Interview: Marketplace model works in India, says SnapDeal's Kunal Bahl

New Delhi: With 20 million registered users, SnapDeal is one of the first and largest online marketplace in India. As a site which started off selling deals, they now sell everything from apparel to perfumes to mobile phones to two wheelers and say it’s their motto to have anything and everything that a consumer may want to buy available on their website.

In an interview with Firstpost, Wharton graduate and SnapDeal co-founder Kunal Bahl explains the business model and the future of the online retail space.

Below are edited excerpts of the interview.

How did it all start?

Rohit Bansal and I started the company together. We were high school friends, used to sit next to each other and always thought we wanted to start a company, but didn’t know what to do - but we knew we would do that one day. That was the aspiration. After high school, he went to IIT, I went to Wharton and then we were working in decent companies (I at Microsoft and Rohit was at Capital One). Then one fine day we started talking and said ‘Hey we are getting really bored at our jobs. Can we do something, should we do something now itself’ and we say ‘Ya!’ So we both quit our jobs and started the company.

When we started we were two, sitting out of a basement of a house in Kirti Nagar’s furniture market - three years ago - and we were paying Rs. 14,000 rent and that seemed to be a lot of money to be paying for two people sitting in an office. But over a period of time, we have now built a very very solid team - we are over a 1,000 people in the company now. We have over 200 IIT graduates, over 75 IIM and ISB graduates and probably another 200-300 MBAs. So the kind of people we have attracted are absolutely top of the line talent. We ensure that whoever is coming into our family feels at home, in the company of other smart people and those in our company feel that whoever is joining is of the same calibre.

How did you transition from being a deals site to an online marketplace?

When we started we started as a marketplace for service merchants who list themselves on our site and open themselves to the possibility of attracting a large number of consumers. Until then the only way to market themselves was through newspaper inserts or classifieds which was fairly expensive and the return on it was quite low. We were suddenly a pure performing marketplace for them where if I own a salon or a spa or a restaurant, I could come list myself on SnapDeal and we would give them a large visibility.

We started the business on 4 February 2010 and we saw very good traction over the first couple of weeks. What we thought our goals should be in three months in number of transactions we started doing in week three. So we knew we were on to something given that we had no idea on how to build an internet business - this was extreme beginner’s luck. We then hired a few people and started expanding to other cities. Within 6 months in the business, there were already 40 players in that space - with many who had more funding than us - but we just moved very aggressively, very very fast and with a significant emphasis on customer and merchant experience; and within 14 months of us launching SnapDeal (which is about April 2011) we had 70 percent market share in that space.

A couple of months after that a lot of our consumers and merchants started writing to us saying that we like you and trust you but we want to buy and sell other things too. We were a little bewildered in the beginning but in the spirit of testing out we started listing some merchants who started listing their products on Snapdeal - like a watch or sunglasses or a shoe or a mobile - and it started moving quite nicely. Sales started picking up on those products without us pushing a lot on that front.

China showed us the opportunity we have…

Then in November-December 2011, we went to China looking at the size of the ecommerce space there, we realised that we are only on the first 100 metres of a marathon in India - not the 400 metre of the 500 metre sprint. We had already built a very thick demand pipe of 10 million registered users back then (now we are over 20 million) who had given us permission to market to them everyday. So if you think about it, if we were a media company we would be India’s largest daily digital newspaper. So we had built tremendous amount of traffic, a household brand, lot of trust among consumers, a large number of transactors; now if we attached a large assortment of products to that demand pipe - theoritically, intent would meet availability and transactions would go. It’s as simple as that, demand meets supply. So we came back from China and said this is a great opportunity for us, this is God’s calling. We didn’t waste anytime after that. We just got our heads together, got our team and said let’s just roll out the largest assortment of high quality products available online.

What do your numbers look like?

Within six months (by mid 2012) we had already built the largest assortment online in India – and we are continuing to grow that over a period of time. Now we are converging close to 10,000 unique businesses that are listing products on our site and are close to selling a million unique products on SnapDeal - we are adding a new product to our site every 30 seconds. Each of the years we have been in existence, we have grown anywhere between 500 percent to 1000 percent year on year. We have even brought on may categories that didn’t even exist in the online space - such as the automotive category. Recently Mahindra started selling their two wheelers on Snapdeal. I found this unusual to begin with but then we sold a bunch and there was so much latent demand. So we have now started many categories and products. Over time everyone has introduced everything - but automobiles is a very unique one from us.

Employee motivation and attention to customer experience

We are in a business where it matters to us what the consumer thinks of the experience we are providing them - and the way we build empathy for them is by enabling people within Snapdeal to experience the experience we are giving our consumers outside the company. So, on the first day of every month, each team member gets a certain amount of Snapdeal cash deposited in their account which we encourage them to use during that month - because only then a content writer or a finance associate somewhere in the company will realise what the experience we are providing is and what better can we do to make it richer for the broader customer base out there.

