Flipkart move to marketplace is triumph of clicks over bricks

More expected to follow by doing away with warehousing

With India’s largest e-commerce entity Flipkart announcing the launch of a marketplace platform, many in the sector wonder if this model is more suited for the Indian market than the inventory-led one.

The marketplace model, as propagated by eBay, brings buyers and sellers in direct contact. As in an inventory-based model, a marketplace platform does away with the need of warehousing or having an inventory of products and the fulfillment and shipping costs.

With a majority of e-commerce players burning huge amounts of cash per transaction in an inventory-led model, and with foreign direct investment (FDI) favouring the marketplace model, several e-commerce players are expected to shift to this model.

Avnish Bajaj, founder of Baazee (acquired by eBay in India), and managing director, Matrix Partners, believes although the marketplace and inventory model have co-existed, the former is more expensive and requires larger investment.

“In India, a controlled marketplace is much more conducive. Even when I was with Baazee, we tried to run it as a pure marketplace platform. But we soon realised the small merchants were not geared up to give the required support or the customer experience. The best model is to try and give Amazon user experience with an eBay platform,” added Bajaj.

That seems to be working for some who have adopted the marketplace model in India. One case in point is Snapdeal.com, which moved from services to a product-selling website on a marketplace model.

“We have always maintained the marketplace model is most suited for India. Even when we started to mull over the thought of getting into the product category, the only option we had was a marketplace model. But for those who now plan to move from an inventory-led model to marketplace, the shift will be difficult. It is as good as building from scratch,” said Kunal Bahl, founder and CEO, Snapdeal.

There were reports that Snapdeal had managed to raise a significant amount of funding from eBay, which the company has not confirmed.

Snapdeal, which entered the product space in 2011, now claims to have 10,000 sellers, which it expects to grow to 30,000 by the end of this year, with product sales of about Rs 2,000 crore. “We are adding 100 sellers per day and a new product every 30 seconds. On a daily basis, we get requests from at least 500 sellers who want to join Snapdeal,” said Bahl.

The other advantage of a marketplace is the explosion of category that the model allows. LimeRoad.com, a Matrix Partners investee company, has also taken the marketplace route.

“LimeRoad has integrated their technology with the seller merchants. Hence, the merchant inventory is directly online. I think this model can work across categories and is even more necessary, as it allows the number of SKU (stock-keeping unit) per product to go up,” said Bajaj.

For the fulfilment part, which is crucial for customer experience, both Bahl and Bajaj say it should be controlled by the e-commerce player.

“We get direct access to the merchant inventory and we provide the shipping services. Our courier partners picks up the product and ships it. So, buyers still get the seamless experience,” said Bahl. In the case of Flipkart, too, the company controls the fulfilment and shipping requirements.

However, not many are convinced of the advantages of marketplace. “In marketplace model, processes and IT enablement of vendors and retailers are not fully geared up to handle the business efficiently. There could be issues with delivery and customer experience,” said Praveen Sinha, co-founder and managing director at Jabong.com, one of the largest players in the apparel and accessories segment.

Sinha says there could be instances of inventory blocking in market place model with the same product being listed on two or three sites and the product getting sold out.

Zovi.com, yet another e-commerce player in the apparel segment also agrees with Sinha. "Since we retail our own labels, it does not make sense for us to go for market place. We will focus on the existing model,” said a senior executive from Zovi.com.

Internationally, marketplace has been a successful model. A closer look at the some of the major players around the world shows that marketplace is a better model. Whether it is China’s Tmall, Gmarket of South Korea, which was acquired by eBay, or even Amazon, all support the marketplace model. Amazon has both marketplace and inventory-based models.