While Flipkart is today valued at $7 billion having raised $1.7 billion in the seven years since it began operations, Snapdeals valuation is only around $1 billion. Kunal Bahl, the 32-year-old co-founder and CEO of Snapdeal.com is however unfazed with this. We are not short-term greedy, we are long-term hungry, is how he sums up his business philosophy. He says that Snapdeal is a capital efficient business. We have spent $100 million till now and have multiples of that sitting in the bank. Capital is available but we do not want to raise money just for upping our valuation, he adds.
A different game plan
Snapdeals managed marketplace model is nothing like the business model followed by Flipkart or eBay, an investor in Snapdeal and also, worlds second largest ecommerce company. In fact, Bahl and co-founder Rohit Bansal are more inspired by Chinas Alibaba.com. Our observation is that the marketplace model is the only successful one in the US, China and Latin America. We realise we will not be able to run two businesses successfully in a hyper-competitive market, said Bansal, who is the COO of the company. So, in 2011, after a visit from China, the two wrapped up their original deals-and-coupons business and launched Snapdeal in a new avatar.
Interestingly, this was not the first time the model was tweaked, Snapdeal has changed course six times in its four-year history. The new portal has merchants selling their products and services to consumers. Unlike its investor eBay which is an open marketplace, where second-hand goods are also sold, Snapdeal sells only new products. Other investors in Jasper Infotech which runs Temasek, BlackRock, Premji Invest, Intel, Nexus Venture Partners, NEA-IndoUS Venture Partners and Bessemer Venture Partners.
As Bahl and Bansal try to re-create the magic of Chinas Alibaba in India, the duo is also on the lookout for opportunities which can further strengthen the business. For instance, last week Snapdeal tied up with Croma, the consumer electronics retail chain run by Infiniti Retail Limited, a 100% subsidiary of Tata Sons. Electronic goods such as mobiles, tablets and laptops which are available in Croma stores will now
be available at Cromas Flagship Brand Store on Snapdeal.com. Croma and Snapdeal.com will now
leverage their offline and online presence respectively and work jointly to offer a more holistic shopping experience to consumers across the country, said Bahl.
Unlike Flipkart which largely follows the marketplace model but also retails its own inventory with the introduction of its private labels in electronics and apparel, Snapdeal claims to have no plans to get into the private label business. Instead, the e-commerce portal which currently has 50,000 sellers calls itself a facilitator of commerce. The main objective is to build a technology platform that connects the dots between sellers and buyers. While we manage fulfillment, which includes supply chain, logistics and reverse logistics, on our own we do not own inventory, said Bahl. He has his reasons. First, if we own inventory we will not be able to offer infinite selection since we will be working under the constraints of the working capital we have. The only way to offer a significant selection is by not owning anything, said Bahl adding, Second, if an e-commerce company owns inventory then it also competes against the merchants on its site. Also, as a site I have far more control over the data and the traffic that comes on the site so there are chances that I will use the data for my own benefit.
Mahesh Murthy, managing partner of Seedfund, a venture capital firm, says Snapdeal has made a smart decision. Its hard to manage private labels if youre a broad-based e-commerce player. You can do it more effectively if youre in a vertical such as groceries or fashion. So its wise to stay away from it. E-commerce sites such as Flipkart are probably doing it as an attempt to get margins somewhere, he said.
If the last few years were spent in tinkering with the business model, Snapdeal is now looking at growing its customer base. To begin with, Snapdeal which generates 65% of its business from tier II, III and IV cities, aims to get more consumers from such markets. After the top 10 cities, organised retail has a complete cliff fall. About 80% of consumers in India have limited access to products because they live in tier II or even smaller towns. So the aim is to create certainty of availability of products at the best price because that is what is going to drive maximum traction. As a company, you cannot be everything to everyone but you can be most things to most people, said Bahl.
Strengthening the back-end is a priority for Snapdeal. In its bid to ensure that the products sold on its website do make their way into remote homes across the hinterland, the e-commerce portal recently tied up with the government postal network, India Post.
And thats not all. Bahl and Bansal plan to invest R350 crore this fiscal to expand its supply chain infrastructure. To bolster its logistic capabilities, the e-commerce portal introduced services such as Payship and Snapdeal Plus, besides an exclusive mobile application, Seller Zone last month. The company is also helping sellers in securing loans from banks and non-banking financial companies (NBFCs).
The objective is to create an
environment for seamless operations for the seller as well as the buyer,
For a young business, ambitious goals are de rigueur. To achieve these, the partners have come up with an apt monikerBig Hairy Audacious Goal, aka BHAG. The BHAG is decided at the start of each quarter and then every team in the company goes into a ten-day huddle to plan out its role and path so that the company is able to achieve its target.
For instance, when we were doing sales worth R5 crore a month our BHAG was that three months later we would do sales worth R30 crore a month. The moment we achieved the target we set the next BHAG target sales worth R100 crore a month. Similarly, when we were shipping 22% of our products in 24 hours we set the BHAG goal to ship 70% of our products in 24 hours. In three months, we ended up shipping 80% of our products in 24 hours, said Bahl.
