Home >Opinion >Did Snapdeal abandon group buying model too early?
On hindsight, Snapdeal may have been better off carving a space for itself in a niche segment of the market. Photo: Pradeep Gaur/Mint
On hindsight, Snapdeal may have been better off carving a space for itself in a niche segment of the market. Photo: Pradeep Gaur/Mint

Did Snapdeal abandon group buying model too early?

Group buying is a space Snapdeal could have occupied in India with a bit of persistence and patience

Seven years and nearly $2 billion in 12 funding rounds after it started out, e-commerce provider Snapdeal, which did a series of makeovers in its quest for viability, has finally conceded defeat. Confronted with mounting losses and dwindling cash, its largest shareholder SoftBank Group Corp., is pushing through its sale to rival Flipkart Online Services Pvt. Ltd. Its impending fire sale, as well as the declining fortunes of Groupon, the American company it originally set out to emulate in India, is the sharpest signal yet that the expansive e-commerce model, driven purely by heavy discounting, is coming unstuck.

On the way an entire category within e-commerce in India has been abandoned without being fully explored. Group buying, much the flavour in 2010 when sites like Snapdeal sprang up, was given a quiet burial long ago. In 2009-2010, Snapdeal along with sites like MyDala, Koovs, Deals and You, Dealivor and Grabbon promised to define a new sub-segment in India’s growing e-commerce business. These group buying sites sprang up on the assumption that consumers could get a better price if they purchased products and services collectively.

Their model of course was Groupon, which was launched in 2008 in Chicago, with its business proposition embedded in its name which is a combination of group and coupon. Despite its early success, the company has since lost its way. Its stock has plummeted since its initial public offering (IPO) high of more than $28 in 2011, and was trading at $3.43 on 15 May. After buying its major rival LivingSocial last year, it has been shifting its focus from goods to local services, leading to a decline in its revenue. The company is now shrinking its geographical reach and also exploring other models of growth even though the original model of group buying appears to be intact.

Back in 2010, many experts believed that India’s rapidly growing market presented far more opportunities for group buying sites than the more mature US market did. In reality, that’s not how it panned out. Problems ranging from over-selling by the sites, lack of personalization of the offers, and a general lack of distrust in digital payments constricted the growth of India’s group buying market.

By 2013-14, barely a few years after the segment seemed ripe for growth, the start-ups in that space started pivoting into the black hole of general discount sites. While some like Dealsmagic.com, MasthiDeals.com and Taggle.com shut shop, others like Snapdeal.com, GrOffr.com, Mydala.com and Koovs.com changed their business models.

The basic premise had been that buying in a group leading to bulk purchase would throw up substantial savings for the individual buyer. But when the big e-commerce sites started offering discounts as deep as 30-40% on routine purchases, the group buying sites lost their raison d’être.

Snapdeal survived, but only after effecting another of its pivots, and by January 2012, it had become just another online marketplace for products, albeit with generous doses of funding. Among its investors were such marquee names as SoftBank, BlackRock Inc., Temasek Holdings Pte. Ltd, Foxconn Technology Co. Ltd, Alibaba Group Holdings Ltd, eBay Inc., Premji Invest, Intel Capital, Bessemer Venture Partners and Ratan Tata, all of who clearly believed in the company’s business model even as its losses mounted to Rs3,316 crore in 2016, up 150% over the previous year.

The investors’ confidence may have rested in the ability of founders Kunal Bahl and Rohit Bansal to find a profitable way of monetizing its growing volumes.

But perhaps, they lost that opportunity for profitable growth very early in their journey. On hindsight, Snapdeal may have been better off carving a space for itself in a niche segment of the market. Conceptually, group buying sites offer a win-win proposition for everyone involved. They trigger a high level of demand for a product or service by promoting it at attractively low prices for a limited period only. In turn, the supplier gets a fair degree of exposure and is guaranteed a certain number of sales from visitors to these sites which then get a commission on each sale. Given the nature of the market in India, it does seem like a workable model.

Last January, Meituan-Dianping, China’s largest group deals site, raised $3.3 billion from investors like Tencent Holdings Ltd, Canada Pension Plan Investment Board and Temasek at a valuation of $18 billion. Meituan-Dianping offers a range of services like online restaurant reservation, take-out service, e-coupon promotions and is China’s leading O2O (Online to Offline) platform.

But its success with group buying shows that this is a space Snapdeal could have occupied in India with a bit of persistence and patience.

Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.

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