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Speculations broke over the weekend that Lazada, Southeast Asia’s leading online marketplace, was set to acquire Singaporean grocery start up Redmart for $30-40 millionnow confirmed. Lazada, fresh off its $1 billion injection from Alibaba, is not known for adopting an asset heavy model; the company has been actively transitioning towards a full marketplace model, especially post-Alibaba acquisition. So why would the company want to purchase an online grocery retailer? ecommerceIQ shares some possible reasons why:

1. Joining a thriving new playing field

Electronics, beauty, apparel, home & living, Lazada offers it all, except perishable goods.

Groceries online has been around in North America since the Dot-com craze but only recently popularized through the on demand model, first introduced by Instacart and since then been flourishing with the likes of Google and Postmates saturating the space.

The offline groceries sector in Singapore was worth an estimated $5.5 billion SGD in 2014, while online grocery retailing is worth approximately $120 million SGD and makes up only 1-2% of the entire grocery market in Singapore. It shows that more and more busy working professionals and families are willing to pay for the convenience of having their groceries delivered to their front door.

And out of all the Southeast Asian countries, Singapore has the highest internet penetration and greatest spending power, making it the most mature market for this business model. ECOMScape: Singapore shows the many players, both traditional offline grocery stores and pure play ones, who have recently joined the e-groceries sector in hopes of grabbing more online market share.

singapore ecommerce landscape

singapore ecommerce landscape

“The strategy of coming in, looking for a local player who has shown traction and buying them in order to get a foothold is a very good one, and we will see more of that,” said Vinnie Lauria, Founding Partner of Golden Gate Ventures, which has invested in marketplace Carousell and online grocer Redmart.

By acquiring Redmart, Lazada would be joining an already fierce online grocery feud but with their already established reputation and Alibaba in their corner, they have the capabilities of mitigating Redmart’s large operating losses and becoming a strong new comer. Lazada’s acquisition of Redmart essentially saved the startup from becoming the next Webvan, the online grocery pioneer who burned through money too fast.

“As part of our growth strategy, we are always looking for ways to serve our customers better by adding new product categories and improving our service offering,” comments Maximilian Bittner, Lazada Group CEO, in regards to the acquisition.

With a multi-category approach, Lazada’s acquisition of Redmart will enable the group to maximize revenues per Redmart user as customers go beyond just buying groceries often characterized by thin margins.

2. Lelong, lelong!

Southeast Asian’s love a good deal and it’s not surprising five-year old Redmart quietly put themselves on the market after reports of huge operating losses of $21 million for 2015 and liabilities valued at $126 million surfaced earlier this year. It was also rumored that earlier this year Redmart was going to raise new funds of $100 million but nothing was confirmed. $30-$40 million isn’t a bad price tag for a startup that has raised over $59 million in funds from SoftBank, Garena and has the backing of tech celebrities such as Facebook co-founder Eduardo Saverin.

Lazada is making the acquisition confidently with the knowledge that it can optimize costs by leveraging its own fleet for deliveries through LEX. In comparison to its competitors, honestbee and HappyFresh, Redmart’s business model fares quite well:

tia-redmart

Source: Tech in Asia

3. Further distribution of Alipay 

Redmart’s current payment options include PayPal and credit card. It won’t be long before Lazada implements Alipay on their sites and allow shoppers to pay for their groceries through Alipay. Groceries are the perfect gateway drug to get users hooked to online shopping — everyone needs it and average price points are low. Just like Alibaba leveraged Didi in China to get users signed up for Alipay Wallet through subsidized taxi bookings, it will use Redmart’s groceries to get people in Southeast Asia hooked to Alipay.

Ant Financial, the company behind China’s digital payment giant Alipay, is already making moves for global expansion and ensuring that the payment method will be widespread throughout Southeast Asia. The company already has partnerships with companies including Concardis, Ingenico, Wirecard and Zapper in Europe, First Data and Verifone in North America, and Paysbuy and Counter Services in Southeast Asia.

Alipay is China’s largest online payments and money transfer system with more than 450 million active users. It won’t be long nor too difficult for Jack Ma to roll out his Trojan Horse.

4.  Acquiring ecommerce manpower

The talent challenge is not a new concept to companies in Southeast Asia. By acquiring Redmart, Lazada gains an instant 200 in-house employees who are already trained in ecommerce specific fields. Acquiring knowledgeable and skilled talent will allow the company to quickly expand the (perishable) groceries ecommerce category beyond Singapore to other thriving Southeast Asian markets where Lazada is present. Indonesia, Thailand, Philippines, and Malaysia have consumer expenditure on food and non-alcoholic beverages at $130.2 billion, $63.6 billion, $51.3 billion and $25 billion, respectively (Agriculture Canada). With that being said…

5. Amazon is coming (already here)

The US ecommerce behemoth has finally announced its plans to enter Southeast Asia via Singapore in Q1 2017 and Lazada will need to maintain a competitive edge. Amazon has already begun offering a tailored version of Amazon Prime in China to better compete with the likes of Alibaba and will more than likely introduce the same exclusive services in Southeast Asia that keep customers in the US so loyal to the marketplace – namely Amazon Fresh and Amazon Prime.

