CASE STUDIES SERIES#6
fre
ep
ik. co
m
THE LAZADA REVOLUTION
Authors: Viyasa Rahyaputra and Fahreza Daniswara Cover and Layout: Gupita Pramahayekti and Fidya Shabrina
case studies: the lazada revolution
Understanding the Landscape of E-Commerce in Southeast Asia In the era where the internet has arrived as one of elements in development, the countries in Southeast Asia (SEA) have become one of the main players worldwide. Although Southeast Asia is geographically distant from technology capital cities, which mainly located in the West, it does not prevent the internet users in SEA to rise continuously in the last decade. Number of Internet Users Worldwide from 2009 to 2016 by Region (In Millions)
YEAR 2009 2010 2011 2012 2013 2015 2016
ASIA
EUROPE
LATIN NORTH AMERICA AMERICA
AFRICA
MIDDLE EAST
OCEANIA/ AUSTRALIA
764.40 425.80 259.60 168.90 86.20 58.30 266.20 825.10 475.10 204.70 110.90 63.24 1,016.8 500.72 273 .07 235.82 139.88 77.02 518.51 273.79 254.92 167.34 90 1,076.68 1,265.14 566.26 300.29 302.01 240.15 103.83 313.86 333.12 313.26 115.82 1,563.21 604.12 320.07 3 84.75 339.28 132.59 1,792.16 614.98
21.10 21.30 23.93 24.29 24.80 27.10 27.54
Figure 1 – Worldwide Internet Users sta s cs
Internet users in Asia are increasing in number with almost 230% raise from 2009 to 2016. While in 2016 itself, the number of internet users in Asia is almost as many as all the region combined.
en if we go further here, the internet users in SEA are counted around 250
million people. From the world map above, it also can be seen that 95% of SEA is covered by 2G and 3G connection. en, one sector rising rapidly in the era of the internet is e-commerce. In shallow and simple de nition, e-commerce refers to sales and purchase activities, which utilize online world as a platform of the activity itself. In SEA, the enthusiasm toward e-commerce is not looking promising during the rst decade of the millennium (2000-2010).
ough e-
commerce activity may reveal further bene ts for the society, a research by Aniceto Orbeta (2000, p. 6) suggests that the hesitance of SEA society toward e-commerce is aected by
/
case studies: the lazada revolution 01
diďŹƒcult aordability and accessibility of the online market. Besides, credit card ownership, which is considered as primary payment method in e-commerce, is arguably low in SEA during that period of time. Furthermore, there is also absence of integrated e-commerce platform in Southeast Asia. Amazon.com, the biggest e-commerce platform in the world, does not provide delivery service in Southeast Asia up until this day. While Ebay's service is slightly be er and accessible in SEA however, several costumers have sounded its concern with the delivery method and the product quality. Although SEA suers from such limitation and challenge, this region has been seen as one of the most potential place which will experience a boom of e-commerce in the future. Given huge internet users, less tangible barrier to do investment and also gradual infrastructure enhancement in regions' most potential cities, this region has been seen as the right place for many developer companies to establish an e-commerce start-up company.
The Birth of Lazada and its Gradual Development until Today In reality, Lazada is not entirely made in Southeast Asia, but a million miles away in Berlin, Germany. Rocket Internet is a German-based incubator companies which focuses to establish digital start-ups, mainly in areas outside USA and China. One of their successful stories is the birth of Lazada in Southeast Asia (SEA). In 2012, Rocket Internet developed
/
02 case studies: the lazada revolution
Lazada as a start-up company with headquarter in Singapore. Lazada is born and raised as a 'copycat' product of Amazon and Ebay. Similar as those two counterparts, Lazada is acting to i
facilitate the interaction between seller and costumer through online network in SEA.
en,
taking advantage of cumbersome situation of e-commerce development in the region, which can be seen in the previous section, Lazada rises continually to become the leading platform of online commerce in Southeast Asia. Until this case study is wri en, Lazada has become the largest online e-commerce company in Indonesia, Vietnam,
ailand, Philippines, Singapore
and Malaysia. e success of Lazada is not given naturally, it is earned through a strategic marketing and organizational approach in seeing the discourse and trend of e-commerce in SEA. When it comes to e-commerce in SEA, the ultimate problem that hinders positive growth of this business is related to the trust issues between seller and customer. Prior to the emergence of Lazada, e-commerce in most of SEA countries was still dominated by direct seller-to-customer relation and rarely overseen by accountable bodies. Hence, this mode of business is accompanied by high risk of scam and therefore, increase customers' reluctance to shop via online world.
