Alibaba's rumoured investment in Paytm could change the game

Alibaba's rumoured investment in Paytm could change the game

Author | Abhinn Shreshtha | Friday, Jan 23,2015 9:20 AM

Alibaba's rumoured investment in Paytm could change the game

Alibaba might be on the verge of making its first significant investment in India if media reports are to be believed. The target—One97 Communications, which owns mobile payment platform Paytm, in which, Alibaba is believed to want to invest $550 million. The two companies might not be talking about it but it does make a lot of sense.

Paytm started off as a bill payment and mobile research provider now also offers mobile wallet and other financial services. Alibaba, which has overtaken Amazon as the premier e-commerce company in the world is a big believer in mobile commerce. In 2004, it launched Alipay, a third party payment platform. According to analysts, as of February 2014, Alipay has the biggest market share in China with 300 million users and control of just under half of China's online payment market.

In India, Alibaba only has a limited presence and it was only going to be a matter of time before it turned its attention to one of the fastest growing e-commerce markets in the world. “Regardless of who they invest in, just making an investment in the country is a big thing. It tells people that the growth of e-commerce in India is not just a bubble. Everyone is just waiting to see who they will partner with. The e-commerce industry is no longer a two or three person game,” said Ashish Jhalani, Founder of eTailing India.

In fact, m-commerce is expected to be the fastest growing segment in the country in coming years. The likes of Amazon, Flipkart, Snapdeal, etc. have already announced that they will be making major investments in developing mobile capabilities. In such a scenario, partnering with a proven player makes sense.  “Having a m-commerce marketplace goes beyond anything that is currently available in the country. It is the next big thing that everyone is looking for and so it makes complete sense for Alibaba to be interested in a product like PayTM,” said Jhalani.

Alibaba has been on cloud nine since launching its IPO in September 2014 which was priced at $25 billion, making it the largest IPO ever in history. Last year, the company said that 54 out of every 100 payments made with Alipay in October 2014 came from mobile devices. In 2013, the total value of products sold on the Alibaba websites was around $250 billion; more than eBay and Amazon combined.

“I don’t know whether it (Alibaba’s investment in One97 Communications) will happen but it is clear that India should become a case study for the world. What I think has happened is that the likes of Tiger, DSP BlackRock, Naspers and SoftBank have all invested in different things, which has allowed to Indian e-commerce space to develop and accelerate. New best practices will come in. The market is going to become more intense,” said Praveen Sinha, Co-founder and CEO of Jabong.

For Alibaba, the timing could not be better. Despite aggressive expansion by e-retailers, there is a sizable chunk of the Indian market that is still untapped. Also, none of the e-commerce players have started earning profits as they chase market share and though valuations are high for the likes of Flipkart and Snapdeal, they are still far from seeing any sizable revenues. M-commerce, an area that Alibaba has proven expertise in, is still far from mainstream in the country.

For example, in the year ending March 2014, Snapdeal, reported a loss of Rs264.6 crore on revenues of Rs 168 crore. Earlier, its close competitor Flipkart had reported a loss of Rs 281.7 crore on sales of Rs 1,180 crore for the year ended March 2013. Jabong reported revenue of Rs 438 crore in the year ending March 2014 with losses of Rs 293.4 crore (as per media reports and filings with the Registar of Companies).

In this scenario, with a strong war chest behind them, Alibaba could be in prime position to have an effect on the e-commerce sector in India. 

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