The much needed voice of sanity ! Vaitheeswaran K
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Thanks for the share. This article clearly shows that there is still space for smart players in the market who are focused on organic growth.
Such an amazing and detailed analogy. But seriously, why would Walmart make such a decision? $20B is not a joke!
1000 percent in agreement
I was about to ask the same question Saurabh Chakrabarty. And Dr Aniruddha Malpani, during dot com boom, I remember Vinod Kosla’s retort to formidable Peter Drucker. The later called the dot com frenzy (of valuing revenueless companies at astronomical levels) a mindless gamble of sorts. In response, Kosla called Drucker an idiot (his words) for his statement (it was either in Forbes or Fortune, not sure). The level of temerity that Kosla demonstrated never left my memory.
Eventually, Kosla turned out to be very tight. The Druckers and Buffets took years to understand the dot com frenzy.
Are we in a position like that now? Are we settling for a simplistic interpretation for something that is beyond our comprehension?
Despite Vaitheeswaran K’s truly exemplary writing, I’m afraid it’s devoid ofmeat on the “buyer’s perspective”. I’d, like the author did, rather scratch my head and exclaim that this doesn’t make sense. And not be in a hurry to call Wallmart stupid. But then again, my knowledge in M&A arena is limited to watching themn from light years away!
Loved the line “the primary responsibility of entrepreneurs is to create sustainable business models in a frugal manner”. 🙂
I think the deal represents the point where start up bubble is at its macimum and about to burst
Saravanan Balakrishnan actually, the dot com boom did turn into a bust, so Peter Drucker was right. Only a select few of Vinod Khosla’s bets paid off – but the ones which did paid off in spades !
All I can say is that we live in interesting times !
Brilliant analysis! Puzzling buy, considering that all the previous buys haven’t exactly set the imagination on fire!! Walmart’s strength still lies in how tightly they manage the supply chains. But given that they plan on retaining flipkart as a marketplace, it isn’t clear, how this buy even makes sense.
Points are pretty much valid
Thanks for sharing, great insights and straight to the point
Interesting read for all.
sense prevailing . Thanks .
As per global norms all online companies are overvalued in the range of at least 30%-70%. So by that logic Walmart would have overpaid by at least 1.3X if not more. But then i rest that case to the deal makers and the iBankers who would have prepared snazzy synergy models.
I especially respect Mr. Vaithee and empathise that he was on the wrong end of the early e-com play in India. But then trivialising the effort and execution to building a sizeable business one can’t say “Walmart overpaid actually they could look at Flipkart deconstruct the parts and build it in 3 years with $5Bn”. Thats utter NONSENSE. Well his ex-colleagues and friends have been building BigBasket(inventory driven model) since 2011 with singular focus and execution and its 2018 and they are market leaders.
Flipkart like any business has good parts and bad parts and go knows how much each parts were valued at. Thats one part. We think of the price, but i remember reading an article wherein Amazon’s bet in India was more like $35Bn. Thats day zero. Walmart has a lot of cash on its balance sheet this was a way for them to get into the India B2C/Marketplace story. The game will change if and when FDI in retail will be allowed with some protection to smaller guys.
I heard that in Walmart stores some cheap items are displayed on the store front. Thats to drive the traffic in. And once inside human psychology you buy and don’t do too much of price comparison. I know a few retailers globally who do this…
Maybe the best is yet to come. We can all be armchair cynics in the meanwhile 🙂Â
This article is laughable. His strategy to acquire 40mn transacting indians is to give away 40mn smartphones at a cost of 5bn USD. If Walmart was listening to him, they would be 5bn out of pocket with a database of 40mn non transacting users and nothing else to show for it. This tells you how much credibility the rest of the article has. There is a recurring trend in India of taking potshots at people who have put years of effort into building value by coming in at the last minute with some nonsensical tripe to play to the gallery. Unfortunately the galleries are always filled with many who have never put in the hard work and so for whom it is very easy to believe such nonsensical analysis as in their opinion – everything is very easy. Just be the 2 guys of 1.2bn who managed to raise 7bn and acquire 40mn users – nothing could be easier right ?
