Will it be a smooth ride for online automobile classified startups after consolidations?

With proliferation of the Internet, the classifieds sector has made a killing globally, and the success of Craigslist in the US and 58.com in China are testimony to this.

While OLX and Quikr have been battling out for the advantage in the online horizontal classifieds, a slew of startups are evangelising various niches such as realestate, jobs, and automobiles, among others. Of the aforementioned niches, automobile has been in the news for ongoing consolidations.

Last week, Carwale merged with Cartrade. While Cardekho gobbled Zigwheels last month.

Last year, there were five players (Cartrade, Carwale, Cardekho, Gaadi, and Zigwheels) in the automobile classifieds segment. However, consolidations squeezed competition between two: Cartrade and Cardekho. Cardekho acquired Gaadi in September 2014 and Zigwheels last month. Carwale and Cartrade merged together to counter Tata-backed Cardekho.

Why consolidation when 70% of market is unorganised?

Over the past 15 months, merger and acquisition (M&A) activities have picked up strongly, but why? Ashish Kashyap, CEO of Ibibo, said,

Online automobile classifieds is not yet big and at the same time used to be overcrowded. M&A activities will help Cartrade and Cardekho aggregate traffic and scale fast.” He added, “It’s very tough to make content-seeking users do transactions.

For some, such consolidations are not rational while still a large chunk of the market is unorganised; approx 70 per cent of used car sales is done by local dealers who form the unorganised market. Saurabh Pandey, ex-Head of OLX India, explained,

Any consolidation now is unreal and creates no value. With such a high-growth market coupled with a huge size, why would there be consolidation unless consolidation offers a better merger of technologies, reach or efficiency?

Acquisitions and mergers help in scaling up

In India, the new-to-used car ratio is about 1:1.3, while in the US it’s about 1:3. Based on data and anticipated trend, India is going to follow in the US' footsteps (in terms of ratio between new and used cars). Amit Jain, Co-founder, Cardekho, said,

Each company has different USPs. Gaadi’s dominance in pre-owned car and Zigwheels’ strong content play is helping us scale fast in the pre-owned segment and engage more closely with audience by leveraging rich content.

Consolidation is the natural evolution of any sector and industry. It lets demand aggregate and weed out competition and fragmentation. Vinay Sanghi, Co-founder of Cartrade, said:

Carwale’s merger with Cartrade gives us an upper hand in both used and new car segment. Online automobile classified is done with consolidations or M&A; now competition is limited between the two.

The hunger for fast expansion by using VC money as fuel without creating enough value, creates an opportunity for consolidation that is nothing but just killing or reducing competition. "The acquired player does not stand a chance and gets acquired because it may be unable to raise funds as fast as the acquirer,” said one of the leading automobile classifieds startups based out of China

Content-focussed classifieds have scalability issue

Over the last one decade, online automobile classifieds have largely been limited to content play. Indian users don’t require five platforms to suggest which car is better. In the past five years, different models like free listings, partially controlled (vehicle inspection for ensuring trust for buyers) and finally emergence of transactional platforms (like Droom, Gozoomo etc.) have evolved. But there is still a huge chunk to be explored in the content and C2C play, apart from the regular B2C new and used car play.

Sandeep Agarwal, CEO & Founder of Droom, said,

As of now, automobile classifieds is limited to content. Now, these content-driven platforms are transitioning towards transactional platforms. However, it’s all not smooth and easy. Rediff and Indiatimes Shopping have content in DNA and they tried to become transactional or commerce platform but didn’t survive or stand against young peers like Flipkart, Snapdeal, and ShopClues.

Content-driven automobile classifieds businesses have scalability issue and if we analyse the trend in developed nations like the US, Japan, South Korea etc., only one player emerged as leader.

Is C2C automobile classifieds ushering in consolidation?

Besides B2C in used car segment, C2C segment is also catching on fast. Rise of platforms like Droom, Gozoomo, and increased focus of Cartrade and Cardekho in the segment are driving the culture of peer-to-peer sale/purchase of used automobiles in a big way. “We lead the C2C segment and about 47 per cent of cars (from C2C) at Cartrade are certified with the help of third-party partnership,” added Vinay.

Droom and Gozoomo have grown significantly in the last 10 months. According to Sandeep, Droom registered three-digit growth since its inception. Droom had secured Rs 100 crore from Lightbox Ventures and Japanese internet firm Beenos. “We’re trying to build transactional platform in C2C segment which till recently overlooked by existing players,” said Sandeep.

Classifieds majors Quikr and OLX are struggling to have growth from horizontal approach and focus heavily on verticals like real-estate and automobiles. Quikr had recently launched Quikr Cars to get a slice of the of used-car pie. Some expert in the space say that consolidation in C2C segment is not so far. However, Amit of Cardekho added,

It’s too early to anticipate consolidation in this segment. We have enough share in C2C segment and acquisition in this segment isn’t on our radar.

Saurabh observed,

OLX and Quikr’s growth is primarily coming from verticals like realestate, automobile and jobs. We may see some acquisition in aforementioned verticals by these classifieds major to accelerate scale.

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