Deciphering the business model of internet commerce startup Meesho, Retail News, ET Retail

Deciphering the business model of internet commerce startup Meesho, Retail News, ET Retail

New Delhi: E-commerce, which traditionally started as a convenience in metropolitan areas, is getting closer to serving real Bharat every day. With the penetration of the Internet, the increase in smartphone users and the evolution of consumer aspirations, India beyond the metropolitan areas is driving the growth of e-commerce in the country.

Valued at close to $5 billion, SoftBank-backed Meesho is one such startup in this space. It claims to have a unique business model that empowers small businesses. The company, which was founded in 2015 by IIT Delhi graduates Vidit Aatrey and Sanjeev Barnwal, has received strong interest from investors and has raised $1.1 billion to date. While the unicorn has been in the news for its vendor policies and efforts to digitize small businesses and MSMEs, it has faced some questions due to its changing business model.

The startup has been touted as a reselling platform or social trading app. When asked to define what Meesho is, Utkrishta Kumar, 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 answer how the “e-commerce for all” poster boy makes money and explain Meesho’s business model.

From A to Z of the Meesho business model

Meesho started out as a reselling platform that allowed users to resell products through their social channels like WhatsApp, Facebook, Instagram, and more. The company started out with a focus on boosting entrepreneurship among Indian women. Today, Meesho is an internet trading company targeting buyers and sellers in tier 1, 2 and 3 cities. The company aims to bring the next billion Bharat users into the e-commerce fold.

The core of Meesho is that the company offers users access to a wide selection of products that is exemplified by a large vendor base. This is combined with very competitive prices due to a zero commission and zero penalty model. “We are the lowest cost channel out there,” Kumar said.

What makes Meesho’s proposal more unique and compelling is its guiding principle, which is to “democratize e-commerce,” Kumar noted. Meesho does not have a leveling program, does not own any private label, and therefore in no way competes with its own vendors, he shared, adding that lumping the company with other existing marketplaces is not correct as their vision and approach to achieving it is different. .

“It will not be an exaggeration to say that we are a true first seller platform that this country has,” he said.

While the company doesn’t charge its sellers anything to list and sell on its platform, one wonders how Meesho makes any money. The social trading platform makes money through its monetization build i.e. seller ads.

Meesho claims to have over 68 million product listings across 30 categories on its platform. The company says that more than 70 percent of its sellers come from Tier 2 cities and beyond. Earlier this year, the online retailer shared that it had crossed 6 lakh seller registrations on the platform, recording a 7-fold increase since April 2021.

Recently, there were reports that Meesho closed his grocery business, Superstore in the country. The company changed its name from Farmiso to Superstore to integrate with its core app and serve consumers in Tier 2 and Tier 3 markets.

Zero commission, seven-day payment policy

Meesho announced earlier this year three key policies that help set it apart from its competitors.

The company launched its zero percent commission policy with the goal of digitizing 100 million MSMEs. With this policy, Meesho sellers do not have to pay commissions and can invest their capital in growing their businesses.

Shortly after the no-fee policy, Meesho announced the launch of its zero-penalty, seven-day payout policy.

With the zero-penalty feature, the e-commerce company makes sure that their sellers are not penalized for auto-cancellation or auto-cancellation of orders. The move was intended to help the company strengthen trust and transparency among its vendors. Similarly, the 7-day payouts feature was launched to ensure sellers get paid faster and allow them to reinvest money back into their business.

Is Meesho a big discount platform? If yes, how does it affect the income of the company?

Responding to this question, Kumar said that Meesho is not a deep discount destination at all, adding that the reason it may seem that way is because of the company’s zero percent commission structure, which results in low prices. super competitive on the platform.

Added to this, Swaminathan said that much of the perception of deep discounts is 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 gaining control over pricing. However, Meesho operates in a true market model in which the company does not control, buy or own any inventory, Swaminathan said. Meesho only provides information, tools and a 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 electronic commerce. We are facilitating rather than competing,” Swaminathan said.

Close to profitability?

‘Meesho aims to become profitable,’ said reports earlier this month that quoted the company’s CEO, Aatrey, at a town hall meeting.

With a heavy reliance on ad monetization, how the company intends to achieve profitability is a matter of interest. Commenting on this, Kumar said that Meesho wants to grow while he looks for profitability. “As our CEO has said, profitability and growth are not at odds with each other.”

The company believes its asset-light model is helping it move toward profitability. It claims to have very limited and discretionary operating costs as it runs on an asset-light model. Unlike other key e-commerce players in the country, Meesho does not own any third-party logistics services or fulfillment centers. In addition, you do not incur any costs since you do not buy or sell any inventory.

“We are asset light. We can afford to build a very low-cost canal, and therefore the cost of operations is quite low,” Kumar said.

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