This is the worst piece advice I have ever read online on any social media platform by a mile by a very well respected and otherwise intelligent human being. Anyone who has ever managed P/L of a consumer product brand knows there probably no worse advice than this.
This is exactly why I still believe the startup India can learn a lot from corporate India.
At a more interesting and important level Dr Aniruddha Malpani, by the logic of people like Drucker, Porter, and Welch, in today’s time, the acquisition makes prefect sense. The problem isn’t if Walmart is paying the right price at all, the problem is if Walmart can do anything even after paying the right price, given their limited understanding of the space.
I understand where hes coming from but the analysis is factually wrong on too many levels. I doubt anyybody thinks walmart is a commercial acxquisition rather than a factual acquisition.
Precisely to the point. But I wonder if there is a tech lever that can deliver a lucrative online shopping experience and drastically alter the projected market share of 6% in the future.
Great point of view. Would love to understand the opposite perspective too before commenting.
Lalit Advani enough ink has been spilled by many journalists who have been trying to explain why it is such a great deal.. After all, any deal worth so many billions of dollars must be wise. Wealthy people are always correct ?
Not so much needed voice of sour grapes!
1. I, on principle, don’t believe is VC/entrepreneur bashing irrespective of whether or not they are doing well(unless ethics are involved) 2. There is a reason Flipkart makes losses i.e. hypergrowth which is required if you have to stay ahead ahead of Amazon. Flipkart is the only company across the globe(outside China) which has done it 3. Arguing that Walmart/Softbank/Naspers/Accel/Sofina etc are all wrong & I am right makes no sense to me. Its not about “rich” people being right as you pointed out in another post, these are people who have backed & succeeded with some of the biggest startups in the world. If nothing else, they deserve the benefit of doubt for that.
Adarsh Sharma there is no bashing here. Just his opinion that they overpaid, and the facts to back this up
It’s interesting to see how polarised reader’s views are!
Let’s make our predictions, and review this in 3 years time!
In order to balance my criticism of the logic outlined below, let me take some time to outline what insights should actually be gleaned from this transaction and what intelligent people should be discussing:- 1. How has flipkart been able to remain #1 inspite of Amazon spending a larger amount of capital. 2. How have they been able to consistently do better at large acquisitions in India even though the seller would obviously want to sell to amazon – myntra, jabong and eBay India. 3. How has flipkart managed to create an offering at par with amazon in a short span of time while ensuring service availability. By any estimate the pace has meant they have probably updated their website twice a day every day without any down time or customer inconveniences. 4. Why were they the only ones to start with selling books and using SEO as opposed to others like futurebazaar which focused on mobiles or snapdeal that started with coupons or shopclues that started with cheaper Chinese goods. There are 100 other such points and things to learn. Are we being intellectually honest when we say all the above are coincidences or lucky breaks ?
Roshan D’Silva spot on. Everyone wants to.discuss the stock shock.items only. Acquition EV and the fact that they are losing money 🙂 I wonder how they would have questioned other entrepreneurs in high growth ~ market share grabbing businesses.
“Time is not a factor here” – Wrong. Why did they pay $20B for something they could’ve achieved for $5B in three years? The three years. Imagine what Amazon would’ve done in those 3 years if they’ve already done so much in the last 3 years. And that’s a long time in tech.
That being said, it’s all going to come down to logistics. Anywhere on the planet for e-commerce, that’s all what it’s going to come down to.
Just like in his book, he brings out the essence of frugal, profit making business models. I particularly like the way he puts an alternative path for Walmart. However, did Walmart buy Flipkart for the business or primarily because it means a ‘faster’ entry into the market.
Again, if it were the case, is the premium for time justifiably reasonable?
Dr Aniruddha Malpani also, on an entirely different note, if you get the time, read about EDLP (every day low pricing) of Walmart.
For Walmart, this is a strategic buyout into a market that is provided to them on a platter, the question really is if they have the leadership and vision to deliver on this acquisition.
Otherwise the acquisition is both just and well timed for a company like Walmart which if doesn’t buy companies like flipkart worldwide will cease to exist well within a decade’s time – remember investor only invests in the future growth, never the present. So what is Walmart growth potential? The answer invariably is end to end value chain based ecommerce startups across many countries.
