Business Model of FlipKart: An Analysis by Unicornomy.com
FlipKart.com the Indian Unicorn – The poster boy of the Indian StartUp Ecosystem, is the center of attention in everyone’s living room at the time of shopping for near and dear ones. While shopping and looting the numerous discount offered by the e-commerce giant many a times people wonder how on earth does FlipKart make Money? Does Flipkart even make money? What is the Business Model of FlipKart? How long would FlipKart continue to give discounts to lure customers in? Here is a comprehensive analysis of the E-Commerce Giant’s Business Model for the aspiring learners.
About FlipKart, Facts, Founders, Funders & Funding
Before we move on to the Business Model of Flipkart or on how does FlipKart make money, here are couple of things you should know about FlipKart:
Contrary to the belief that FlipKart today is an Indian Company – This is not true anymore. Flipkart.com is the name of the website owned by FlipKart Internet Pvt. Ltd. (Bought over from FlipKart Online Services Pvt. Ltd.) which in turn is owned by FlipKart Pvt. Ltd, Singapore, Yes it’s now headquartered in Singapore. This Singapore based company owns majority of other companies and is a complex structure of many entities inter-held by various other companies ultimately owned by FlipKart Pvt. Ltd. Singapore (This structure is covered at the bottom in detail). FlipKart is essentially an “E-Commerce” company selling a wide variety of goods from ear-phones to high end consumer electronics and everything in between the two.
Funding received by FlipKart: Appx 3.5 Billion USD. (as of Janurary 2016, Excluding the Credit Line from ICICI Bank of 450 Cr – Good to see How banks make money off of startups as well).
FlipKart Founders: Founded in 2008 by Sachin Bansal & Binny Bansal (Both Ex-Amazon.com Employees).
Valuation of FlipKart as in Jan’2016: 15 Billion USD (Larger than BigBazaar) recently Morgan Stanley downgraded FlipKart’s Value of shares held by them by 25% i.e. Downward Final Valuation of about 11.25 Billion USD.
Business Model of FlipKart (FlipKart.com Website)
How Does FlipKart work: Flipkart is an e-commerce portal, B2C shopping Portal, for Indian customers or at-the-moment, customers ordering the goods for delivering in India. The model here is : Portal > List Sellers who sell the desired portfolio products > Get customers browsing through the products > Create appealing discounts > Customer Shops for the desired products > Seller / Flipkart ships the product to customer > Product Accepted and Not returned back > Seller gets his agreed price of the product minus the commission charged by FlipKart for doing everything they do. Thus the core bread and butter of the Model is “X% commission on the total sale value given to the seller”
The sale can happen via multiple channels as listed below & For all the sale achieved by FlipKart for a particular seller FlipKart will charge a percentage (%) cut on the total sale amount excluding taxes.
- Direct via Website
- Direct via Web-App
- Direct via Mobile App (Android or iOS or others)
- Direct via Tele Sales (Customer calling and Placing order – Happens rarely now)
- Via Affiliate networks (Bloggers, Coupon Websites, Review Websites etc)
- Social Buy
The percentage commission varies on the type of product and the type of sale that FlipKart makes. It may range anywhere between 5% to 20% of the sale value (excluding taxes and discounts). The following is an e.g. of how the billing of FlipKart sale will be recorded in FlipKart’s financial books:
Customer A, B & C Purchase 5 Products from FlipKart in a month and these products are a Book, a Stereo, A Fridge, A Mobile Phone and a Bed sheet from 3 Sellers. Invoice for the Month for FlipKart looks like below table (Click to Expand):
The total of Col I will be the total revenue of FlipKart from that particular sale, now the numbers here are small and are taken for the ease of calculation in actuals these numbers are hefty and run into billions of dollars (Ref: Total Loss of Flipkart for FY 14-15 was about 2000 Cr). This is the basic bread and butter for FlipKart. There are other Revenue and Business Lines as well that FlipKart has. These are outlined and explained in details below.
Business Model of FlipKart (Company as a Whole)
Now as I mentioned earlier in the above section that FlipKart is not an Indian Regulated company any more, it is registered in Singapore and has many more subsidiaries to carry out related businesses to diversify and derisk its revenue model from those of the competitors. Following are the various revenue lines that FlipKart has for additional sources (allied to its core business) of revenue:
- Web Portal (E-Commerce : Highlighted Above so not getting into the depth of this)
- Web Portal Listing Fee and Convenience Fee (Sellers charged listing fee for selling on FlipKart and Customers charged Convenience Fee for faster Delivery)
Payment Gateway(Governed by FlipKart Digital Pvt Ltd Earlier and now owned and operated by FlipKart Payments Pvt Ltd Singapore, Website shows no more subscriptions by any one – seems on the way to shutdown for 3rd party users)
- Logistics (FlipKart Logistics Pvt Ltd Singapore – To ship products of sellers)
- FlipKart Digital Media (Selling Ads (to sellers and brands) and other related products like co-branding and co-advertising)
- Myntra (Competing with its own online fashion category but a big boost to the overall online fashion for FlipKart)
- FlipKart Cash and Carry (FlipKart’s wholesale division)
FlipKart Nearby(FlipKart’s Grocery Division – Now Shut Down, No description below)
- Product Launch (Unofficial – I think they do charge people to launch a product on their MarketPlace)
- PhonePe – Mobile Wallet on the Lines of PayTM and others. [Launched as of August 2016].
