When Vidhi Kejriwal was looking to set up her online shoe store, VC Couture, she approached various e-commerce solution providers who could build her website, complete with a payment gateway. During her search, she found that some of the payment gateways didn’t comply with RBI rules, so she gave up on the idea. But since, building her website with the help of Zepo, Kejriwal has earned 150-plus customers. Srijata Bhatnagar from Bengaluru, who owns the clothing store Ethnic Shack, has been using a similar platform, Kartrocket, for a year. She says, “We conducted a lot of research. We even looked at Zepo but ended up picking Kartrocket because we thought the latter was more responsive and accommodating.”
In 2007, before e-commerce had become a buzzword, Infibeam released its e-marketplace on Buildabazaar’s portal with an initial investment of ₹20 crore. Today, Buildabazaar targets large companies (one of them being Indian bookstore chain Crossword), and is looking to earn revenues between ₹50 and ₹100 crore in FY15.
But in a country where the e-commerce boom has allowed many a dreamer to dream bigger, there are still the smaller players who, owing to a lack of resources, have been on one end of the tightrope waiting to make the difficult walk from offline to online.
A web developer’s fees aside, there are problems with logistics and payment that have put many business owners in a fix. But necessity bred invention, paving the way for start ups that provide e-commerce solutions. From building the website to setting up payment gateways, these companies have not only been attracting the attention of new retailers but also third-party investors.
In 2011, the then-23-year-old Nitin Purswani wanted to set up an online store for his T-shirt-printing business Avatar, which he founded with a friend. He faced a lot of trouble while trying to make sense of the processes involved, and realised that he couldn’t possibly be the only one struggling. That was when he launched Zepo, which was earlier a blog for start-ups.
Sameer Guglani, founding partner of The Morpheus, a start-up accelerator, wasn’t sold on the idea when Purswani approached him in 2010. Guglani says, “Nitin could have been his own customer, which is why he is able to understand the market very well. Their initial business model was far too complex. Their newer — and present -— model is only helping their cause.”
Started with an investment of ₹10 lakh (₹5 lakh from Purswani’s savings and ₹5 lakh from The Morpheus), Zepo is a platform for those who wish to use the Internet to sell their products and services. Using a subscription-based model, the website offers four services for micro to small enterprises beginning their online journey.
Unlike Purswani, who ventured into this business after facing trouble while setting up an online shop, Saahil Goel, who started Kartrocket with Gautam Kapoor, had a different vision. He quit his job in the US in 2012 and started Kartrocket with an investment of ₹40 lakh. Says Goel, “Our vision was to take the uninitiated person online to run his business.”
What he realised was that not only were people buying into the e-commerce spree but they were also increasingly using their mobile phones to access these websites. “There was a need for the seller to catalogue his wares better on a mobile site, and also a buyer’s need to have easy access through an app. So, we decided that having a mobile app would also help,” he says. Kartrocket has grown from 25-30 customers in its first year to over a 1,000 customers at present.
Finding their niche
Purswani says, “We realised the four biggest problems of running a business online are technology, payment gateways, logistics and marketing. Zepo aims to make these processes easier.” Their idea was good enough to earn them six paying customers before they went online. In terms of technology, they help the customer set up their own Internet domain and design using themes provided by them, quite similar to blogging platforms.
Payment gateways are usually set up in co-operation with one’s local banks, but this can be expensive with the issue of transaction discount rates (TDR) offered by banks or the payment gateway providers, ranging from 2-6%. “We approach the gateway providers with our customers and get great deals. We can provide our customers with lower TDRs of 2-3%,” explains Purswani.
Zepo’s logistical support offerings include domestic and international shipping as well as automated shipping, called Zepost, which gives customers the option to ship their goods with a click. The customers are able to select their logistics company and schedule a pick-up. The logistics company picks up the package from the merchant to deliver it to the consumer. Zepost has attracted 40% of Zepo’s 1200-plus customers.
Its latest offering is marketing support. Zepo provides in-built features such as offering links to their products on Facebook, search engine optimisation, etc. They have partnered with Google’s AdWords and social media marketers Brink Point to assist in their efforts.
They also hold a quarterly online flea market, known as Zepo eBazaar. “Solving our customers’ marketing problem completely is still beyond our capabilities. But we’re working on it,” explains Purswani. Starting from a basic package of ₹999 per month to a ₹53,988 package with all features for 12 months, Zepo aims to be affordable as well as useful.
