Snapdeal will no longer rely on Gross Merchandise Value a proxy for sales as its metric of choice, its chief executive officer said, as the company reorients its strategy for a time when the money from investors used to drive up GMV is proving hard to come by.
Instead, Kunal Bahl said, Snapdeal will aim to add and retain high-quality users, defined as frequent shoppers purchasing high-margin products. Bahl, who famously declared that his company would dethrone Flipkart by GMV in fiscal 2016, is now saying that his new goal is to grow the number of daily users on his marketplace 20-fold in five years.
“We believe that GMV (the value of goods sold) is an important metric. But it’s an outcome metric. It’s not what you chase as a company,” Bahl told ET. “GMV by itself is not necessarily a good metric that demonstrates anything else outside the value of goods transacted.”
Bahl’s shift in priority comes at a time India’s ecommerce industry is seeing a marked slowdown in GMV.
There has been a marked slowdown in GMV as companies cut down on discounts to build healthier margins and stronger balance sheets. Money is proving harder to come by, too, as investors tighten purse strings and push the larger Internet companies to cut down on burn rates.
The Indian ecommerce industry’s annualised GMV run-rate plunged to about $15 billion (about Rs 1 lakh crore) in March from about $20 billion in October, according to data collated by RedSeer Consulting, an emerging markets-focussed research and advisory firm.
The New Delhi-headquartered Snapdeal recorded GMV of $4 billion in August, when Bahl said in an interview to ET that he was “very, very clear (that)… we’re going to be No. 1 by March 2016. I think we’re going to beat Flipkart by then”.
Snapdeal, which counts Japan’s Soft-Bank, China’s Alibaba and Taiwan’s Foxconn as investors, would have had to at least double its GMV to achieve that, given that Flipkart had declared in June that it was aiming for GMV of $10-12 billion in 9 months to a year. Flipkart had achieved gross sales of $4 billion in 2014-15.
Bahl’s latest assertion makes Snapdeal the first big consumer Internet company to publicly denounce the controversial metric that is being blamed for Indian ecommerce’s present troubles from unfettered growth. Several investors have already given up on GMV as their primary metric and are instead encouraging companies to focus on strengthening business fundamentals and maximising revenue per user.
“GMV is in a way an old school of thought, because it was the easiest metric to understand,” said Sreedhar Prasad, partner, ecommerce and startups, at audit firm KPMG. “It is a very trivial metric for companies in the etailing business but it used to help size up a company. Today, metrics to track average order value, growth in number of orders and cost of new customer acquisition are the three important ones that matter.”
Entering new categories Snapdeal is entering into categories that will win it repeat users and partnering with brands such as Maggi-maker Nestle and restaurant-discovery and food-ordering platform Zomato. “We have to be habit-forming service,” Bahl said. “This is what drives user acquisition and adoption of service. Traditionally, we never did books but now we are pushing into it.”
GMV has been the primary barometer used by the industry and investors to determine the health of ecommerce companies. The metric measures a firm’s growth based on the maximum price of goods and services sold on an ecommerce company’s platform and not the actual commission earned by it, which could be much lower.
“(GMV) doesn’t demonstrate what the health of the business is. It does not demonstrate how many people’s lives you are participating in. How frequently are those people buying from you? How much are they spending per transaction? What all are they buying? It does not demonstrate any of the nuances,” Bahl said. “Obviously, there will always be question marks because some people are still quite drunk on GMV, which is fine with us.”
The Wharton graduate, who cofounded Snapdeal with IIT-Delhi alum Rohit Bansal in 2010, said the company’s main goal now is to get 20 million daily transactors on its platform over the next five years. It currently has 1million users transacting daily on its platform and in September had 87 million registered users for Snapdeal and its payments unit FreeCharge combined.
“Some (users) will be new, some will be repeat customers. But at a 20 million scale, the number of new customers will be a small fraction. On any given day, two-thirds of our customers are repeaters,” Bahl said. Carolina Hurricanes JerseyShare This