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We'll never compete with our sellers, says Snapdeal's Kunal Bahl

Suveen Sinha and Goutam Das     May 5, 2015

The market share battle between India's largest e-commerce companies, Flipkart and Snapdeal, is hotting up. According to a report by Morgan Stanley, in 2014, Flipkart had a 44 per cent share of the $6.2 billion market by Gross Merchandise Value (GMV) while Snapdeal had 32 per cent share. In an interview with Business Today, Snapdeal's combative CEO Kunal Bahl argues why the race is much tighter than it appears.
BT: How do you see the horizontal e-commerce marketplace shaping up?

Bahl: We have a slightly unique approach to e-commerce. Traditionally, e-commerce businesses in India and most parts of the world have been monolithic. On one platform, you can do everything: watch movies, buy stuff, buy services. That era is ending, especially given the mobile. Look at Facebook. At a conference, they represented their business as a clan of apps. Facebook is monolithic; you can do everything on it that you can do on all the acquired companies they have: photo sharing, messaging and search. But they still decided to have the different apps: Whatsapp, Instagram. Because in a world that is mostly mobile, all these app icons on a user's mobile represent something. In a fraction of a second, the user should realise what it stands for. It has to be fairly specific, and provide best-in-class experience.

Often on Instagram, people are following the same people with whom they are chatting on Whatsapp. They have different apps for specific uses. Social is a strong indicator of how commerce will evolve. Not a monolithic platform, but an eco system, or apps. Our goal is how do you build the most impactful digital commerce eco system in the country, as opposed to building the best or the largest e-commerce company.

The centre of our universe is the user account, where consumers have stored cards, value, address details, etc. Around that is layered these market places, essentially different apps for buying. Most people see e-commerce as a percentage of retail; I see it as a percentage of consumption. Retail in India is a $500 billion market, consumption is $1.4 trillion, and retail is a subset of consumption. What comes between retail and consumption are travel, utility payments, education, financial services, etc. There is no reason a digital eco system should not make those more efficient. We make the supply chain of everything more efficient, we connect the dots between demand and supply more effectively, why can't we do it across these different consumption spends? Why can't we make a large chunk of that go online and hence more efficient?

Around that common user account is this family of market places: Snapdeal (products), FreeCharge (utilities: pay your bills, recharge your phone), Exclusively (luxury market place), RupeePower (market place loans, credit cards, and financial services). We will have others in the future to cater to more and more of the consumer's consumption basket.

BT: Which areas?

Bahl: The suspense will be lost. Indulge me for that much. At least in the future, I will have something new to share with you.
On the evidence of your acquisitions of RupeePower and FreeCharge, is it fair to say that in future you may be adding more services rather than new categories of products?
Anything that fits in consumption. Our lens is consumption, not just retail. Competitive advantage in our space lasts at best three months, at worst an hour. So we have to build long-term strategic capabilities. The ones we have already built and intend to build more of, are around the supply chain. Through a fulfilment programme for sellers, over 50 per cent of our orders are shipped through our fulfilment centres. We do not own any single piece of inventory and never will. Sellers leave their products in our fulfilment centres and we ship them out. That reduces time to delivery, improves quality control and homogeneity of packaging. In a very short time we have built up a million square feet of space and by the end of the year we will have three million, which we rent out to sellers because they don't have the resources or wherewithal to own their own space.
BT: Is the three million sq feet of space spread all over the country?
Bahl: Yes, over 50 cities. The big cities have more than one. Our strategy is how do you come closer to supply. The second is our investment in GoJavas. We are the largest e-commerce customer of all third-party logistics (3PL) companies in India because we have never done the last mile ourselves. We were clear we were not going to hire tens of thousands of people on our rolls to go and make deliveries. We would rather work with every 3PL company and enable them to service customers on our behalf. But what we realised was that one of these companies, GoJavas, was doing significantly better in service quality than the others. So we thought it made sense for them to build a focused capacity only for us. Our sales were growing faster than the capacity 3PLs were able to build. So we said we will invest in some companies. We did not want issues every e-commerce companies suffered in Diwali last year: so much volume and no one to deliver it. Secondly, they are able to give us significant value addition services. You can swipe your card with the delivery guy. The customer can open the box and see what product is there before paying for it. All of it is possible without us owning or running a logistics company.
BT: How much equity do you have in GoJavas?

