Framing the Channel Dependency Challenge

India’s e-commerce sector thrives, with direct-to-consumer (D2C) and marketplace-first brands driving growth. However, Channel Dependency heavy reliance on a single sales channel like Amazon poses a critical challenge. This dependency shapes the ecommerce M&A landscape, as investors scrutinise Amazon reliance and its risks. Senior leaders must address Channel Dependency to maximise valuations and ensure deal success, making channel diversification a strategic priority.

Strategic Context: Understanding Channel Dependency

• Defining Channel Dependency

Channel Dependency arises when a brand depends on one sales channel, typically Amazon, for most of its revenue and customer acquisition. In India, many D2C brands exhibit this, with 60–90% of gross merchandise value (GMV) tied to Amazon. This Amazon reliance stems from the platform’s scale, logistics, and brand visibility, enabling rapid growth without heavy infrastructure investments.

• The Appeal of Platform-Driven Growth

Amazon’s dominance in India offers unmatched reach and streamlined operations. Brands leverage its customer base and fulfillment network, often prioritising platform-driven growth over multi-channel strategies. However, this comes with high commissions, advertising costs, and limited control over pricing and data, amplifying Channel Dependency risks.

• The Shift Toward Multi-Channel Models

Multi-channel models spanning owned websites, the Open Network for Digital Commerce (ONDC), retail partnerships, and social commerce counter Channel Dependency. These approaches enhance control over customer experiences and data. Post-2023, brands increasingly diversify due to regulatory scrutiny, platform policy shifts, and the need for direct customer relationships, reducing Amazon reliance.

1. Valuation Implications in E-commerce M&A

Channel Dependency heavily impacts ecommerce M&A due diligence, as buyers assess revenue sustainability and valuation risks. Key concerns include:

• Revenue Concentration

Brands with 80–90% revenue from Amazon face significant valuation risks. Such concentration signals vulnerability to platform disruptions, like fee hikes or suspensions. A 2024 M&A deal saw a D2C brand’s valuation cut by 25% due to 85% Amazon reliance.

• Limited Control Over Metrics

Amazon reliance restricts access to customer data, limiting insights into customer acquisition cost (CAC) to lifetime value (LTV) ratios. This hinders loyalty-building and repeat purchase predictability, lowering valuations. Buyers factor in costs to develop direct channels post-acquisition.

• Platform Policy Risks

Sudden policy changes, such as algorithm shifts or account takedowns, can cripple revenue. In 2023, several Indian brands faced suspensions on Amazon, highlighting Channel Dependency vulnerabilities. Buyers adjust valuations to account for these uncertainties.

• Margin Erosion

Amazon’s commissions (15–40%) and advertising costs erode margins, reducing profitability. Brands with diversified sales channels show stronger margins, commanding higher valuations. Buyers use CAC-to-LTV, GMV mix, and platform reliance metrics to assess dependency, often applying a 10–20% discount for single-channel brands.

2. Legal and Contractual Risks of Channel Dependency

Amazon reliance introduces legal risks in ecommerce M&A, complicating due diligence:

• Weak Intellectual Property (IP) Protection

Brands on Amazon face counterfeiting or unauthorised resales by third-party sellers, weakening IP protection. This diminishes M&A appeal, as buyers demand robust IP assurances.

• Restricted Customer Data Access

Amazon’s policies limit customer data access, hindering personalised marketing and direct relationships. Buyers view this as a strategic and legal disadvantage, demanding disclosures on data limitations.

• Takedown Vulnerability

Brands risk product takedowns due to alleged policy violations or competitor disputes, disrupting sales. Buyers require indemnities or warranties to mitigate these risks.

Buyers scrutinise platform agreements, IP portfolios, and compliance history, often imposing stricter warranties for high Channel Dependency.

3. Mitigation Strategies and Deal Structuring

Brands can reduce Channel Dependency pre-M&A to enhance valuations:

• Diversifying Sales Channels

1. Launch D2C Storefronts: Owned websites offer control over branding, pricing, and data. A beauty brand boosted its valuation by 15% after shifting 30% of sales to its D2C platform.
2. Integrate with ONDC: ONDC broadens reach without platform gatekeeping, reducing Amazon reliance.
3. Build Offline Retail Presence: Retail partnerships or pop-up stores diversify revenue and enhance brand equity.
4. Create Customer Communities: Loyalty programs and exclusive communities drive repeat purchases, lessening platform dependency.

• Deal Structuring for Risk Mitigation

1. Earn-Outs Tied to Diversification: Earn-outs linked to non-Amazon revenue targets incentivise diversification.
2. Escrow for Policy Risks: Escrow clauses hedge against platform disruptions, such as suspensions.
3. Post-Closing Covenants: Agreements mandating omni-channel expansion post-acquisition ensure resilience.

These strategies signal foresight, making brands more attractive to acquirers.

Illustrative Case Examples

• Case 1: Valuation Haircut Due to Amazon Reliance

A D2C apparel brand, with 90% revenue from Amazon, faced a 25% valuation haircut in 2024 M&A talks. Limited pricing control, sparse customer data, and high Amazon reliance raised concerns. Buyers discounted the valuation, citing costs to build direct sales channels and mitigate Channel Dependency.

• Case 2: Premium for Diversified Channels

A health supplement brand, with 60% Amazon, 30% D2C, and 10% offline retail, secured a 12% valuation premium in 2025. Its diversified sales channels, strong CAC-to-LTV metrics, and direct customer engagement reduced Channel Dependency, appealing to buyers seeking resilience.

Conclusion: The Imperative of Channel Diversification

Channel Dependency is a pivotal challenge in India’s ecommerce M&A landscape. Amazon reliance exposes brands to valuation risks, legal vulnerabilities, and operational uncertainties. By diversifying sales channels through D2C platforms, ONDC, offline retail, and customer communities brands enhance resilience and value. Strategic deal structuring, like earn-outs and escrow, further aligns incentives. Senior leaders must address Channel Dependency proactively, as diversification is a decisive lever for maximising valuation and deal success.

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