Amazon Fresh launched in 2007 and is now in 17 markets. Shoppers pay only $14.99 a month for the service but require Amazon Prime membership – a service that Lazada has not yet replicated for their shoppers.

“The bar in grocery retailing is exceptionally high. The supermarkets and grocers are amongst the very best retailers in the world,” Ajay Kavan, vice-president of Amazon Fresh, told The Daily Telegraph. “We believe that the key to the long term success of Amazon Fresh is to bring together the low prices, vast selection, fast delivery options and customer experience that Amazon customers know and love.”

Let the sharpening of the kitchen knives begin.

By: Cynthia Luo, Product Manager

red-mart-lazada

What do you think about the Lazada-Redmart deal?

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Wal-Mart Stores Inc. is in talks to buy online discount retailer Jet.com Inc, reports Wall Street Journal. 

A deal could give Wal-Mart’s ecommerce efforts a much-needed jolt as the world’s largest retailer seeks to grow beyond its brick-and-mortar storefronts with speedy home delivery from a network of massive suburban warehouses.

Although Wal-Mart has not announced how much it would pay for the startup, it is speculated that Jet could be valued at $3 billion. This would make it Wal-Mart’s biggest acquisition since buying South African retailer, Massmart Holdings for $2.3 billion in 2o1o.

This is a sign that Wal-Mart is willing to spend big to compete with Amazon and save itself from “traditional retailer death” plaguing legacy businesses.

However, industry analysts are questioning the slightly odd decision.

“I’m struggling with the math of why you would pay this much money for this business model at this particular time,” says Bryan Gidenberg, an analyst at Kantar Retail.

Jet is barely a year old and was set on going up against Amazon itself. A part of its early growth strategy relied on taking orders for products it didn’t sell and placing orders on behalf of its customers on other sites, often selling the items below what it paid while absorbing steep shipping costs. Jet has since abandoned the practice.

Wal-Mart has scrambled to keep pace with Amazon, which overtook Wal-Mart by market capitalization a year ago and now sports a market value that is 50% larger.

Wal-Mart’s ecommerce sales reached nearly $14 billion, or 3% of its $482 billion in annual revenue last year. Amazon’s revenue was $107 billion last year, including its Web-services business.

Wal-Mart Chief Executive Doug McMillon acknowledged his company’s ecommerce growth “is too slow” and that the company needed to expand the number of products sold on its site and give third parties more access to its website.
For Jet, a takeover by Wal-Mart would demonstrate the challenges of attempting to go it alone in the hypercompetitive ecommerce market. Jet has yet to prove that its unique pricing and supply chain model is sustainable.A version of this appeared in The Wall Street Journal on August 3. Read the full version here

The Flipkart deal to acquire Jabong was completed in only three days, reports Tech In Asia.

The race was on because Jabong was in the late stages of talks with Flipkart arch-rival Snapdeal.

Flipkart moved quickly to steal Jabong from Snapdeal, who desperately wanted to gain market share in the fashion ecommerce segment.

“Generally, a deal of this size takes three to six months from due diligence to closure. Wrapping it up in 72 hours was a challenge,” comments Vinay Joy, Associate partner at Khaitan & Co.

In the case of Flipkart and Jabong, Vinay and his team understood the risks and proceeded with documentation on all levels. It’s possible that the Jabong team was already in the process to provide the due diligence documents to other parties interested in buying it.

An agreement can be worked upon and signed within three days but a legal and financial due diligence of a company already mixed in controversies is not possible within that time frame.

Jabong murky history

Jabong’s prime backer was Rocket Internet. The stake was later sold to Global Fashion Group, in which the latter owns a stake, along with lead investor Kinnevik AB. Rocket Internet was unhappy with the fact that GoJavas, a logistics company incubated inside Jabong and now a separate company valued more than Jabong, has no shareholding in it.  This eventually led to an audit at Jabong.

We have a high bar when it comes to governance, regulations and compliance. Unless a company can clear that bar, we have issues. – Kunal Bahl, CEO of Snapdeal.

Out of all the mergers this year, the acquisition of Jabong is probably the most controversial, and far from being smooth. Flipkart’s lawyer will be conducting post-due diligence even after the deal is inked.

A version of this appeared in Tech In Asia on July 28. Read the full version here.

Following the news of Verizon’s $4.8 billion acquisition of Yahoo, it’s been stated that Verizon aims to make a play on the digital media and content markets to go against Facebook and Google. However, other details of the acquisition have emerged;

Verizon will also be acquiring Yahoo’s ecommerce platform Aabaco Small Business, a platform that allows businesses to create websites and sell online.

It has also been called Yahoo Small Business and Luminate.

