The Offensive Provided by a Vertical Integration Strategy Means Opportunity for Markets, Innovation – But is it Greatly Affecting Market Prices?

According to the current Amazon executive quoted earlier, the company would need to invest considerably to bring the scale of manufacturing in India up to speed. After seeing a slowdown over the last two months, the executive doesn’t think that Amazon has the appetite for this at the moment.

Improving manufacturing in India would require both the carrot and the stick, Bhardwaj said. “The government may provide some incentives when they buy from micro, small, and medium enterprises (MSMEs). The stick is increasing import duties. Like the auto policy, if you want to invest in India, then there needs to be localisation.”

The Make-in-India conundrum

But even if Amazon wanted to shift to manufacturing in India, there are significant hurdles in its path. While a large number of products can be made in India, the issue for local businesses is that they can’t produce at the scale Amazon requires. So, instead of one company producing a million pieces, this is spread out over a hundred small companies, said Anil Bhardwaj, secretary general of FISME. The solution, he added, is to develop models of aggregation that can scale.

That, unfortunately, is easier said than done. In 2018, Amazon signed a partnership agreement with FISME to onboard local businesses and help them upgrade their technology and capacity building. The company later pulled out of the agreement. “We are still in discussions. They still need to do business in India, so do we,” Bhardwaj said.

The issue with manufacturing en-masse in India is three-fold, the former and current Amazon executives said. For starters, there is a lack of technical know-how, something China has built over years. An Apple cable comes with a certificate of authenticity from China and this is true for consumer electronics across the board in India. For instance, silicon microchips—integral components in tablets, phones and laptops—are manufactured predominantly in China.

Manufacturing in India is also scattered, unlike in China, where there is consolidated procurement that happens from 2-3 provinces. Take the city of Guangzhou, for instance. It plays host to the annual Canton Fair, which Amazon uses to source ‘home and kitchen’ products, said the former executive. After electronics, ‘home and kitchen’ is Amazon’s largest category.

Stepping on the Accelerator

Amazon’s saving grace may prove to be its Global Accelerator programme. When Amazon launched the programme in 2018, it reached out to 50-60 small and medium enterprises (SMEs), offering them marketing and data insights to help drive sales.

The Indian government has already wielded the stick. In February, it doubled the customs duty on 111 items to 20%. This will hurt Amazon significantly, with toasters, water heaters, fans, and air purifiers all affected by the hike. When private label imports resume from China, Amazon will have to decide whether to pass this hike on to customers or take a hit on margins to remain competitive on price. The cost will likely be built into the pricing, and Amazon will incentivise customers during sale periods, Forrester’s Meena said.

The Problems Merchants Will Have With Online Cashback Deals

ShopBack has benefited from the direct-to-consumer (DTC) push. It works with the likes of Nike, Dyson and Adidas to promote branded websites and deals on its platform. Conventionally, ShopBack serves e-commerce sites, but a direct sales model means it takes a higher commission fee for each sale. That’s good for a profitability push.

“ShopBack is no longer just marketplaces, it is brands-selling, too,” said Chhor, the Qualgro VC.

ShopBack has also expanded its deal categories to include Covid-related products, like insurance, home office equipment, and online learning.

Still, it remains a challenge to convince marketers, whose teams are stacked to spend on Google and Facebook. One long-time e-commerce executive told us that consumer businesses typically assign affiliate marketing to a junior member of the team. That means a limited budget and mandate.

“There’s always a huge team for Google and Facebook spend, with millions of dollars floated into it,” the executive added.

Rivaling the big guns

Rivaling the big guns

Facebook and Google make money when users click on advertisements, but ShopBack makes money only if customers spend. Chan believes that’s well suited to leaner times. “Facebook gives you engagement and reach, but you want sales,” he said of the pitch to merchants.
In addition, Google and Facebook’s own moves into e-commerce give ShopBack and other affiliate networks more credibility since they are not considered direct rivals.

Reduced market spend is magnified by a lower customer acquisition cost being enjoyed by marketplaces right now. Because attracting customers yourself is so cheap, many marketplaces are increasing their ad spend as it draws buyers to their app directly. Building your own loyalty is obviously preferable.

This is one factor to explain why Shopee recently stopped working in some countries, said an e-commerce industry executive. ShopBack no longer lists Shopee deals in Singapore and Malaysia but its website shows the partnership remains online in Thailand, Indonesia, the Philippines, and Vietnam. (Note: Shopee deals returned in Malaysia on the day this story was published.)

e-commerce sales

Shopee rival Lazada has also cancelled offers with ShopBack in Singapore and Malaysia. Fellow e-commerce players eBay and Rakuten have removed deals in other markets, too.

