Case of a leading e-commerce company in India - Snapdeal.

com:
Survival and Growth Strategy

The case was written by Professor V. K. Gupta.

It is intended to be used as the basis for class
discussion rather than to illustrate either effective
or ineffective handling of a management
situation.

© 2015, IMT, Ghaziabad, India

No part of this publication may be copied, stored,
transmitted, reproduced or distributed in any
form or medium whatsoever without the
permission of the copyright owner.

1
 Case of a leading e-commerce company in India - Snapdeal.com:
Survival and Growth Strategy
Dr. V.K. Gupta

Professor, IMT Ghaziabad

(Former CEO India, JMAM, JMA Group, Tokyo, Japan)

On the last day of 2014, December 31, Bahl, CEO of Snapdeal, was discussing the achievements during
last few years with a few media persons1. He said that ecommerce especially the e-retail sector has seen
unpredented growth this year and is likely to change the way people shop. Snapdeal aims at delivering
the best shopping experience to its customers. The company has been investing on logistics and Snapdeal
ecommerce platform so that consumers can have a fulfilling and great experience. Bahl and his top
management team were now preparing their his next strategic intervention, they have been doing since
inception, to retain the competitive advantage Snapdeal had gained and become a significant player in
Indian e-commerce domain. Snapdeal currently has over twenty five million users who have registered on
their portal and more than fifty thousand merchants on its marketplace. Snapdeal offers over five million
products across five hundred categories such as mobile phones, consumer durables and other consumer
items from well known brands to private brands. As a ususal top management periodic exercise, they
decided to meet the first week of January, 2015 to firm up their strategy for the future.

On a chilly morning in the first week of January, 2015 in Delhi, in the first strategy meeting of the year,
Bahl, Co-founder of Snapdeal, was rather surprised to see the headlines stating that in next 6 months,
Flipkart may deliver customer packages in just three hours2. Bahl knew how difficult it was to meet 24
hour delivery promised by them. Snapdeal needed to take a relook at their strategy for survival and growth.
Bahl set a two week time frame for the team to meet and come up with a sustainable alternative.
E-Retail Industry in India

The India ecommerce market is expected to increase its revenue to US$ 6 billion in 2015 as compared to a
revenue of $3.5 billion in 2014, a whopping 70 percent increase on year on year basis according to a
research firm Gartner3. According to another analyst, the Indian ecommerce market has started to mature
with most of the ecommerce companies investing in making their own ecommerce platforms. They are
adding various capabilities such as product search, order management and marketing through inhouse
development and also through acquistions. M&A activity is rising, resulting in fewer ecommerce platform
options in the market. The sellers are mostly busy in execution of orders and and winning new customers,
due to very fast growth and might be overlooking long term objectives which would need investments in
core business processes such a marketplace plantforms.

Consulting firm PwC's also shares the view that the ecommerce sector in India has seen unprecedented
growth in 2014. Its key driver was adoption of rapid technology led by the increasing use of devices like
smart phones and tablets and access to the Internet, leading to growth in online consumer base. According

1http://gadgets.ndtv.com/internet/features/india-e-commerce-mart-awaits-more-billion-dollar-babies-in-2015-642421 accessed on
December 31, 2014

2http://economictimes.indiatimes.com/industry/services/retail/quick-to-quickest-in-next-6-months-flipkart-may-deliver-your-
packages-in-just-3-hours/articleshow/45755229.cms Accessed on January 6, 2015

3 http://www.gartner.com/newsroom/id/2876517 Accessed on October 16, 2014

2
to pwc, the total Indian ecommerce market, is all poised to reach the level of US $ 90 billion by 2019 from
US$ 13 billion now, an increase of 700% in 5 years. As per a research by e-Tailing India, such a big
increase in ecommerce industry in India is going to lead to a basic change in the way advertising is done.
The advertisers would have to deliver focused messages as per their specific interest and brousing history
of each customer4.

In India, retail segment is estimated at $450 billion. Ecommerce represent about 3 percent of the total
consumer market. India offers the biggest opportunity for growth for e-commerce (see Exhibit I: Indian
ecommerce Market).
Major Competitors

Snapdeal has Amazon and Flipkart as two major competitors in India. Other competitiors include
eBay,ShopClues, Jabong, Tradus and a few more. The oldest established player in India, eBay is offering
consumer to consumer platform for selling products. They have also invested in snapdeal.com. (see Exhibit
II: E-retailors in India - Competitive Scenario).

