How Kunal Bahl and Rohit Bansal created the country's biggest online marketplace

Subramanya S V, Managing Partner at BVP India, an early investor in Snapdeal.com, remembers the board meeting of December 11, 2011 well. Kunal Bahl and Rohit Bansal, co-founders of the company, had just returned from a visit to China. Snapdeal was then a group deals' site, akin to Groupon, offering customers discounts at restaurants, hotels, movie theatres and the like. Bahl and Bansal stunned the audience by announcing they were changing the company's line of business altogether.

In China, the two founders had seen how the giant Chinese online marketplace Alibaba.com worked and wanted to recreate the model. "They had many options but chose to become a marketplace," says Subramanya.

Within two months, the deals' business was shut down. "I think our investors were really surprised," says Bahl. With Snapdeal holding 70 per cent market share in the group deals' business then, having raised a sizeable $57 million - including $45 million from BVP India -it seemed an odd decision to take. Barring the global eBay, there were no online marketplaces in India then. (Companies such as Flipkart were purely inventory-led - they bought goods to sell on their sites; they did not allow others to set up shop. It is only since last year, with Amazon's entry into India, that Flipkart too has begun offering its site as a marketplace.)

Relative to our peers, we are a much smaller and tighter company.

ROHIT BANSAL

Co-founder and COO, Snapdeal

But Bahl managed to convince the board. "He is very charismatic," says Subramanya. "He inspires people." Not everyone in the audience was fully convinced, but agreed to go along. It was a farsighted decision that has paid off handsomely. While the entire group deals business is now in shambles, Snapdeal is valued at a billion dollars, the fifth Indian online company to join this select club after Flipkart, InMobi, Cleartrip and MakeMyTrip. "In the next couple of months, we should hit a billion dollars in revenue run-rate," says Bahl.

Snapdeal is now the second-largest e-tailing company after Flipkart. It has about 50,000 merchants selling five million products on its site, adding a product every 20 seconds. In the past year, it has grown 600 per cent. "In the next 12 months, we will have 100,000 sellers," says Bahl.

In comparison, Flipkart remains primarily inventory led, with only 2,000 sellers. The only company that comes close is ShopClues, an online marketplace which targets Tier-II and Tier-III towns. Radhika Agarwal, Co-founder, ShopClues, says it also has 50,000 sellers. eBay, the world's largest open online marketplace, in comparison, has 45,000 sellers in India. But again, eBay allows even individuals to use its platform, while Snapdeal only permits small and medium businesses.

"There were 900 e-commerce companies at the time, but no one was doing what we did," says Co-founder Bansal. The founders were very clear they did not want to follow the Flipkart (or Amazon) inventory-led model. "We were certain about our goal - customers should have certainty of availability of products at the best prices," says Bahl. Since then many, including Flipkart, have, either wholly or partially, adopted the Snapdeal model and even investors extol its virtues. "Scalability in a marketplace model is much easier compared to an inventory-led model. It's a proven model worldwide," says Suvir Sujan, Co-founder of Nexus Venture Partners, which had invested $10 million in Snapdeal even before it made the switch.

Mission Impossible

Bahl and Bansal have seen their share of hard times. In an earlier avatar, Snapdeal was called MoneySaver and sold physical discount coupons. (The shift to online group coupon deals happened only in January 2010.) At one stage, in July 2009, MoneySaver was in such bad shape it had a revenue balance of Rs 53,000, while its monthly wage bill was Rs 5 lakh. Bahl and Bansal put in all their personal savings to keep the company going. After paying salaries, they were left with Rs 21,000. Nor did the online marketplace yield fruit overnight. In end-2012, a full year after the switch, Snapdeal had only 1,000 sellers.

How has Snapdeal grown so fast since then? A vital clue to the answer lies in the placards visible all over the office bearing the legend: Mission 500. What does it stand for? Bahl is reluctant to let on at first. Finally, he reveals the acronym that sums the Snapdeal approach: BHAG, meaning 'run' in Hindi and standing for 'big, hairy, audacious goal'. Snapdeal's secret is to set the team a seemingly unattainable goal and then strive for it, giving the effort everything. "The goal should be so unachievable that if you ask people in the office for feedback, they should either get very nervous or laugh out loud at the ridiculousness of the idea," says Bahl.

Every quarter there is a new goal to be reached. The first one was set six quarters back: Mission 30. Snapdeal's monthly revenue was then between Rs 5 crore and Rs 7 crore - by the end of the quarter it had to be raised to Rs 30 crore. Eyes in the office popped out at the figure - but it was achieved. Again, not all missions involved raking in more revenue. There was, for instance, Mission NPS, standing for 'net promoter score' and involved assessing the quality of transactions. Once a product is bought and delivered, the buyer is routinely asked to rate the entire experience on a scale of zero to 10. A buyer rating of six or below is a 'detractor', seven to eight is a 'moderator' and nine to 10, a 'promoter'. The NPS is calculated based on the responses - and is usually between 35 and 50 for most e-commerce sites. Bahl wanted it to be 65 at Snapdeal, world-class. It has been achieved.

