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Inside India’s social e-commerce

Jul 8, 2019 by Ebin K Gheevarghese
Inside India’s social e-commerce

The proverbial ‘make money work for you’ is an evergreen advice in the investment business. At a time when social media is gaining currency, ‘make your network work for you’ could be the modern stand-in for the old adage.

In the last four to five years, a few startups have begun to leverage social media platforms to lure home-makers into selling merchandise online. Popularly known as social e-commerce, these startups have slowly garnered interest from users and investors alike.

Earlier this month, Bengaluru-based social e-commerce startup Meesho raised USD 25 million from social media giant Facebook, its second investment in an Indian start-up.

“We are excited about India and its rapidly rising Internet ecosystem. With this investment in Meesho, we want to fuel a business model that can result in rapid job creation and the rise of a female entrepreneurial class in India,” Ajit Mohan, vice-president and managing director, Facebook India, said in an announcement over a video conference call.

In April this year, GlowRoad secured USD 10 million in a Series B round led by China-based CDH Investments and Korea-based fund Korean Investment Partners (KIP). The gravity of interest from overseas investors is a testimony to the game changing potential of social e-commerce in India.

“Meesho is the market leader at the moment, but their growth has become stunted. They have grown 70% last three months, while we grew 100% in the last three months,” says Kunal Sinha, co-founder, GlowRoad.

Sinha started his company in mid-2017 and raised Series A round a month later from Accel Partners. “We are the fastest and consistently growing social e-commerce company in India at 25-30% month on month. In two years, we have already reached the second position,” he says.

He claims in a year, the daily transactions went up from 10 to 10,000 transactions a day, which further escalated to 15,000 transactions a day in April this year.

Social e-commerce comprises of an expansive list of options including group buying, social shopping, mobile apps, retailers adding social features, and shopping integrated into social media.

The business model is simple: once the re-seller signs up with platform, she gets access to the products catalogue. The re-seller can decide on the margin for each product(s) she chooses to sell. The company provides a shareable link which her prospective buyers can check out for details of the merchandise. Once the re-seller is able to sell the product(s), the social e-commerce platform takes care of the logistics and the payment side of the transaction. The re-seller receives her share from the margin in her account.

The concept draws upon the wider trend of contextual commerce, where businesses partner to offer intuitive and connected commerce experiences. Social commerce allows peer recommendations and reviews to take center stage in purchasing decisions, says Rohan Mahadevan, CEO, Paypal Pte Ltd.

To sell is human

The unique advantage of this business model is the negligible customer acquisition cost.

“The re-seller takes care of the marketing. If we were a B2C company, we would have had to spend a fortune to reach customers,” says Sinha from GlowRoad.

These platforms are ‘making social media work for them’. The re-sellers, most of them housewives, are good at creating conversations around a product. The model is trust-based and the social interactions and user-generated reviews ensure mediocre products disappear from circulation fast. Product excellence becomes paramount.

“Jewellery, fashion and cosmetics are the major categories social e-commerce platforms are targeting. However, the buyer base is not big enough. We have around 100 million online buyers, of which, probably only half are active buyers. Once it scales up to 300-400 million online buyers then it makes sense to engage with the customers. It’s still very early. India has a big language barrier too,” says Satish Meena, analyst at Forrester Research.

But the best re-sellers know how to leverage the social nature of a group to make the sale. The sale happens on a one-on-one basis. And the local language barrier (a huge hurdle for online marketplaces) becomes immaterial. As the network effect catches on, social e-commerce will find ways to bypass the general pitfalls of online marketplaces.

That doesn’t mean it will be a cakewalk for social e-commerce companies in India.

Teething problems

Social e-commerce is still a fledgling industry in India.

“Total number of people involved in social e-commerce is less than a million. So the market as of now is really small, but that also mean there is huge scope for growth,” said Ping Wang, associate partner at KIP, an investor in GlowRoad.

According to Wang, the way most of the other social e-commerce platforms work is that they make policy and strategy which re-sellers have to adhere to. This, he says is the wrong way to do social e-commerce.

“It should be the other way round. Re-sellers have tried different means to sell so they have their own knowledge which they can bring to the company for other re-sellers to use. The company should be a learning platform that learns from the knowledge of re-sellers’ network. That brings value to this kind of business,” Wang says.