India’s largest e-commerce compnay Flipkart plans to invest directly or acquire a number of companies
in 2015 as it plans to expand its own product range and also get into a venture capital firm-like portfolio
of investments. Flipkart is in talks to buy a major stake in AdIQuity Technologies, a mobile advertising
firm. It is rumoured that Flipkat may pick up a equity share in this company and also auctions start-up
WeHive Technologies.5
Emergence of Third Party Marketplaces in India

The concept of ecommerce marketplaces may not be new to the ecommerce sector. Similar model has been
deployed by eBay from 1995 internationally and now in India since 2005. India has nearly thirty five
million SMEs who are not able to leverage the power of the internet because they lack the critical mass to
attract customers online. If marketplaces can connect them to the customers, this would be the second wave
of ecommerce in India6. Distinct features of different online marketplaces are given below. (see Exhibit
III: Review of online Market Place in India). Over the last few months, marketplace platforms have been
launched by players like Pepperfry and Buytheprice. Marketplace model makes it the process easier for
FDI as at present the Indian Governement does not allow foreign investment in online multibrand retail in
India7.
Company History

Bansal and Bahl started ecommerce company snapdeal. After completing school, where they studies
together, Bansal went to IIT Delhi, Bahl went to Wharton and then they, like any other graduate, worked
in good companies for a few years. One fine day both quit their jobs and started Snapdeal to pursue their
childhood dream of strating a business.

They have now built a very talented team with over a 1,000 people now. The manpower include IIT
graduates, IIM graduates, ISB graduates and 200-300 MBAs. The kind of professionals they have attracted
are top of the line talent. They have ensured a cohesive open culture attracting and retaining these highly
4 http://trak.in/tags/business/2014/10/24/indian-ecommerce-growth-5years/Accessed on Octoer 24, 2014

5 http://info.shine.com/article/flipkarts-aggressive-plans-in-2015/8733.html Accessed on December 30, 2014

6http://forbesindia.com/article/real-issue/how-the-rise-of-third-party-marketplaces-can-alter-indian-

ecommerce/35209/0#ixzz3NdqTOncu Accessed on Oct 30, 2014

7 http://www.nextbigwhat.com/inventory-based-ecommerce-model-is-flawed-kunal-bahl-founder-snapdeal-297/ Accessed on May 31,

2014

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capable professionals8. In 2013, eBay invested in Snapdeal. This strategic investment improved the and
gave credibility and general acceptance to Snapdeal business amongst the investor community. That was
followed by eBay, Intel Capital, Recruit Holdings, ru-Net, Saama Capital and some existing investors
investing about $50 million in Snapdeal. The company has now over 50,000 sellers on its platform, crossed
sales of US $1 billion and raised almost US $1 billion in risk capital this year.

It has been a great transformation with annual growth rates of 600 percent. According to Bahl, Snapdeal’s
purpose is to create life changing experiences for its sellers and customers. They would like to keep doing
this for many more years9.

Snapdeal’s Business Model10

In December, 2011, Bahl and Bansal, co-founders of the company, on retrun from China, having witnessed
big success of Alibaba, a Chinese ecommerce company, decided to change their business model to
marketplace model followed by Alibaba, connecting sellers and customers. Snapdeal started its business
with offering customers discounts at restaurants, hotels, movie theatres11. Out of 200 million Internet users,
India currenyly has 150 million accessing the web through mobile devices. Snapdeal decided to develop
its own mobile application unlike many companies which preferred to use a third party software. About a
year ago, at the time when mobile visitors to the Snapdeal platform were just five per cent of the total, Bahl
and Bansal decided to develop separate applications for mobiles and PCs. According to the company,
between 55 and 65 per cent of Snapdeal’s orders are placed on mobile. They expect the figure to rise to
75 to 85 per cent in the next two years.
In early 2014, Snapdeal opened its logistics platform SafeShip to other e-commerce companies as a service
with a view to expand the market and get wider acceptance from all stakeholders. Snapdeal’s software
platform helped the sellers to choose the best courier options to deliver products to the customers. 12
( see Exhibit IV: Safeship - Order fulfilment Platform for Sellers ). Snapdeal has changed from a daily
deals site into an online marketplace. Its large growth in the last few years has attracted a lot of venture
capital funding to allow it to grow faster.