"Speed and scale are both very important," says Bansal. "If you don't have scale, it is difficult to get the merchants to talk to you." As for speed, e-tailing companies' obsession with it peaked around mid last year, when a few started promising delivery in two days and others followed suit. The next target was 'same-day delivery'. Snapdeal set itself Mission 24, which was to ship 75 per cent of products within 24 hours of the order being placed. By the end of the quarter, 80 per cent of products were being shipped in a day.

This, however, would not have been possible without SafeShip - something Snapdeal got from eBay.

In April 2013, eBay led a group which invested an undisclosed amount in Snapdeal. As much as the money, the expertise eBay shared thereafter proved invaluable.

Learning from eBay

Two months later in June, Snapdeal launched its logistics platform SafeShip. It integrated all the courier companies Snapdeal dealt with alongside all its sellers and used an algorithm to pinpoint which courier would work best for which seller. "There are a lot of sellers," says Bahl. "If all the courier companies had to be integrated with all the sellers it would never work."

With SafeShip, an order placed immediately triggers an alert on the platform and the courier best equipped to deliver at the particular pin code the order has come from, gets the job. eBay uses a similar platform too, called Powership. "Such a platform also enables us to negotiate rates on behalf of the sellers with the courier companies because of high volume of orders," says Latif Nathani, Managing Director of eBay India. Snapdeal delivers to 25,000 pin codes across the country.

eBay also helped Snapdeal enhance its credibility with customers. Snapdeal launched TrustPay in April 2013, similar to eBay India's PaisaPay started a few years earlier. With TrustPay, the payment a customer makes goes into an escrow account where it stays for a week till the delivery happens. Any failure in delivery and the money paid is immediately returned. All Snapdeal packets have the TrustPay guarantee seal on them. Again, if a product is not available on eBay India but can be found on Snapdeal, a buyer at the former site is promptly redirected to the latter. "We show the Snapdeal inventory. That is part of the commercial agreement," says Nathani.

Will eBay buy out Snapdeal one day? Bahl doesn't dismiss the suggestion, but adds: "Right now eBay has less than 19 per cent share in our company, nor does it have a director sitting on our board." Nathani, however, notes that an eBay representative is present at board meetings as observor and advisor.

Mobile Thrust

Of a total of 200 million Internet users, India now has 150 million accessing the web through mobile devices. Like most e-tailing companies, Snapdeal has its own mobile app. Indeed, 14 months ago, when mobile visitors to the site were just five per cent of the total, Bahl and Bansal created a separate team for mobiles and urged it to compete with the PC team. "Now between 55 and 65 per cent of our orders reach us over mobile," says Bahl. He expects the figure to rise to 75 to 85 per cent in the next two years. Some 20 per cent of Snapdeal app users open it at least once a day. The conversion rate - the proportion of those who actually buy to those visiting the site - is already higher for mobiles. "On mobile, the conversion is over five per cent, and that is 20 per cent higher than over PCs. It makes a lot of difference," says Bansal.

We believe in setting ourselves seemingly unattainable goals.

KUNAL BAHL

Co-founder & CEO, Snapdeal

The mobile team comprises seven people - one product manager and six engineers. "It focused on making the mobile site lightweight, as only 15 per cent of all data Internet users have 3G connections. The rest are on 2G, which is slow and choppy," says Bahl. "The site is designed such that a buyer who knows what he wants can check out the site in four clicks. It is always important to have high performance mobile assets rather than feature-rich ones which could slow them down.

"Snapdeal raised $133.7 million in one round of funding in February this year, followed by another of $105 million in April. A good deal of it will go into building better infrastructure for mobiles. "There are more than 30 mobile screen sizes," says Bansal. Some of the fresh investment will also go into hiring, with the engineering team in particular being doubled to 500 people. "Even so, relative to our peers, we are much smaller and tighter," says Bansal. "Flipkart has 10,000 people, we have 1,400."

Snapdeal watchers such as Nexus' Sujan are full of praise for the duo. "They are six sigma entrepreneurs," says Sujan, referring to a measure of quality in business. "They are nimble footed and can adapt to market conditions." But Subramanya notes that challenges remain. "They'll have to cope with scale as ecommerce explodes in Tier-II and Tier-III towns," he says.

Bahl and Bansal remain unfazed. "We have built a billion-dollar company in two years, and with people who are 25 years old," says Bahl. That's the average age of the workforce at Snapdeal.