New Delhi: E-commerce that traditionally started as a metro convenience, is getting closer every day to serving the real Bharat. With the spread of the Internet, the increase of smartphone users and the development of consumer aspirations, India outside metro areas is driving the growth of e-commerce in the country.
Backed by SoftBank with a value close to $5 billion, Meesho is one such startup in this field. It claims to have a unique business model that empowers small businesses. The company, which was founded in 2015 by IIT Delhi alumni, Vidit Aatrey and Sanjeev Barnwal, has received a lot of interest from investors and has raised US$1.1 billion to date. While Unicorn has been in the news due to vendor policies and efforts to digitize small businesses and MSMEs, it has faced some questions due to the changing business model.
The startup has been described as a distributor platform or social commerce app. When Utkrishta Kumar was asked to define what a Meesho is, the company’s CXO-Business said, “We are a horizontal e-commerce company.”
In a conversation with ETRetail, Kumar and Lakshminarayan Swaminathan, CXO – Supply Growth answered how the “e-commerce for everyone” label owner makes money and explains Meesho’s business model.
From the ground up to the Meesho . business model
Meesho started as a product selling platform that allows users to resell products via their social channels like WhatsApp, Facebook, Instagram, and more. The company started with its focus on driving entrepreneurship among Indian women. Today Meesho is an online commerce company focused on buyers and sellers across Tier 1, 2 and 3 cities. The company aims to bring the next billion users of Bharat into the e-commerce fold.
The essence of Meesho is that the company provides users with access to a wide range of products represented by a large base of sellers. This is coupled with very competitive pricing due to a zero-commission and zero-penalty model. “We are the least expensive channel out there,” Kumar said.
Kumar highlighted that what makes Meesho’s proposal even more unique and attractive is its guiding principle of “democratizing e-commerce”. Meesho does not have a tiered program, does not own any private labels, and therefore does not compete in any way with its vendors, and added that integrating the company with other existing markets is not correct because its vision and approach to achieving this are different.
“It would not be an exaggeration to say that we are the first true seller of the platform owned by this country,” he noted.
While the company does not charge anything from its sellers to list and sell on its platform, one wonders how Meesho makes money. The social commerce platform makes money by creating it for monetization i.e. seller ads.
Meesho claims to have more than 68 million product listings across 30 categories on its platform. The company says that more than 70 percent of its sellers come from Level 2 and beyond. Earlier this year, the online retailer shared that it had surpassed 6 seller registrations on the platform, marking a 7-fold increase since April 2021.
Recently, there have been reports of Meesho closing the country’s grocery store, Superstore. The company has renamed Farmiso to Superstore to integrate it with its core app and cater to consumers in Level 2 and 3 markets.
Zero commission, seven-day payments policy
Meesho earlier this year announced three key policies that help it differentiate itself from its competitors.
The company launched a zero percent commission policy with the aim of digitizing 100 million micro, small and medium companies. With this policy, Meesho sellers do not have to pay commissions, instead they can invest their capital in growing their business.
Shortly after the no-commission policy, Meesho announced the launch of a seven-day no-penalty and pay-out policy.
With a zero penalty feature, the e-commerce company ensures that its sellers are not fined for self- or automatic cancellation of orders. This move was intended to help the company enhance trust and transparency among its sellers. Likewise, the 7-day payments feature has been launched to ensure that sellers are paid faster and enable them to reinvest the money back into their business.
Is Meesho a deep discount platform? If yes, how does it affect the company’s revenue?
In response to this question, Kumar said that Meesho is not a deep discount destination at all, adding that the reason may appear to be due to the company’s zero percent commission structure, which leads to super competitive pricing on the platform.
In addition, Swaminathan said that a lot of the perception of deep discounts occurs due to the traditional understanding of the e-commerce model.
He explained that e-commerce platforms buy inventory from sellers and then sell it to the customer, thus controlling prices. However, Meesho operates in a true market model where the company does not control, buy or own any stock, Swaminathan noted. Meesho only provides the ideas, tools, and business model to sellers allowing them to price the product at the best possible cost.
“We are not at odds with a small businessman who feels threatened by e-commerce. We are enabling rather than competing,” said Swaminathan.
On the verge of profitability?
“Meesho has its eye on profitability,” I read reports earlier this month quoting CEO Atari from the city council meeting.
With a heavy reliance on ad monetization, how the company aims to achieve profitability is a matter of interest. Commenting on this, Kumar said that Meesho wants to grow while running for profitability. “As our CEO said, profitability and growth are not incompatible with each other.”
The company believes that the asset-light model helps it move toward profitability. It claims to have very limited and discretionary operating costs, as it operates on a light asset model. Unlike other major e-commerce players in the country, Meesho does not have any third-party logistics and fulfillment centers. Moreover, it does not incur any costs as it does not buy or sell any inventory.
“We are the light assets. We can afford to build a very low cost channel, so the cost of operations is very low,” Kumar explained.