Why eBay’s CEO sold eBay India and poured $500 million into the country’s top Amazon rival

The latest shake-up in India’s wild e-commerce market came on Monday morning, when eBay announced it was investing $500 million into top Amazon competitor Flipkart as part of a larger $1.4 billion funding round.

As part of the deal, eBay also said it was selling its own India marketplace to Flipkart and entering into an exclusive arrangement in which eBay merchants outside of India can sell to Flipkart shoppers and Flipkart sellers can more easily sell to eBay shoppers outside of India.

The deal had been rumored recently, but is still a bit of a surprise since eBay owns a five percent stake in Snapdeal, which is a smaller competitor to both Amazon and Flipkart.

I spoke to eBay CEO Devin Wenig this morning about the sale, the investment and the non-traditional move to back two different competitors. The Q&A has been edited for length and clarity.

Can you explain how you went from investing in Snapdeal — and then selling most of your stake in them — to investing in one of its biggest competitors, Flipkart?

Devin Wenig: The process started almost a year ago with us looking at the Indian market and seeing who was winning and who was losing and what the next few years were going to be like. We were evaluating both eBay India and Snapdeal.

And what was the conclusion?

I’ll start by saying I really do believe the market will be a strong commerce market. There are just too many positive dynamics: Too much growing wealth, too much tech adoption, too much demand for goods and supply-demand imbalance.

It’s also true that the market has been overheated, not rational, and probably over-invested in too many companies. It’s been a very unhealthy e-commerce dynamic for a few years.

The conclusion was, it was going to have to consolidate, that fewer parties were probably a good thing for the market. Flipkart had a very strong close to last year and they are starting to pull away. So if we are serious about the market, I want to invest in — and be partners with — those that are going to win.

The conclusion was there weren’t going to be 10 winners, but maybe only one or two. And Flipkart — given all of that — was the natural party to align with.

Isn’t it rare to invest in one company and then invest in one of its competitors a couple of years later?

I think it is rare; I don’t think we’ve done it before. But in a market that’s evolving so quickly and where things move around so fast, it is what it is.

I would say we still own five percent of Snapdeal and it’s not like we’re giving up on them. But if I want to be in a market, I want to win. And I realize it’s not going to happen only organically through eBay, so partnerships are critically important.

There are reports that Snapdeal is going to sell to Flipkart. Do you assume that’s happening?

I’m not assuming that’s happening; I’m not assuming it’s not happening. I’m a minority investor in Snapdeal and it’s their decision. Could it make sense? It could, but honestly I’m not at that table.

How did the different parts of this deal come together: The investment, the sale of eBay India and the commercial agreement?

The second and the third were the driving force. We do things like the investment to solidify the commercial agreements. It wasn’t the other way around.

Putting the eBay India business with Flipkart will make it a bigger business, they’ll co-populate their inventory, share their buyers and just have more scale.

Then they can take their investment from us and Microsoft and Tencent and lean in on growth — healthy growth. They have a big war chest now to consolidate their fulfillment, and use eBay’s [gross merchandise volume] to have a great deal of scale.

The next part I’m most enthusiastic about: The exclusive commercial deal we entered into with them that is going to take all of their seller base and allow them to export India inventory exclusively on eBay around the world. It gives Flipkart a leg up for their sellers to get a global consumer base.

And we are going to bring global supply into India. So for eBay sellers around the world we can bring their inventory to millions of new buyers in India.

How concerned are you about how unprofitable all the companies in this market are?

Consolidation in the market is healthy and we believe Flipkart will do what it takes to build a long-term business. But long term might be long term. It might take more money and more time.

Am I concerned about it? Yeah, of course. But we think that these moves in the market make it much more likely that in a reasonable time frame and investment, they will get to a profitable scale.

This article originally appeared on Recode.net.

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