of China. Alibaba in China, has built up such an ecosystem of ecommerce that it has created a clear dominance in the China market place. In China 80% of the sale has been done through the various avenues provided by Alibaba Group.
The Co-founder & CEO of Snapdeal Kunal Bahal said
At Snapdeal we are building an ecosystem that powers billions of digital commerce transactions in the country in the coming years. With this game changing partnership with FreeCharge, We have significantly enhanced our user base and now offer all customers access of the widest selection of products and services online, marketing digital commerce an even more intrinsic part of their lives.
This acquisition will help Snapdeal in cementing its position as a comprehensive e commerce ecosystem in India which covers marketplace, logistics and payment services similar to Alibaba.
2. Giant step towards M-Commerce
Mobile commerce is the next big thing in the coming future of sales. Mobile commerce is a kind of shopping or transaction of money done at wire free gadgets such as mobiles, tabs etc. Many ecommerce website had shut down their website and went on only app based shopping. Myntra is a live example of it.
According to the survey of Snapdeal, in 2013 30% of all the transactions have been done via m-commerce which went on inflation in 2014 by 60%. As per their projection, in coming 3 years it shall be increased till 90% of total sales.
Now come to the FreeCharge business model, they provide services to recharge mobiles and give coupons of other vendors of same amount. It means, FreeCharge has user base which is using mobile phones. If we consider FreeCharge’s customers are 100% mobile oriented then, this is the best decision Snapdeal made ever.
3. Increased User Base
Snapdeal is working towards increasing its customer base. Currently approx 40 million customers do the transaction with Snapdeal. After the acquisition, FreeCharge’s customer base which is more than 20 million as of now is added to Snapdeal’s.
As of now only about 4% of total mobile users have been doing online mobile recharge. It means only a fraction of users are online customers and rest of them is moving towards online recharge. This can be seen as a greatest customer base for Snapdeal. It is estimated that 75millions of mobile recharge has been done in every 24 hrs, out of which 3 million has been done online.
FreeCharge is also getting benefited by getting new customers from Snapdeal. FreeCharge has been less introduced in Tier 2 and Tier 3 cities. FreeCharge, by deal with Snapdeal, which has a great market place in these cities, can get introduced with these small cities customers.
The merge of these two startups can be seen as an interesting mix of revenue generation from metro and non metro customers.
4. Earned New Investors
The Indian e commerce giants are competing robustly to get investment in the largest share from investors. Flipkart raised $2billion by Tiger Global and Amzon is self funding from Amazon USA. Snapdeal was looking for a big back support from investors.
The deal with FreeCharge benefitted Snapdeal in many aspects. Snapdeal can rely on investors of FreeCharge. This advantage stands Snapdeal far ahead from its competitors. Sofina Group, a Belgium based investment firm has been invested in FreeCharge. The same investment firm happens to be a major investor of Snapdeal’s biggest competitor Flipkart. This can be seen as major fall for Flipkart.
Plugging into FreeCharge will boost the valuation of Snapdeal getting the next round of fundings. For investors, the customer base and daily transaction rates are key parameters to evaluate the company.
5. Market Consolidation of E-Commerce and M-Commerce
The biggest competitors of Snapdeal are Flipkart and Amazon. While Flipkart is backed by Tiger Global and Amazon is self financed by Amazon USA, Snapdeal was being left to find out investors who can believe in them.
Last year Snapdeal was funded by Softbank valuating $627 million; this valuation took Snapdeal to more than $2 billion. Softbank is also invested in Alibaba which is invested $575 in Paytm which was the largest m commerce before Snapdeal and FreeCharge deal.
So, Softbank is holding shares of Snapdeal, Freecharge and Paytm and industry is looking it as biggest e commerce and m commerce market consolidation because this investment leaves three major biggies to fight out for dominance – Flipkart, Snapdeal and Amazon. As Snapdeal has the ownership of Freecharge after the deal, no doubt Snapdeal stands out as the winner.
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