• By

Global e-commerce giant Amazon has many admirers among India’s Internet entrepreneurs. But the founders of India’s largest online marketplace by sales, Snapdeal.com, chose instead to take a page out of Alibaba Group’s playbook.

Kunal Bahl, Snapdeal.com co-founder.

Like Taobao, China’s e-commerce market that is operated by Alibaba, Snapdeal created an online market that doesn’t hold inventory and manage shipping or logistics for the sellers. Snapdeal operates a platform where nearly 20,000 small merchants, most of whom lack the technological expertise to sell online, sell products ranging from apparels to consumer gadgets to millions of customers across the country.

The New Delhi-based web firm, founded by two childhood friends Kunal Bahl and Rohit Bansal, started out as a daily-deals website like Groupon in 2010. A year later it transformed itself into an online market, competing with rivals such as Flipkart, which provides an online platform for other retailers in addition to selling its own products. It also competes with Jabong and Myntra, which own and stock inventory in warehouses, and ship the orders across.

In an interview with the Wall Steet Journal, co-founder Bahl talks about the company and its expansion plans for 2014. Edited excerpts:

WSJ: Why did Snapdeal follow Taobao’s business model, when most of your competitors chose the inventory model?

Bahl: Philosophically, we are very similar to Alibaba. Alibaba also doesn’t hold inventory and it doesn’t compete with its sellers. We aren’t an e-commerce company. We enable other people to do e-commerce. The inventory-based businesses have a philosophy of more control.

If you look at the largest e-commerce businesses around the world and the most profitable ones, they are all marketplaces.

WSJ: Why do you think the inventory-based business model may be less profitable?

Bahl: The inventory-led business model has failed in India completely. Those who follow that model are having a pretty hard time. They have to raise more money and keep funding growth in a very capital-inefficient business.

Some of our competitors follow a hybrid model, which is a combination of a marketplace and inventory-led business. That is also failing. If you are primarily an inventory-led e-commerce company and you are trying to build a marketplace of third party sellers, you invariably end up competing with your own sellers. That model hasn’t worked anywhere, but in the U.S.

WSJ: Is Snapdeal profitable yet?

Bahl: Right now, we make profits on every transaction. The operating structure of our business is such that we don’t have to add significant headcount. We have kept our costs low. However, over the next two years we need to continue to make investments in technology that will help us accelerate growth. After that, we won’t have to make disproportionate investments and may become profitable at the gross level.

WSJ: Does Amazon’s entry and gradual expansion in India worry you?

Bahl: Amazon’s entry validates e-commerce’s potential in India. No market is worse off when global players come. It’s not the amount of money you have in the bank that matters. It’s how you spend it. Just because Amazon has a lot of money, it doesn’t mean it will spend it wisely. That applies to everybody. Until now we have been very prudent in our investment and our intention is to grow superfast.

WSJ: What are your plans for 2014?

Bahl: We already have 20,000 sellers on our platform. In 2014, we plan to double this and open up our platform for a larger array of sellers from different regions of India. Also, we want to keep building our logistics platform for more third-party logistics companies.


For the latest news and analysis,
