It’s festival season upcoming and like almost every alternative internet geek I was surfing through different e-commerce sites (Amazon & Flipkart) and saw Snapdeal showing up in the search result. This took me to the old news where all start-ups news/ business media was talking about Snapdeal. Ratan Tata making an investment backed by other investors like SoftBank Corp, Ru-Net Holdings, Tybourne Capital, PremjiInvest, Alibaba Group, Temasek Holdings, Bessemer Venture Partners, IndoUS Ventures, Kalaari Capital, Saama Capital, Foxconn Technology Group, Blackrock, eBay, Nexus Ventures, Intel Capital, Ontario Teachers’ Pension Plan, Singapore-based investment entity Brother Fortune Apparel to Controversy where Snapdeal was criticized for Aamir Khan’s statement during a conversation with Anant Goenka, to Snapdeal firing employees without reason to Flipkart making an offer to buy 100% stake to finally Snapdeal coming to close down.
The journey of Snapdeal was like an Indian Television Daily Drama, which is full of twists and turns and it was getting all attention of Silicon Valley with mixed reaction. Everyone was discussing Snapdeal at their tea time. Analysts have their own views, VCs have their views, customers say service was bad and offers went away, Snapdeal says competition killed them everyone had their own versions of the story. Some of the common internal issues which we heard from those who worked with Snapdeal or was associated with them were:
- Neck-less Hiring- It was not just hiring but was mass hiring mostly done via references, no selection processes. Deserving people were staying outside, non-deserving was inside. After getting huge investments instead of focusing on making the company profitable they went on a hiring spree and hired many students from IITs and IIMs. They used to make big targets, but no one was accountable for those targets. Hence the salary budget increased massively while the productivity decreased. Experts who were regularly following reports of them being the top recruiters at the top engineering and management institutes paying exorbitant salaries and were wondering too as what do they do with all these people. They found out!
- Corruption- Even senior management was involved in corruption. Managers were openly asking and accepting bribes.
- Godrej Business Model- Snapdeal tried to follow the strategy of Godrej. It is said that Godrej does not like to be the leader in any segment but aims to be in the top 3 of those segments. Right from the beginning they never aimed to be the market leader. They thought that the Indian market is big enough for 3-4 players and they could easily be the 2nd best after Amazon and Flipkart have killed each other. They knew that both Flipkart and Amazon would spend all their money and energy on getting the digital revolution, on educating the customer, on fighting with the government and each other to bring best in market practices and Snapdeal will silently copy them without doing the noise.
- Sellers were not happy- With a continuous change in the policy, sellers were not happy they wanted to reach out to top management but could not do it so.
Kunal Bahl was considered as one of the smartest start-up CEOs when the whole e-commerce start-up industry was booming. He was smart enough to raise funds in billions and flip the business models on such a large scale. Snapdeal turned to the e-commerce portal overnight from a deal website and then to the marketplace. It was all happening very fast, and it went on very smoothly but still, Snapdeal failed. Soon it became the market leader in Electronics & FMCG categories but things went differently the moment it reached the peak. Success is not when you reach the top spot but then when you hold the position.
I want to list out a few based on my observation of the start-up industry/ Silicon Valley. Going back to 2007-08 when 3G started taking pace, smartphones started coming up and people started accessing the internet from phones. Phones were getting cheaper every minute, that’s when India caught the world’s attention. During this era E-commerce also started to flourish and Flipkart and Infibeam. Foreign investors started pouring money and everybody thought it’s a boom time. Everybody thought we will be the next USA and E-commerce will take over the entire population, retail stores would be shut down.
But the biggest factor everyone ignored was that India and not the USA. People shopping online or who wished to shop online did not have plastic money or would not prefer to share the information because of security concerns and nor internet banking was smooth enough. Infrastructure was not in place, logistics was haywire, but what fancied people is only the population and thought it’s the next big thing. Due to the huge market size, multiple E-commerce companies started. They were just a clone of each other and nothing else. So the only differentiation was who gave the cheapest deal. But slowly money value got sealed and getting easy capital to just get customers to become impossible. Flipkart, Snapdeal, ShopClues, and many other shut e-commerce companies were able to acquire customers on the basis of discounts.
