Sharp Shooter

The online classifieds market is tough with its millions of users unwilling to pay; OLX may have an answer

Vishal Koul

There was a time when one of the most read sections in a newspaper wasn’t really the front page. Everyday, millions of aspirants — young and old — would crouch over the black and white pages, circling ads, hoping to land the right job. In India, these classifieds started as ads from ‘patent’ medicine manufacturers, or chemists, as we know them today. And they were introduced out of necessity, to keep a certain Calcutta-based newspaper running. 

But like most services and innovations, advertising flourished with higher spending power. No one can deny that today, ads are annoyingly omnipresent and almost intrusive. So much so, that we even pay for services to block ads. Over a century since the first classified, the industry has come a long way from ‘wanted cashier’ listings to selling and buying almost everything — even a human-sized hamster wheel — with just a few clicks. While the US had Craigslist — now a billion dollar giant — there was no major online-classifieds player in India till a decade ago when OLX and Quikr entered the scene. Launched in 2008, OLX India is owned by the OLX group, a global online marketplace under the South African internet and media group, Naspers. OLX is a profitable classifieds business in several countries, including Russia and Poland. And India is among its top growth markets, although it has proven to be a difficult one.

The Great Indian Challenge 

OLX kicked off its business on the premise that, once it markets itself as a platform for buyers and sellers to come together, business will happen. “We spent quite a lot on branding. Therefore, awareness about the brand increased immensely,” says Sushil Kumar, general manager, OLX India. But that wasn’t enough. Business didn’t come through as anticipated. “If you consider mature markets in Europe and the US, classifieds and e-commerce have grown in tandem,” informs Kumar. In India, however, while the internet penetration is around 350 million users and monthly active users (MAUs) of e-commerce stands at 170 million, and classifieds only attract 50 million (See: Classifying the OLX).

Thanks to this stunted growth in classifieds, a few players that started off as online classifieds a decade ago have already changed their model. Sulekha.com is one such example. It was established in 2007, but became a service-providing platform like UrbanClap in 2015-16. Founder, Satya Prabhakar, explains why. In each country, the classifieds industry has evolved differently. In Russia and China, used-product platforms are driving growth. “In India, category players have emerged in property, matrimony, jobs and cars. Thus, the horizontal classifieds, with several verticals housed under one platform, were left to trade used products. This is not very lucrative as neither side is willing to pay,” Prabhakar says. 

OLX recognised these challenges but did not give up. It changed its strategy in line with the market – one, it re-oriented its business model to attract e-commerce users through more focused offerings and, two, it decided to go after a larger target audience. The strategy seems to be working. Over the past few years, it has seen healthy traction in its financials. From Rs.60 million in FY16, the company’s profit rose to Rs.156 million in FY18; whereas, its revenue jumped from Rs.0.5 billion to Rs.1.8 billion in the same period (See: On the double). 

Horizontal or vertical?

Years after building itself up as a horizontal marketplace, OLX pivoted to a verticals-based approach, chiefly to capitalise on e-commerce users. It started building its verticals in the two main categories -— cars and jobs, where other players were already seeing traction. 

Last year, it strengthened its position in cars by launching Cash My Car – its small, offline stores that are of 500-700 sq ft and employ four to five people at most. With 50 stores in ten cities — Delhi, Bengaluru, Mumbai, Hyderabad, Chennai and so on — these offer great convenience to used-car sellers. At these stores, engineers inspect your car, assign a valuation and run an online auction, inviting bids from used-car dealers. If you are happy with the highest bid, the papers are transferred and cash is handed over to you immediately. Meanwhile, Cash My Car adds its commission of 4-5% to the price and ships it off to the dealer, with the car stored in a yard till dispatch. OLX aims to open stores in five more cities by the end of 2019. “We will not open a store in every corner. Instead, we’ll go for around 100 in the top 10 cities — a properly run business that wins the confidence of the user,” says Kumar. At a large scale, the company hopes the commission amount will be big, plus there is the opportunity in the long-term to sell ancillary products such as car financing and insurance. 

