Snapdeal’s new weapon in e-commerce war: Services
NEW DELHI: Services, from utility payments to personal loans, are set to be the new weapons that online marketplace Snapdeal will deploy as it aims to improve margins and reduce costs in the fractious battle for top honours in India’s fiercely competitive online retail market.
In a series of strategic buy-outs this year the Delhi-headquartered company–which acquired online utility service provider Freecharge and financial services portal RupeePower — has signalled its ambitions to build a services platform to stand out in an online marketplace, which so far has been dominated by array of products from cameras to apparel and furniture.
“A lot of people look at e-commerce as a sub-set of the retail pie, we say No,” said Idi Srinivas Murthy, vice-president for marketing at Snapdeal.
“India is one of the largest consumption economies in the world, and it will double in the next couple of years. That is the opportunity,” said Murthy.
This push towards services by Snapdeal — which started as a daily deals website in 2010 co-founded by Wharton graduate Kunal Bahl and IIT Delhi alum Rohit Bansal — is aimed at grabbing a larger slice of the country’s consumer market estimated to be worth $1.4 trillion according to government data. A recent Yes Bank and Assocham report has estimated that consumer spending in India will quadruple to $4.2 trillion by 2017.
Snapdeal expects its bets to start paying off from the current fiscal itself. In a recent conversation with ET, Bahl, Snapdeal’s chief executive officer indicated that he expects Freecharge to contribute about $1 billion to Snapdeal’s overall gross merchandise sales by the end of the current financial year.
Snapdeal’s current sales are estimated to be about $3.5 billion.
Experts are of the view that a larger share of services being hawked on its marketplace will help Snapdeal generate better margins, given that the Indian e-commerce industry continues to be plagued by massive cash burn rates and high cost of customer acquisition.
“The incremental cost of delivery of services are lower, and can potentially give better profitability or returns on investment,” said Arvind Singhal, chairman of retail consultancy Technopak.
Freecharge, which clocks about 15-20 million transactions monthly, where people primarily do mobile and DTH recharges competes with Alibaba affiliate Ant Financial Services-backed and market leader Paytm, which records about 45 million digital goods transactions every month.
Snapdeal now has a ready platform to enter the India’s utilities payments market — which is estimated at $115-$120 billion, according to a 2013 report released by the Reserve Bank of India — it has already started offering some payments like payments of postpaid mobile bills, as it looks to build a services portfolio on a similar scale to its core e-commerce business.
RupeePower.com, in which Snapdeal holds a majority stake, will provide auto loans, home loans and personal loans to consumers.
“The objective is to control the enabling eco-system and create a pipeline of future revenue from services,” said Singhal.
The strategy mimics that of Chinese online retailer, Alibaba Group, a company Snapdeal has closely identified with since inception, and which has created an entire eco-system that offers the whole gamut of services – ranging from payment processes and logistics, to financial services and cloud computing and data management platforms.
Snapdeal, which has raised over $1 billion in funding from a host of marquee investors, including SoftBank, eBay, BlackRock and PremjiInvest, has also picked up a minority stake in logistics venture GoJavas in March.
However the company is not moving away from its core e-commerce business to focus on services said vice president Murthy. “It may seem as services are our mainstay because there have been two big announcements, but that is not the case,” he said.
“Snapdeal, as a platform, will continue to exist and grow and will add more categories and products. We will continue to work towards creating successful online entrepreneurs,” he said.