Snapdeal founder's silver linings playbook'
Snapdeal founder Kunal Bahl faced a rocky start, but has since transformed his business into India's biggest online retail marketplace
Kunal Bahl, the co-founder and chief executive of Indian e-commerce titan Snapdeal, is a big believer in finding the silver lining in every cloud. It is this optimism which has guided the 31-year-old entrepreneur's journey into big business.
Bahl had wanted to join high school buddy Rohit Bansal, now the co-founder and chief operating officer at Snapdeal, in receiving higher education at the prestigious Indian Institute of Information Technology, but was unsuccessful. So he left for the United States, where he obtained an engineering degree from the University of Pennsylvania and an MBA from Wharton.
Soon after, Bahl found an opportunity to work at Microsoft and get involved in the software company's business development operations for emerging markets. That career path was cut short when his application for a US work visa was rejected.
"It was the catalyst for me to start thinking about doing something in India with my best friend," he told the South China Morning Post. "I saw the silver lining."
The new entrepreneurs, however, had to endure a rocky start. They created an offline, daily-deals coupon business called Money Saver in 2008 that led to a mobile coupon service, a discount card business and then morphed into a Groupon-like operation under the Snapdeal brand in 2010.
Snapdeal managed to gain significant share in India's nascent e-commerce market, but making money remained a struggle. After a visit to mainland China in 2011, Bahl swiftly changed course again to transform Snapdeal into a business-to-consumer online shopping platform for merchants, emulating the business model of Alibaba Group with Tmall.com
The New Delhi-based company has since achieved about 600 per cent growth last year to become the biggest online retail marketplace in India. It posted sales of nearly US$1 billion last year, has about 25 million registered users, more than 500 product categories, 50,000 online merchants, and ships goods to more than 5,000 towns and cities across the country.
Unlike traditional e-commerce companies in India, Snapdeal eschews the so-called inventory-led business model in which the online provider buys the goods that it sells. The firm relies on another online platform it created which pairs sellers with third-party logistics services providers to collect and ship goods. Industry estimates have put the value of India's e-commerce market from US$13 billion to US$16 billion last year.
Bahl acknowledges that Snapdeal is regarded by many as "the Alibaba of India", based on how rapidly the firm built its brand, created the local market's largest volume of buyers and sellers, and generated interest from major investors.
Snapdeal has raised more than US$300 million in equity financing. Its latest fund-raising round worth US$100 million was completed in May, with investors that included funds managed by Singapore's sovereign fund Temasek, US asset management behemoth BlackRock, Hong Kong asset management companies Myriad and Tybourne, and Indian firm Premji Invest.
Global online shopping giant eBay, which has its own e-commerce business in India, has been a big investor in Snapdeal's previous financing rounds. The US firm led a US$133.7 million investment in February and a US$50 million round last spring.
In an interview, Bahl shared his vision for the firm and the growth of e-commerce in India.
What is Snapdeal's strategy to further drive the growth of e-commerce in India?
"There's really a lot of headroom to grow here. The total Indian retail industry is worth about US$600 billion, of which 7 per cent is organised. The supply side is very fragmented.
There aren't any traditional retailers you'll find in India with sufficient scale. The online percentage of overall retail in India is only 0.5 per cent, compared to 8 per cent in China, 10 per cent in the US and 14 per cent in South Korea.
We're a technology marketing services provider that has built a business that is quite large in just two-and-half years because the online market is more time and capital-efficient, compared with the end-to-end retail business model. We'll see north of US$2 billion in sales this year as we are growing significantly faster than the market, which grew just 88 per cent last year.
We want to expand the size of the addressable [online] market in India, so we are investing in providing more vernacular languages, such as Hindi and Tamil. There are only 200 million people who understand, read and write English in the country, and one billion who don't. We want to build the largest, most trusted and most efficient eco-system of buyers, sellers and third-party logistics services providers in India's digital marketplace. All our advertising and branding is also positioned on the middle class and "aspirational" middle class, which probably comprise [up to] 500 million people. These are the ones who have the least access to the best retail offerings.
We've adapted well to mobile, a market that is only going to increase. We're seeing phenomenal traction in terms of transactions over mobile phones. A year ago, 5 per cent of our orders were generated from mobile. Now, 50 per cent are completed via mobile devices, excluding tablets. Today, there are about 40 million data-connected smartphone users in India. In two years, there will be more than 250 million internet-connected smartphones.
With the tremendous growth potential and key investors in the fold, will Snapdeal go public?
There are only three outcomes for a business: stay private for an extended period of time, go public or sell. We are well-capitalised right now and have investors with a long-term view of the business. Nobody is pushing us to go public anytime soon. As we get bigger, the number of potential buyers will get smaller because the ticket price will be too large. We really feel we have a once-in-[a]-lifetime opportunity here in creating life-changing experiences for millions of people. There is a great Chinese saying I remember which goes: If you want to be happy for an hour, take a nap. If you want to be happy for a day, go fishing. If you want to be happy for a year, get married. If you want to be happy for a lifetime, do something meaningful for others.
Apart from the comparisons over growing your respective e-commerce businesses, what have you learned from Alibaba?
From Alibaba, I learned the value of building a powerful ecosystem, which is a key factor to building scale in our industry. It has figured out what business model works in emerging markets like India and China. They have solved and are still solving problems that we think about every day. I've also learned to be very humble from eBay. Amazon taught us the value of using technology to solve complex operational problems.
In which areas will the company focus on over the next five years?
We will continue to build up our mobile e-commerce activities, take a leadership role in using technology to create a more efficient system for logistics services providers, and significantly increase our seller base, giving them tools like analytics to help their business.