Zepo has thus far raised a modest ₹75 lakh since inception from One97, The Morpheus and two other angel investors. Having touched breakeven point in 2014, they are expecting a total revenue of ₹5 crore by the end of FY15.
Kartrocket’s logistics offering, Shiprocket, started off just for its users. In collaboration with seven courier companies across India and the world, Kartrocket acts as the bulk aggregator between the merchants and the logistics company.
Over time, they started offering it to users of other portals as well. Goel recalls, “We got calls from users of other portals to see if they could access Shiprocket as a standalone service as they had already paid up for their websites.” Today, Kartrocket and Shiprocket have an equal customer split with over 1,000 merchants opting for each service.
Widening the web
Kartrocket’s marketing expenses have been next to nil. “We have been spreading the word online as we know we have a kickass product.” The confidence aside, Kartrocket also runs a blog, much like Zepo’s, for start-up advice. Apart from this, Goel and Kapoor recently organised an event in Delhi to meet with interested merchants and shop-owners to help them take their business online.
Kartrocket has also raised capital in the two-and-a-half years since its inception. The first round ($250,000) came from 5 Ideas and 500 Startups (both angel investors) in July 2013. The second round also involved 500 Startups and brought along Nirvana Ventures with a little over $1 million to add to their coffers in September 2014. Having touched breakeven point in 2014, they are expecting a total revenue of ₹7-10 crore by the end of FY15.
While Zepo and Kartrocket cater to an important need for small enterprises, their own business isn’t risk-free, since their customers are often not able to sustain themselves. Still, Purswani says their understanding of an entrepreneur’s needs ensures that customers keep their faith. The risk involved in terms of payment is taken care of as the company takes payments in advance.
The churn rate (the percentage of people who opt out in a year) has been 25% in the past, but Purswani attributes this to the initial attractiveness of e-commerce. “Most people jump onto the e-commerce bandwagon and end up disappointed when they are unable to earn returns. These people are usually already employed elsewhere and don’t have the time for a new business,” he says.
Nandini Hirianniah of The Morpheus says, “Zepo has been ‘listening’ to its customers and building value. It has figured out who its customers are.” Guglani adds, “The problem is that the market is still not mature. They need to educate people about their product as many are wary of the online space.”
Kartrocket has focused on taking smaller companies online. Says Goel, “Players such as Martjack and Buildabazaar are right in their efforts to bag larger clients as it means more revenue. Their solutions are more service-based. We are more focused on our product. We realise smaller companies need logistical assistance as well.”
Pearl Uppal, managing partner, 5 Ideas, says, “The potential for growth for SMEs in India is very high. We are confident that Kartrocket can scale up. As far as profitability is concerned, there’s no denying that there is space for everyone. The market will mature.”
Size does matter
While these start-ups have targeted smaller companies, there are bigger fish in the sea. For Vishal Mehta, founder and CEO of Buildabazaar, building the product was more important than the service. After Infibeam’s success, Buildabazaar was launched as an Infibeam platform for those wanting e-commerce portals.
Mehta says, “We decided to build the platform in such a way that we eliminate the need for a web developer.” Buildabazaar targets bigger clients with bigger payouts. Its first client was Crossword, which was selling on Infibeam before Buildabazaar started off.
Says Mehta, “While most go in with a Powerpoint presentation, we had a great example to prove the effectiveness of Buildabazaar and that was Infibeam’s own website.” Kinjal Shah, CEO, Crossword says, “Infibeam has made cataloguing easy. Apart from the fact that they could be a tad faster, we have no complaints.”
Having expanded to the Middle East and added clients such as Axiom Telecom, it doesn’t appear that they are looking to go small. Mehta says, “E-commerce in India follows two models: retail and marketplace. In the latter [such as Flipkart and Amazon], everyone competes to sell the same product.
The one selling at the lowest price wins, resulting in reduced margins. With a retail model, we attach aspirational value to the service and provide it to our consumers by letting them know that they can be a part of the e-commerce boom [without compromising on costs].” Apart from the subscription fees, Buildabazaar also takes 1% of the payout that the enterprises receive.
With every merchant in the Indian retail space looking to make the big move to the web, the realisation has hit home that we lack the expertise to run an effective web portal. The question remains, though, if these platforms will be able to survive even when e-commerce loses its shiny edge.