That strategy seems to be paying off. The e-commerce company claims to be growing at a rate of 25% month-on-month. Murthy says that e-commerce companies are growing 5% a month or 60% a year without doing much. But if a portal was to actively market itself it can do even better, virtually 100% growth. I expect Snapdeal to grow more than two times this year, he added.
Expanding the range of products and services available on the portal is a priority for Snapdeal. Last week, it forayed into gourmet category with a tie-up with celebrity chef Sanjeev Kapoor. Earlier last month it launched the real-estate category in association with Tata Value Homes, the subsidiary of Tata Housing. We have so far managed to touch the tip of the iceberg. The idea is to have anything and everything that a consumer wishes to buy on our portal. This can be achieved through exclusive partnerships and introduction of new segments, said Bansal. Snapdeal claims that its revenues from the sanitary and hardware category totalled R10 crore in the very first month it launched this category.
For Taiwan based phone manufacturer Oplus which has an exclusive contract with Snapdeal, it has certainly been beneficial. While it allows us to cut retail margins and offer a better price to consumers, the exclusive factor allows the portal to attract more eyeballs, said Soumitra Gupta, managing director and CEO, Oplus India. The company claims it has sold 10,000 units of tablets in five months in addition to selling 10,000 units of Oplus Xonphone 5 in the very first month of its launch.
Doubling the number of merchants on the portal from the current 50,000 in the next nine months is
also on the cards, apart from expanding the footprint of its fulfillment
centres from the current 15 cities
to 30 cities. The idea is to set up
centres in those cities which have a high density of sellers. For example,
if Guntur has 100 sellers it does not warrant a fulfillment centre but if Surat has 1000 sellers we will set up one, said Bahl.
After-sales services too play a big role in a business where the touch-and-feel factor is completely missing. In its effort to ramp up its after sales services, Snapdeal has introduced TrustPaya payment gateway which guarantees full cash back if the company falters in its commitments to consumers. For instance, if the consumer returns the product within seven days, the company returns the money. Bansal says that Snapdeal is the connecting dot between buyers and sellers and as the business of e-commerce is mostly about trust, introduction of such services helps in further gaining and maintaining a healthy relationship with consumers.
From recruiting more engineers to acquiring companies working in the payments, supply chain technology, merchandising and mobile technology space to building its mobile division, Snapdeal aims to turn itself into a full-fledged technology company. In April, this year it acquired online product discovery technology platform Doozton.com for an undisclosed sum. We want to drive automation and reduce the manual intervention that exists in the company. Today if I exclude our call centres, engineers comprise 30% of the manpower. We want to take that to 50% in the next nine months, he said.
Agrees Ashvin Vellody, partner-management consulting, KPMG India, a consulting firm, who says technology will play a key role in the future. Bigger players will acquire companies specialising in back-end operations including logistics, mobile technology, etc, he added.
Mobile technology is increasingly taking centre stage in Snapdeals scheme of things. Last year, we saw that many of those who had shopped through the mobile phone were all first-time buyers. We realised that new shoppers would come only via mobile. So we carved out 30% of the engineering and product team and asked them to compete against our own PC business. As a result, about 60% of the transactions today take place through the mobile, said Bahl. He says the aim is to ensure that a customer is able to buy its products within three clicks.
But Snapdeal isnt the only one running after mobile phone customers. Radhika Aggarwal, co-founder and chief marketing officer of Shopclues, a fashion and lifestyle e-commerce portal, points out that
in their effort to lure consumers to their mobile sites and applications,
e-commerce players are giving deep discounts.
Top players claim to be generating 40-50% of their sales through
mobile. But that is actually due to
the deep discounts and lucrative deals that are offered on their
mobile sites and apps to draw the
traffic, she said.
With Flipkart and Amazon ready with their war chests, the fight will only get tougher. Snapdeal may be forced to slash its prices and take a hit on its margins from time to time to hold on to its customers. Agrees Bansal who says that pricing will be the main differentiator. While price will continue to dictate the terms of the game, the collection of products and services will too help in creating a niche, he added.
Already the race to get small/ medium size entrepreneurs (SME) to sell on their respective platforms has got fiercer with all the three big players running after them. For instance, if Flipkart in June this year signed a Memorandum of Understanding ( MoU) with Federation of Indian Micro and Small and Medium Enterprises (FISME) and handicraft design promotion body National Center for Design and Product Development (NCDPD), Snapdeal launched an initiative branded The Craft
Collective, in association with the NGO Ode to Earth, to provide indigenous artisans a platform to sell their products. For Bhal, the ultimate aim is to provide an infinite selection of products and services to consumers. We are adding around 10,000 merchants every month. In fact, there are many people who have set up
their business with the aim to sell
only on our site and they are earning R2-3 lakh per month, he added.
However, Shopclues.coms Aggarwal points out that with too many e-commerce companies chasing the same set of consumers, the $2.3 billion segment is set for consolidation. As consumers continue to get bombarded with too many products and services at a cheaper rate, the law of demand and supply will kick in. This will ultimately lead to consolidation with only two big players operating in the segment, she said.
Agrees Murthy of Seedfund who says that general e-commerce will probably be a winner-take-all game, a segment where Amazon currently has the edge. Snapdeal is the number three behind Flipkart and it will
be tough to become a long-term
winner. Of course, with a much
lower valuation than Flipkart, it
can be a far more attractive acquisition option, he said.