Walmart is aggressive when it comes to retail strategy. EDLP is a concept they have been using since decade and had succeeded well until the dawn of Amazon. Walmart’s eCommercedream is yet to take shape because following what Amazon does makes them look like copycats in the eyes of the customer. Customer’s today do not only buy a product because of low price, but also how they perceive a companies supply chain agility. Flipkart is a test bay for Walmart while they build incremental revenue, establish themselves in a growth market, and creating access to products for 1.2 billion population. $15 billion is a bet to learn, evolve, and enagage with a new socio-economic group to stay young. Also it’s their path towards creating a strong lobbying base in India. I like the discussion here and the precise viewpoint Kamonashish has provided. Question about leadership – I can vouch for Walmart and say either they have it or they will buy it to meet their markets requirement. Just sharing my perspective.
Dr Aniruddha Malpani Hi sir. I personally am vary of generalizations. No two people are same and I guess no two deals are the same either. It is also true that Walmart valuations dropped hugely after the deal. Would love to understand their thought process. What was the attraction ? The flipkart story, the india story or the fact that they have been trying for a long time to enter india big time and they see this as their. If entry point or a combination of all ?
Walmart is an established brand and Walmart.com does not need to give away 40 million smartphones to make its presence felt. They have an excellent supply chain that can do the trick for them. And yes I do agree that they overpaid for the acquisition.
Dr Aniruddha Malpani my point above and with most things in life is views are always nuanced and the real world is complicated. If you or me just wanted to feel good, it’s easiest to just say bet against every acquisition as statistically 90% fail and end in a writeoff. It takes more effort and a more nuanced view to go behind the deal and understand the motivations as opposed to just crying ‘bozo American getting duped’ or ‘topi’ on every deal.
Thanks for the share. This article clearly shows that there is still space for smart players in the market who are focused on organic growth.
Such an amazing and detailed analogy. But seriously, why would Walmart make such a decision? $20B is not a joke!
1000 percent in agreement
I was about to ask the same question Saurabh Chakrabarty. And Dr Aniruddha Malpani, during dot com boom, I remember Vinod Kosla’s retort to formidable Peter Drucker. The later called the dot com frenzy (of valuing revenueless companies at astronomical levels) a mindless gamble of sorts. In response, Kosla called Drucker an idiot (his words) for his statement (it was either in Forbes or Fortune, not sure). The level of temerity that Kosla demonstrated never left my memory.
Eventually, Kosla turned out to be very tight. The Druckers and Buffets took years to understand the dot com frenzy.
Are we in a position like that now? Are we settling for a simplistic interpretation for something that is beyond our comprehension?
Despite Vaitheeswaran K’s truly exemplary writing, I’m afraid it’s devoid ofmeat on the “buyer’s perspective”. I’d, like the author did, rather scratch my head and exclaim that this doesn’t make sense. And not be in a hurry to call Wallmart stupid. But then again, my knowledge in M&A arena is limited to watching themn from light years away!
Loved the line “the primary responsibility of entrepreneurs is to create sustainable business models in a frugal manner”. 🙂
I think the deal represents the point where start up bubble is at its macimum and about to burst
Saravanan Balakrishnan actually, the dot com boom did turn into a bust, so Peter Drucker was right. Only a select few of Vinod Khosla’s bets paid off – but the ones which did paid off in spades !
All I can say is that we live in interesting times !
Brilliant analysis! Puzzling buy, considering that all the previous buys haven’t exactly set the imagination on fire!! Walmart’s strength still lies in how tightly they manage the supply chains. But given that they plan on retaining flipkart as a marketplace, it isn’t clear, how this buy even makes sense.
Points are pretty much valid
Thanks for sharing, great insights and straight to the point
Interesting read for all.
sense prevailing . Thanks .
As per global norms all online companies are overvalued in the range of at least 30%-70%. So by that logic Walmart would have overpaid by at least 1.3X if not more. But then i rest that case to the deal makers and the iBankers who would have prepared snazzy synergy models.
