Decoding internet commerce startup Meesho’s business model, Retail News, ET Retail

Deciphering the business model of internet commerce startup Meesho

New Delhi: E-commerce, which traditionally started as a convenience in the metropolitan areas, is getting closer to the real Bharat every day. With internet penetration, increasing smartphone users and evolving consumer demands, beyond the metros, India is driving the growth of e-commerce in the country.

Valued at nearly $5 billion, SoftBank-backed Meesho is one such startup in this space. It claims to have a unique business model that empowers small businesses. The company, founded in 2015 by IIT Delhi graduates Vidit Aatrey and Sanjeev Barnwal, has attracted strong interest from investors and has raised USD 1.1 billion to date. While the unicorn has been in the news for its vendor policies and efforts to digitize small businesses and MSMEs, it has been faced with a few questions about its changing business model.

The startup has been touted as a reseller platform or social commerce app. When asked what Meesho is, Utkrishta Kumar, the company’s CXO business, said, “We are a horizontal e-commerce company.”

Speaking to ETRetail, Kumar and Lakshminarayan Swaminathan, CXO – Supply Growth, explain how the flagship of e-commerce for all makes money and explain Meesho’s business model.

A to Z of Meesho’s business model

Meesho started as a reseller platform that allowed users to resell products through their social channels like WhatsApp, Facebook, Instagram and more. The company initially focused on promoting entrepreneurship among Indian women. Today, Meesho is an internet commerce company focused on buyers and sellers in Tier 1, 2 and 3 cities. The company aims to bring the next billion users from Bharat into the e-commerce space.

The essence of Meesho is that the company offers users access to a wide range of products, illustrated by a large seller base. This is coupled with very competitive pricing due to a zero commission and zero penalty model. “We’re the lowest cost channel out there,” Kumar said.

What makes Meesho’s offering more unique and attractive is its guiding principle, which is the “democratization of e-commerce,” Kumar pointed out. Meesho doesn’t have a tiering program, it doesn’t own any private labels and therefore doesn’t compete with its own sellers in any way, he shared, adding that it’s not right to merge the company with other existing marketplaces given his vision and approach, to achieve this, be different.

“It is no exaggeration to say that we are a true seller-first platform that this country has,” he noted.

While the company doesn’t charge its sellers for listing and selling on its platform, it makes one wonder how Meesho makes money. The social commerce platform makes money through its monetization construct, i.e. seller ads.

Meesho claims to have over 68 million product listings across 30 categories on its platform. The company says over 70 percent of its sellers are from Tier 2 cities and beyond. Earlier this year, the online retailer said it had surpassed 6,000 seller registrations on the platform, a 7x increase since April 2021.

The company operates in more than 700 categories across India. Recently there have been reports that Meesho has closed his grocery store Superstore in the country. The company rebranded Farmiso to Superstore to integrate with its core app and target consumers in Tier 2 and Tier 3 markets.

No commission, seven day payment policy

Meesho announced three key policies earlier this year that will help it differentiate itself from its peers.

The company launched its zero percent commission policy with the goal of digitizing 100 million MSMEs. With this policy, sellers on Meesho don’t have to pay commissions and can instead invest their capital in growing their business.

Shortly after going commission-free, Meesho announced the launch of its zero-penalty and 7-day pay policy.

With the zero penalty feature, the e-commerce company ensures that its sellers are not fined if they cancel orders themselves or automatically. The move should help the company increase trust and transparency among its sellers. Similarly, the 7-Day Checkout feature was introduced to ensure sellers get paid faster and allow them to reinvest money into their business.

Is Meesho a deep discounter platform? If so, how does this affect the company’s revenue?

In response to this question, Kumar said that Meesho is not a target for deep discounts at all, adding that the reason may be the company’s zero percent commission structure, which results in highly competitive prices on the platform.

Additionally, Swaminathan said that much of the perception of deep discounting stems from the traditional understanding of the e-commerce model.

He explained that ecommerce platforms buy inventory from sellers and then sell it to the customer, giving them control over pricing. However, Meesho operates in a true market model where the company does not control, buy or own inventory, Swaminathan noted. Meesho only provides sellers with the insights, tools and business model that allow them to evaluate the product at the best possible price.

“We are not at odds with a small business owner who feels threatened by e-commerce. We enable rather than compete,” Swaminathan said.

Close to profitability?

“Meesho wants to be profitable,” said reports earlier this month quoting the company’s CEO, Aatrey, from a town hall meeting.

Given its heavy reliance on ad monetization, how the company plans to achieve profitability is an interesting question. Kumar commented, saying Meesho wants to grow while still focusing on profitability. “As our CEO said, profitability and growth are not mutually exclusive.”

The company believes its asset-light model will help it move toward profitability. It claims to have very limited and discretionary operational costs as it runs on an asset light model. Unlike other major e-commerce players in the country, Meesho does not own third-party logistics services and fulfillment centers. In addition, there are no costs as no stock is bought or sold.

“We are Asset Light. We can afford to build a very low-cost channel and therefore the cost of ownership is quite low,” Kumar pointed out.