Deciphering the business model of the e-commerce start-up Meesho - ET Retail

Deciphering the business model of the e-commerce start-up Meesho – ET Retail

New Delhi: E-commerce, which traditionally started as a convenience in the metros, is getting closer to real Bharat every day. With internet penetration, increasing number of smartphone users and changing consumer aspirations, India beyond metros is driving the growth of e-commerce in the country.

Valued at nearly $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 attracted strong interest from investors and has raised $1.1 billion to date. While the unicorn has made headlines for its sales policies and efforts to digitize small businesses and MSMEs, it has faced some questions due to its evolving business model.

The startup was touted as a reseller platform or social commerce 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 chat with ETRetail, Kumar and Lakshminarayan Swaminathan, CXO – Supply Growth, talk about how the ‘e-commerce for everyone’ poster makes money and explain Meesho’s business model.

A to Z of the Meesho business model

Meesho started as a reseller platform for users to resell products through their social networks like WhatsApp, Facebook, Instagram, etc. The company began by focusing on promoting entrepreneurship among Indian women. Today, Meesho is an internet trading company that focuses on buyers and sellers in Tier 1, 2 and 3 cities. The company aims to bring the next billion users of Bharat into the fold of commerce electronic.

The heart of Meesho is that the company provides users with access to a wide selection of products exemplified by a large base of sellers. This is coupled with very competitive pricing thanks to a zero commission and zero penalty model. “We are the cheapest chain in the market,” Kumar said.

What makes Meesho’s proposal more unique and attractive is its guiding principle which is to “democratize e-commerce”, Kumar pointed out. Meesho does not have a tiering program, it does not own any private label and therefore does not compete with its own vendors in any way, he shared adding that bundling the business with other markets existing ones is not right because its vision and its approach to achieve it are different. .

“It will not be an exaggeration to say that we are a real first selling platform in this country,” he noted.

While the company charges its sellers nothing to list and sell on its platform, one wonders how Meesho makes money. The social commerce platform makes money from 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 more than 70% of its sellers come from Tier 2 cities and above. Earlier this year, the online retailer said it had crossed 6,000 seller registrations on the platform, seeing a 7x increase since April 2021.

Recently, it was reported that Meesho was closing his grocery business, Superstore in the country. The company had renamed Farmiso to Superstore to integrate it into its main application and meet the needs of consumers in Tier 2 and 3 markets.

Zero commission, seven-day payment policy

Earlier this year, Meesho announced three key policies that help differentiate it from competitors.

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

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

With the zero penalty feature, the e-commerce company ensures that its sellers are not fined for self-cancelling or automatically canceling orders. The move was intended to help the company build trust and transparency among its vendors. Similarly, the 7-Day Payout feature was launched to ensure sellers get paid faster and allow them to reinvest money in their business.

Is Meesho a deep discount platform? If so, how does this affect the company’s revenue?

In response to this question, Kumar said that Meesho is not a high discount destination at all, adding that this may appear to be the case due to the company’s zero percent commission structure, which translates by super competitive prices on the platform.

On top of that, Swaminathan said a lot 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 back to the customer, which helps control prices. However, Meesho operates in a true market model where the company does not control, purchase or own any inventory, Swaminathan noted. Meesho only provides the information, tools and a business model to sellers to allow them to price the product at the best possible cost.

“We don’t disagree with a small entrepreneur who feels threatened by e-commerce. We facilitate rather than compete,” Swaminathan said.

Towards profitability?

“Meesho plans to become profitable,” read reports earlier this month quoting the company’s CEO, Aatrey, in a public 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 Meesho wants to grow while racing for profitability. “As our CEO said, profitability and growth are not at loggerheads.”

The company believes that its asset-light model helps it move towards profitability. It claims to have very limited and discretionary operational costs, as it operates on an asset-light model. Unlike other key e-commerce players in the country, Meesho does not have any third-party logistics services or distribution centers. Moreover, it does not incur any costs because it does not buy or sell any inventory.

“We are light. We can afford to build a channel at very low cost and therefore the cost of operations is quite low,” Kumar pointed out.


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