Info-tech

Paytm’s next big bet — online-to-offline model

Priyanka Pani Mumbai | Updated on February 09, 2016 Published on February 09, 2016

Vijay Shekhar Sharma, Paytm founder and CEO

Founder Vijay Shekhar Sharma charts out multi-pronged strategy to drive business

Vijay Shekhar Sharma, founder of Indian payment and mobile commerce firm Paytm, is on a mission to be the first profitable company in the e-commerce segment. For this, he has charted out a multi-pronged strategy that will lead to Paytm’s break-even sooner than the expected 2017 target.

One of the key strategies that Paytm is trying to replicate from its Chinese parent Alibaba is to involve the local merchants in the e-commerce and boost their sales through what is widely known as O2O (online-to-offline) marketplace, a business model that the Chinese e-commerce giant has been focusing since the last few months. With this model, Paytm, in which Alibaba has a little over 25 per cent stake, plans to take on bigger rivals such as Flipkart and Snapdeal in terms of both GMV (total amount of transactions) and profitability.

O2O model

Under the O2O model, a consumer searches for the product or services online but buys it through an offline channel. For example, a local store, which don’t want to sell online because of the discounting nature of online marketplaces, may find this model useful. Paytm wants to rope in these local players and help them drive the footfall and sales at their stores. Paytm benefits as these stores in return act as individual warehouses and fulfilment centres.

“With a focus on O2O and our other businesses including wallets and recharges, we expect to do GMV of $10 billion by end of 2016,” Sharma said. Paytm is already clocking about $3 billion in GMV. To put that into perspective, Flipkart, which started its e-tailing journey in 2007 by selling books, currently does about $4 billion and expects $12 billion by 2016.

This strategy differentiates Paytm from other e-commerce marketplaces such as Flipkart, Snapdeal and Amazon, which are pumping in billions of dollars to set up warehouses. While Amazon last year committed $7 billion to gain the leadership position in the e-commerce market by 2020, Flipkart has raised a little over $3.2 billion since 2009 and Snapdeal has got $1.54 billion since 2010.

Roping in local merchants

Major part of the investments will go towards building warehouses. In fact, both Amazon and Flipkart have doubled their warehousing capacity in the last one year at a time when Paytm has none. Compared to these players, Paytm has raised a little over $600 million so far and has been instead investing in roping in more local merchants. Starting this year, it has already roped in 1,500 merchants in the top 10 cities. It plans to add another 15,000 by June across 50 cities, which means that many small warehouses.

According to Sharma, there are sellers deliver the goods to customers directly and incentivises them to do faster delivery. It also doesn’t give out discounts but doles out cash-backs, which goes to the customers Paytm wallet thus getting the customer to do more transactions.

The company’s major investments go into expanding its wallet business, getting more sellers on board and investing in companies that can help Paytm in its growth. For example, it has recently invested in O2O discovery platform Little and hyper-local service marketplace near.in.

While Alibaba in China is currently targeting the $150-billion O2O services, anything from food to home services, back in India Paytm is eyeing the multi-billion dollar offline electronics, home appliances and merchandise segment. No other e-commerce player in India has entered this segment so far. Paytm entered into the O2O model early this year and sold goods worth ₹500 crore in just 20 days. “Every other marketplace is trying to find its niche. We are optimistic that O2O will drive our business very fast. We are also identifying other categories that we can trade through O2O model. Cars and bikes is a big opportunity and we are exploring that. We have already sold 500 bikes on Paytm last month,” Sharma said, adding that O2O will also drive profitability as it doesn’t require any investments in logistics or warehousing.

A unicorn status

Meanwhile, Paytm is among the few start-ups in India to have achieved a unicorn status, with over $1 billion valuation. As of October 2015, they claimed to have 50,000 merchants on the platform and processing over 75 million orders a month. The company reported a revenue of ₹337 crore in FY 15 up from ₹210 crore in FY14. However, it has posted a loss of ₹372 crore in the last fiscal.

Published on February 09, 2016
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