Business Model of FlipKart from Listing and Convenience Fee
FlipKart might start charging (or may already be charging) a listing fee for the sellers to be able to sell on its platform, which eventually adds up to the total revenue of the company. Also the convenience fee billed to customers for gift wrapping, faster delivery add up to the total revenue of the web portal.
Business Model of FlipKart Payment Gateway – PayZippy
You may also be Interested in Reading: How does PayTM Make Money
PayZippy is a payment gateway just like any other of the 1000’s of payment gateways out there and provides service to FlipKart and the likes of other E-Commerce players out there. The business model is pretty simple they charge a transaction processing amount to every transaction that goes through their payment gateway infrastructure. How payment gateways make money is something that you need to read in detail. I will give an overview of the various modes of payments here. Basically transaction processing charges differ from mode to mode like it is lowest in Debit Card and Net Banking (around 0.75% to 1.00%) of the transaction amount. Credit Card (1.5% to 2.25%), American Express Cards (3.00% to 3.50%) – So depending on the mode that the user selected to make the payment the e-commerce company will get an amount after retaining the transaction processing charges e.g. I buy a Book for 1000 INR and pay using AMEX Cards via PayZippy the selling e-commerce portal from where I bought the same would get 965.65 (1000 * (1-3%*(1+14.5% ST))). And similarly for other payment modes the transaction processing fee will be retained by payment gateway.
Business Model of FlipKart Logistics
Earlier EKart Logistics used to exclusively deliver FlipKart Sellers and ordered products, later on it got spun off (removed from FlipKart) as a different entity that now ships for all platforms. Logistics company charges sellers as other courier companies to deliver their goods to those users who have ordered the same from an E-Commerce Player. Charges are flat depending on within city or inter-city or size of the package.
Business Model of FlipKart Digital Media
FlipKart sells three kinds of Ads as follows:
- Co-Branded Banner Opportunities on Home Page: The Slider that you see on home page of FlipKart presents opportunities to lots of sellers, brands and product launchers to present themselves to the millions of pageviews that FlipKart generated on a daily basis. This is for a handsome fee that FlipKart counts as the total revenue. (Picture Source FlipKart.com)
- Co-Advertised Physical Product across Publications: The large ads that you see in newspapers and front pages of the magazines (if any) are shared with the brand that they are advertising. For e.g. If it’s a new phone that is being launched and FlipKart hits the newspapers with a front page ad (the cost of ad is shared with the other brand that is advertising the product).
- Targetted Search Results: The moment you search for a product, FlipKart’s algorithm decides which sellers products come at the top. This space can be sold by FlipKart for additional revenue (I don’t know whether they are doing this as of now, but they will as news suggests)
Business Model of FlipKart from Myntra
FlipKart has its own Fashion Category but the sales and revenues that it achieves from Myntra is pretty high as compared to its own sales. The revenues of Myntra are also accounted in FlipKart’s total earnings. They also bought over Jabong.com [rather snatched away from SnapDeal].
You may also be Interested in Reading: How does Myntra Make Money
Business Model of FlipKart from WholeSale (Cash and Carry)
FlipKart recently started the cash and carry arm which caters to wholesale of goods to its seller base. Its very similar to other cash and carry businesses (like Metro Cash and Carry) which is dedicated for Retailers, WholeSellers (Basically B2B) the revenue from this line will be exactly similar to the Web Portal Revenue that FlipKart gets from selling goods on its platform.
Business Model of FlipKart from Product Launch
FlipKart’s enormous user base, daily visits and page views offer a fantastic way to launch any new product in India. E.g. Xiaomi launched all of its phones and other products exclusively in partnership with FlipKart in India. This gave FlipKart revenue in terms of margins on product sold for Xiaomi and the advertising revenue from launching the products on its own platform.
You may also be Interested in Reading: How does SnapDeal Make Money
This was the ultimate combo of the Business Model of FlipKart from all its revenue models across the product chain and user base. Hope you love reading this. Please share and drop comments for any queries.
Disclaimer: The analysis of the business model of FlipKart or How does FlipKart Make Money is of the Author’s himself, neither the company (FlipKart) or its affiliates have confirmed the same to the author and the descriptions, stats, facts and figures are either obtained through secondary web research or interrogation of the users / sellers or other resources on the web. Please use your own discretion to use this info when required and by continuing to read you agree to indemnify the author from all liability arising out of using this info on your own.