Kunal Bahl’s latest pivot: build a Taobao in India

Sunny Sen July 26, 2017

Story Highlights

  • Cofounders Kunal Bahl and Rohit Bansal believe that Snapdeal can survive without intensely competing with the incumbent Flipkart and the challenger Amazon
  • Bahl wants to build a Taobao type of ecommerce model in India — an open marketplace where any merchant can list their products
  • He wants to do this without raising money, which will be possible only if the board permits Snapdeal to stay an independent entity and backs Project Sunrise — both unlikely propositions

Even as news swirls around that the Snapdeal board has agreed to a buyout offer from bigger ecommerce rival Flipkart, Kunal Bahl and Rohit Bansal, the target company’s cofounders, want to build a copy of Taobao, the Chinese customer-to-customer marketplace, in India even if it means they have to do so from scratch outside Snapdeal.

It’s been five months since talks started on Snapdeal’s merger with Flipkart and a deal is yet to be signed, though it may happen early with shareholders’ approval.

Bahl and Bansal believe that Snapdeal can survive without intensely competing with the incumbent Flipkart and the challenger Amazon. Many would not agree with them, considering that Snapdeal continues to lose customers, revenue and sellers.

“Bahl and Bansal still want to save the company and have presented what is called Project Sunrise… they have already started implementing it” — a source in know of the matter

“Bahl and Bansal still want to save the company and have presented what is called Project Sunrise,” said a source in know of the matter. In fact, “they have already started implementing it.” This will be the latest in a series of pivots the two have made in their entrepreneur lives that began in 2007.

Also read: Kunal Bahl has a Plan B, if Snapdeal’s merger with Flipkart fails to go through

A second source said that the belief of Bahl and Bansal is rooted in the fact that ecommerce in India has yet years ahead before it matures. “The business model of ecommerce in India is not yet figured out… By the time so much money goes into any business, companies either start making money or they get close to making money… something that has not worked in India, because of high capital dumping without sorting out a proper business model,” the source said.

To put it in simply — Bahl wants to build a Taobao type of ecommerce model in India. FactorDaily has reviewed a 21-page presentation on the plan and how will Snapdeal pivot to an open marketplace.

Taobao is similar to Ebay, an open marketplace where any and every merchant can list their products. In 2016, Taobao had more than seven million sellers. On the contrary, TMall, earlier known as Taobao Mall, is a marketplace for brands, much like what Paytm Mall is building.

To put it in simply — Bahl wants to build a Taobao type of ecommerce model in India. Taobao is similar to Ebay, an open marketplace where the ecommerce company does not hold any inventory, does not own logistics or warehouses

An open marketplace is where the ecommerce company does not hold any inventory, does not own logistics or warehouses — like Ebay (in the US) or Rakuten (in Japan) — and has a large number of sellers, also referred to as the long tail in this business. Bahl has in the last few months studied how ecommerce companies exist successfully alongside Amazon in different markets.

But this model comes with a unique problem. “The top 10 sellers will get an about 20% market share of sales, the long tail will get the last 5% to 10%,” said K Vaitheeswaran, founder of Indiaplaza, one of India’s early ecommerce ventures, and recently author of Failing to Succeed: The Story of India’s First Ecommerce Company. “For Snapdeal to get this right will be tough. Operationally, it is a lot more complex than managing a small set of large sellers.”

The Indian ecommerce market — $13 billion in 2016 — is expected to become $55 billion by 2020 and $200 billion by 2025
The Indian ecommerce market — $13 billion in 2016 — is expected to become $55 billion by 2020 and $200 billion by 2025

He added that if any company could have done that it would be Ebay (now merged with Flipkart). “Alibaba or Amazon can also do it. An open marketplace is definitely an opportunity,” Vaitheeswaran added.

India is different, sources familiar with Project Sunrise argue.

“In almost every market (in the world) along with an Amazon, an open marketplace survives — both cater to different kinds of buyers and sellers,” said the second source.

Whether that can be built or not, it is a stab at an opportunity likely to explode in the coming years. The Indian ecommerce market — $13 billion in 2016 — is expected to become $55 billion by 2020 and $200 billion by 2025. Of that, new goods will be worth $190 billion, the rest will be refurbished and sold. The new goods will be split $95 billion each between managed marketplaces (like Amazon and Flipkart) and open marketplaces, according to the presentation. In China, open marketplaces made for 54% of total ecommerce sales in 2016.

Managed marketplaces are those where ecommerce companies own warehouses, logistics and have inventory, and manage small and large sellers separately — like Snapdeal did.

On the management marketplace side, Flipkart is fighting a battle to retain its top position against Amazon. Paytm Mall wants to build online storefronts only with authorised sellers, adding a third dimension the war between Flipkart and Amazon. ShopClues does a mix of managed and open marketplace — it doesn’t own logistics, but offers warehouses and local brands storefronts.

Pivot back to the future

Bahl wants to take Snapdeal to its early days — just be a platform that helps every seller, big and small, sell online. “A lot of the path forward will be going back to the roots,” the first source said.

Perhaps the only difference between 2012 (when Snapdeal pivoted from a coupon seller to an ecommerce company) and 2017, or 2020, will be the number of people having data connections. India has more than 400 million people with wireless data on their smartphones.

Bahl wants to take Snapdeal to its early days — just be a platform that helps every seller, big and small, sell online. “A lot of the path forward will be going back to the roots,” the first source said  

“We are amid a big inflection point,” the second source said. “India will be a billion connections market, soon, and everyone should be able to buy or sell online.”

There are three dimensions to the ecommerce business: value in the form of lower prices, commitment in the form of faster delivery, and selection in the form of a large number of products. Amazon focusses on all three of them.

“If ecommerce companies are not 10 times the size (of Amazon) on one of the parameters, they should just pack up and leave. Building a better Amazon is not a tenable strategy,” the second source said.

Snapdeal will focus on fashion, lifestyle, home and general merchandising — the fast moving verticals with a long tail of sellers to complete the selection problem. And the cost, the second source believes is less. “The cost of running a managed marketplace versus a open marketplace is obnoxiously high,” he said.

“If ecommerce companies are not 10 times the size (of Amazon) on one of the parameters, they should just pack up and leave. Building a better Amazon is not a tenable strategy” — second source  

A Snapdeal spokesperson declined to comment on this story.

Others remain sceptical.

“Long tail products generally have better margins, but the volumes aren’t there. But there are other costs, which are higher like logistics,” said Praveen Sinha, cofounder of Jabong (merged with Myntra, owned by Flipkart).

Bahl wants to build the open marketplace business without raising money — just by selling Snapdeal’s logisitics arm Vulcan Express and FreeCharge, its digital payments unit. That would be possible only if the board permits Snapdeal to stay an independent entity and backs Project Sunrise both unlikely propositions.

Sinha said the pivot would be very difficult. “If they reduce scale and size, then it can be worked out. But the fixed cost already incurred has to be resolved,” he said. “That looks very difficult to execute. The market size won’t be that large, and when it becomes sizeable, large companies like Amazon and Flipkart will enter the space,” he added about the open marketplace opportunity.


Lead visual: Angela Anthony Pereira

Updated at 8.55 am July 27, 2017: Headline changed and fourth paragraph updated to highlight this is the latest in a series of pivots by Kunal Bahl.

 

Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.