Travel and hospitality firms Singapore Airlines, Thai Airways, Marriott International, and Intercontinental Hotels, have also pulled deals in some countries given the pandemic’s impact.

Some may return as business picks up again, but losing these deals for good would hurt ShopBack’s new user sign-ups and re-engagement rates. The companies may also be able to force more favourable terms from ShopBack if they return to the negotiating table. ShopBack, however, says that over 500 new brands, including Etsy and GoDaddy, have joined its platform during the pandemic.

Travel companies, however, may offer a more immediate opportunity to connect the dots between the industry and consumers. “There was a very sudden drop [in travel spending]. But, on the positive side, it has reached an ultimate low… users will spend less [when travel becomes possible again] but it will still be valuable,” Chan told us. “Things will change a lot in the next few months.”


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The second bit is our room-rate pricing being very low. That was, is, and will remain only a very low single-digit percentage of transactions. Number three; on a full year basis, we have always been able to generate a positive take rate even if it was very low earlier. Over time, it has increased because of the various system changes and an increased value proposition to consumers and partners.

Also at that time, we used to report the “booked room nights” metric externally because that is what other peers were doing. Internally, this was never a metric that our team was concerned about and instead, we were firmly focused on “used room nights”.

Regarding minimum guarantees

Finally, regarding minimum guarantees. For us, minimum guarantees were always a thin wedge that we used to open up relationships with new partners, both domestically in India as well as in new markets. Our plan was to use minimum guarantees to give ourselves the flexibility to set pricing for hotel rooms and thus improve occupancy by matching supply and demand dynamically.

As of today, the majority of our partner relationships are based on revenue sharing and we only have 2-3% of contracts as minimum guarantees. Also, even earlier, there were only a small percentage of properties that would significantly account for minimum guarantee losses. Over time, each, if not every, such partnership would be net accretive to us from a revenue perspective.

Revenue perspective

Q. Ok, now can we talk about the elephant in the room—the Covid pandemic? How has the pandemic impacted OYO and what are you doing in response?

Sure. Look, first of all, there is no question that we are heavily impacted, given the crisis that it has brought with itself. India, specifically, because there is a nationwide lockdown right now, and it doesn’t seem like it’s going to get better as we speak.

From my perspective, there are a few important areas. The first one is to make sure that we are prepared to ensure that our partners need us more than ever before today. So it’s critical that we can prepare our partner ecosystem. The first thing in the path that we are preparing is a ‘sanitised stay’ tag in our hotels. We have set up a bunch of policies right from entry at the hotel, check in, in-room service and housekeeping, check out, baggage collection and baggage departure.

For each part of the experience, we are working to make sure that we are prepared. At this point in time, it is still difficult to predict in what direction the business is going to go. But, we are seeing some early greenshoots in markets like China, where we have now reached occupancy of 45%, up from 20% or so during the peak of the pandemic.

Q. In the post-Covid world, hotel partners will be faced with challenges they have never seen before. How will you help them? What are you doing to strengthen your relationship with asset owners?

Covid-19 is having a huge impact on the entire hospitality industry worldwide, with occupancy rates plunging.

Beyond the page New innovations to wow customers and solidify international expansion

So, what else could we have done better? Improve our relative ability to resolve issues. Earlier, our owners will give the job of accounting to their CA or the accountant, and their accountant would like to have a discussion with OYO’s accountant. Whenever discussions are non-principal to non-principal, it’s incredibly hard to make resolutions happen.

With ‘Sambandh’, our new partner-focused initiative, 100% of OYO business development officers were trained to do reconciliation. So, the person who signs the contract will also know the exact accounting system and they will engage with the owner directly. The owner’s accountant is free to sit in the same room, so that it is now principal to principal. So that, in my view, is a problem that has been solved significantly. I wouldn’t say it’s 100%, but I would say 95% plus of the resolution situation has improved.

OYO business development

OYO business development

But that said, the three things we could have, we will do better, and have been doing since January. These are things that we did along with the restructuring in January. The first is in our deal constructs; we need to not just simplify our deal constructs, but also the reconciliation statements. And we have simplified both of those.

The second; you may have heard that Flipkart, Ola, and a lot of these companies change their policies by means of electronic notifications, emails, and messages. In our situation, that has not worked.

Because when we send electronic messages for policy updates or changes, our partners sometimes don’t read them. So we have taken steps to ensure that our partners have actually received and understood the contract changes. One improvement we need to make is to speak to every partner before the final change is done and take more time. Instead of one month, maybe we can give two or three months before making a change.