Bahl: We have not announced it.
BT: Is it a majority?
Bahl: It's not a majority.
BT: Are they free to work with others?
Bahl: They work with every e-commerce company. That helps in capacity utilisation. If on a given lane, our volume is low one day, they can deliver for other clients. .
BT: Do you get a preferential treatment?
Bahl: We don't get a preferential treatment. We know what lanes are currently under-serviced by other 3Pl players. We told them to increase capacity and make sure they get a certain volume. This gives them money to scale up. We get a little more certainty of available capacity. It was becoming a problem: our volume was growing faster than the capacity of the 3PL companies.
BT: Do you spend time with GoJavas to ensure a certain experience for your customers?
Bahl: That we do with others too, but this makes them and us more aligned. Intel invests in many component suppliers who supply to AMD; it gives Intel a little more certainty in supply chain. We will invest in other logistics companies. There is no exclusivity; whatever gives a better experience to our customers.
The other things we have done are not in the public domain. They are largely about monetisation, advertising monetisation on our platform. The other is about how we can help offline retailers sell more online.
BT: Kirana stores?
Bahl: Kiranas already provide a significant level of convenience. So I don't know what is the problem we are solving there. The problem we are solving is, if you have a great product which you are unable to sell in your catchment area, how can we generate demand for you online. I am being purposely ambiguous. (chuckles). This is a project close to my heart: we can really help with online demand generation for offline merchants as well.
BT: So problem solving remains at the heart of your entrepreneurial philosophy.

Bahl: Solving a real need. If you look at all the things we have done, they solve a real need. I am not a luxury customer, but there is a $15 billion market opportunity out there in the next five years. Today there are only four luxury malls in the country, maybe five more will come up in the next 10 years. A person in Ludhiana who wants to buy something fancy can't. He has to come to Delhi or ask someone to get it for him from Delhi. So we are solving a real need there.

The same is the case with RupeePower. Last year, they gave out Rs 1,500 crore of loans. This year, we will give out Rs 3,500 crore of consumer loans. With only 30 to 40 million credit cards in the country, the credit instrument for the rest of the country is a personal loan. You know how hard it is to get one. And you don't know whether your bank is giving you the best or the worst rate. How can we make it convenient and optimally priced for the end-consumer by making banks and NBFCs compete for the business?

We are doing the same through our Capital Assist Programme of seller financing: sellers are getting funded through a market place we have created for them. The common thread to is our data about sellers and buyers. That is enabling us to assess the creditworthiness of both. By the end of this month, we would have given out Rs 100 crore of loans to small businesses on our platform, and there is no NPA. The businesses borrowing are paying 100 to 150 basis points less than what they would have otherwise. That delta they pass on to consumers as price benefits, which increases volume.

Pillars of differentiation will get created like this, not by adding more products and traffic to a platform. That everyone will do. An advantage we have is our head start on supply side. We have 100,000 sellers and our goal is to create a million successful online entrepreneurs in the next three years. It took us three years to get to 100,000; in the next six months, we will add another 100,000.
BT: Would that be a result of your decision early on to be a pure market place?
Bahl: Yes, that's very clear. We don't have an option. We don't buy and sell inventory like the others, whose 70 to 80 per cent of business is selling their own inventory. The only way we can build supply is by getting more and more sellers. We are about to go live with an Amir Khan ad (Snapdeal already has) with sellers. So far, it has been about buyers. No one has run a seller-focused ad. In our our ad, there are real sellers, not actors, with Amir Khan.
BT: But your model is no longer unique. Everyone is becoming a market place.
Bahl: A lot of it is optics.
BT: What do you mean by optics?
Bahl: It is an open secret that a majority of the companies out there are still inventory-led. A large chunk of their business is going through their own entities. Nobody talks about it in public. But if you go to their websites, you can see that the primary seller for many of the products is their own entity. Basically you are competing with your sellers. We would never do that. That's why we don't do private labels. Why would a brand ever trust us with their own roadmap if we made the same product? It is the same with fashion. If a brand shows you its next season's line dominated by orange, you will start selling a lot of orange under your own label at lower prices. We don't want a conflict with our eco system. We want to enable it. We have money in the bank, we can start lending ourselves. But we won't, because we will be competing with lenders or our market place.
BT: Even in the market place, the winner be decided by three pillars of price, selection, fast delivery…

