What really went wrong with Snapdeal?- A case study

29/04/2017
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Beleaguered online marketplace Snapdeal is going through troubled breaks.

Struggling to raise fresh capital, confuting against internal conflicts, once an e-commerce major Snapdeal has decided to stop all non-core actions, reduce costs and handover pink slips to employees to turn cost-effective.

Earlier Snapdeal was the 2nd best alternative for people after Flipkart but emergence and rapid growth of Amazon gave people a better alternative.

When Amazon entered in 2016 with an additional $3 billion investment in India, it made clear its intention to dominate the Indian market and pose a massive challenge for home ground e-commerce companies, among which Snapdeal became extremely unhappy and didn’t keep up the tempo.

Recently, the brand saw the brunt of Snapchat CEO’s ‘poor India’ comment and lost its brand image due to confusion. Previously the startup had gone almost through the similar situation; getting blowback from Aamir Khan Controversy.

Here, in this case study, we will get to know the mistakes made by Snapdeal, raising a valid question of what is wrong with Indian startup.

Snapdeal Founders Admit Their Mistakes- What went wrong?

Indian e-commerce portal Snapdeal’s management has said it has made mistakes like many of its industry peers, failed in some aspects of its business, which have led to some tough decisions as part of its goal to become a more lucrative business in the next two years.

Here are some surprisingly mistakes the founders have made about where the company has gone wrong.

#Execution Errors

Over the last two to three years, with funding coming into the market, Snapdeal like many in the industry started making mistakes, the founders said.

“Has our company and industry been going through a troubled time? Absolutely. Did we make errors in our execution? No doubt about that.”- Kunal Bahl, Snapdeal Founder

#An Imitator in Business

One huge problem with Indian startups is that very few companies are true innovators and mostly are copycats. The approach signifies picking up a model working in the US or Europe and to duplicate it in India. They end up putting colossal amount in these business models

This copying approach works really well in China as they are a secured market. The foreign players are banned out there and the economy knows to create replacements.

However, India is an open country and players like Amazon, eBay, Uber have a free run to come and compete here. Thus, a simple copycat strategy is not supposed to work for long.

#Some Decisions Proved Costly

The brand is its ‘exorbitant’ rebranding exercise which burnt INR 200-crore hole in its pocket. At a time when the brand was already draining, it tried to look profligate by spending an insane amount of money. They spent a lot of money to shout in the undifferentiated marketplace.

“Branding at the cost of business does more damage to the brand.”

#Late Entry into Mobile Payments

Snapdeal has ventured into mobile payments a bit too late with FreeCharge Wallet. Paytm’s wallet services have already paved their way far ahead.

While the market today has full of payment wallets, Snapdeal’s failure to grow and best utilize Freecharge’s platform has also not gone down well with industry experts and investors.

#Snapdeal was under fire with Aamir Khan Controversy

Snapdeal became an unlikely hitting bag for those who were criticizing actor Aamir Khan (Snapdeal’s brand ambassador), for his derisive views on the issue of intolerance in India. As a protest against Aamir Khan, many customers took to social media to reveal that they gave poor ratings to the Snapdeal app on app stores, and even majority started uninstalling it from their smartphones.

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E-commerce major tried to play safe by saying that, “It is neither connected nor plays a role in comments made by Aamir Khan in his personal capacity.”

Here, the brand was not able to understand users’ emotions and the take resulted in mass uninstallation of its app, online shoppers rejecting it. Finally, Snapdeal ended up not showing Amir Khan in its  ‘Dil ki Deal’ ad and eliminating the contract.

Many users began demanding that they won’t buy any product from the e-commerce portal until Aamir Khan gets removed as the brand ambassador.

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 #Departure of Senior-level Executives

There have been several top-level exits in 2016. In January, Senior Vice-president of marketing Srinivas Murthy resigned. In May, Snapdeal lost its prized Silicon Valley hire Anand Chandrasekaran, who was the brand’s Chief Product Officer. In June, the Business Head for electronics, Saif Iqbal, left.

