There have been a number of articles in the press about Flipkart in the last few weeks, and most of them have followed this pattern:
“Flipkart in talks to pick up a stake in BookMyShow”
“Flipkart eyes more acquisitions, in talks with Swiggy…
Notice anything curious?
If you are scratching your head wondering why all the recent chatter regarding Flipkart has been about acquisitions and investments in seemingly unrelated sectors, join the club.
Do any of these potential investments/acquisitions even remotely make strategic sense to Flipkart?
Why is Flipkart devoting so much time focusing on peripheral acquisitions when its own core business is arguably yet to reach product-market fit?
Beyond these planned acquisitions, Flipkart has apparently committed the small sum of $500 million into its UPI-based digital payments platform PhonePe. Just to put this $500 million figure in context, it is larger than every single VC fund in India, barring Sequoia’s last fund.
Welcome to Flipkart’s zugzwang moment.
When I was younger, chess was one of my favourite games. I was not particularly good at it, but that didn’t deter me from enjoying the almost magical twists and turns, the myriad permutations and combinations that could emerge from a simple-looking 8/8 board.
Of these, one of the most fascinating positions was the “zugzwang”.
According to Wikipedia, zugzwang (German for “compulsion to move”) is a situation found in chess wherein one player is put at a disadvantage because they must make a move when they would/should prefer to pass and not make a move. The fact that the player is compelled to move means that their position will become significantly weaker. A player is said to be “in zugzwang” when any possible move worsens their position.
Flipkart finds itself in precisely this type of zugzwang position right now.
The battle that isn’t
For many years now, Flipkart’s public narrative has been framed as a battle—a battle of attrition, a battle for market share, a battle against Amazon. The broad strokes of this narrative paint Flipkart as a homegrown leader in India’s e-commerce market battling off a formidable global competitor in Amazon.
It is tempting to believe that Flipkart’s current position is a result of this battle royale with Amazon, but the fact of the matter is that it has little do with a direct competitor. Flipkart’s predicament is almost entirely its own doing and is a result of what can be termed the “Curse of Capital”.
The curse of capital
When Flipkart completed its last funding round earlier this year, raising money from a clutch of marquee investors such as SoftBank and Tencent, its press statement headlined what seemed like an unusual facet to focus on: “After this financing round, Flipkart will have in excess of $4 billion of cash on balance sheet [sic]”.