en, Lazada is lling this gap by facilitating a more trustworthy and
safer interaction between customer and seller. Lazada's commitment to establish their reputation as leader in SEA also shown by its willingness to adopt multiple payment methods, ranging from credit card, bank transfer via national bank as well as cash-on-delivery (COD), ii
which is heavily preferred by the society in SEA. “We are more customer-centric approached. Our three unique selling points, namely—Free return policy (14-days), Free shipping , and Cash on delivery—helps us accomplish our vision. At this moment, we have 100,000 unique visitors per day with 50,000-100,000 products in the website.” – Inanc Balci, CEO of Lazada Philippines.iii As a result, Lazada is enjoying a triumph of economic revenue. According to the annual report released by the Rocket Internet itself, Lazada generated US$ 154.3 million in its 2014's net revenue, an astounding increase of 104.2% from the previous year. Furthermore, in 2015, Lazada collected US$ 275 million in net income which was a 78% increase from the year iv
before.
is consistent pro t-making effort is improving Lazada's reputation as one of the most
/
case studies: the lazada revolution 03
promising start-up companies in the region. Numerous huge investment deals were made by Lazada in its early years. In 2012, Lazada received US$40 million investment from Kinnevik v
and then followed by investment from JP Morgan, Holtzbrinck Ventures and Tesco.
en in
2014, Lazada received another boost through investment by giant Singaporean investment vi
company, Temasek, with a US$200 million fund injection. A publication made by TechInAsia earlier this year showed that Lazada is considerably the biggest startup in the region, with the valuation of more than $1 billion, well behind other prominent tech companies in the region, Grab and Zalora (despite being its sister company), for example.
TOTAL FUNDING
$686 million >>>>>>>>>>>>>
category : e-commerce
One of Rocket Internet’s greatest successes so far, the e-commerce site is considered a unicorn with a valua on of US$1.3 billion.
recent investors ROCKET VERLINVEST TAMASEK HOLDINGS INTERNET
funding stage : series f
Figure 2 Lazada's value in 2015 (TechInAsia, 2014)
Lazada's Trailing Growth: A Challenge to Business Model However, Lazada's fairy tale does not continue in 2015 onward. Lazada is facing a tough year and is desperately in a need of fresh money in order to survive and maintain its service. According to several sources, Lazada's biggest problem is caused by inadequate vii
management performance, which contribute to ineective operation spending. Furthermore, Amazon is also planning to enter Southeast Asian market next year and may be potential competition for Lazada. Amazon is reported to start their expansion to South East Asian market in the rst quarter of 2017 by introducing their prime e-commerce services and groceries delivery in Singapore, a er they lost a bid to acquire RedMart, one potential eviii
commerce based in Singapore earlier this year. What is even more alarming is that the fact that the business model adopted by Lazada, is threatening the company, pressing them to ran out of cash in early 2016. A more precise gure is shown on the gure below.
/
04 case studies: the lazada revolution
[GENERAL MERCHANDISE LAZADA] Key Financials (USDm)
FY 2013
Net revenue
75.5
FY 2014 154.3
FY 2015 275.0
104.2%
78.2%
5.2
22.4
%growth
Gross profit %margin
Adjusted EBITDA
1
%margin
Balance Sheet Cash Posi on
Key Performance Indicators (m) 2
Q4 2015 86.5
67.0
9.5
24.4
76.9%
6,9%
14.5%
24.4%
19.4%
28.2%
(58.5) (77,4%)
(142.5) (92.4%)
(296.5) (107.8%)
(54.9) (112.3%)
(90.4) (104.6%)
31-Dec-13 251.8 FY 2013
31-Dec-14 198.0 FY 2014
31-Dec-15 75.4 FY 2015
31-Dec-14 198.0 Q4 2014
31-Dec-15 75.4 Q4 2015
383.8
1,024.7 167.0%
171.1
333.3 94.8%
94.8
GMV (USDm) %growth
Q4 2014 48.9
304.8%
Figure 3 Lazada's Revenue (Russell, 2016)
e gure above shows that the company's net revenue grew signi cantly in 2015, with €275 million (or $315 million), up 78% from the previous year. However, at the same year, the company suffered a loss of €296.5 million (334 million), double the number they had in 2014. What is even more interesting is that the GMV (gross merchandise value), the total value of transactions generated by the company, they passed a billion euro, which is massive. Despite this huge value, the net revenue they managed to collect is merely one
h of it.