In November 2016, Vijay Ghadge, Chief Operating Officer at Snapdeal’s in-house logistics arm Vulcan Express Pvt Ltd, had quit barely four months after joining the firm.

The management-level exit was of Sandeep Komaravelly in January 2017. He was SeniorVvice-president in charge of Snapdeal’s zero commission marketplace ‘Shopo’. Snapdeal’s Head of Corporate Development Abhishek Kumar had resigned in Feb 2017. Tony Navin, Head of Partnerships and Strategic Investments, decided to quit after 7 years time.

Snapdeal’s struggles over the past few months are additionally due departure of a string of senior-level executives.

#Drop in its Valuation

Snapdeal’s losses more than doubled to INR 3,316 crore in fiscal 2015-2016, while its revenue growth dropped. Snapdeal had posted a 150% increase in losses from INR 1,328 crore in the year ended March 31, 2015.

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Revenue grew by 56% to INR 1,457 crore from INR 933 crore in the same period, according to documents.

#Struggle in Raising Funds

The company has been struggling to raise fresh funds due to the intense competition with Amazon and Flipkart.

Venture capital firms Kalaari Capital and Nexus Venture Partners, both of which have associates on Snapdeal’s board, are in a battle with SoftBank Group Corp., which has two board seats, over the company’s valuation in a potential sale.

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The board allowed Snapdeal to keep spending, leading to a cash crunch.

In July 2016, Snapdeal, which had raised some $1.4 billion since October 2014, still had about $500 million left, after Snapdeal launched INR 200 crore campaigns to transform its image.

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Discount & Marketing, at the same time, it rejected at least two funding offers because of differences at the board.

#Snapdeal Mass Lay-Offs (Cost-cutting measures)

Snapdeal laid off 500-600 employees amongst its e-commerce marketplace, its firms, mobile wallet Freecharge and logistics part Vulcan Express, with  ‘100% salary cut’ take.

Snapdeal shut its consumer-to-consumer marketplace ‘Shopo’ recently and disbanded SD Instant, its express delivery service. Categories like beauty and FMCG have been discontinued too.

Kunal Bahl founder of Snapdeal wrote an email, “with all the capital coming into this market, our entire industry, including ourselves, started making mistakes. We started growing our business much before the right economic model an market fit was figured out.”

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“We also started diversifying and starting new projects, while we still had not perfected the first or made it profitable. We started building our team and capabilities for a much larger size of business than what were required with the present scale.”

“Sadly, we will also be saying really painful goodbyes to some of our colleagues in this process,” he wrote without giving the actual number of layoffs.

Following the founders’ email, Snapdeal is being widely criticized for the lack of focus on profits, excessive spending on advertising and rebranding, and over-hiring.

#Snapchat- Confusion costs against Snapchat

After Snapchat’s CEO, Evan Spiegel was alleged of saying that he didn’t want to expand to ‘poor nations’ like India and Spain, people started to down rate Snapdeal instead of the Snapchat app.

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It sparked off a boycott movement for ‘Snapchat’ but caught unaware in this storm was the Indian e-commerce portal ‘Snapdeal’. Social media users are erroneously downloading Snapdeal app, down rating its services and intimidating to stop using it.

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“We are getting non-stop calls since Sunday evening. I have never seen this kind of social media outburst for wrong news,” said an official from Snapdeal.

What’s next for Snapdeal?

Inventions can’t work without a decent business model. Sources claim that Alibaba would enter the scene by merging Snapdeal and Paytm’s e-commerce portal.

The next trend of startups has now initiated. In the backdrop of high valuations and lack of success shown by many players in the e-commerce sector will take a backseat now and many venture capitalist will start to focus on data-driven startups.

Investment decisions will be made on a business model, tech, and vision.

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