Rocket Internet First Mover In Asia

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At the end of Rocket Internet’s disappointing firstday of trading on the Frankfurt Stock Exchange last week, co-founder and CEO Oliver Samwer looked weary but, as usual, kept on-message,telling CNBCthat “most [Rocket sites] are market leaders in their sectors.”

When he announced the IPO last month, Samwer told a press conference, “I do not have growth, competition or margin as my key problems. Why? Because I’m the first mover in most of my markets.”

Rocket may well be a dull duplicator of others’ innovative ideas, so the subtext goes, but it is boldly pioneering in markets where the grateful natives are just discovering this internet thing. One could easily get the impression from coverage in the western media that there is no e-commerce or online retailing in developing countries from Asia to Latin America to Africa.

World’s Largest Internet Platform?

Where exactly is Rocket the first mover? And how does the investor and digital startup factory intend to become the “biggestconsumer internetgroup outside of the US and China,” “the Alibaba of non-US and non-China countries” or,most recently, “the world’s largest internet platform outside the United States and China”?

Rocket Internet’s prospectus didn’t clarify matters but did name the group’s 11 “proven winners”, none of which is profitable. Nor are any of the four companies in a more risky, non-Asia based (coupons, payments, loans) grouping labeled “emerging stars.”

Eight of the “proven winners” groups are online retailers–Amazon-like general merchandise sites, Zappos/Zalando-like apparel sites, and (European and Latin American) furnishing vendors. The Asian focus is Southeast Asia. General merchandiser Lazada has sites there in Indonesia, Malaysia, Philippines, Singapore and Thailand. Zalora, the apparel brand, has sites in Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. Currently outgunned by UK’s Asos, the Australian and New Zealand apparel site is called The Iconic but falls under the Zalora umbrella. Jabong is Rocket’s fashion or apparel site in India.

Zalora: Losses of €71.1 million in While there are maddeningly few figures in the prospectus, there are even fewer for the Zalora and Lazada sites than for their Latin American, European and African counterparts because they launched later, in late 2011 or early 2012 . Without any revenue or loss figures for 2012, we can’t tell how quickly the Asia-Pacific sites are losing money.

However, the Zalora group had net revenues of €68.9 million in 2013 and net losses of €71.1 million, according to the prospectus. Lazada’s net revenues were €56.8 million in 2013 with net losses of €51.8 million. Since the prospectus only gives net revenue and losses in 2013 for the entire Zalora and Lazada groups, there is no way to tell which of the individual sites are the biggest winners and losers.

Launched in 2010, India’s Jabong has a longer track record. According to the prospectus: Jabong’s net revenues almost tripled between 2012 and 2013, from 19.7 million euros to 51.4 million euros. Net losses seem to be slowing: from €46.5 million (3.1 billion rupees) in 2012 to only €37.9 million (2.93 billion rupees) last year.

A closer look at Jabong

Comparison of major Indian shopping sites Source: SimilarWeb.com So back to the “market leader” thing. The prospectus reiterates that many Rocket sites are market leaders but never defines the term. Jabong is pulling impressive user traffic in India–almost 2 million visits per day, as the data above from SimilarWeb show. But that number is nowhere near Flipkart’s daily average of 2.45 million.

With investment from Naspers, Morgan Stanleyand others,Flipkart is a general merchandise retail site like Indian siteSnapdealor Lazada or Amazon (vowing to invest $2 billion in India, by the way). Flipkart is therefore not a head-to-head to rival with apparel-focused Jabong but it’s useful to compare the nature of the two sites’ Web traffic. A more direct Indian competitor with Jabong is apparel site Myntra, which Flipkart acquired in April (note the dip in the graph above) but retains its own website. Zovi and Yebhi are yet more apparel sites with free shipping.

Heavy traffic, which can be generated by advertising, doesn’t necessarily translate into purchases. A site that can boast of the longest average viewing times and/or the most pages viewed could well be considered the market leader; its viewers are more likely to be buyers. Added to that, the ideal is “organic traffic”: users that either arrive directly via the site’s domain name or have used a search engine specifically to look for it.

Paying for traffic

But more than 50% of Jabong traffic originates from referrals, specifically ad networks. (In India, the level of referrals from Facebook, Twitter and other social networks to shopping sites is negligible.) In other words, Jabong is paying for most of its traffic. Investors would like to know how much Jabong is spending to snag and retain customers and how long it can keep that up.

On the plus side, at least 80% of Jabong’s traffic isn’t generated by display ads, as is the case withZovi. Consider how seldom you click on a display ad; only a tiny percentage of viewers do. Both Jabong and Myntra get about 10% of their traffic via display ads. Yet for Flipkart, it’s only a few percentage points.

It gets worse for Jabong. On average, users look at 8.41 pages on Flipkart while for Jabong, it’s 3.6 and for Myntra, 5.72. Yebhi is comparatively tiny, with only 65,000 daily visitors, but visitors on average look at 7 pages and only 30% leave the site after looking at one page; on Jabong, about 67% do. And about 80% of Yebhi visitors come directly to the site–that is, by either by the site’s domain or using the company name in a search.

Meanwhile in Southeast Asia …

I have sketched out the competitive landscape in India–not my usual domain–to show that Rocket isn’t a first mover there and that, well, growth and competitionshouldbe perceived as key problems. (Rocket’s competitive context in Brazil somewhat resembles that in India–except there seem to be even more big e-commerce sites and international players.)

This post is running too long to delve into Southeast Asia for now. E-commerce competition in the eight very different countrieswith Rocket ventures can’t be neatly summarized. For sure, Lazada and Zalora have strong market positions but they didn’t come cheap and the sites don’t necessarily have the most traffic in individual countries. The seven most developed Southeast Asian countries have their own e-commerce sites, most especiallylongstandingmarketplaceswith third-party sellers. Residents also spend a surprising amount of time on Amazon, Asos, eBay and Alibaba, even though a purchase entails making an overseas order (but Alibaba shipping is cheap!). When Alibaba launches its local sites here–and if Amazon ever does–it will have a strong head start.

Update October 10: Amazon possibly in talks to acquire Jabong? Not so far-fetched. When Amazon pledged to spend $2 billion in India, it didn’t rule out acquisitions. Jabong holding out for at least $700 million, however? Yikes. $500 million would seem about right.

Update April 2, 2015: And Amazon will not buy Jabong. Was $1.2 billion ever a possibility?