I especially respect Mr. Vaithee and empathise that he was on the wrong end of the early e-com play in India. But then trivialising the effort and execution to building a sizeable business one can’t say “Walmart overpaid actually they could look at Flipkart deconstruct the parts and build it in 3 years with $5Bn”. Thats utter NONSENSE. Well his ex-colleagues and friends have been building BigBasket(inventory driven model) since 2011 with singular focus and execution and its 2018 and they are market leaders.
Flipkart like any business has good parts and bad parts and go knows how much each parts were valued at. Thats one part. We think of the price, but i remember reading an article wherein Amazon’s bet in India was more like $35Bn. Thats day zero. Walmart has a lot of cash on its balance sheet this was a way for them to get into the India B2C/Marketplace story. The game will change if and when FDI in retail will be allowed with some protection to smaller guys.
I heard that in Walmart stores some cheap items are displayed on the store front. Thats to drive the traffic in. And once inside human psychology you buy and don’t do too much of price comparison. I know a few retailers globally who do this…
Maybe the best is yet to come. We can all be armchair cynics in the meanwhile 🙂Â
This article is laughable. His strategy to acquire 40mn transacting indians is to give away 40mn smartphones at a cost of 5bn USD. If Walmart was listening to him, they would be 5bn out of pocket with a database of 40mn non transacting users and nothing else to show for it. This tells you how much credibility the rest of the article has. There is a recurring trend in India of taking potshots at people who have put years of effort into building value by coming in at the last minute with some nonsensical tripe to play to the gallery. Unfortunately the galleries are always filled with many who have never put in the hard work and so for whom it is very easy to believe such nonsensical analysis as in their opinion – everything is very easy. Just be the 2 guys of 1.2bn who managed to raise 7bn and acquire 40mn users – nothing could be easier right ?
This is the worst piece advice I have ever read online on any social media platform by a mile by a very well respected and otherwise intelligent human being. Anyone who has ever managed P/L of a consumer product brand knows there probably no worse advice than this.
This is exactly why I still believe the startup India can learn a lot from corporate India.
At a more interesting and important level Dr Aniruddha Malpani, by the logic of people like Drucker, Porter, and Welch, in today’s time, the acquisition makes prefect sense. The problem isn’t if Walmart is paying the right price at all, the problem is if Walmart can do anything even after paying the right price, given their limited understanding of the space.
I understand where hes coming from but the analysis is factually wrong on too many levels. I doubt anyybody thinks walmart is a commercial acxquisition rather than a factual acquisition.
Precisely to the point. But I wonder if there is a tech lever that can deliver a lucrative online shopping experience and drastically alter the projected market share of 6% in the future.
Great point of view. Would love to understand the opposite perspective too before commenting.
Lalit Advani enough ink has been spilled by many journalists who have been trying to explain why it is such a great deal.. After all, any deal worth so many billions of dollars must be wise. Wealthy people are always correct ?
Not so much needed voice of sour grapes!
1. I, on principle, don’t believe is VC/entrepreneur bashing irrespective of whether or not they are doing well(unless ethics are involved) 2. There is a reason Flipkart makes losses i.e. hypergrowth which is required if you have to stay ahead ahead of Amazon. Flipkart is the only company across the globe(outside China) which has done it 3. Arguing that Walmart/Softbank/Naspers/Accel/Sofina etc are all wrong & I am right makes no sense to me. Its not about “rich” people being right as you pointed out in another post, these are people who have backed & succeeded with some of the biggest startups in the world. If nothing else, they deserve the benefit of doubt for that.
Adarsh Sharma there is no bashing here. Just his opinion that they overpaid, and the facts to back this up
It’s interesting to see how polarised reader’s views are!
Let’s make our predictions, and review this in 3 years time!
