How Startups Are Cashing In On Merchants Shunning Amazon And Flipkart

How can a first-time entrepreneur sell products to potential customers and grow the brand? Amazon and Flipkart would be the first answers one would hear.

Marketplaces are a one-stop-shop solution. Simply list all your products and fulfill all checklists, and they'll take care of it all. Marketing via promoted ads, inbuilt checkout and payment gateways, and an enviable delivery time, rounded off with customer support at speeds an entrepreneur couldn't possibly deliver.

But increasingly, brands are finding that with marketplaces, there are tradeoffs, such as higher commissions. To cash in on this reverse migration from the shadows of dominant e-commerce marketplaces, startups such as Simpl and Instamojo are pivoting and offering products aimed at easing life for D2C sellers and consumers alike.

"Marketplaces are fantastic at creating demand, but they take a larger chunk of revenues as commission. Once brands get to a certain level of demand, they look for a way to get a presence through their own website," Sampad Swain, the chief executive officer and co-founder of Instamojo, told BQ Prime.

Instamojo's story is noteworthy. The startup launched in 2012 as a payments gateway. By late 2019, Swain said he saw standalone payment gateway margins starting to shrink, thus impacting profitability. "As UPI saw more adaptability, margins fell further. At the same time, we saw the market size of direct-to-consumer merchants growing very fast. D2C audiences erupted in the scene during Covid. In the light of these two, I wanted to protect our margins if not expand."

Thus came a pivot. By early 2020, the company acquired GetMeAShop, an e-commerce enablement firm backed by Times Internet, and closed its pre-Series C round of funding in the later part of 2020. They integrated the platform into theirs and launched it in mid-2021, repositioning Instamojo as a D2C tech brand.

The company currently offers merchants digital solutions in three buckets—a pre-checkout stack, a checkout stack, and a post-checkout stack. They contain tools such as an online store builder, a marketing automation provider, payment gateways, loyalty tools, and customer support widgets.

"On their own website, brands end up paying up a lot less in margins, get lots of insight about the business, and control the entire brand experience. Having a website creates a way to have a direct relationship with the customer, appear more professional, and stand out from the crowd," Swain said.

In 2023, Instamojo reported 150% year-on-year growth to become Ebitda-profitable in 2023, with 20% of revenues coming from the D2C segment.

The startup now wants to take that 20% to 50% in the next three years, clocking Rs 200 crore in revenues over the period.

Swain says about 30% of all e-commerce sales happening in India are coming from brands' own websites. "About 60–70% is still coming from marketplaces. In the future, we see that a bulk would be coming from their own websites. The shift is already happening; maybe in the next three to five years, we'll see that tipping point."

Barathi Srinivasan, a D2C analyst and partner at consulting firm AT Kearney, concurs that brands are increasingly moving to a D2C way of selling.

"The D2C channel removes intermediaries between the brand and the end-consumer...This means direct access to customer data, buying behaviours, and preferences for brands like never before, in a way that further helps curate customer offerings and experiences on digital platforms."

While brands across categories are going the D2C route, there are some categories where this channel is especially meaningful for consumers. Srinivasan said.

"For example, customers love to engage with brands directly, especially in categories that are aspirational, such as fashion and lifestyle, where customers enjoy engaging with loved brands and being a part of a brand community."

In high-involvement categories such as appliances as well, customers feel a strong reason to stay engaged throughout their purchase journey, across pre-purchase—product education, purchase decisions—and post-purchase, such as service and warranty support, replacement of parts, as well as over and beyond the individual product purchase, she said.

Simpl is another startup that has diversified from being a buy now, pay later-centric firm to getting its beak wet in enabling D2C e-commerce.

"India is currently witnessing an unbundling of e-commerce, which is empowering D2C merchants to choose the technology platform, logistics services, and checkout network providers among other things of their choice instead of solely relying on large e-commerce marketplaces," said Nitya Sharma, founder and chief executive officer at Simpl.

"This is enabling merchants to come out of the shadows of e-marketplaces and build a direct relationship with customers while saving on costs."

Instead of a full-stack offering, Simpl's product is focused on one segment—a checkout network, a tool that helps customers pre-fill details such as login IDs and addresses across various D2C websites, eliminating the hassle of creating multiple accounts across sites and enabling paying through a single tap.

"The checkout network becomes supremely important to offer a similar experience akin to large e-commerce marketplaces during the purchase and post-purchase stages on the platform to drive customer retention. A longer checkout process creates friction in customers’ journeys and leads to drop-offs," Sharma said.

The product has led to an elevenfold increase in registered users since 2019 and a threefold increase in average order value. "As India’s D2C market is predicted to reach $100 billion by 2025, the market for checkout networks is going to expand significantly," he added.