I think, overall, we grew a bit faster than ideal in 2019 and along the way, some shortcuts were taken and some mistakes made. We are now cognisant of these and are taking steps to fix them.

How would you respond to that?

Q. Now if we could rewind the clock a bit, I want to take us back to one of the first stories we did about OYO, one in which we asked if OYO was a Ponzi scheme in that it could easily be gamed by ingredients like minimum guarantees, partial inventory, deeply-discounted room rates and reporting on vanity metrics like “booked room nights”. So much so that your take rates, and therefore, your revenue, were negative.

I think, first off, we should look at it from today’s position. Over the last three years or so, starting from early 2017, we started moving very significantly towards full inventory. I think I’d announced in 2017 that 80-90% of our supply had moved to full inventory supply. A full inventory supply, combined with positive take, which is visible from our filings as well, eliminates the loophole of gaming the system using the partial inventory model.

The Car Sales Finance Combination That Is Proving That It’s The Future

Carro’s founder and CEO Aaron Tan, meanwhile, said China shows that one needs to expect “consumption to be gradual”.

“One of the large Chinese players told me that they are tracking at about 50% of what they were doing last March and expect the end of 2020 to be about 70-80% of last year’s figures. So, we should cash up (count our cash) and try to lower the burn as much as we can,” he said.

Struck by Covid-19
On 24 March, Uxin sold its B2B used car online auction business to its existing investor and Chinese classified platform for US$105 in cash. As of 15 May, Uxin’s market cap stood at US$399.4 million and closed at US$1.45, a far cry from its Nasdaq debut of US$9 per share.

The Chinese market is also home to two veteran used car trading platforms Uxin and Chehaoduo. Founded in 2011, Uxin was the first Chinese used car trading platform to have gone public on Nasdaq in June 2018. It competes directly with SoftBank-backed Chehaoduo’s C2C used car trading platform Guazi, which came into the market around 2014.

Both players, however, have resorted to slash salaries in March in order to tighten budget and cash flow.

According to Jianggan Li, founder and CEO of Momentum Works, compared to the Chinese startups, the Southeast Asian players have got off to a right start by pursuing a C2B or consumer-to-business route.

An Indonesian contender

C2B is probably the best entry point for players to capture market and data without burning too much cash, Momentum Works’ Li says. Most importantly, it helps consumers to solve the problem of cutting out the many middlemen through a transparent process when they sell their used cars.

“The inspection and pricing data collected during the C2B process will be very useful for not only the participants of the trade, but also providers of ancillary services including financing, warranties and insurance,” he told us.

C2B used car trading platforms like Carsome, Carro, and Indonesian BeliMobilGue take a commission from used car dealers for each transaction they process. Customers don’t need to pay a dime to sell.

But the strategies of each of these three companies are vastly different. With the exception of BeliMobilGue that has yet to venture out of its home ground, both Carro and Carsome are present in Singapore, Malaysia, Thailand and Indonesia.

The duo also claim to have been placed well on the profitability meter prior to Covid. “…assuming there is no second wave [of infections], we will be able to continue that momentum and achieve the same as things go back to normalcy,” says Carsome’s Cheng.

BeliMobilGue, meanwhile, sold over 21,000 used cars in 2019—almost half of the 55,000 used cars transacted via Carsome across four markets—as per a report by Singapore-based venture builder and consultancy Momentum Works. Carro declined to share figures.

It is not wrong to say that the Indonesian company is the fastest-growing one in the used car space, and that’s just in one market. But there’s competition in the offing. Enter TiinTiin.

New beginnings

Monteiro stepped down as CEO of BeliMobilGue last July and has also resigned from the startup’s board in mid-March. The startup was a joint venture between Monteiro, Berlin-based used car marketplace builder Frontier Car Group, and Indonesian venture builder Intudo Ventures. Monteiro no longer owns a stake in the business.

Founded by the co-founder and former CEO of BeliMobilGue, Rolf Monteiro, TiinTiin launched in late-2019. He declined to share any performance numbers but said the figures “will be modest compared to any like-minded numbers”.

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“Ride-hailing, car-pooling and even car-sharing services would eventually make a comeback, but at least in the next six months, people will continue to take a cautionary approach to these services. In the meantime, they will look for personal mobility [in the form of used cars],” says Animesh Kumar, director of automotive consulting at research firm GlobalData.

So, who’s to gain? Used car marketplaces that have enough car-ma points. Like Carsome or MyTukar—Singapore’s Carro is its single largest shareholder—in Malaysia.

“The convenience had me,” recalls Haziq*, who sold his seven-year-old Proton Saga FL in late-2018 through MyTukar.

