In September last year, Kunal Bahl, founder of Snapdeal, took a decision with significant impact on his business – transitioning from a pure online deals site to a full-fledged horizontal e-commerce company via a marketplace model. Such a change was not new to Bahl, as he had started his entrepreneurial journey back in 2007 as a physical discount coupons player and only in 2010, he had pivoted to daily deals. Now daily deals comprise only 5 per cent of Snapdeal’s overall business while e-commerce comprises the rest. According to Bahl, all these pivots were a part of considered, strategic thinking, rather than opportunistic or tactical moves.
Now Snapdeal claims to be the country’s largest e-commerce marketplace, doing a projected annual GMV of $300 million this fiscal, and is aiming to achieve $1 billion in GMV by 2015. While the jury is out on what is the better way to do e-commerce, a lot of inventory-led e-commerce companies are now seen moving to the marketplace model as well, as it cuts costs substantially. In an exclusive interview with Techcircle.in, Bahl talks about the shift, the expansion plans of the company going forward and much more. Excerpts:
Snapdeal has moved quickly from selling coupon books to deal vouchers online to a product marketplace now. Such quick pivots look more opportunistic than a natural evolution.
Around last November, we were at a very important juncture in our life cycle. We were a local merchant marketplace and it was clear if we were to build a really large company, we had to command a much larger share of the consumers’ wallet. We had to decide if we should stick to what we were doing or should expand to selling products through a marketplace as well. We decided on the latter although most of the people I talked to at that point of time, advised me against entering the products space.
Since then, we have been continuously expanding the product portfolio and by December this year, we will have over a million products on the site. We are adding a new product every 30 seconds and we have over 4,000 brands on Snapdeal. The business has made a significant shift in the last one year. Earlier, 95 per cent of our business was local deals, but it’s now only 5 per cent, the rest being products.
You are a very different business now, compared to what you were last year. Was the transition smooth?
Whenever you make a change, some of the scaffolding and infrastructure you have built will break. There may even be a few casualties in the process. Organisationally, you have to be ready and you need to build a company where everyone is super-important but no one, including myself or any of our senior team members, is indispensable. It’s very important to have that culture for a fast-growing business.
Initially, we thought we would face a lot of organisational challenges because people might feel that we had a different vision when we started and now we are doing something very different. Actually, we were very lucky. A lot of this needed to be addressed by communicating well internally – not as a change but as a natural evolution of the company.
Why do you think inventory-led e-commerce is not working out or will not work, perhaps?
No one here has a crystal ball but what we do have is experience from other markets. If you look outside the US, the largest businesses in broad digital commerce are marketplaces. In Latin America, there is MercadoLibre.com, a $3.5 billion company; in China, there is Taobao, which did a $100 billion GMV last year; in Japan, there is Rakuten, a $15 billion market cap company; and in South Korea, there is Gmarket, which is doing $10 billion in sales. Also, even in mature markets like the US, Amazon has over 40 per cent of its gross margin dollars coming from the marketplace. So clearly, globally, there is an increasing trend towards leveraging a technology platform (rather than owning inventory).
But didn’t it make you nervous when Flipkart, touted as India’s Amazon, stuck to an inventory-led model and you were taking a different path?
We thought it was not necessarily the way to go. We are a very conservative company in terms of making investments that we don’t understand. Our company’s culture is more about how to do more with less. And investing in, for instance, hundreds of delivery boys didn’t make much sense to us. Now, a lot of these companies are cutting down on these costs. They are realising just the laundry costs for a 700-800-strong delivery team come to Rs 15 lakh a month. I don’t see many delivery boys on road now, compared to earlier times.
Investors are known for replicating processes that have been successful. A few of your investors have backed the inventory-led model. What were their views?
One of the investors backed us when we were a coupon book company and was comfortable with the evolution. Another happened to be an investor in an inventory-led e-commerce company. But their view was that this seemed like a right path and there was a great opportunity to build a marketplace in India. Another investor had a zoomed-out view. His viewpoint was that if we build a very thick demand pipe and we attach a large supply to this large demand, it could work. The challenge for an entrepreneur is to stitch everyone’s view effectively.