Bahl: In a purely retail situation, I agree. Value, convenience and assortment are the three pillars of retail. But for a consumer who comes into our eco system, it is important for us to provide a wide range of products and services, and more of services as we go forward. For a consumer, the more he transacts in this eco system the better credit score he gets, and his chances of getting accustomed to your eco system is higher than just in a transactional relationship. Look at our growth rate. According to a Morgan Stanley study of e-commerce market share, Flipkart and Myntra is at 44 per cent, we at 32 per cent- this is pre-FreeCharge - Amazon at 15 per cent and everyone else at 9 per cent. Flipkart and Myntra had a five year, $500-million, and 10,000-person head start on us. Today, it does not seem someone had a head start on us. And we started just three years ago. Today, if you add FreeCharge, which is a few hundred million dollars annually, it is really neck and neck right now. This is market share by value, or GMV. There is no other metric.
BT: How much did you grow in FY15?
Bahl: Almost 500 per cent, but there is more to this growth. One, it is faster and two, it is more people-efficient. Outside the call centre, we are a 3,000-people company, compared to tens of thousands for other players. And most of our addition of people has been in engineering, because we are trying to do more automation and innovation. In the end, you build a much more valuable business if you can achieve growth with lower resources than anyone else. The reason for that is business model and culture. Inventory-led business models have always required far more capital to grow, anywhere in the world. Secondly, we are a frugal company. Look at our surroundings, it is pretty basic. This table (the table around which we interview him) was one of the cafeteria tables in this office. We just painted it blue and red.
BT: Do you still drive a Honda Civic?
Bahl: My wife drives the Civic, I drive a Toyota Camry. When you get married, you realise your wife also needs a car. I tried to get her to share a car with other people, but it was not working out. I took a hybrid Camry because I wanted to do something about the quality of the air in Delhi. Both are second hand.
BT: If you look at the emerging new economy, some people complain that the spirit of innovation has taken a backseat in the last couple of years. All the headlines are about fund raising and acquisition.
Bahl: Not in our company. We have been perhaps the most bold. No one thought of doing financial services on e-commerce. If you ask why we are acquiring, and not building, there are many things we are building, but speed is very important. If we get a pre-passionate entrepreneur and team who eats, drinks, and sleeps financial services, our ability to succeed is much higher. We could have also started a recharge vertical. But then what do we stand for? Consumer will say, they are selling products also, recharge also. To consumer it is not clear. As long as the management teams are very good, acquisition is a key strategy. We are not just spending money to drive up GMV. We are innovating internally and acquiring. A lot of people talk about doing grocery and kirana and all, but has anyone dug deeper and asked 'show us what have you done, and at scale?' Our utility play is at scale, doing half a million transactions a day, going to a million.