is
shows that the company might be rolling out huge incentives for discounts and promotions for the products they sell, as part of their marketing strategy. However, the irk that may be troublesome is that this model is proven to be shaky and is not promising sustainability, as what ix
is shown by Uber.
e fact that Lazada chose this strategy to be implemented in their
marketing arsenals already gives us insight on how the company is managing the directions of the company. Further explanation on speci c strategies taken by Lazada will be elaborated on the later section of this writing. Regardless of its cloudy future, Lazada is still an a ractive phenomenon for several investors. Finally, in 2016, Alibaba mind-blowingly invest US$ 1 billion in Rocket Internet, x
which allow them own majority share of the company. Under new ownership, it is hoped that Lazada able to bounce back and continue to hold its position as the biggest e-commerce company in the region.
/
case studies: the lazada revolution 05
Lazada's Strategy e success of Lazada over the past years is majorly driven by the fact that it has evolved its business strategy and marketing model to be in line with the digital revolution the world is currently experiencing. Dierent behaviours of the society is determining sets of dierent treatments business needs to shove on to their priority of business and marketing strategy. Some argue that Lazada is known to be replicating existing business models in exi
commerce industry, particularly from the already established e-commerce leader, Amazon. is assumption is not to be neglected, as Amazon has indeed become a model for ecommerce industry globally.
e dierent business models Lazada is adopting can be mapped xii
into several business model strategies, which are the business to consumer and marketplace xiii
strategies, as well as partnership approach.
a.
Business to consumer strategy e strategy of business to consumers remains
as the main focus of e-commerce business, as the activity of buy-and-sell occurs through this methods (with the utilization of technology).
e
business to consumer strateg y link s the distributor/producer/company with the end user directly. With the utilization of the internet and technology, more eďŹƒciency and transparency may be generated even in greater number. Due to its direct nature, companies may have be er and deeper engagement with customers, which inevitably results in higher customer xiv
satisfaction rates.
is is why e-commerce business heavily relies on this strategy, as ensuring
satisfaction of the customers through direct engagement facilitated by internet and technology determines the business activities in the upcoming periods. Lazada adopts the models shown by Amazon and JD.com.
ese two companies are major
players in e-commerce industry in both western and eastern economies.
e business-to-
consumer approach the company is applying is aimed at controlling the supply chain and xv
winning trusts from society.
e trust consumers put on Lazada showcases the reliability of
Lazada's products, including the quality of its supply chain and service delivery. Combined
/
06 case studies: the lazada revolution
with constant promotion and high number of loyal consumers, the company is then driven to continuously expand its efforts in bridging a be er quality in service delivery – which in turn, gains them even more consumers. e approach is proven to be effective as more consumers in the region is using the platform, as shown by their steady increase in revenue over the years. Lazada Vietnam, in particular, has earned trusts from both the industry and consumers in particular.
ey won
e
Best Shopping Website in 2014, the Smarties Global Awards 2015, and is placed among the top xvi
10 e-commerce companies . From this success, it is implied that the company is able to execute its core strategy with efficacy, resulting in continuous growth in revenue and transactions. Another approach to increase the business to consumer experience by the company is to exibly adjusting to the social composition of the market. By this, the company speci cally xvii
develops and focuses on the cash on delivery payment method .
e composition of each
country in the region's share of transactions is as seen on the gure below.
eir responsive
approach towards the demand from the consumers, particularly on caused by the consumers' characteristics further enriches their top-notch experience as the largest e-commerce in the region.
Figure 4 Share of Customers in SEA (TechInAsiaVN, 2014)
/
case studies: the lazada revolution 07
b.
Marketplace strategy As an e-commerce company, Lazada needs to gather as many
brands and products as possible, in order to a ract even wider scope of consumers.
e marketplace game has forever been evolving over
the course of the past ve years, and is very determining in placing ecommerce companies in the competition. Marketplace strategy in online e-commerce industry has recently shi ed to a multiplatform xviii
strategy, or an omni-channel marketplace .
is means that
marketplace does not only rely on the website presence, but also mobile and tablet platforms. Ebay and Amazon have been noticeably using the omni-channels strategy, with Ebay's 159 million active buyers. Walmart's marketing moves are even indicated to be shi ing to an omni-channel strategy, starting with growing signi cance of xix
their website platform . Amazon, as the largest e-commerce company, xx
has a staggering 85 million active users monthly.
