CEO of India’s Snapdeal: “This Is the Pivot Groupon Always Wanted to Make”
With a population north of 1.2 billion, could India be the world’s next giant e-commerce market?
That’s what Snapdeal and its investors are betting on. The India e-commerce marketplace is coming off of a $50 million Series C investment round, which included participation by eBay, pushing total funding past $100 million.
The 800-person company started as a site that listed deals for services, but has since shifted to one that sells everything from consumer electronics to women’s shoes — all from third parties, akin to the Amazon Marketplace.
I sat down with CEO Kunal Bahl earlier this week, while he was on one of his biannual U.S. visits where he meets with investors and other e-commerce entrepreneurs. Here’s an edited version of our conversation:
Jason Del Rey: You started as a deals site, a la Groupon. Why the switch to a broad online marketplace model?
We started in February 2010 as a local merchants marketplace for services. Merchants would come and list their discounted services for an entire year. It wasn’t valued for just one day, like daily deals. It helped us build a lot of traffic and become a household name. Within six months, there were 50 players in the space.
By mid-2011, something interesting was happening. Merchants started reaching out, saying, “You have a lot of reach, and I manufacture watches, or men’s footwear. Can I list these on Snapdeal?” We started testing out listing physical products and showing early progress. Then we took a trip to China that convinced us this was the way forward.
What was that trip?
At the end of 2011, we visited China and did the same trip there that we do here, where we meet with investors and e-commerce companies. It gave us a very deep understanding of where India is headed in the next six or seven years. It’s very hard for us to relate to eBay or Amazon, because they are 20 years ahead of us. But Chinese companies are a lot scrappier, and maybe only six or seven years ahead of us. It’s a lot easier for us to empathize with them.
How much of your business is still the deals business?
One percent. This is the pivot Groupon always wanted to make. But they wouldn’t have been able to make it, because eBay and Amazon are already there.
But eBay, for example, is also in India, right?
EBay came to India in 2004. They’ve done a pretty good job, but are focused on C-to-C. Our focus is B-to-C, primarily. Globally, marketplaces are moving more and more to B-to-C.
It’s very difficult to build trust in C-to-C. In B-to-C, you really know who the seller is. It’s typically high-trust, and tends to get faster traction.
And here is the macro reason: India retail is about 600 billion, out of which about 7 percent is modern, organized retail like big-box stores. Everything else is small mom-and-pops, export/import businesses. No individual fashion brand does more than $200 million in sales. There’s huge fragmentation from the supply side and retail distribution. The marketplace is really set up to aggregate long-tail of supply on one side and demand on the other.
You say you have 20 million registered users. How many visit the site each month?
About 14 to 15 million.
How do you market to them right now?
Mostly email. We create customer segments, and email at different frequency with different segments. We’ve also put a lot of effort into personalization and recommendation on-site. Those things account for 25 percent of our sales right now.
Amazon and eBay now have huge advertising businesses. Do you sell advertising on your site?
We recently started testing it. In the coming quarter or two, we’ll be launching our own ad exchange, giving sellers the opportunity to get prominent placement, but not in search results. We’re going to have a display ad network on the site for sellers.
eBay just led a $50 million round in Snapdeal. How did that happen?
India is really the last large ecommerce frontier left in the world. The Snapdeal team has been successful in building a scaled business in 18 or so months. Needless to say, that attracted interest of many large players, given the importance of the Indian market to their future growth, to which they set very, very aggressive targets. One way to achieve that is through the BRIC markets. And out of the BRIC markets, India has a tremendous amount of headroom for growth. And, hence, are some of the big, global players very interested in Snapdeal? The answer is, “yes.”
How do you make money?
We take commission on everything we sell. No insertion fee, no listing fee; we will never charge a listing fee, even though most marketplaces charge a listing fee. We realize the market in India is young, and we need to reduce hurdle for sellers to come to list.
What cut does Snapdeal keep?
It can range by category from 5 percent to 15 percent.
What’s your revenue?
We’ll do $400 million in topline this year — gross merchandise value. And, in India, building a $400 million business is like building a $1.5 billion business in U.S.
But your cut of that is only 5 percent to 15 percent?
It averages out to somewhere in the low teens.
Is it safe to assume you’re not profitable?
No, we’re not. And that’s okay. There’s a time for everything, and right now getting to great scale is very important to us.
What’s your biggest challenge right now?
Making sure enough new transactors are coming onboard in India. There are 100 million Internet users and a little over a billion people. But only seven to eight million have done a non-travel e-commerce transaction online.