The Delhi-headquartered company was in close competition with south-based Flipkart at the peak of what was aggressive play by both companies for a larger wallet share of customers, where size is what mattered. It eventually ceded space to the deep pocketed American e-tailer Amazon.
Unit economics, a euphemism for profit, has taken a front seat for e-commerce major Snapdeal in its new, leaner avatar, founders of the company said on Tuesday. The Delhi-headquartered company was in close competition with south-based Flipkart at the peak of what was aggressive play by both companies for a larger wallet share of customers, where size is what mattered. It eventually ceded space to the deep-pocketed American e-tailer Amazon.
All the e-commerce players had deployed the “cash burn” model to acquire market share, helped by venture investors’ money. According to reports, Flipkart used to burn USD 150 million a month at its peak before its acquisition by Walmart. “Positive unit economics means the consumer is allowing you as a company to make money while serving them. Negative unit economics means you are having to pay the consumer to use your service. Our view for the last few years is that we made lot of errors to get to this realisation,” Snapdeal’s co-founder Kunal Bahl said at the annual Tiecon event on Tuesday here.
He added that investors have run out of patience and have become more wise over time. “Today more VCs (venture capital funds) are talking about unit economics. GMV (gross merchandise volume) seems to be some word in some dictionary that used to exist long time back,” he said. “Part of it is the fact that even investors are now getting impatient. They are realising that there is slightly less correlation between GMV and building lasting enduring value for a company,” he added.
Snapdeal co-founder Rohit Bansal said the key for Snapdeal now is to have a “product market fit” wherein it grows profitably, rather than achieving merely scale. He also said that the team uses toy maker Lego’s story of a bounceback from the brink in 2003 to motivate staff, while Bahl said there is an “over communication” strategy adopted in the new avatar to align the team with the company’s goals.
Bahl said aspects like headlines being made in the media, or funding rounds received by peers do not matter to its staff anymore as it is more focused on executing its own laidout strategy now.
The posterboy of Indian e-commerce relied on wit to illustrate the changed dynamics. To a question on whether he is confident of India being home to 25 unicorns — or companies having valuations of over USD 1 billion – by 2025, Bahl countered saying he desires there being 25 companies having a revenue of USD 1 billion each and not valuations, leaving the audience in splits.