Alphabet Inc. (GOOGL) and Walmart Inc. (WMT) are in talks about uniting against bitter rival Amazon.com Inc. (AMZN) in one of the world's fastest growing online retail markets, according to CNBC.
On Tuesday, Walmart announced that it is paying $16 billion to acquire a 77% stake in Indian e-commerce company Flipkart and was in discussions with other potential investors about taking a small stake in the deal. People familiar with the situation told CNBC that Google parent company Alphabet is lined up to become one of these investors. Alphabet's interest in Flipkart was also reported on by Indian media before Walmart's announcement. (See also: Walmart Buying 77% Stake in Flipkart for $16B.)
Alphabet’s conversations with Walmart and Flipkart were described by CNBC as ongoing. Few details were provided, although the sources did add that the Mountainview, California-based firm is unlikely to pay as much as what the Indian press is reporting. The Hindu Business Line recently claimed that Alphabet will invest $3 billion for a 10% stake in Flipkart.
A former Flipkart and Google employee, who knows nothing about the deal, told CNBC that rumors of Alphabet’s interest in Flipkart make sense. "There is a strong benefit in people buying a lot of Android phones and e-commerce in India is a huge conduit for that," said Punit Soni. "So there's a little bit of a 'next billion users' strategy and a bit of making Amazon sweat."
Another unnamed source, described as an executive at Flipkart, said that Alphabet could view the opportunity as a way to promote the use of its enterprise technology. Buying a stake in the Indian giant would give the company an advantage over its biggest cloud rivals Amazon.com Inc. (AMZN), currently the industry’s number one, and Microsoft, Flipkart’s exclusive provider.
Meanwhile, another source familiar with the deal told Indian newspaper The Hindu that a stake in Flipkart would also give Alphabet a good platform to better understand how consumers in India behave and be a "data strategy."
Alphabet and Walmart have already partnered up together in the U.S. The retailer sells its products on Google Express and through Google Assistant on Google Home, Alphabet’s voice-controlled speaker which competes with Amazon's Echo. (See also: Google Vs. Amazon in Indian Smart-Speaker Showdown.)
Teaming up in India would give both Walmart and Alphabet the opportunity to make their fight against Amazon global. Now that Walmart has managed to outbid Amazon for a majority stake in Flipkart, it is in a great position to steal market share from its biggest rival in one of the world’s fastest growing markets.
“If I am Amazon and if I have to defend my second biggest market which is India (against Walmart) then I have to buy Flipkart, it makes absolute sense,” Hemchandra Javeri, co-founder of Forum Synergies India PE Fund Managers, told The Hindu. “There is so much headroom for the online retail to grow in India that the valuation of Flipkart would appear small after some time."