Snapdeal’s ability to scale up its operations faster than others is its ability to move really fast. The ability
of Snapdeal to attract highly talented people it could hire and retain, gave them a distict edge over
competition 13 . They set up a central HR team which shared their values. Fast growth from intial few
employees to over 1000 in a few years has been challenging for Snapdeal and it managed the growth
very well.

8http://tech.firstpost.com/news-analysis/interview-marketplace-model-works-in-india-says-snapdeals-kunal-bahl-

213102.html?all=1Accessed on May 31, 2014

9http://articles.economictimes.indiatimes.com/2014-10-29/news/55558872_1_kunal-bahl-rohit-bansal-snapdeal Accessed on
October 29, 2014

10http://www.zepo.in/blog/2014/04/15/online-marketplaces-reviewed-for-indian-online-sellers-2/ Accessed on January 14, 2015

11http://businesstoday.intoday.in/story/snapdeal-flipkart-alibabacom-kunal-bahl-rohit-bansal/1/208582.html
Accessed on August 17,
2014

12http://articles.economictimes.indiatimes.com/2014-04-03/news/48834768_1_snapdeal-ashish-jhalani-logistics-companies Accessed
on May 31, 2014

13http://yourstory.com/2012/11/kunal-bahl-shares-his-interesting-journey-of-founding-snapdeal-and-growing-it-really-fast/ Accessed
on January 10, 2015

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Logistics and Payment Options

The conventional retail and e-commerce business models differ greatly. The conventional retail model
depends on logistics infrastructure, depth and breadth of geographical coverage through several inventory
nodes, warehouses and stocking points. Various other factors such as production cycles, variety and nature
of the Stock Keeping Units, local taxation laws affect their operations. The demand occurs at the reail point
which can not respond to changing demand. Only way to meet demand is through inventory kept at the reail
outlet. How much inventory should be kept is based on forecast. Sales channels may also duplicate
infrastructure and other factors leading to sub optimisation of logistics function within the overall sales and
distribution process14.

Logistics has also been a major challenge for online retailers in India who have had to come out with their
own strategies. This has been further complicated by cash-on-delivery and same day shipments deamdned
by the customers. Cash-on-delivery shipments add to the cost as additional cost is usually a percentage
based on the product value15. Flipkart is currently delivering to 150 cities through its logistics arm WS
Retail with a revenue of INR 13,450 million, being the largest by any Indian ecommerce company. Myntra,
a fashion e-retailor uses its own network to reach 30 cities. Snapdeal's logistics cost is expected to be
around INR 2500 million. According to Third party logistics players, SafeShip like open platforms will
help the industry. Ecommerce logistics firm DotZot with four logistics players BlueDart, DTDC, Fedex and
Aramex pick up and deliver on behalf of sellers for a small charge. Sellers too are enthused about such
platforms as almost 10% of a price a product sold online constitutes is from the cost of shipping it16.

Online payment mechanism was primarily driven by cash on delivery as it accounted for a major share
contributing to the sales. E-commerce and payments gateways significantly encourage customers to shift to online
transactions using mobile applications17.

Snapdeal and its Business Partners

Snapdeal.com now has a network of more than 50,000 sellers, serving 20 million registered members.
Powering this platform is the Aerospike flash and DRAM optimized in-memory NoSQL database. By
harnessing the real-time big data processing capabilities of the technology provider, Snapdeal provides
consumers with realtime updates about pricing, availability, seller ratings and other parameters to help make
well informed buying decisions. Snapdeal leads the ecommerce industry in India addressing this unique
capability. Snapdeal enables the sellers from all over India to provide costomers with a fully interactive
online shopping experience through an advanced platform. This combines the capability of logistics
subsystems with state-of-the-art online and mobile payment system. Snapdeal ecommerce platform has a
large range of products from a huge number of Indian, international and regional brands.

