Why Social Commerce Startups are Drifting Away from Core Offerings

Meesho, WMall pivoted to e-commerce establishment, GlowRoad, SimSim, Shop101 have opted for a strategic buyout and Wooplr has shut shop

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Social commerce, which was originally not considered a sunrise sector, saw rapid growth during the pandemic. The sector attracted huge rounds of funding in 2019 and many investors such as Accel Partners, SAIF Partners, Omidyar Network, Sequoia Capital, Kalaari Capital infused huge capital into the space.

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The prominent players who made the best use of the opportunity are Meesho, Bulbul, DealShare, GlowRoad, Simsim and a few others. Just like social commerce models in countries like China, the startups in India were expected to demonstrate success in Tier 2 and 3. "We expect that social commerce, which is a $1.5 billion to $2 billion market today, will be worth as much as $20 billion in just five years—and will likely hit nearly $70 billion by 2030. In short, India's social commerce sector will be twice the size of the current e-commerce market within 10 years," said a report by Bain and Company and Sequoia Capital India, published in December, 2020.

However, today, some startups in the space are veering away from the social commerce space and pivoting to an e-commerce model while others have had to let go of many employees. For instance, Wooplr shut shop, Citymall, Yaari, Meesho had to reportedly recently let go of many of its employees, Meesho entered the e-commerce segment to compete with Flipkart, Amazon and the likes, WMall pivoted from social commerce to e-commerce establishment as well, Bengaluru-based GlowRoad was acquired by Amazon India in an all-cash deal marking in April this year and SimSim, Shop101 have opted for a strategic buyout.

Reasons behind the drift

"Some startups in the social commerce space are pivoting to an e-commerce model as they were not able to capitalize on the tailwinds of the social commerce sphere. This was majorly on account of unsustainable unit economics driven by low AOV compared to traditional e-commerce players and lower margins. Incumbent players such as GlowRoad, SimSim, Shop101 have opted for a strategic buyout/M&A exit, as they were unable to sign large equity cheques, especially in the current investment climate. Whereas some startups such as Yaari and Wooplr have shut shop altogether as they did not have the resources to compete against deep-pocketed players like Meesho," said Ankur Bansal, co-founder and director, BlackSoil.

The predicament of not being able to attract prominent investors, inability to settle upon a viable business model, and the sector becoming over-crowded has led to some of the startups drifting away from their core social commerce offerings, he added.

The key challenge remains is scalability as in social commerce people sell within their circle of influence and thereby are putting their credibility on the line. Further, social commerce players majorly cater to smaller towns, where they have thrived on unbranded inventory. "Social commerce players have bet big on the unbranded segment and counterfeit products, both of which have quality issues. When the expected quality is not as per customers' satisfaction, it affects the credibility of the social seller here. Credibility of the social commerce seller is the goose that gives golden eggs. Betting it frequently on products that don't meet the quality standards of customers is like killing the goose. Hence, it's bound to give initial results, but not a sustainable strategy in the long term," said Prabhkiran Singh, founder CEO, Bewakoof

Also, one of the reasons for the drift is the preference for marketplaces. " When a customer thinks of online shopping, their first thought is of a popular marketplace like Amazon or Flipkart. The comfort that the customers derive from such marketplaces will be difficult to be overcome by social commerce platforms as customers may opt to stick with what they know and trust," said Bansal.

Another challenge is that to assure business success on social media, one must create rich and interesting content continuously. It is imperative to keep onboarding and retaining influencers and content creators to ensure growth, he added.

Global scenario

The worldwide social commerce market is estimated to increase 2.5 times from $ 492 billion in 2021 to $1.2 trillion by 2025. "This is 3 times quicker than traditional e-commerce is predicted to grow over this period. Social commerce is anticipated to account for 17 per cent of all e-commerce spending by 2025, up from 10% presently," said Bansal. .

The increase is mostly driven by spending by Gen Z and Millennial customers, who are predicted to account for 62% of total expenditure

"Given the global trends and estimated growth rate of 250% in the next 4 years, Social Commerce is here to stay and in fact, poised to grow globally. The way some D2C brands like Shein have leveraged Social Commerce to their vast advantage is a testimony to this fact. The only thing that remains to be seen is how brands can integrate it into their overall MarComm strategy and not fall prey to short-lived success," Navin Joshua, founder, GreenHonchos, a D2C commerce enabler platform.

Segment is picking up well among the social media influencers, which has not been the case in India so far, said Singh, adding that tools are being created through which the social media influencers can create their own store with ease and market it among their followers, earning commissions on each purchase.

Future in India

Experts feel that as social commerce further grows in popularity, this ecosystem will evolve and become more standardized and will gravitate towards sustainable unit economics. Social Commerce markets in India are forecasted to grow to USD 16-20 Bn by 2025, at a CAGR of 59% from 2021, which is a faster pace of growth than that of Brazil, China, and the US. "This speaks large volumes of the potential of social commerce to revolutionize and democratize the overall e-commerce landscape in India," said Bansal.

Singh believes that social commerce will shift from unbranded products to branded products as only this is sustainable in the long run. "This is also the need of 1000s of D2C brands who are looking for cheaper acquisition models. Also, the social media influencers will start playing a big role after they get good solutions to create their own stores," he said.