The complexities involved in running a social e-commerce platform is one of the barriers for companies to make it big in this space.

“There are two major pain points. One is the delivery part. Till the time your volumes are not high, the logistics part is going to be expensive. These goods cost in the range of Rs 500-600, which is not a big ticket size for companies to make a big profit. In tier II and tier III cities, delivery is even more costly.

Second, we don’t have excess manufacturing capacity like China where factories produce a lot of non-brand stuff and the economies of scale can be easily reached. We have supply and demand limitations,” says Meena.

As the competition intensifies, the social e-commerce platforms will have to work hard to improve their stickiness. Then, there is the issue of on-boarding re-sellers.

The firms don’t feel aggressive marketing is the right way to build the re-seller network.

“If Meesho or GlowRoad are all over social media, then everyone will want to become a re-seller. Then, who will be my end customer? asks Sinha.

But is the re-seller marketing a sustainable model? Meena has a theory.

“After a certain point, you can’t rely on re-sellers. Re-sellers will also find it difficult to sell. After using either Meesho or other social e-commerce companies, users will have a better understanding of online retail and end up moving to Flipkart or Amazon. Both Amazon and Flipkart are focusing on long tail. Until you have the differentiation in terms of products, it’s difficult to retain users on the platform. Once the users become comfortable with online buying, they will go directly to these online marketplaces. They will not see the need for re-sellers,” says Meena.

Maybe that’s the reason why Flipkart and Amazon are not keen on exploiting the social e-commerce route. In the long run, the social e-commerce companies could end up as feeders for big online marketplaces.

But let’s not get ahead of ourselves. Amazon did a soft launch of its own social e-commerce unit called Spark in India last year. However, Spark has not been able to start a fire yet.

According to Sinha, Amazon’s social e-commerce is around affiliate marketing and is a completely different animal compared to GlowRoad’s re-seller marketing.

He dismissed the possibility saying, “Flipkart and Amazon have to build the re-seller network from scratch. But then, they will be eating into their own businesses.”

Sinha doesn’t think Flipkart or Amazon pose an immediate threat to their business.

“Interestingly, Tencent couldn’t get into the e-commerce space despite repeated attempts. Amazon and Walmart also failed. Social e-commerce is very different than traditional e-commerce. The closest any big company came to social e-commerce was Facebook. But they couldn’t scale it as much,” says Wang.

Facebook’s investment in Meesho is also promising for the social e-commerce industry.

“Facebook has tried the marketplace. It didn’t take off as the company was focused on technology and ignored other facets of the business like customer support. Investment in Meesho implies Facebook wants to go deep into the marketplace. At some point of time, Facebook might integrate Meesho and WhatsApp Pay to the platform to enable C2C transactions,” says Meena.

China playbook

China is the mecca of social e-commerce. Pinduoduo and Yunji are the leading players in China. Yunji is a membership platform.

“A subscription model is difficult to work in India. Grofers and Jio are trying it out, without much success. Also, we don’t have an ecosystem like WeChat. However, despite the differences, we are likely to be more influenced by China than the US when it comes to social e-commerce,” says Meena.

Together, C2C and B2C are almost a trillion dollar market in China. Naturally, the growth rate has come down. “Around 85-90% of the market is controlled by big players. It’s not easy for small players to come up. That’s why investors are moving from Chinese market and trying to replicate the model in India,” Meena adds.

In China, live-streaming e-commerce is picking up. In India, we already have Bulbul app following the same model. Meena thinks ByteDance might go down the same road at some point in the future. The company’s marquee product TikTok has seen immense growth in India, especially in tier III and tier IV cities. “It makes sense for ByteDance to allow users to sell on their platform down the road.”

The trend is now catching up in India. New businesses are adding social e-commerce capability as a second string. Surat-based B2B e-commerce company Wishbook started doing social e-commerce after users asked them to add the feature.

“We started the social re-seller side of business about eight months ago. Now, it accounts for about 40% of the orders. We have more than 5,000 social re-sellers now on our platform and most of them are women entrepreneurs,” says Arvind Saraf, founder of apparel B2B catalog platform, Wishbook.

Ebin K Gheevarghese

Ebin Gheevarghese is a Bangalore-based tech journalist. He focuses on emerging Indian startups. He can be reached at ebin@thepassage.cc.

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