For all of Zilingo’s forward-thinking focus on seller services and the supply chain, the company isn’t shedding its e-commerce skin.
E-commerce is overcrowded. In Southeast Asia, it is a capital-intense affair that features heavyweights like Lazada—the general e-commerce platform owned by China’s Alibaba—and Shopee, the online marketplace that belongs to Sea, the NYSE-listed firm valued at over $13 billion. Other rivals include Tokopedia—backed by SoftBank’s Vision Fund and valued at $7 billion—and Bukalapak, another unicorn from Indonesia, and upcoming companies such as Tiki, which is often referred to as ‘Vietnam’s Amazon,’ and Singapore’s Qoo10. Then there’s fashion-focused Pomelo and Love, Bonito.
Cash money burn
With the big players awash with capital, it’s a money-losing battle on a massive scale. There’s little direct data to show the cost since most of the companies are private and Alibaba discloses only selective information for Lazada. But data from Sea does show the struggle. The company, which also operates gaming and payments services, saw its net loss increase 12% percent to $280 million in its quarter ending June 30 2019.
A large part of that is down to Shopee. Shopee is apparently Southeast Asia’s top e-commerce site, but that comes at a cost. Shopee’s cost of revenue ballooned by 118% in the quarter. That raised its EBITDA loss to $248 million, a steep increase of negative $188 million one year previous. Calculated over a year, that’s minus $1 billion and not a battle for the faint-hearted.
Zilingo doesn’t provide financial information for its e-commerce marketplace, but it did confirm that—no surprise—it isn’t profitable. E-commerce, which was Zilingo’s armour, is now in the way. There is an argument that running the e-commerce store is an acquisition channel for new merchants, and that working with merchants directly and understanding their pain-points helps develop new products. But, it is a permanent money sink. It isn’t likely that any e-commerce player in Southeast Asia—let alone Zilingo—will turn a profit any time soon.
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There are some signs that the company has shifted its strategy already. It shuttered an early effort to launch consumer-facing sales in Australia following a trial period, and has lessened efforts to sell products to global resellers. The e-commerce business seems focused on its home market of Southeast Asia.
“If we didn’t evolve much more into the B2B business, we would be in the graveyard of dead companies and the only survivors would be the businesses with deepest pockets,” a former employee with knowledge of past strategy said.
“We did ourselves really briefly fall into the trap of deep discounting, aggressive advertising, huge seasonal promo campaigns and more. And no matter how much money we were pouring in, the customer would very easily switch to a competitor that was offering more discounts or more promos. There is little opportunity in pure B2C fashion commerce now, with the current price wars and top dollar blitzkrieg marketing, to become a sustainable and scaled B2C e-commerce business,” the person added.