#flipkart is acquiring LetsBuy*, a head-to-head competitor whose product catalogue has a huge overlap with Flipkart (i.e. electronics, gadgets etc).
A general perception is that LetsBuy was doing quite well, though the reality is that it wasn’t. And here is why:
#1. Cost of customer acquisition. At one point, LetsBuy banners were all over the web and while it did helped in creating a brand, creating first time purchase etc- but that’s never a real business unless the margins are high. In the case of Indian ecommerce, cost of customer acquisition is extremely high unless you get customers to do repeat purchase.
And you need deep pockets to justify those customer acquisition cost.
#2. Tiger Global: The real reason for LetsBuy acquisition is their prime investor, Tiger Global. Tiger pulled off from the company and attempt to raise further money couldn’t go through.
High valuation. No other investor was ready to touch LetsBuy owing to the valuation they got during the first round.
LetsBuy : Customer Acquisition Cost Vs.ARPU Data
Data 1: ARPU
LetsBuy’s highest selling product was memory cards and 65% of the orders placed were of size less than Rs. 300 price.
Data 2: Customer Acquisition Cost
On an average, LetsBuy average customer acquisition cost was Rs. 750/.
Add delivery cost etc, do the math and you’d know why ecommerce is a game that either needs deep pockets or you’d need to sell high value products. (we aren’t talking about margins yet).
As far as Flipkart acquiring LetsBuy is concerned, it’s no BIG deal. In all probability, it is forced by investors and not a conscious choice (the way chakpak acquisition happened). Given that there aren’t any complementary categories/skills between the two companies, this is actually a bad news for Indian ecommerce ecosystem.
But then, this was bound to happen [read: Are Indian VCs Hedging Their E-commerce Risk?].
Welcome 2012 bash. So what are ecommerce entrepreneurs wearing this year?
PS: Welcome Junglee.
- From Pluggd.in Forum: The coming e-commerce shakeout (?)
- Opinion: Stop Blowing Our [Ecommerce] Bubbles
Update: The news is confirmed by both the companies.
* – the deal was first reported by Medianama.