Snapdeal has been able to tie up with leading brands in India. Tata Value Homes, a part of Tata Group and
a real estate firm focussed on affordable housing, has partnered withSnapdeal to sell houses through the

14http://www.pwc.in/assets/pdfs/publications/2014/evolution-of-e-commerce-in-india.pdf Accessed on January 14, 2015

15http://articles.economictimes.indiatimes.com/2014-04-03/news/48834768_1_snapdeal-ashish-jhalani-logistics-companies Accessed
on January 14, 2014

16http://articles.economictimes.indiatimes.com/2014-04-03/news/48834768_1_snapdeal-ashish-jhalani-logistics-companies accessed
on January 14, 2015

17http://gadgets.ndtv.com/internet/features/india-e-commerce-mart-awaits-more-billion-dollar-babies-in-2015-642421 Accessed on
January 14, 2015

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online marketplace model18. Information technology (IT) retail chain Croma, and Snapdeal announced a
strategic partnership through which goods available at Croma stores will now also be made available
through Snapdeal platform. As part of this partnership, Croma and Snapdeal.com will jointly work on
market development initiatives, vendor developemt programmes and product category expansion. Croma
and Snapdeal have already launched Lenovo tablets exclusively and announced special offers on the
Karbonn Titanium S10 mobile phone19. In December, 2014, Snapdeal launched online 'Agri store' targeting
farmer20.

Snapdeal has partnered with FINO PayTech to launch and assisted e-commerce centres in urban, rural and
lower income clusters spread areas across India. Snapdeal plans to set up FINO PayTech-operated assisted
e-commerce outlets or kiosks across 70-80 thousand rural areas in 60-70 cities by end of the current
financial year. Snapdeal plans to set up 5000-6000 such kiosks by the end of next year21.

Snapdeal Raises Capital

Both Flipkart and Snapdeal are getting attention and capital from investors who place a high value on the
potential of Indian internet commerce companies. Flipkart got a valuation of $7 billion in July with the
company expecting to sell goods worth $4 billion in financial year 2014-15. Restaurant listing portal
Zomato was valued at about $165 million and its revenue is expected at $16.5 million in fiscal 201522. Last
year, Flipkart raised $360 million from existing investors, including Naspers, Accel and Tiger Global while
Bangalore-based Myntra secured $50 million investment led by Premji Invest along with existing investors
Accel Partners and Tiger Global23. Snapdeal has raised $100 million in a new round of funding. In the
latest round of funding, overseas investors Temasek and Myriad are investing for the first time in Indian e-
commerce. They have also invested in China’s e-commerce giant Alibaba24.

Snapdeal has raised a funding round worth $133 million led by eBay who has previously invested $50
million. This instance of funding also has other investors Kalaari Capital, Nexus Venture Partners,
Bessemer Venture Partners, Intel Capital and Saama Capital participating in the round. Snapdeal has raised
close to $250 million till date25. In the biggest investment ever by an investor in any Indian ecommerce
company, Japanese group SoftBank has invested in $627 million in Snapdeal, becoming the largest

18 http://millenniumpost.in/NewsContent.aspx?NID=67008 Accessed on January 6, 2015

19http://www.livemint.com/Companies/JxPaAmclSJnZtK4OaRsLkO/Croma-and-Snapdeal-announce-strategic-tieup.html Accesses on
January 14, 2015

20http://www.moneycontrol.com/news/business/snapdealcom-launches-online-agri-store-targeting-farmers_1259453.html accessed
on January 6 2015

21http://www.medianama.com/2014/11/223-snapdeal-fino-paytech-e-kiosks/ Accessed on January 14, 2015

22http://anovacorporate.co.in/news/As-money-rains-on-e-commerce-cos-like%20Flipkart-&-Snapdeal.pdf. Accessed on Januray 15,

2015.

23 http://yourstory.com/2014/02/snapdeal-raises-133-million-funding-round-led-ebay/ Accessed on January 10, 2015

24http://www.business-standard.com/article/companies/global-investors-aim-for-india-goldmine-via-snapdeal-investment-

114052101366_1.html Accessed on January 14, 2015

25 http://yourstory.com/2014/02/snapdeal-raises-133-million-funding-round-led-ebay/ Accessed on January 14, 2015

6
shareholder in the online marketplace company in India26. A number of investors have been investing in
Snapdeal in 2013 and 2014.(See Exhibit V: The Valuation Dynamics in India).

