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Parvathy Ullatil |
June 26, 2004
Is there life after the dotcom boom? For online auction site Baazee.com the answer has just turned into a resounding yes.
This week the old hands of the industry who were beginning to forget what big buyouts were all about, watched with envious awe as Baazee was gobbled up by global giant eBay. The price tag: $50 million. Most importantly, this wasn't a stock swap -- it was an all cash deal.
That means Baazee's two young founders will walk away from their company as much richer men and so will their shareholders. Also, they will stay on as joint country managers at Baazee.
For eBay it means they can enter India without struggling to establish itself in what might have been a tough market. Though industry analysts were a bit surprised by the move, it's actually in line with what eBay is doing in other parts of the world and particularly Asia.
"We were looking for a partner clued into the local market. Baazee is a very successful company and we are quite impressed with what they have done," says Gil Penchina, vice president (international), eBay.
The fact is that Baazee -- started in January 2000 at the peak of the Internet boom -- is a privately held company and industry analysts aren't really sure how close it was to becoming a moneymaker.
The company says it has done transactions worth Rs 100 crore (Rs 1 billion) in 2002-03. "We were well on our way to break-even even before the acquisition happened," says Suvir Sujan, co-CEO at Baazee.com.
But analysts reckon that might be slightly optimistic. They believe that turnover was a bit lower. Also, after the deal was struck Baazee, which has always said it hosted 2.6 million registered member base suddenly toned down its numbers.
It now says it has 1 million confirmed registered users. The company said the numbers had to be changed to move into line with measurement techniques used by eBay.
That might prompt some to ask by eBay didn't go it alone in this country. But most analysts reckon that eBay has got itself a reasonably good deal.
"Think of it this way, its $ 50 million for 1 million users and that's $50 per customer. The way the Internet works, most of these users will be repeat customers who will spend at least 50 times that amount in their lifetime," reasoned an industry source.
Also, Baazee had a number of points in its favour. It is undoubtedly the biggest buy and sell site online. Its market leadership has a lot to do with the fact that it is probably the only dedicated online bazaar on the Indian dotcom scene. Its only competitors include the auctions and shopping sections hosted by web portals Indiatimes.com and Rediff.com.
But look at it another way and the picture may look less rosy. The Indian B2C e-commerce market is pegged at around Rs 250 crore (Rs 2.5 billion). Of that the railways account for nearly Rs 100 crore (Rs 1 billion) while the rest of the pie is split up between the various auctions and shopping sites.
That means it's not a huge market currently. That's why it's intriguing that eBay thought India big enough to be worth looking at. Penchina doesn't look at it that way.
"We have seen the short-term size of the business but more importantly we recognise the long-term size of the opportunity the Indian market presents. We are taking a ten year view of things," he says.
In fact, eBay has been on a buying spree around the world so Baazee probably fits into its gameplan for the future. Last July it bought Chinese e-commerce company Eachnet and in September it acquired Fairmarket Inc an American online auction company. In April it bought Mobile.de a German online classifieds website.
That's not all. The purchase of Baazee is clearly part of an overall Asia strategy. The company has been steadily working towards capturing the Asian market. It currently has operations in Korea, Taiwan, Singapore and China, which is its largest investment.
eBay has managed to transform itself in more ways than one. Though the United States is still its largest market about 40 per cent of group revenues come from the rest of the world. That's up from 33 per cent a year ago. The company promises that India will be one of its "largest country themes."
In fact, eBay is one of the few dotcoms that never faltered even after the Internet boom turned to bust. In late 2000 eBay chief Meg Whitman predicted that revenues would climb to $3 billion by 2005. Her prediction caused a sensation but eBay despite the turbulent times is poised to hit $3 billion by 2004. Also, more importantly, it's turning itself into a global powerhouse with clout around the world.
What will the acquisition mean for Baazee and its online customers? Penchina insists that customers will be big winners in the future. The company will now have access to eBay's considerable resources and global clout. It will mean a scaling up from Baazee's existing level of operation on the services, technology and human resource front. Also it will give the Baazee users instant access to a global online bazaar to buy and sell goods. And it also means stock options for its 100 odd employees.
Also, on the anvil are plans to make the company's presence felt in the B2B market, integrating Baazee users into the larger eBay community, expanding its customer base in the class B and class C towns and partnering other players in the market. The two companies are currently in discussion to work out the investment that will be made over the next few years.
But as Baazee and eBay sit down to decide the future, it's clear that plenty has changed in the Indian Internet industry. The old days when hype ruled has long gone and inflated claims aren't accepted at face value any longer.
Now people are looking at dotcom companies that will change the way business is transacted. "One must understand the valuations of dotcom companies are not high because of the hype. Everybody can't be a fool all the time. The Internet changes the way business is conducted. There is tremendous value-addition due to the virtual quality of this business," says Rohit Varma, executive vice president and chief marketing officer at Rediff.com.
Baazee's valuations seem a lot more realistic now when compared with the heady $ 80 million it commanded during the boom days.
eBay's acquisition is an indication of the much-discussed but still-latent potential of the Indian Internet industry.Says Avnish Bajaj, chairman and CEO of Baazee.com: "From 17 million Internet users currently we are talking about 120 million broadband homes by 2008. The Internet in India has definitely matured and we are entering a big growth phase now," he says.