Meesho and Kitabeli’s bumpy social commerce corridor

Published on November 26, 2021

Photo Credits: Kitabeli

Original post by The Ken

Indonesia’s Kitabeli recently secured investment from the co-founders of Indian social commerce unicorn Meesho. But the two platforms follow different business models, which raises the question whether the linkup can help Kitabeli grow its group-buying model into a unicorn

The week of 20 September was a busy one for Indonesia’s social commerce startups. On Tuesday, Dagangan announced a US$11.5 million Series A funding round. On Wednesday, Halal-focused Evermos said it had raised a US$30 million Series B. And on Friday, Kitabeli revealed it had raised an undisclosed amount in an extension of its US$10 million Series A round six months ago.

That’s at least US$41.5 million channelled to three different social commerce startups within four days. One of those fundings was of particular interest because of the involvement of Vidit Aatrey and Sanjeev Barnwal, co-founders of Indian social commerce unicorn Meesho. They participated in 18-month-old Kitabeli’s Series A extension, along with investment firms Kopi Kenangan Capital and Banana Capital.

This Indonesia-India linkage is nothing new. Meesho, in fact, had entered Indonesia in 2019, but retreated after the pandemic hit last year; it decided to focus on defending its home turf. The co-founders of Indian bookkeeping company Khatabook and business-to-business (B2B) marketplace Udaan have also invested in their Indonesian counterparts, BukuWarung and Ula, respectively.

The reason why Indian companies and founders are investing in comparable businesses in Indonesia is quite obvious—a similar business model should lead to a similar growth trajectory. However, in the case of Meesho and Kitabeli, that’s not quite the case. Because they follow different business models.

Meesho, for the most part, has been serving resellers, while Kitabeli deals exclusively with end-consumers. And if you look at Indonesia’s social commerce sector, more investments have been channelled into businesses with the reseller model—at least US$78 million since last year.

There are two reasons for this. One, quite simply, because there are more platforms following the reseller model in Indonesia. It’s arguably a more intuitive way to start a social commerce startup in the country, as it allows the players to tap into 3.5 million warungs.

Secondly, the group-buying, consumer-facing model requires a more tech-savvy market to achieve scale. Indonesia isn’t quite there yet, unlike China, where group-buying is deeply embedded in how users shop on platforms like Pinduoduo.

So, then, what’s behind the bet on Kitabeli?

The consumer-facing model leads to virality and low customer acquisition costs, and Kitabeli is the only consumer-focused social commerce company of scale in Indonesia, according to Aditya Kamath, partner at Go-Ventures, the investment arm of super app Gojek and an investor in Kitabeli.

For the past six months, its user base and revenue have grown by 40-50% every month, CEO Prateek Chaturvedi told The Ken, without going into specifics.

Even Meesho is evolving to serve its customers directly, although that’s not without consequences. In short, it’s both attractive and challenging to scale a group-buying, consumer-facing model.

If more startups are considering building the group-buying framework—especially as they mature and want to build a more direct relationship with their end-consumers—there are plenty of learnings to be gained from how Kitabeli localises China’s Pinduoduo model, as well as Meesho’s growth trajectory.

And it all starts with breaking down what it means to group-buy.

Localising group-buying

Kitabeli builds this group-buying ecosystem in three different ways.

First, it employs agents to go around local neighbourhoods to encourage people to install its app and teach them how to use it. Second, it incentivises users to share deals with their friends by instituting time-based discounts. When a user buys an item, typically three to four people from the same neighbourhood also purchase it within a couple of hours. Third, it’s building an entire e-commerce stack, by rolling out its own logistics service in tier-two cities and beyond.

The last point is where Kitabeli differs from first-generation e-commerce platforms. As it gets orders from consumers in the same neighbourhood, it can ship the aggregated order and leverage its agent network to carry out the last-mile delivery.

“The biggest challenge is that you need to have enough customer density geographically in order for the logistics cost of the model to work at scale,” said Kamath of Go-Ventures. “It ultimately becomes a city-by-city expansion strategy versus an immediate nationwide rollout.”

This is why a reseller model is more intuitive—it’s more straightforward. There is greater room for alignment when copying models from other markets. In the case of Kitabeli, while it’s being likened to Pinduoduo for its social group-buying feature, in practice, the way it carries out last-mile deliveries via its agent network also means it takes a leaf out of the community group-buying model book, akin to China’s Meituan Select.

Chaturvedi added that Kitabeli also integrates the Fulfilled by Amazon or JOKR model, where it operates dark stores to deliver goods faster and at lower prices.