Currently, automobile sales is the largest vertical for OLX, with over 20 million users. This makes up 40% of the total listings on the platform and contributes to the company’s revenue in the same ratio; 25% of its overall traffic also comes from the car platform.

But the used cars space is just heating up. With players such as CARS24, Gaadi by CarDekho and Spinny, it’s not going to be easy for OLX. Kumar says, “We are specifically focused on used cars, while CarWale and CarDekho are primarily focused on new cars. Our inventory would be 7x compared to any other competitor. For dealers, our ad rates are at least 5x that of our competitors’, yet our dealer base is nearly 5x that of peers’.” Of the total 70,000 business dealers on OLX, 40,000 deal in automobiles. 

Satish Meena, senior forecast analyst at Forrester, says, “Going offline is expensive and I don’t think OLX did this primarily for monetisation. I believe it has taken this move to increase penetration in a space where it has some traction.” 

The next big thrust area for OLX is real estate, which is the second biggest contributor to OLX’s revenue at 20%. “OLX is stronger in Tier-II and Tier-III cities and rentals. Others are strong in new properties,” he says. According to the company, around 6.7 million people visit the real-estate section every month, while Magicbricks receives 20 million. It may have a lesser number logging in, but OLX claims that their users stay twice as long on their site — 10 minutes per visit. 

While OLX does better than its peers as a one-stop-shop-classifieds in smaller towns, it is now trying to catch up as a specialist portal in realty, even in the large cities. In 2018, the average ticket size of projects listed on the platform went up from Rs.2 million to Rs.20 million and the revenue it makes from charging a premium from business listers doubled over the last year. It is going to double its real-estate sales team in 2019 and increase its presence in India from five cities to 25. 

In another strategic bet, OLX acquired Aasaanjobs, a blue-collar jobs platform, in January this year. Aasaanjobs, which connects blue-collar workers with employees, has an end-to-end transaction model. 

Just like Cash My Car, it handles everything from listings and interviews to hiring for more than 300 clients. It has premium plans for employers: under the first, they charge Rs.700 per job listing and, under the second, there are no listing charges but the employer has to pay 8.32% of the selected candidate’s CTC (or cost to company). Aasaanjobs screens and conducts interviews of the candidates under the second plan. “This is how the market will evolve — one product solving the whole problem,” says Kumar.  

That’s indeed true. In India, there are different segments of users who have different levels of comfort with online listings and buying from them. There is an elite section that is internet-savvy, and the aspiring class — the ones who buy high-end phones or upgrade to better cars and so on. They are both ideal target for most internet companies. And then, there is the third segment, which uses internet primarily for entertainment or messaging. They are still trying to figure out how transactions work. They are ‘the masses’ or ‘the next billion’. OLX claims to have 30% penetration in the first two segments, and aims to push this figure to 90%. In the third segment, Kumar wants to raise the stakes. That’s where Aasaanjobs fits in. “It is in line with our strategy to target the ‘next-billion’ segment that is just getting comfortable with transacting online,” says Kumar.

Currently, Aasaanjobs is doing small numbers — it closed around 10,000 jobs with employers last year. But OLX has a big task ahead — to scale up the business multifold to make it profitable. Kumar explains, “We will connect thousands of job seekers on OLX with Aasaanjobs.” 

That’s the path its main rival Quikr has already taken — directing users from one vertical to another. Only Quikr has been far more aggressive with its growth strategy.

Buying growth

While OLX went for an organic expansion across different verticals, its key competitor, Quikr, chose the inorganic route. After raising $400 million, it went about acquiring 15 companies — seven in the real estate space, three in beauty service, two in the jobs vertical and one in cars. Its strategy was to offer a transactional model on top of its large classifieds base. For instance, although it has real-estate classifieds, Quikr also operates in co-living spaces and charges brokerage. Classifieds business still contributes 55% to its revenue. 