Net Revenue and Profitability

Snapdeal expects to be the first e-commerce company to turn profitable in India because of the business
model they follows and their commitment to it27. Flipkart leads ecommerce companies in India in sales the
followed by Amazon and Snapdeal respectively. However, Flipkart is making much higher losses. Its for
2013-14 stands at INR 4000 million. Amazon and Snapdeal have much lower losses for the same period28.
(see Exhibit VI: Net Revenue and Loss -2013-14). The loss for very INR in revenue is also highest in case
of Flikart ( see Exhibit VII: Loss for every INR spent ). From a conventional business perspective, one amy
question as to how long can these companies sustain this level of loss. However, these companis have a
different view on this short term phenomenon in ecommence business. Snapdeal says that they are a
technology company and a large part of their investments is going into technology. During the intial stage
of the ecommerce boom in India, they need to invest in building scale and increasing the size of each
purchase by building their brand image. They want to continue doing that over the next couple of years by
focusing on investments in technology, giving little importance to profitability at this stage of business
growth29.

Expanding Merchant Base

E-commerce companies estimate that India currently has just over 100,000 active sellers on ecommerce
platforms compared to over one millions of online sellers in China. To improve this situation quickly,
ecommenrce companies operating in India have come out with several a intiatives to enroll millions of
sellers from across the country to their marketplaces30. Snapdeal enables sellers from all over India to
provide consumers with an interactive and responsive online shopping 31. ( see Exhibit VIII: Reaching out
to the Sellers). Earlier in 2014, Snapdeal had started same day delivery in Delhi sometime ago. This practice
was followed by other ecommerce companies, to remain in business and be competitive.

Snapdeal has launched an initiative called ‘LaunchPad’ for SME’s and enterpreuers for their new product
innovations. Using this platform they can directly list their products on Snapdeal. This is similar to model
of Walmart, where in any innovator can contact Walmart and ask them to showcase their products nation-
wide inside their stores. Launchpad is a direct distribution model where sellers and buyers can come
together without the need for an intermediatory. Snapdeal proposes to provide the necessary assistance for
marketing, distribution, shipping and payment to these enterpreures32.

26 http://www.hindustantimes.com/business-news/the-big-e-tail-push-softbank-group-to-invest-627-mn-in-snapdeal/article1-
1279690.aspx Accessed on January 14, 2014
27http://www.iamwire.com/2014/09/well-e-commerce-firm-turn-profitable-kunal-bahl-ceo-snapdeal-more/100895 Accessed on

January 14, 2015

28http://trak.in/tags/business/2014/11/06/flipkart-amazon-snapdeal-revenues-losses-comparison/ Accessed on January 14, 2015
29 http://knowledge.wharton.upenn.edu/article/how-snapdeal-is-connecting-dots-between-supply-and-demand-in-india/Accessed on

January 14, 2015

30 http://economictimes.indiatimes.com/industry/services/retail/e-tailers-launch-youtube-channels-rope-in-trainers-to-widen-seller-
base/articleshow/45960965.cms Accessed on January 21, 2015
31
http://finance.yahoo.com/news/snapdeal-india-largest-online-marketplace-140000185.html Accessed on Janaury 23, 2015

32 http://trak.in/tags/business/2014/04/29/snapdeal-launchpad/ Accessed on January 14, 2015

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On January 20, 2015, Bahl and his team were seriously looking at the fast pace at which Amazon had
captured the Indian ecommerce market by setting to achieve sales worth $2 billion by the end of 2014-15,
becoming the fastest e-tailer in India to achieve this level. Snapdeal took 4 years and flipkart 7 years to
reach this level33. Amazon has set up 8 warehouses in seven states with a seller base of 18000 delivers in
19000 pin codes in India compared to Flipkart’s 13 warehouses, connecting 4,000 sellers to users in about
300 cities. Amzonnow planning to entermovie production business and using U Tube to educate sellers in
order to expand its seller base. Bahl and the strategy team were thinking on how to counter the new threats
from flipkartof delivery within 3 hours and with Amazon talking of using drones for delivery in high rise
cities and expanding faster, in addition to very aggressive program to increase number of sellers on their
respective marketplaces.

