What a difference a year can make.
When I sat down last May with Kunal Bahl, the CEO of the fast-growing Indian shopping site Snapdeal, his company was on track for about $400 million in gross sales, with only five percent being ordered on mobile phones.
Fast-forward to today, and Bahl says Snapdeal’s annual gross merchandise volume run rate has hit $1 billion — the company keeps a cut of between five percent and 15 percent — and sales on mobile phones account for 60 percent of Snapdeal’s GMV. Yes, 60 percent.
What’s more, the Indian e-commerce market is absolutely on fire. Amazon recently said it would invest a fresh $2 billion into its marketplace in the country, while privately held Flipkart announced a $1 billion investment.
Meanwhile, Snapdeal, an online marketplace that doesn’t own product inventory, has been having informal talks with U.S. bankers about the potential for a future IPO. Here’s an edited version of a recent interview I conducted with Bahl, in which we discussed Amazon, government regulation and the Indian mobile shopping revolution.
Re/code: What did you think of Amazon announcing its $2 billion investment in India the day after Flipkart announced a $1 billion investment it received?
Kunal Bahl: I think everyone is trying to bare their teeth. … Everyone is just trying to show that they are the big daddy.
Could it be risky, this much attention when the space is still relatively immature?
There is a risk, of course. The attention is always risky, not from a competitor standpoint but from a government-oversight perspective. You don’t want the government to suddenly say, “Let me just open the book on this.” [But] I don’t think it’ll happen, because the new government seems rather business-friendly.
I’m assuming you don’t mean that the government would find things it didn’t like.
You don’t want them to introduce regulations which are onerous for the industry. I don’t think it’ll happen. In the past, the other space which got a lot of capital was telecom. And then it got really regulated, but telecom is regulated everywhere in the world because you don’t want it falling [into] the hands of the wrong people. With e-commerce, you know, what wrong can we really do?
What do you think of Amazon as a competitor?
I think they are a worthy competitor. It would be a little naive for me to say they don’t matter. Because like eBay, or any large global corporation, they have a long-term horizon on any market. They have a 100-year horizon. Not five years, not 10 years. At the end of the day, whether you’re investing two billion, five billion or half a billion, you’re not going to spend it in one year. But they are serious and I think it helps to raise the bar.
I do feel that there will be two or three tentpoles in India which will be big.
You, Flipkart and Amazon?
Probably. That’s what most people would also tell you.
Amazon, not because of traction today, but them having capital, their long-term horizon, etc. And the other two because they are entrepreneurially run companies and have lots of capital available to them now and in the future. There will be two or three tent poles but with different economics. That will be the difference eventually.
It’s a very deep philosophical reason [why Snapdeal will never become the merchant of record and sell its own inventory]: The moment we do that we are being dishonest to our merchant partners because we have asymmetric data about them and they have no information about us.
So Amazon’s approach when it operates a marketplace but also sells its own inventory is deceitful?
In the U.S., a lot of merchants will tell you that.
But some of those same merchants still sell on Amazon.
Because of their transaction velocity. But in India they don’t have the dominant share. And in the U.S., there are two platforms — eBay and Amazon — and sellers often sell on both of them because of the transaction velocity. But in India, they don’t have the same significant transaction velocity.
I spoke to someone at Amazon recently who said the company’s presence in India is still only selling goods from third parties …
Because of regulations. But they’ve been lobbying pretty hard, I’ve heard.
Do you imagine they’ll just stick with the third-party marketplace?
Why would they lobby if they were happy? The regulation right now is that, at a meta level, if you have even a one dollar investment from a foreign entity, you can’t be the merchant of record as an e-commerce company. You can’t own any product.
Let’s switch gears. Last time we spoke, in February, sales on mobile made up about 30 percent of sales.
It’s now 60; we’re talking about phones, not tablets. It was 25 percent in the beginning of the year, became 50 around May and it’s already at 60 now. I think within the next 12 months, it’ll be 75 percent.
What’s the reason for this?
Fourteen months ago, five percent of our orders were on mobile phones and 60 percent of all people who were buying from us over mobile had never bought from us before. We saw that as a really encouraging trend. There’s still a tsunami of new users who were going to come mostly over mobile. So we said let’s double down.
We created a separate team of engineers and product managers. No one in the market was doing a really great job of mobile commerce, so we said, “Let’s compete with our PC business.” Unlike most companies that are focused on bells and whistles — the features — we were focused on performance. Because in India, we don’t have 4G yet, and 3G can be kind of choppy, so oftentimes your transactions would drop. So a lot of people had low trust in buying on mobile because it would take five times for a transaction to go through. So we said in three clicks you need to be out, and that has really helped.
Also, the focus of our company and brand is middle India, which is the very large middle class of India. Most e-commerce companies have focused on the urban elite, but that’s like one million people. They are not the meat of the market, plus they always have access to offline retail options in the big cities.
We said, “For these consumers, e-commerce is a nice-to-have and not a need-to-have. Let’s focus on people for whom e-commerce is a need-to-have.” That audience by default has very high aspirations, but very low per capita income and [few] computers. But they all have phones with data connections.
Then there’s the macro trend of growing smartphone numbers and smartphones becoming cheaper. We launched the world’s cheapest Android KitKat smartphone for $50. And we will be announcing something really big soon: A smartphone for $30.
Lastly, the cost of data is getting cheaper by the day.
Would it ever make sense to give away phones for free?
No, we are not in the business of giving stuff away for free. But it’s a good point. What we’re doing is working with a lot of OEMs who are now burning the Snapdeal app on the phone. So the phone out of the box has a Snapdeal app and it typically comes with some amount of Snapdeal currency as part of the phone.
Is it fair to say that one of the main goals of the selling of $50 smartphones, and eventually $30 ones, is seeding potential new customers with devices?
Absolutely. Only 40 million smartphones in India are connected to data out of 115 million smartphones. The reason is [that] not a lot of of people have relevance for it. But now people are buying data to just use Whatsapp. Now there are data packages where you are getting unlimited Whatsapp for a month for something like 30 rupees or 50 cents.
It’s great because it’s proven to be, for lack of a better phrase, the Trojan [horse] that gets people interested. They start with social networking and connectivity and then are graduating to commerce.