In order to balance my criticism of the logic outlined below, let me take some time to outline what insights should actually be gleaned from this transaction and what intelligent people should be discussing:- 1. How has flipkart been able to remain #1 inspite of Amazon spending a larger amount of capital. 2. How have they been able to consistently do better at large acquisitions in India even though the seller would obviously want to sell to amazon – myntra, jabong and eBay India. 3. How has flipkart managed to create an offering at par with amazon in a short span of time while ensuring service availability. By any estimate the pace has meant they have probably updated their website twice a day every day without any down time or customer inconveniences. 4. Why were they the only ones to start with selling books and using SEO as opposed to others like futurebazaar which focused on mobiles or snapdeal that started with coupons or shopclues that started with cheaper Chinese goods. There are 100 other such points and things to learn. Are we being intellectually honest when we say all the above are coincidences or lucky breaks ?
Roshan D’Silva spot on. Everyone wants to.discuss the stock shock.items only. Acquition EV and the fact that they are losing money 🙂 I wonder how they would have questioned other entrepreneurs in high growth ~ market share grabbing businesses.
“Time is not a factor here” – Wrong. Why did they pay $20B for something they could’ve achieved for $5B in three years? The three years. Imagine what Amazon would’ve done in those 3 years if they’ve already done so much in the last 3 years. And that’s a long time in tech.
That being said, it’s all going to come down to logistics. Anywhere on the planet for e-commerce, that’s all what it’s going to come down to.
Just like in his book, he brings out the essence of frugal, profit making business models. I particularly like the way he puts an alternative path for Walmart. However, did Walmart buy Flipkart for the business or primarily because it means a ‘faster’ entry into the market.
Again, if it were the case, is the premium for time justifiably reasonable?
Dr Aniruddha Malpani also, on an entirely different note, if you get the time, read about EDLP (every day low pricing) of Walmart.
For Walmart, this is a strategic buyout into a market that is provided to them on a platter, the question really is if they have the leadership and vision to deliver on this acquisition.
Otherwise the acquisition is both just and well timed for a company like Walmart which if doesn’t buy companies like flipkart worldwide will cease to exist well within a decade’s time – remember investor only invests in the future growth, never the present. So what is Walmart growth potential? The answer invariably is end to end value chain based ecommerce startups across many countries.
Walmart is aggressive when it comes to retail strategy. EDLP is a concept they have been using since decade and had succeeded well until the dawn of Amazon. Walmart’s eCommercedream is yet to take shape because following what Amazon does makes them look like copycats in the eyes of the customer. Customer’s today do not only buy a product because of low price, but also how they perceive a companies supply chain agility. Flipkart is a test bay for Walmart while they build incremental revenue, establish themselves in a growth market, and creating access to products for 1.2 billion population. $15 billion is a bet to learn, evolve, and enagage with a new socio-economic group to stay young. Also it’s their path towards creating a strong lobbying base in India. I like the discussion here and the precise viewpoint Kamonashish has provided. Question about leadership – I can vouch for Walmart and say either they have it or they will buy it to meet their markets requirement. Just sharing my perspective.
Dr Aniruddha Malpani Hi sir. I personally am vary of generalizations. No two people are same and I guess no two deals are the same either. It is also true that Walmart valuations dropped hugely after the deal. Would love to understand their thought process. What was the attraction ? The flipkart story, the india story or the fact that they have been trying for a long time to enter india big time and they see this as their. If entry point or a combination of all ?
Walmart is an established brand and Walmart.com does not need to give away 40 million smartphones to make its presence felt. They have an excellent supply chain that can do the trick for them. And yes I do agree that they overpaid for the acquisition.
Dr Aniruddha Malpani my point above and with most things in life is views are always nuanced and the real world is complicated. If you or me just wanted to feel good, it’s easiest to just say bet against every acquisition as statistically 90% fail and end in a writeoff. It takes more effort and a more nuanced view to go behind the deal and understand the motivations as opposed to just crying ‘bozo American getting duped’ or ‘topi’ on every deal.
Rightfully quoted sir.. Armchair cynics 🙂
Dr Malpani – here is an interesting article https://qz.com/1274786/walmart-shares-down-as-investors-question-why-it-bought-flipkart-in-16-billion-deal/
https://qz.com/1274786/walmart-shares-down-as-investors-question-why-it-bought-flipkart-in-16-billion-deal/
Yes it seem US Stock market also share the view it has given Thumbs Down to Walmart – Mkt Cap down 14 Billion USD.