Yahoo has tried to sell it before in an attempt to bundle Aabaco into a sale with 384 million shares of Alibaba. That deal was largely designed to help Yahoo avoid some of the massive tax bill on the $7.6 billion Yahoo snapped up when Alibaba bought back part of the 40% of the Chinese company that Yahoo had initially bought for $1 billion in 2005.

Sine Aabaco was part of an operating unit connected to the Alibaba profits, the hope was that taxes could be drawn down. However, this idea was scrapped when the IRS suggested that this move may cost Yahoo billions in taxes.

Aabaco is more relevant than most of us would assume. 41 of the 1,000 largest online retailers in North America use its platform. Considering Yahoo’s struggles, it is impressive that the platform has held on as long as it has.

Verizon has not elaborated on its aspirations with Aabaco.

A version of this appeared in Pymnts on July 27. Read the full version here.

It has been confirmed that Oracle will acquire NetSuite for approximately $9.3 billion in an all cash deal, reports TechCrunch. This is indeed the year for mergers & acquisitions.

Both Oracle and NetSuite’s cloud service offerings aimed at enterprise customers will continue to operate and ‘coexist’ in the marketplace.

According to a statement made by Oracle CEO, Mark Hurd, “NetSuite and Oracle’s offerings are complimentary. Oracle intends to continue to invest in the engineering and distribution aspects of both companies going forward.”

NetSuite claims a dominant position in the cloud enterprise resource planning (ERP) space, which includes offerings to help businesses track supply and demand, inventory, accounting, customer relationships (CRM) and HR.

Oracle in general has been an aggressive acquirer of smaller companies throughout 2016, with recent pick-ups including Opower and Textura. Oracle’s acquisition of NetSuite dwarfs its previous 2016 acquisitions in total deal value.

Although Oracle and NetSuite’s offerings are similar, Netsuite will offer Oracle access to smaller sized companies than their usual clientele. It could also give Oracle some additional competitive edge in taking on its primary rival, Salesforce.

According to Forbes, Cloud is already a multi-billion dollar business for Oracle, but pure cloud software still represents a fraction of the company’s overall business, with cloud software as a service accounting for just 6.5% of revenue in its Q4 fiscal earnings.

Oracle Chairman, Larry Ellison’s major investment in NetSuite has long fueled speculation that the companies would unite at some point. In this case, NetSuite decided that the company’s future as an independent entity would no longer grow faster than if part of the massive Oracle operation.

Versions of this appeared in TechCrunch and Forbes on July 28. Read the full versions here and here.

AOL CEO, Tim Armstrong has stated that the Yahoo deal will help Verizon rise to become an advertising player in the big leagues, reports CNBC.

According to Armstrong, the combined power of Yahoo and AOL could be the boost that Verizon Communications needs to become a powerhouse in digital advertising, an arena currently dominated by Google and Facebook.

Trying to do what Google and Facebook does is not a good strategy. We’re the up and comer, we have to have a differentiated performance. – Tim Armstrong, AOL CEO.

Verizon confirmed its $4.8 billion acquisition of Yahoo yesterday in a statement that also stated that Yahoo will be integrated with AOL under the leadership of Marni Walden, executive VP of product innovation and new businesses at Verizon.

Armstrong comments that Google’s power is based on search capabilities, and Facebook’s power is of course, social media. Verizon needs a niche of its own, and Armstrong points out that the company’s strength is in building a house of brands. Regardless, this acquisition could potentially help Verizon in three key ways:

  • Yahoo’s one billion active user base, including 600 million monthly active mobile users will be folded into Verizon’s portfolio. The company will hereby be granted access to online behavioral data on those existing consumers
  • Verizon will also have the ability to place advertising on Yahoo Finance and Yahoo Sports, some of the most trafficked destinations online
  • Yahoo user data could be combined with insights from Verizon’s mobile, internet and cable customers. The access to this information will help power Verizon’s ad technology platforms. It will be able to utilize consumer behavior to determine what kinds of ads to display.

The more access to customer data Verizon has, through cable boxes or mobile, the more targeted it can be with advertising and sponsored content or product placements. – Shar VanBoskirk, Forrester Research  Analyst.

To skeptics online who are underplaying the deal, it is important to remember that under Yahoo includes Flickr and Tumblr, all these sites provide registered user data, which in turn can be used to serve more lucrative ads.

AOL’s programmatic ad platform, One by AOL was one of the main driving forces behind Verizon’s decision to acquire the company. With the acquisition of Yahoo, Verizon will further boost its position with Yahoo’s programmatic video platform, BrightRoll and mobile analytics firm, Flurry.

The deal did not include Yahoo’s Asian assets, including its Alibaba Group Holding stake – it owns 15% of the ecommerce giant, or 35.5% stake in Yahoo Japan. Those assets will continue to be held by Yahoo, but the names will change when the deal closes.

A version of this appeared in CNBC on July 26. Read the full version here.