e urgent
importance of marketplace strategy are derived onto several reasons, which include; leveraging investment, reaching every customers across every devices, tapping into the global demand, as well as xxi
gaining partnership and supports.
e marketplace strategy, particularly with an omni-channel approach, was adopted by Lazada in 2013, and is already bringing desirable bene ts for the company, which include expanding assortment and reducing inventory risks, as well as improving xxii
economy in general . As mentioned by the CEO of Lazada Indonesia, in 2013 they were already targeting the mobile market, seeing the xxiii
raising prominence of smartphones in the country, and we seem to be seeing the results already.
e adoption of omni-channel approach
by Lazada over the years is captured on the gure below:
/
08 case studies: the lazada revolution
Figure 5 Lazada's Mul pla orm Movement (TechInAsiaVN, 2014)
e aggressive approach by the company in utilizing multiplatform channels to market their products is coupled with extensive usage of web strategy. Lazada maximizes the Google AdWords exible strategies, speci cally the target outranking share.
is move enabled
Lazada to increase traďŹƒc by more than 30%, improve target outranking share against speci c competitor domains by up to 280% in four weeks. Speci cally, the strategy allows Lazada's ads to appear more o en than the fellow competitors', or even be er, appear when others don't, by xxiv
lowering and raising their bids on cost-per-click on speci c keywords. c. Partnership Strategy
Mature business model and strategy does not only rely on how the company a racts the consumers, and how they maintain the loyalty in return. To ensure the sustainability of their business strategy, companies need to initiate relationships with relevant and potential partners. is is important seeing the fact that e-commerce industry relies on their merchants, thus, merchants need to have high reliability to the retailers, particularly the ensured data sharing, content syndication, and experimentation.xxv Lazada has been also showing deep concern regarding the relationships with their merchants, with more than 2000 active sellers in 2014, xxvi
and the number is obviously growing continuously to date.
e partnership is further nurtured
by the reputable ful llment services to its merchants, by, among others; helping merchants in stock management (ensuring availability, packing), reporting daily sales reports which include xxvii
returned, canceled, and delivered orders, as well as ensuring fast delivery.
is allows Lazada
/
case studies: the lazada revolution 09
to further drive operational eďŹƒciency.xxviii Further partnerships that need to be ourished is with external partners which may be potential in providing core resources, especially investments.
is is particularly shown by how
Lazada was able to win the trust from Alibaba in seeding investment with the worth of $1 billion earlier this year. Lazada had been noticeably maneuvering strategic relationships with Alibaba since the past year, and by the time they were running out of money, Alibaba's helping hand came just in time.xxix By now, the supported-by-Alibaba company, as mentioned before, was able to acquire RedMart, a very strategic move before Amazon took over.
e clever move is
de nitely worth to take note from, to reiterate how Lazada successfully seize the moment from in and out of their business core.
Conclusion e success of Lazada in leading the e-commerce industry in the region is majorly driven by their holistic approach of business strategy.
ey are able to strengthen themselves
from within, and combine the upgraded business maturity with extensive partnership moves. e road they took is obviously rocky, with the so called crises they were able to dodge earlier this year. Much larger than that, the company's presence and evolution have brought so many for the region, in terms of digital industry's growth, as well as government's awareness on the promising emergence of e-commerce industry.
is is undoubtedly important seeing how most
of the countries in the region are emerging economies, with lagged exposure to digital revolution. Lazada is able to characterize themselves as the leading e-commerce company in Southeast Asia by becoming Southeast Asian; and that is one thing to take note of. It has showcased a true dynamic of e-commerce industry, more importantly as the leader in the region. Examples are set by the companies, both in term business strategy and business agility. Even more important than that, the company has provided lessons on what and how to build, champion, and sustain the e-commerce industry, enunciating such impact to the industry in general.
is is very much appreciated, especially in the region of emerging economies, which
mostly comprised of poor countries who are substantially not prepared but eager to integrate with the trend and reap the bene ts.
/
10 case studies: the lazada revolution
References i
ii
iii
iv v
vi
vii
viii
ix
x xi
xii
xiii
xiv
/
case studies: the lazada revolution 11
xv xvi
xvii
xviii
xix xx
xxi
xxii xxiii xxiv
xxv xxvi xxvii
xxviii
xxix
/
10 case studies: the lazada revolution