Strategy- Snapdeal was just doing exactly what Amazon India and Flipkart were doing. While Flipkart was focusing on electronics and fashion and Amazon was focusing on Prime, Pantry, and improving its logistics while keeping customer service in mind, Snapdeal had no USP. The founders kept changing the goals of the company frequently. Sometimes they wanted to be India’s biggest marketplace but at another moment they wanted to have the biggest seller base. They could not focus on one thing and constantly kept changing the goals based on what their competitors did. Also, the founders took all the major decisions without consulting other senior employees which lead to an increase in the no. of mistakes made by them. Snapdeal instead of focusing on being an e-commerce company wanted to be an ecosystem and disrupt every industry. While Flipkart bought Myntra and Jabong and integrated them into their services Snapdeal started buying totally unrelated companies like reducedata, rupeepower, doozton, etc, and could not handle most of them, hence eventually had to close them down. When Snapdeal switched to the marketplace, they failed to sanitize the product categories. Fake products, illegal product listings, poor customer services, delayed deliveries, no exclusive launches, and no big brand tie-ups. They have to close down the FMCG categories for the same reasons.
- Missing Seller Arm- They missed having a seller arm like WSR of Flipkart and Cloutail of Amazon. This was the much-needed thing for Snapdeal to stay in the market. WSR and Cloudtail played a very important role in building up customer trust. Most of the top sellers moved to Amazon/Flipkart because of better working and better opportunities. Top sellers didn’t felt valued enough in Snapdeal and were desperately looking for opportunities outside Snapdeal which was offered by Amazon/Flipkart.
- Acquisition- Snapdeal acquired 12 companies (GoJavas, TargetingMantra, Reduce Data, Fashiate, MartMobi Technologies, RupeePower, Exclusively, Wishpicker, Doozton, Shopo, eSportsBuydotcom, Grabbondotcom.) in their 6 years tenure and failed to leverage any of them. JV with DEN and FreeCharge was one of the worst investments, they failed to ripe the benefits of both.
- Lack of Quality Control- Do you remember those times when Snapdeal users were getting bricks and soaps instead of phones? that really hurt Snapdeal’s image. The media was all over them and the victims of Snapdeal’s carelessness leveraged social media really well to get their stories across. As their stories caught fire, so did Snapdeal’s brands.
- Lack Growth Plan- Snapdeal was growing at its own expense. Having been funded by great investors, following the likes of Flipkart into the e-commerce market, they decided to grow a little too fast without figuring out how to really make money.
- Stiff Business Model- They carried on with the same steep discounting and selling the COD (Cash on Delivery) service like the other players in the market. It gave a result in the start but eventually led to their demise. They did not anticipate the change. For a company to reach breakeven and eventually make a profit the sales/revenue needs to exceed the expense. In Snapdeal’s case, the expenditure in terms of advertising or discount offers kept on increasing because of their strategy of copycatting its competitors but their revenue did not increase on the same lines. Flipkart and Amazon just had deeper pockets and could out-bleed Snapdeal, allowing it to die a slow death.
- The Management- This is, perhaps, the biggest reason for their failure because it is more reflective of their philosophy as a company. Snapdeal’s founders took home salaries of over 50 crores while their company was running losses in the hundreds of crores.
From January 2015, Snapdeal was a failing company which was running only stories/PR (Talks of being profitable, IPO), etc. Snapdeal was a sinking ship with over 6k people on board, it needed more money to feed those 6k people; it needed more money to fund those big paychecks, money was needed for those after office parties but nobody knew how to make money. They only knew how to raise money and now nobody was interested in their fairy tales and none of the investors were ready to invest. Snapdeal employees started approaching the Labour Department after the company started firing without reason.
If I was the Member of the Board, I would have considered these options when the warning bell was at the ring:
- Selling part or full stakes of assets like FreeCharge.
- Tie-up with other e-tailers like Flipkart, Amazon, or Paytm.
- Scaling down operations to city levels or even neighborhood levels and become more like a hyper-local delivery e-tailer.
But no such strategy was implemented rather Freecharge which was bought for $400 million sold for $60 million to Axis Bank when the brand value became almost zero. Not only this Snapdeal board rejected Flipkart’s second buyout offer of $950 million. Today the founders still have it but at what cost, the brand value almost zero, no big investors, 80% of people lost their jobs, website traffic reduced to 25–30%, no new customers.
Conclusion
This is not just a story of Snapdeal, most of these problems are endemic to the e-commerce industry in India in general. The bubble is waiting to burst if the founders don’t take it seriously. But the real winner is the Indian consumer. If you have something to say on Snapdeal do comment below.