The next Infosys | Connecting buyers, sellers—Snapdeal5 min read . Updated: 10 Jan 2014, 12:11 AM IST
Within a span of three-and-a-half years, Snapdeal has built a registered user base of about 20 million, offering about four million products across 500 categories
Mumbai: Rohit Bansal and Kunal Bahl went to the same school, left their jobs at the same time and in February 2010 teamed up to start Snapdeal.com, which they have built into a $500 million e-commerce company that expects to earn $1 billion in revenue by fiscal 2015.
“We knew each other since school but little did we realize then that we were wired to do business together," recalls Bahl, who is 30, the same age as Bansal.
Before Snapdeal happened, Bahl, who studied management at Wharton School, was working as a marketing professional at Microsoft Inc. in Seattle, and Bansal, an alumnus of the Indian Institute of Technology-Delhi, was employed with US-based financial services firm Capital One Financial Corp. in New Delhi when they decided to quit their jobs and become entrepreneurs.
“Kunal and I had a cumulative work experience of two years before starting Snapdeal," Bansal laughs.
The idea to start Snapdeal came easily to Bansal and Bahl as their underlying business philosophy was clear. They wanted to expand the reach of small retailers through an online marketplace. “Any idea will be profitable if it solves real-life problems. We realized organized retail in India was highly fragmented and an online marketing platform can act as a one-stop shop for customers," Bahl said.
According to a September 2013 report by Technopak Advisors Pvt. Ltd, a Gurgaon-based retail consulting firm, India’s retail market is estimated at an annual $490 billion and is expected to grow to around $865 billion by 2023.
“E-tailing will emerge as a key retail channel, which will drive the growth of corporatized retail. The size of e-tailing is estimated to grow from the current $1 billion at 0.2% of the retail market, to $56 billion (in real terms) at 6.5% of the total market by 2023, driven by an ecosystem favouring the e-tailing market," the report said.
Bahl’s house in New Delhi served as Snapdeal’s first office. “After a few months of working from home, we rented a 300 sq. ft office in a residential area," recalled Bahl.
Within a span of three-and-a-half years, Snapdeal has built a registered user base of about 20 million, offering about four million products across 500 categories, including apparel, toys, footwear and electronic products.
“By 2015, Snapdeal plans to offer about 25 million products through 100,000 sellers," said Bahl.
Attesting to its potential, investors have been forthcoming with funding. So far, Snapdeal has raised about $100 million from private equity firms through four rounds of funding. The investors include Intel Capital, Bessemer Venture Partners, Nexus Venture Partners, IndoUS Ventures, Recruit Corp. (Japan), Saama Capital, Silicon Valley Bank and ru-Net.
In June, eBay Inc. partnered with Snapdeal to strengthen its foothold in India. The operator of the online auction site also invested about $50 million in Snapdeal. “The growth of online shopping in India is at an exciting phase and the partnership will help leverage both eBay’s and Snapdeal’s strengths and, ultimately, benefit Indian consumers and retailers," said Latif Nathani, managing director, eBay India. “We believe this will help expand the Indian e-commerce market which is still an early stage e-commerce market but has immense potential."
But the investment received by Snapdeal is far less than what its competitor Flipkart has got. Flipkart has raised nearly $550 million since 2009, but still posted a loss of ₹ 281 crore in fiscal 2013.
Snapdeal has not broken even but will be profitable from the next fiscal, the partners said. Bahl and Bansal, however, have been cautious about cost management.
“Snapdeal is not a money guzzler unlike several e-commerce platforms in India. We cannot go on spending money without thinking of returns," Bahl said.
Avoiding an inventory-driven e-commerce model has been the key differentiator for Snapdeal. “We follow the marketplace model where Snapdeal provides a platform for sellers to offer their products. We do not believe in buying inventory as it increases costs substantially and reduces the choice of products for customers," said Bahl.
Bahl and Bansal believe buying inventory means spending a lot of money and managing it increases costs manifold. “If we start buying products from sellers, it will curtail the choices which we can otherwise provide the customers through marketplace model. In an inventory-driven business, our buying power will be limited," said Bahl.
Bansal said providing a marketplace to sellers for their products leads to healthy competition and also keeps prices affordable for the customers.
The inspiration to start an inventory-free business came from China. Both Bahl and Bansal visited China in December 2011 and met with several e-commerce firms there.
“We realized that eventually India will also create very large businesses in that (e-commerce) space. However, unlike the way all e-commerce companies were building their businesses in India, we observed that only large and profitable e-commerce businesses around the world (and in China) were marketplaces," Bansal says.
He is also quick to point out similarities between the Indian and Chinese markets. “Offline organized retail never took off in China. The real estate prices shot through the roof. In India, real estate prices are already high and online retail is the way forward."
Starting as a marketplace for services, Snapdeal moved to products in late 2011. Now it only sells products.
“Earlier, Snapdeal used to be a marketplace for services like spas, restaurants, hotels, etc. Before we got into products, sellers knew that we already have a market standing and we can sell their products easily. Hence, they never expected us to buy their inventory and were quite open to managing their sales on our platform with support from us," said Bahl. The switch to products was made keeping the scalability of business in mind. “The demand and availability of services was restricted to bigger cities but products could be delivered across the country," said Bahl.
Ankur Bisen, senior vice-president-retail, Technopak, pointed to some drawbacks of the marketplace model. “Following a 100% inventory-free or so-called market model provides plenty of choice to customers. But the marketplace model provides very little scope for control on quality of products and customer experience," Bisen said. “Hence, these days, most of the e-tailing platforms are following a hybrid of inventory and marketplace."
Bisen also said that it was easy to replicate a marketplace model because scope for differentiation is limited.
That isn’t deterring Snapdeal from working on developing itself as a unique e-tailing firm. Bahl and Bansal have been focusing on supply chain and logistics—one of the most crucial aspects in retail, where India is still lacking. The two have introduced a technology called Safeship to ensure faster product delivery at a reasonable cost.
Safeship uses the database of sellers and courier firms registered with Snapdeal. As soon as an order is placed with a seller, Safeship automatically assigns the delivery order to a courier firm that can most conveniently pick the product from a location, deliver it at the earliest and in the most efficient manner. The technology also provides real-time order tracking facility to sellers and customers.
“Going forward, our aim is to enhance experience for both buyers and sellers. This will be facilitated through investment in technology" says Bahl.