Zomato has had a successful IPO, while Paytm is on the cusp of launching a humungous IPO. A cursory glance may suggest that this is evidence of the depth and breadth of India’s market and innovation on the part of India Inc. but a detailed comparative analysis indicates that one cannot easily come to such a conclusion.
According to Wikipedia, Alipay “is a third-party mobile and online payment platform, established in Hangzhou, China in February 2004 by Alibaba Group and its founder Jack Ma.” Moreover, as early as 2013, Alipay surpassed PayPal to become the world’s leading mobile payment platform. In some way or the other, Alipay has entered global markets be it US, Asia (e.g. Bangladesh) and Australia.
Paytm (in some sense) is India’s version of Alipay and it offers services such as:
From a macroeconomic perspective, in 1987 India’s GDP and China’s GDP were almost equal but now in 2021, China’s GDP is 5.46x that of India’s. This reflects the tremendous strides made by the Chinese economy. Thus, it would not be appropriate to compare the Chinese market and Indian market as the addressable market for Alipay is far more than that of Paytm. This undermines the argument that India’s Paytm can grow as rapidly as Alipay as simply put the former’s market is much smaller than that of the latter.
The astounding success of Jack Ma has had a detrimental effect as it has resulted in a regulatory crackdown on Jack Ma’s empire by the Chinese authorities. If Paytm, which has also attracted controversy (e.g. being shortly unlisted from Google Play Store due to gambling policy violations) is also subject to a similar regulatory crackdown, then it will dent Paytm’s long-term prospects.
Amazon is a behemoth that straddles the global market. Its founder, Jeff Bezos has interests in areas as diverse as online retailing, food retailing, media and space exploration. In other words, there are no limits to Amazon’s ambitions as it SEEMS that it wants to conquer every business in the world. Amazon’s obsession with leveraging technology and customer service and its deep pockets will give it an edge in any business as these are the three pillars that make a business successful.
Thus, it comes as no surprise that Amazon has spawned a number of firms that aim to emulate Amazon with one example being our very own Flipkart. Flipkart was founded by two ex-Amazon employees (this further supports my argument) who built it into a behemoth. Flipkart has essentially pursued the same strategy as Amazon in building its business by concentrating on customer service and technology. Support from investors such as Accel India and Tiger Global has given it access to the required pecuniary resources needed to succeed in this business.
In August 2018, Wal-Mart impressed with the success of Flipkart acquired a 77% controlling stake in Flipkart for $16 Billion, thus valuing Flipkart at nearly $20 Billion. One can speculate on the reasons for this acquisition but the fact remains that Amazon and Wal-Mart are fierce competitors in the US as Amazon via the acquisition of Whole Foods is trying to encroach on Wal-Mart’s territory while Wal-Mart is trying poach Amazon’s customers by initiating an aggressive e-commerce strategy. Thus, Amazon has had a bearing on Flipkart's strategic direction as it is quite likely that Wal-Mart was concerned that Amazon would make deep roads on the vast Indian market and hence Wal-Mart tried to counter Amazon by acquiring Flipkart.
Of course, Flipkart has done well but can it surpass Amazon India - only the future will tell. Reliance has also roiled the waters as it also trying to ensure that Amazon does not gain an upper hand in India. The fact remains that Amazon will continue to play a vital role in influencing Flipkart’s future course supporting the argument that Flipkart is in many ways an Amazon copycat.
Thus, the only argument that can be advanced is that Indian firms are merely copying or influenced by their western counterparts and they are hoping that the continued inflow of money into India from VCs and PEs in tandem with the growth of the Indian economy will bolster their growth prospects.
But one cannot be so sanguine. For such firms to thrive money and market size are important but innovative ideas matter. Consequently, only those firms that come up with out of the box ideas will thrive over the long-run. Indian stock market investors should take cognizance of this factor prior to making a long-term investment in Unicorn IPOs.