FreeCharge already has scale, courtesyRs 1,500 crore of consumer loans going to Rs 3,500 crore. Exclusively already has 300 designers on board. Snapdeal has 100,000 sellers on board. We are not saying market place is the future. We never say we will do something. You should talk about things you have done. In our last three years… first year, we just built the supply. We spent no money on marketing; we did not have any. As we built up the supply, consumers started coming. Pacing yourself is very important. We are putting these irons in the fire today around financial services and luxury because in future these will be very big.
BT: The last festival season was a big party for e-commerce, when it overshadowed offline retail. There will be another festival season in six months. What do you see emerging?
Bahl: I hope the supply chain holds up. We are doing a lot of planning around that. No one expected it to spike as much as it did. We didn't have much negative stuff, but had issues with courier companies not having capacities, which we are solving. But nothing like technology breaking, orders not being accounted for. This year we will be even more ready. Secondly, we don't compete with offline retailers. Croma, Vijay Sales, Shoppers Stop sell on Snapdeal because we don't compete with them. We don't have any inventory, no private label. We just give them a platform to reach 5,000 towns and cities. Most of them have stores in just 15 or 20 cities. There will be far more collaboration this Diwali with offline retailers. They know we are not going to vanish. We are here to stay. We have close to 15 million non-media products (that is other than books, music and movies), which is significantly higher than others. The assortment is growing fast, because the sellers are growing fast. We add a new product every 10 seconds. More sellers are selling the same product, which is good for the consumer. The same iPhone was sold by 30 people a year ago, now 300. It drives a healthy competition, drives down prices and improves customer service. But the volume has also increased. But we feel good about our supply chain.
BT: The new Mahindra Scorpio came on Snapdeal, but no other cars after that…
Bahl: Soon. It is a learning process for us about the technology integration we need. It is all lined up. Auto comes between retail and consumption. We have to be the engine to drive demand for dealers, not short-circuit them.
BT: Do you think Snapdeal has taken the lead in regional language e-commerce?
Bahl: Seven per cent of our traffic comes from Hindi and Tamil. We are launching four more languages: mainly southern Indian languages. By the end of this quarter, 15 per cent traffic will be from non-English. The caveat is we don't control that metric. We can't force anyone to shop in Hindi even if he is a Hindi speaker. Telecom grew rapidly when local languages came into phones. It is not easy. When we started, HP used to get translated as 'Himachal Pradesh'. We have to transliterate, not translate. We want region languages on all our platforms. Everyone needs a mobile recharge and utility payments. Clearly, everyone does not speak English. No one else has been able to do it.
BT: When it comes to low prices, you can do it through low interest rates on loans. What else?
Bahl: Seventy per cent of our sellers use the Snapdeal seller mobile app. We have created a lot of analytics tools for them. We tell them this is the best price of this product you are selling, if you want to match it, press this button. Creating a lot of analytics tools creates a healthy competition. That is the true value of a market place, it drives down prices naturally by healthy competition among sellers. That's the big reason we will never compete against our sellers.
BT: What do you think of some platform's decision to go mobile app only?
Bahl: According to our data, there are still a lot of audiences who are buying on PC. We don't want to force consumers. We should not look at our convenience. If we did, we would do only app. Typically, you would have a third of your engineering team working on the PC. The costs too can add up. We look at what is right for the consumer and work backwards. We are okay if it is inconvenient for us, but not to the customer. Twenty five percent of our business is still PC, and that's a large number. If we shut it down, a lot of people will move to mobile, but we will be forcing consumers. We could think about it if 95 per cent was mobile. You do a lot of these anti consumer things and then eventually they add up. If you ask whether there are enough people using our PC website, the answer is yes. The answer may not be yes two years later.
BT: How much has your marketing budget increased, now that you are using Amir Khan?
Bahl: Not much. Amir as a percentage of the overall marketing budget is very small, not even five per cent. But it is good if people think it is a big deal.
BT: When will you require another round of funding?
Bahl: We are ok, well-capitalised for at least the next couple of years. We are not growing head count massively, only in engineering. Where will we spend the money? Our personality is not that let's burn through a billion dollars this year. We have raised eighty to ninety per cent of the money in the last nine months. Two years ago, we had no money. We have been a very capital-efficient company. We spend on what we are convinced about.

(Follow the authors on Twitter: @suveensinha and @Goutam20)

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