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Why Investing In Snapdeal Doesn’t Make Sense For eBay

Online marketplace, eBay Inc, is in talks to pick up a significant stake in Indian e-commerce site, SnapDeal, according to a report by The Hindustan Times, citing a source as saying that the transaction is still being worked out and that it will likely be carried out through eBay India, and structured to comply with FDI (Foreign Direct Investment) regulations. Another report by The Times of India mentions that eBay might initially acquire only a 5% stake in the company, valuing Snapdeal at around $300 million. Note that both eBay and Snapdeal have refused to comment on the matter. Why would eBay invest in Snapdeal? Snapdeal pivoted from being a deals site to an online marketplace model, allowing sellers to offer products across categories such as electronics, fashion, lifestyle among others. This is similar to eBay's B2B model in India, and both companies essentially operate in the same segment. Why would eBay invest in a competing business, thereby helping it grow? If at all, an outright acquisition would make more sense: eBay would be better off acquiring SnapDeal for its users and vendors, shutting it down to eliminate competition, and shift users and vendors to the eBay marketplace. This is what Flipkart did with Letsbuy. If this investment does go through, it wouldn't make much sense to us. FDI in eCommerce a barrier? The Indian government does not allow FDI in multi-retail e-commerce, although it had approved FDI of upto 51% in multi brand physical retail, subject to certain conditions. The HT report categorically mentions…

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