What kind of an online retail business are you?

We are essentially a conduit or a platform in the middle - on one side we are aggregating theoretically infinite supply of wholesalers, distributors, importers, retailers, manufacturers, dealers, etc who have stuff they want to sell, but they do not have enough reach through offline media to do that - hence, they use online media. On the other hand we are aggregating theoretically infinite demand. So we ship to over 3,000 towns and cities in India and that reach is increasing more by the day as more courier partners come on board. What we are trying to do is aggregate the demand on one side and aggregate the supply on the other side and be the conduit in the middle. We are in the business of saying ‘If you want to sell something, come list it on Snapdeal, there are people waiting to buy it’.

What we have also seen is that Snapdeal is being used by a lot of brands as a platform to do a lot of launches for a lot of products. Like when the Spiderman movie came, Marvel launched its Spiderman toys exclusively on Snapdeal. Micromax launches all their products - tablets and mobile phones - exclusively on Snapdeal. When the iPhone5 came out, it was only being sold through Airtel and Aircel and whatever orders were actually being sold through Aircel was coming through Snapdeal. So, a lot of brands use us as a marketing platform to reach at very short notice and at very high velocity and bandwidth, a large number of people. They are two percent of India’s population, of the creamiest of the cream, because they are online users, transactors - and for no expense. We are a marketing place, a marketing platform - we enable brands to reach consumers by offering them various services whether that’s a payment gateway, whether that’s a call center service or whether that’s a last mile fulfillment service. So we built technology and services to all the things that a brand may need to complete transaction with the end consumer - but we are not a retailer. A retailer in our view is someone who does business in retail trading where they are buying and selling. We don’t buy anything and we don’t sell anything - we are essentially a pass through platform.

Where is the online space going? What do you think is the model to go by - having one’s own stock or a marketplace model like yours?

I fundamentally think there is space for different business models. I don’t think the market cap of Snapdeal is going to equal the market cap of digital commerce in India broadly. There are going to be multiple players, pursuing multiple verticals or horizontals and pursuing multiple models, with different degrees of success based on their execution ability and the business model you choose is only one of the ingredients of eventual success or failure.

We believe - and hence we have chosen - that the marketplace model is quite meritorious given the context of how supply and demand is structured in India, where out of $600 billion in retail market only 8% is organised and no single brand is more than $200 million in sales. Now what that means is that there is acute fragmentation on the supply side where the long tail is really really incredibly long in India, down to a guy selling toothbrushes only and not everything is super organised here. So marketplace businesses tend to become even more successful in countries where there is acute fragmentation on the supply side because none of the individual guys will set up their ecommerce shop to sell to consumers because they don’t have the economies of scale that we do in terms of aggregating demand, technology, customer support and logistics.

What is the opportunity you see in the unorganised retail sector for a website like yours?

As an example, if you look outside India, Taobao in China is the largest ecommerce company in the world and did a $150 billion in sales last year. They are a marketplace and have 75% market share in China. Reason being that China is very similar to India, at least from a supply and demand standpoint where the supply is highly fragmented. There are so many factories, importers, distributors, exporters, manufacturers and on the other side it’s such a large country with so many towns and cities and substantial wealth now and like India demand is also quite fragmented.

So when we take say women’s footwear. In India we have only two or three brands of women’s footwear which are organised and national; rest everything else is unorganised. Functional footwear which is cost effective may not belong to any known brand. Same applies to ethnic wear for women. So if you think of various lifestyle, fashion segments, home decor, handicrafts - there are so many sectors in India which don’t have any national brands - and the only way to offer consumers infinite choice there is through a marketplace model - because in a retail model you will buy everything that you eventually sell. But if the options are so many where consumers also don’t know what they want how will you figure out what they want and hence what will you end up buying?

No warehouses or inventory, but infinite shelf space

In our model we have infinite shelf space - we can have 100s of millions of products - so irrespective of who you are, what time of the day, whatever your need is, at whatever price point, we should have it available for you. So our mission our goal is very simple - everything is available at Snapdeal at best prices. We now have 10,000 vendors - and infinite demand.

How do you ensure that customer service is top notch, especially when you are not the one sending the product out to the customer?