Exhibit I: Indian ecommerce Market

Source: http://trak.in/tags/business/2014/10/24/indian-ecommerce-growth-5years/

33
http://economictimes.indiatimes.com/industry/services/retail/amazon-india-may-emerge-as-fastest-e-tailer-to-touch-2-bn-sales-
mark/articleshow/45948066.cms Accessed on January 20, 2015

8
 Exhibit II: E-retailors in India - Competitive Scenario

Source: http://economictimes.indiatimes.com/industry/services/retail/amazon-india-may-emerge-as-
fastest-e-tailer-to-touch-2-bn-sales-mark/articleshow/45948066.cms Accessed on January 20, 2015

9
 Exhibit III: Review of online Market Place in India

Reviews of Online Marketplace

Marketplace Amazon eBay ShopClues Tradus Snapdeal Flipkart

INR 499/ Month

Subscription
INR 499/ Month (For Basic Free Free Free Free
Fee
Store)

Free for first 100

Listing Fee INR 10/ Sale Free Free Free Free
products

Pricing 4.5% Paisa Pay

Payment
None Fee + 12.36% None None None None
Gateway Fee
ST

Comission
(Depends on
5%-15% 1%-7% 4%-20% 4%-20% 4%-20% 4%-20%
Product
Category)

Self Shipping ✔ ✔ ✘ ✘ ✘ ✘

✔ ✔ ✔

Shipping
Use Fulfillment ✔ ✔ ✔
Shipping Provided
by Amazon Powership Use eKart
(FBA)

INR 40 to INR INR 40/ 500 INR 35/ 500

Cost of INR. 40 – 49/ INR 45/ 500 Not
45/ 500 gms + gms gms
Shipping 500 gms gms for SCVB Disclosed
1% of Item Value (approx.) (approx.)

✘ ✘ ✔

Packaging
Only for FBA; Only for ✔ ✔ ✘
Provided? Provided for
Handled by PowerShip
Packaging SVB
Amazon customers

INR 230 for

Cost of
NA NA INR 3 – 9/ Order 100 Tradus INR 3/ Order NA
Packaging
polybags

Tier-1 Seller:
Shipment Every Friday for
On Shipment Product Dispatch Dispatch
Confirmation all orders
Payout Period Confirmation Delivery + 7 Date + 3 Date + 7
from customer + Completed the
from customer Days Weeks business
7 Days previous week
days

20,000
Sellers 1,000 Sellers
2,500 Sellers 30,000 Sellers 12,000 Sellers
20 Million $1 Billion
7 Million Unique 2.1 Million 42 Million 700,000
Registered Sales 2012-
Size of the Marketplace Visitors / Month Active Users Visitors / Year Page Views/
Users 13
450,000 1.5 Million 200,000 Day
4 Million+ 20 Products
Products Listed Product Listings Products Listed
Products Sold / Minute
Listed

10
Source : http://www.zepo.in/blog/2014/04/15/online-marketplaces-reviewed-for-indian-online-sellers-2/
Accessed on January 14, 2015

Exhibit IV: Safeship - Order fulfilment Platform for Sellers

Source: http://www.snapdeal.com/info/SafeShip Accessed on January 14, 2015

Exhibit V: The Valuation Dynamics in India

Source: http://anovacorporate.co.in/news/As-money-rains-on-e-commerce-cos-like%20Flipkart-&-
Snapdeal.pdf. Accessed on January 15, 2015

11
 Exhibit VI: Net Revenue and Loss (2013-14)

[Data Source: Techcircle] Note: All figures are in INR Crore

Exhibit VII: Loss incurred for every INR spent

Source: http://trak.in/tags/business/2014/11/06/flipkart-amazon-snapdeal-revenues-losses-comparison/
Accessed on January 14, 2015

12
 Exhibit VIII: Reaching out to the Sellers

Source: http://economictimes.indiatimes.com/industry/services/retail/e-tailers-launch-youtube-channels-
rope-in-trainers-to-widen-seller-base/articleshow/45960965.cms Accessed on January 21, 2015

13