Kumar, who has been with OLX India for five years, is more measured in his approach. “We bought Aasaanjobs, and my focus right now is how these two businesses can become one. Any integration takes six to nine months. We keep getting suggestions to create new products, enter new businesses. But we always ask: would that solve a problem of our customer?” he says and claims that this single-mindedness helped the company get better bang for the buck compared to its competitors. This is where having Naspers, a non-financial investor-owner, has made a real difference. “Our decisions are not a result of any kind of financial pressure,” says Kumar. 

Trial And Error 

All is well as long as the numbers show a steady increase. That explains OLX’s new brand strategy. Soon after Kumar’s promotion to the top job, in March 2019, OLX got working on revamping the brand to connect with the millennial. The first big success came with ‘Bech de’ in 2012. The campaign targeted consumers who were comfortable with the internet, encouraging them to trade all the junk they had accumulated over the years. It clicked.

In the new campaign, the company took a departure from ‘Bech de’ and promoted ‘Set hai’, which encouraged users to buy from their platform, and not just sell. Backed by artificial intelligence and machine learning, the users were now also given customised and personalised feeds. A pitch was made for smart buying, and it was addressed to the younger members of the family. “If the young member successfully sells a useless item, it is considered smart by other members. Hence, we sought a fresh brand positioning of ‘using-classifieds-is-smart’ (even to buy),” says Kumar. 

While the result of any rebranding exercise can be gauged only after three to four campaigns, Kumar says the initial results are encouraging. “We were resonating with the 25-45 age group, but are now moving towards 25-35.” He believes that the platform has to strive to remain relevant to youngsters, since they use internet frequently, and have the power to influence their family’s online behaviour.

Ujjwal Chaudhry, director, Red Seer Consulting agrees. “OLX is on the right track. Younger people are highly aspirational and more inclined towards replacing items faster. If they want an iPhone, but don’t have the wherewithal to buy a new one, they go for used ones,” he says and adds that electronics and automobiles are two categories where millennials seem to have maximum influence. 

Volume game

Millennials or otherwise, the classifieds market looks promising, though it is in a state of flux. To stay ahead, the players have had to go from being strictly online classifieds to tapping different revenue streams. OLX and Quikr are building transaction platforms over their classified listings and, going forward, both horizontal and specialist platforms will coexist, feels Chaudhry. “For the long-tail products (with niche requirements), this (OLX) will still be a relevant platform, since you will always have something you want to sell. For the high touch point category such as car sales that require physical interaction, people might shift to specialist platforms,” he explains. 

The challenge, though, is that the shift in strategy exposes these companies to new competitors. Meena says, “Quikr has taken bets on new areas, wanting to capture unorganised services. I don’t think much of it is seeing success. OLX played to its strengths, dug deep there, and expanded into lucrative areas such as cars.” While Quikr may have spread itself too thin by burning cash, OLX seems to have taken a more conservative approach. “But neither has figured out the business model yet,” adds Meena.

Purely as a classifieds platform, OLX seems to be on a more firm footing with 70,000 businessmen who pay to advertise their goods. It has also established its credibility as a platform that offers high liquidity – where goods get sold easily. “Over the last one year, almost 70% of the total phone listings on OLX were sold,” says Kumar. 

Kumar says customer acquisition is what OLX needs to focus on. “India is a growth market. You have to solve the user problem and generate volume,” he adds. With more users, the high volume of transaction generates a treasure trove of data. He is quick to add that OLX is particular about filtering out useless content. “The core of classifieds is good customer content. If it’s not there, you can have hundreds of features, but it will not work,” he says. He claims that they ban close to 100,000 users per month.

India continues to be a land of opportunities purely because of volume. Meena says, “The potential user base size can be so large that even at low rates, businesses can make good money in the future.” That’s the reason that Kumar’s main focus is on generating volume rather than profitability. He adds, “There are very few countries where a business already has 100 million users and still has an opportunity to grow 5x. The upside in five years is much bigger compared to the investments we are making today.”