Nobody would have thought that we could build India’s largest marketplace. As of now, in terms of value of goods being transacted, we are significantly No. 1 in the marketplace business. The volume of business a vendor does in our marketplace is at least 10x-15x of what he would do elsewhere.
But owning inventory gives you much more control over the processes, such as maintaining quality and delivery schedule.
The inventory-led model does not necessarily allow you to have much control. For instance, if I was a seller and I came to you (e-com retailer) with 100 designs of kurti, each with five sizes, how many units of how many sizes of how many designs will you stock? There is no way you can do it.
There are certain advantages of the inventory-led model but they come at a crazy cost. To me, inventory is just a very expensive way of marketing and people will often hold inventory to claim that they will ship it fast, and that eventually becomes their marketing claim. Our philosophy is that we will try to be as fast as we can.
But isn’t there a huge dependency on merchants and less control in a market-place model?
Yes, there is less control, but a merchant will deliver because he realises that the sales he is getting through our platform are potentially impacting his income. I know one of the merchants in Gujarat who, since he started selling on Snapdeal, was able to send his daughter to the US to study because of the extra money he was making via Snapdeal.
You say you are aggressively going in the marketplace direction (95 per cent of sales are coming from there now). So what happens to your deals business?
The deals business actually continues to be healthy. We are like an online mall and we want to provide a comprehensive experience to a customer coming on Snapdeal. So there is no reason for us to emphasise something more or de-emphasise something. I think people will get pissed if one fine day they come to the site and none of that (deals) is available. The site actually has much higher quality of deals than it had last year. And it is a great way to maintain engagement with customers.
How are you building out the company?
Basically, there are five key stakeholders in our kind of business – customers, customer support, technology platform, merchants and logistics. Our goal is to figure out how to strengthen the linking among these five as each one interacts with multiple of the others. So we invest very heavily in our technology. We have around 120 people in our engineering team and we had interviewed around 4,000 candidates to build this team. Technology is the single biggest expense in the company. Every line of code in Snapdeal is written in-house as we don’t outsource anything and we don’t use other platforms. If you want to build a fast-moving and agile platform, you need to build it yourself.
So only technology forms the core and not logistics as you follow the marketplace model?
We do provide fulfilment as a service. We have fulfilment centres where merchants can send out their products and get those packed & shipped out from there. It is more like an intermediary packing and shipping service.
Are you trying to be everything for everyone? How do you seek to compete against niche players with targeted positioning?
I don’t think we are everything for everyone and we don’t plan to be that either. Our goal is simple. We have to keep providing the three things, which are important to the customer – value, assortment and convenience. You just have to know your business goals and keep working towards them. And as long as you are hitting your milestones, you should be happy. But you can’t control what other people are doing. Since the time we started, our fashion business has been growing at 30-40 per cent month on month and continues to do so. So its not like one path is right and the other is wrong. You just need to know which path you want to take and do well there.
What exactly are you trying to become and where do you see yourself?
The best comparison to us will be a Taobao mall that is owned by Alibaba.
Any capital raising on the cards to achieve the same? Also, what’s your path to profitability?
Maybe one more (funding) round. I think in the next 18 months, we will reach cash break-even because the cost in our business is very less. And over a period of time, this cost is shrinking as a percentage of sales. Technology will continue to be an investment area for us. We see that over 90 per cent of the transactions happening on Snapdeal are organic, which means people coming directly to the site and buying. We will need the capital for bridging the gap between the contribution margin and break-even. We don’t need a lot of money to get to cash break-even but if people are willing to give us the money, why would we say no.
What trends do you see emerging?
Logistics will actually become much better in the coming times. It has already improved significantly in the last nine months (with tracking capability, etc.). So people who actually invested in logistics are now thinking why they did it. It has become the white elephant since they are wondering what to do; how do they fire a thousand people or so? I think our approach is very simple – stay lean, focus on important things, and know what your value drivers are and keep working towards them.
What is your revenue goal?
I think by 2015 we should be on track to do a billion dollars in GMV; that’s been our goal for some time.
(Edited by Sanghamitra Mandal)