Flipkart to pursue online advtg, brand consulting like Facebook, Google

05 Mar,2015

By Aditi Shrivastava & Harsimran Julka


Flipkart will soon offer online advertising and brand consulting for vendors using its electronic marketplace, its diversification into fee-based businesses much like Google or Facebook aimed at chasing new high-margin revenue streams to accelerate profitability ahead of a potential public listing.


On the commerce front, the company has picked furniture as a category it will seek to expand in as part of this thrust into higher margin areas, sources familiar with the company’s plans told ET.


The diversification into publishing online ads and brand consulting follows a recent top deck rejig that had founder and Group CEO Sachin Bansal shift from daily operations to focus on strategic initiatives.


He will lead the new advertising revenue thrust, which will see Flipkart, one of India’s most-recognised Internet brands with a large web presence, become also an online ad publisher much like Facebook and Google.


Flipkart’s IPO plans are driving it to explore new avenues that would help it turn profitable or at least lower its losses, people familiar with the plan said. “They need to show some solid revenue ground apart from its marketplace to go public,” said one person aware of the developments.


Flipkart is the sixth-most visited website in India, according to website ranking site Alexa. Google’s various sites, Facebook and Yahoo occupy the first five spots. It already carries ads on its website from brands such as Max New York Life, Reliance General Insurance, ICICI Prudential, Franklin Templeton India and Bharti AXA, but presently earns only a minuscule sum from this.


“We know something about the most important decision that a consumer makes, that is purchase. What you like on Facebook versus what you spend your own money on, the value of that data is a lot higher,” said Mekin Maheshwari, chief people officer at Flipkart.



Sachin, who is hiring a new team for the advertising initiative, is exploring opportunities to be able to personalise and create ads that would be relevant to both customers and advertisers, he said. “Overall, there is a great opportunity to increase their revenues, and coupled with the fact these ad revenues will be at very high margins, this will definitely help these businesses from a profitability standpoint,” said Kartik Hosanagar, professor of ecommerce at The Wharton School.


Ravi Vora, senior vice-president (marketing), will head a newly formed brands consulting group that will work with small and medium businesses to build their brands online. “(The initiative) is broader than just Flipkart and may not be completely online,” said Maheshwari. “We will enable emerging brands in India to carve out their Internet strategy.”


Flipkart has about 30,000 small and medium business sellers on its platform, and aims to grow that number to more than 1 lakh in the next 12 months.



As for furniture, the company expects it to emerge as a large category in the online retailing market on the lines of other high-margin categories such as electronics and fashion.


The furniture category is a highly profitable business with margins in the range of 40-60%. “We will have an added focus on furniture category on our commerce platform, which we look to build ground-up,” said Ankit Nagori, head of marketplace at Flipkart.


It was reported recently that Snapdeal could record a five-fold increase in losses going up to $250 million (Rs 1,500 crore) for this fiscal year. Industry experts estimate Flipkart’s losses would be at least double that number (over $500 million), with the company expecting to sell goods worth $8 billion in 2015.


Sunil Wattal, who teaches management information systems at Temple University in the US, said that by being able to show profits earlier, Flipkart will be in a stronger position when it offers the IPO, and could possibly even expedite the timing of the listing.



Vivek Wadhwa, a fellow at Stanford Law School and director of research at Duke University, doesn’t think diversification is the right strategy.


“This is a mistake that many Indian companies make: try to become conglomerates that are in several businesses. It has worked for a few old line companies but does not work in the Internet space. Here you need to focus and execute with precision,” Wadhwa said.


Over the past year, Flipkart, Snapdeal and Amazon India have been engaged in a cash-draining battle to acquire customers. Flipkart in January recorded a gross merchandise value of $3 billion while Snapdeal was on a $2-billion run-rate that month and Amazon at more than $1 billion.


The Indian ecommerce market is projected to reach $43 billion in value by 2019, according to Nomura.


Last year, Flipkart raised a total of $1.9 billion, at a valuation of about $11 billion (Rs 69,000 crore). In December, the eightyear-old company announced a $700-million investment round. Its investors include Tiger Global, DST Global, Steadview Capital and the Qatar Investment Authority.


Source:The Economic Times

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