We now have what we call fulfillment centers where if a merchant doesn’t have the wherewithal or the intent to ship directly, he can send the product to the fulfillment center from where it can get checked, packed and shipped out to the customer within 120 minutes. So a large chunk of our orders are now going through fulfillment centers that are managed by us. Now that doesn’t mean that we own the inventory, that doesn’t mean that we take a risk on it - it just means we are providing the merchants a service because not everybody has the necessary infrastructure to pack individual packets in Snapdeal packaging and ship it out to consumers. So automatically there is more control that is created there. Secondly, on a delivery side while the merchant may be shipping directly there is a quality check that is done by SnapDeal - we do regular checks to ensure that the service quality level and the product quality level stays upto the mark and upto the promise we have made with the consumer. And when the merchant does ship a product, the shipment is done by our courier company not by a courier company of the merchants choice. Otherwise the merchant may choose a guy on a bicycle to go and deliver with no tracking or anything. The courier company is always ours - which means that we have seamless trackability of where the packet is at any given point in time. We also make sure that after a packet is delivered we solicit active feedback from consumers - that gives us real time feedback at a product level, merchant level, at a category level and at a business level. So a lot of our stuff is process and precaution and some of the stuff is just ongoing tracking and addressing any areas of concern and areas of improvement.

What are your various product categories and which ones are the most popular?

We would broadly categorise our business into four categories: fashion and lifestyle (apparel, watches, sunglasses); electronics (appliances, mobile, laptops, etc); services (restaurants, spas, salons, travel, etc.) and the fourth one - yet to be launched - is media (books, music, movies, etc). Within each one there are dozens of sub categories. Our fashion and lifestyle business is our fastest growing business - in the last 1 year it has grown 750% and we continue to see a lot of traction there. It accounts for a substantial chunk of our business already (more than 20% and less than 50%). Fashion and lifestyle hold the most amount of potential for us - we already have the largest assortment of apparel and we are seeing tremendous sales. With an increase in assortments you see an increase in conversions because suddenly the chances of a consumer or visitor on your site finding the product they want increases. There is substantial headroom for growth from a fashion and lifestyle assortment standpoint, there is also proportionally an equivalent upside for us from a sales standpoint there.

There’s a certain amount of seasonality that plays a role in what sells most at any time. There’s also an element of launches. Mobile phones continue to be very high search categories just because it’s such a high volume, high frequency purchase - people change phones say every six months. Conversions in mobile and electronics categories are very high because they are highly intent driven purchases - you’re not just going to be browsing around mobiles, you are looking to buy.

What according to you are the sunrise categories in online shopping?

I think its a little early for digital products to be sold online in India however in the next 24 months or so we may start seeing some traction there - that stems from the fact that I see the number of smartphones and tablets being shipped. That means people will start consuming a lot of content on smartphones and tablets - including books, music and movies. Of course, the bandwidth in India needs to get upgraded, but I feel with the onset of 4G that will be a significant catalyst for the entire digital revolution for India, whether that’s commerce related or content related

What kind of online businesses does one see investors wanting to invest in?

I think our industry went through its phase of investment euphoria around 18 months ago and almost everyone ended up raising money in that phase but we have seen that not everyone has been able to execute that money and that’s created two types of companies - those that have executed and moved forward and those that have not. It’s very important to hit escape velocity in terms of scale, processes, technology and in terms of quality of people. If one hasn’t hit escape velocity by now its going to become very expensive and practically impossible to hit escape velocity henceforth in our industry. If you’re a smaller guy trying to hit escape velocity and the larger guys are moving faster and getting bigger at the same time, so it’s very hard to keep playing catch up for very long. My sense is that over the next 12 months investors are only going to look at companies which have substantial scale because achieving scale has become hard and very expensive now. So more capital will keep gravitating towards already at scale players.

Now, that money will end up getting utilised in a few things:

1. Continuing to build trust and brand in the eyes of consumers which is an investment any sunrise sector like ours has to do

2. Investment in technology

3. Investment in logistics related infrastructure and information systems (which has a co-relation to technology but has some mutual exclusivity from it also).

So investors are looking for companies which can now grow faster with lesser amounts of money but companies which have already achieved scale. The time for giving very high risk capital to start up businesses has gone. There was a time for that, but that window has now closed.

What is your plan for the future - acquisitions, more investment?

We are not a very acquisitive company. We think integrating businesses is very hard given we ourselves are a three year old business. Whenever we have done acquisitions we have done it for the team - because we have thought the team is of very high quality. We will continue to be opportunistic about acquisitions for teams. However, now that we are a significantly sized team there are some things we may be better off doing organically versus inorganically because of the large number of priorities we have. So we have to pick - do the stuff we think is critical and can’t do organically - and then we may want to consider acquiring a suitable company for that. So for the last two months we have been assessing various proposals - either from horizontal ecommerce companies, vertical ecommerce companies, companies that are technology providers to ecommerce companies - and we will continue to make those assessments.

My sense is that we will probably make a few acquisitions in the next 24 months which will be complementary to what we are doing. In terms of broader plans, we’ve built tremendous infrastructure from a technology, brand, overall traction and team standpoint. We want our team to become more efficient and work in a more closely knit manner so that all of us can be more productive, deliver better results. So, that will be a big focus.