Having to look around for reliable traditional used car dealers was a hassle. When Haziq finally found one, the dealer cited a lower price for his car, which prompted him to explore alternatives. MyTukar offered to view his car the very next day and provided an instant quote upon viewing.

Haziq got the money for the car sold in 12 days upon accepting it. “They offered a higher selling price so that’s a lasting impression. They also offered me an option of live bidding as an alternative if I’m uncertain about their offer. Overall, I feel like I have more control, with the transparency and quick responses,” says Haziq.

Consumer reviews on Facebook for both Carro and Carsome throw up the same three words: fast, convenient, and easy.

Great odds

Great odds

Both Carro and Carsome started operations five years ago. By 2019, Carsome was transacting more than 40,000 used cars. Carro declined to reveal any performance figures, although it is the best-funded used car platform in Southeast Asia, having raised US$105 million to date.

Carro claims it has achieved group profitability for “many months” up until April, when Singapore launched its partial lockdown. Meanwhile, Carsome claimed it was on track to turn profitable “in a few months prior to Covid-19”.

In addition to used car sales, these startups also have their eyes on the auto-lending sector. Carro estimates that over eight in 10 car buyers will take up a financing offer, which explains why the startup is heavily focusing its business on its financing business Genie Financial Services. It has submitted a bid for a wholesale digital banking licence in Singapore.

The cherry on top here is the sheer scope of the used car market opportunity. According to an estimate by Singapore-based VC consultancy firm Momentum Works, out of the six million used cars sold in 2019 across Southeast Asia, only 2-3% of the transactions took place via used car marketplaces.

In other words, the US$55 billion used car market in the region is an untapped gold mine for these startups.

The China case study

Like many other industries across the world, used car trading platforms in Southeast Asia are keeping a close eye on China’s economy for signs of recovery.

Carsome observed that the dealers in the Chinese used car market embraced live streaming as a way to keep conversations with potential buyers alive—a positive sign of a traditional industry that is turning to digitisation to ensure its survival in a post-Covid era. It’s already happening in Southeast Asia, says Eric Cheng, co-founder and CEO of Carsome, as used car dealers are turning to Facebook Live to interact with consumers.


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It’s ZEN Homes—Airbnb-type apartments in residential condominium buildings—that has been severely affected by the pandemic. Boublil said those rooms were ordered to stop operating by either the building managements themselves or local governments in the Philippines. Workers handling housekeeping or the front office have either been reassigned or laid off.

RedDoorz, too, aimed at capturing government demand in Singapore for some of its leased properties, said a former employee. For others, it negotiated the terms. It also took a stab at launching new services as a stopgap, like cloud kitchens in Singapore. Whatever it takes to earn a dime, said the former employee quoted earlier.

In Vietnam, it trialled a SaaS product, similar to ZEN’s, but hotel owners were not willing to commit additional money at this time, the person added. CEO Saberwal said the company has no plans of offering a SaaS product in the future. It would rather stick to its core franchise business. The company did experiment with an affordable, long-stay product in Indonesia to diversify, he said.

Murky future

Murky future

Both ZEN and RedDoorz are confident they have ample cash to survive the crisis. Being in the same business as ZEN, investor Yanolja is committed to back the startup for the long-term, said Boublil. RedDoorz has a runway of more than 15 months. Anything longer than that is unknown territory.

OYO, meanwhile, also has cash reserves. But if any funding needs arise in the future, the company is unlikely to see the same cheque sizes as before, considering SoftBank’s series of troubles, said Satish Meena, a senior analyst at market research firm Forrester Research. After the crisis, Meena thinks OYO will not be in a position to reinvest in all its current markets at the same time. So, exiting some of its Southeast Asian markets is a possibility.

After all, OYO’s expansion to the region was largely viewed as a way to justify its ballooning valuations. “They can’t get that kind of valuation by only being in India because the market is not that big for that kind of valuation,” said Meena. OYO exited Singapore sometime in 2019, according to industry insiders. OYO denied this, but didn’t respond to our request for details on its Singapore operations.

Boublil expects international travel to take time to recover, but domestic travel may start opening up soon as countries lift lockdown measures. Saberwal echoes this view, saying that Southeast Asian markets like the Philippines, Indonesia and Vietnam have always had robust local tourism markets.

It’s still too early to predict what a post-Covid world will be, but what’s certain is that safety will be paramount. “Budget hotels will have to put additional investments in terms of hygiene to ensure customers feel safe,” said Meena. “Who is going to make that investment? Will aggregators still be in the position to invest more in these properties?”

RedDoorz has been working towards getting hotels in its network certified by the governments of Indonesia and Singapore. Property owners will shoulder the costs of the certification, said Saberwal. “We’re not subsidising any cost.”