Jabong Business Model

History & Nature of Business of Jabong

Jabong.com is an Indian fashion and lifestyle e-commerce portal. It retails apparel, footwear, accessories, beauty products, fragrances, home accessories and other fashion and lifestyle products.

It is owned by Rocket Internet from Germany, one of the key holding companies of Groupon and  spearheaded by a founding team of three entrepreneurs Lakshmi Potluri, Arun Chandra Mohan and Praveen Sinha & Mukul Bafana.

Rocket has 59 companies worldwide and is present in 40 countries. It operates through several entrepreneurs in residence (EIR) and venture development managers in India who are constantly evaluating opportunities in the Indian Internet space and are ready to take on executive positions when the businesses roll out.

Jabong, which went live in October 2011, rolled out several categories like shoes, apparel, accessories, sports equipment, jewellery, beauty products, fragrances, home décor and toys in record time. The company also embarked on a huge mass communication campaign, created its own logistics network and ensured a significant presence in the market within a very short span while others took at least two-three years to build them up.

Unlike the typical startups, Jabong was an e-commerce initiative from Rocket internet group itself. There are no founders in the traditional sense – i.e., there had been nobody who worked for equity to build a proof of market opportunity and ramped up the business from there.

Since it was founded by an investment firm, they had huge investments from day one, and Rocket group had assembled a team of good e-commerce executives.

According to a ComScore report, Jabong.com had the second highest amount of traffic on its website within a few months of its launch. In March 2013, Jabong.com held an Alexa Traffic ranking of 44 in India. Jabong also ranked 10th in Google Zeitgeist India trends making it 10th most searched term in 2012 in India.

In less than 20 months, Jabong.com has become the third-most visited online shopping website after Myntra.com and Flipkart.com in India.

Business Model of Jabong

Jabong , backed by Berlin-based Rocket Internet GmBH – a venture arm of the Samwer brothers – which is known for cloning several successful online business models of the US in other markets, is reverse-engineering the success formula of Flipkart in India: Add as many categories as possible; acquire customers at any cost; build a logistics arm from ground up and delight the customer.

Jabong started in 2011 and has been operating on an inventory model wherein it sources its products directly from the brands and stores it in its warehouse. This has allowed it to build its customer base by offering super fast delivery.

While it is still following the model, the website has also piloted a "managed marketplace" model recently which it is looking to expand in 2013.
The website has basically partnered with various e-commerce retailers such as Yepme, and works by blocking their inventory. So while Jabong does not store the inventory sold by these vendors, what it does is basically act as an online supermarket where the customer can have access to products sold by all the partners.

Inventory model still remains the most prominent model for jabong, but they are also focusing heavily on the marketplace model to bring capital efficiency and sustain profitability. This however does present issues at times with respect to customer satisfaction, as products ordered through partner vendors may take longer to deliver thereby denting the USP of jabong which is speedy delivery.

Osterwalder’s Business Model of Jabong

SWOT ANALYSIS OF JABONG

 Funding and Board Constitution of Jabong

Founders: Jabong.com was founded by Manu Kumar Jain, Praveen Sinha and Arun Chandra Mohan, sharing the same designation: Co-founder and Managing Director.

Jain, who was an engagement manager at McKinsey & Co from May 2007 to December 2011, looks after marketing and brand building, and is the lone spokesperson for Jabong. 

Sinha, responsible for overall operations, was also a consultant with McKinsey prior to Jabong.

Mohan, who is in-charge of sourcing, was a venture partner with Rocket Internet for almost a year and prior to that role, was a senior market analyst with IT research firm IDC.

Funding: Jabong is owned by Gurgaon-based Xerion Retail Pvt Ltd. Rocket Internet has backed Xerion, but how that has been legally structured is not known since foreign investment in multi-brand retail is not allowed in India.

Experts estimate jabong.com to have received a funding of more than $10 million from the European Founders Fund (EFF). It has also the right kind of pedigree with marketing dollars coming from Rocket Internet, the new-age technology investment venture of Germany’s Samwer brothers. According to industry sources, Rocket Internet has committed an amount in the range of $25-40 million for building out Jabong in India. 

Network effect

Positive network Effect

Jabong.com gets better the more people use it because it gives it more data about what people search for and how, which helps them refine their algorithm , whom to segment and target becomes easier.

It also benefits from economies of scale like any other retailer: their size allows them to get better prices from suppliers and operate more efficiently, which allows them to pass on savings to consumers.

If more users sign up for Jabong then a healthy community can take shape. Also , the review system grows where a user of a particular brand or product will help the others buy it by writing a review.

Their affiliates program lets websites refer their readers to them to buy apparel. This arrangement makes them money, and the blogger gets a commission. The more popular a site with more unique visitors , the more will websites want to affiliate with that program. Jabong as of now is the third most visited ecommerce website and is growing its affiliate network by the day.

One more prominent effect is the word-of-mouth effect which increases positive traffic for the website.

Negative network effect

You can get negative network effect, where the value of an item drops as it becomes more common.

Because rarity can create value , if too many people start using and buying similar products like the same apparel then the value of that product will go down.

Another negative is that increase in traffic will have a huge load on the servers and the infrastructure and logistics will be put under burden which will affect service.

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Future prospects of Jabong

India’s apparel market rapid growing in e-commerce, India and rising urbanization have spawned a new class of consumers with more money to spend, and a growing passion for fashion. Apparel has become the fastest growing segment in the country’s online retail section, we see significant new growth opportunities for foreign and domestic players.

In a report by IAMAI found that Online retailing by Branded Apparel has witnessed a year on year growth of 84%, this indicates rising consumer preference for shopping online in a category like apparel which is largely dominated by Touch and Feel experience.

The very recent survey on the shopping trends in India, clothing has the highest demand in online shopping. The survey report states that a garment is sold every 40 seconds in the country.

As the lifestyles of India’s prospering urban consumers have evolved, their clothing needs have broadened, reflecting more varied usage occasions. Now, the customers have gradually developed a comfort level in buying clothes online and with the functional reason of limited availability of these brands leads to a sparked demand for them.

Eased payment options like Cash on Delivery (COD) and EMI are also contributing to the growth of the apparel e-commerce in India.

As more and more shoppers are getting comfortable with online shopping, apparel is set to become the fastest growing category (overtaking electronics) in the online shopping space 

Therefore, the future for apparel e-tailing is on a high growth trajectory, though the path is laden with challenges like infrastructure and consumer mind-set , change in policies and higher youth discretionary spending seem to be working for the online apparel sellers.