Considering the level of experimentation required to find the right model, it makes you wonder why a company that has managed to scale with a reseller model would want to become consumer-facing. But there’s a reason why it’s happening: the world is changing with the pandemic.

The reseller problem

The problem with the reseller model is that it is less nimble if the platform is experimenting with new product categories. That’s because the model relies on the categories that the resellers want to sell; and resellers are typically only good at selling two to three categories. It would be challenging, for instance, to push a reseller who is used to selling FMCG products to dabble in fashion or electronics.

“We’ve seen early on that if a reseller does not like a product, they will not sell it even if the end customer is looking for that product,” said Kitabeli’s Chaturvedi. Kitabeli had tried the reseller model in its earlier iteration.

Lastly, there’s a natural limit to how many resellers a platform can onboard within one area. For instance, if you’re a reseller and you’ve managed to secure cheaper supplies from a reseller platform, you would naturally be less inclined to share where you get the supplies with competitors.

But in the long term, a consumer-facing platform like Kitabeli stands a chance to be more resilient. It can push new categories by highlighting the products on its app. It can also introduce special promos across its marketing channels, including WhatsApp groups, to incentivise users to get social and start sharing. Its ceiling for growth depends on how social its users are. And by engaging directly with end consumers, it may build the kind of loyalty that a reseller platform doesn’t get.

It all comes back to whether Kitabeli can expand what group-buying means in Indonesia. Perhaps it can bank on Meesho’s co-founders’ expertise on this?

Transferable knowledge

“There are definitely cross-learnings,” said Adrian Li of AC Ventures, an investor in Kitabeli. “From a company-building standpoint and the maturity of a business standpoint, knowledge transfer is probably more weighted towards India-to-Indonesia than the other way around.” Some founders may be very structured in doing so, while others do it on an ad-hoc basis.

But how specifically these learnings would impact Indonesian startups is difficult to tell. It’s more about planting a seed of a relationship that can allow for further collaboration down the line, said Li.

Perhaps the reason why we’re seeing the strengthening of this India-Indonesia hub is that people are betting that the Indonesian tech ecosystem will follow India’s trajectory. Go-Ventures’ Kamath said that the Indian tech ecosystem is already five years ahead of Indonesia.

“India and Indonesia have very similar market structures and characteristics, which allows business models with nuances to be broadly applicable to both countries… For Indian founders, they can therefore very quickly grasp the potential of the business models and what these companies could become,” said Kamath.

Having people with a deep understanding of the local market has proven to be crucial. At least it seems to be the case that the local startups have a more realistic outlook on the pace of scaling, while keeping in mind the sustainability of their business. When Meesho entered Indonesia, it wanted to onboard one million resellers within a year. Evermos, the local player, set that target for five years.

If that’s the case, to what extent is Meesho’s expertise helpful to Kitabeli?

“The important thing is that they are a unicorn, not that they are a social commerce unicorn,” said Kitabeli’s Chaturvedi. It’s the learnings on company-building rather than the market that he’s looking for. “Because the market is similar enough, but it’s also different enough that you have to do things on your own. There’s very little to copy.”

As things stand, the cross-pollination between Indian and Indonesian startups will continue to grow, and both stand to benefit from the relationship. Be it the Indonesian startup learning how to grow into a unicorn, or the Indian unicorn learning how to approach its market differently.

The bigger challenge, however, is to localise these learnings. That would require them to get creative.

“India and Indonesia have very similar market structures and characteristics, which allows business models with nuances to be broadly applicable to both countries… For Indian founders, they can therefore very quickly grasp the potential of the business models and what these companies could become,” said Kamath.

Having people with a deep understanding of the local market has proven to be crucial. At least it seems to be the case that the local startups have a more realistic outlook on the pace of scaling, while keeping in mind the sustainability of their business. When Meesho entered Indonesia, it wanted to onboard one million resellers within a year. Evermos, the local player, set that target for five years.

If that’s the case, to what extent is Meesho’s expertise helpful to Kitabeli?

“The important thing is that they are a unicorn, not that they are a social commerce unicorn,” said Kitabeli’s Chaturvedi. It’s the learnings on company-building rather than the market that he’s looking for. “Because the market is similar enough, but it’s also different enough that you have to do things on your own. There’s very little to copy.”

As things stand, the cross-pollination between Indian and Indonesian startups will continue to grow, and both stand to benefit from the relationship. Be it the Indonesian startup learning how to grow into a unicorn, or the Indian unicorn learning how to approach its market differently.

The bigger challenge, however, is to localise these learnings. That would require them to get creative.

To read more, visit The Ken here.