Flipkart's (e-commerce giant) Business Model

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.

1. Direct via Website

2. Direct via Web-App

3. Direct via Mobile App (Android or iOS or others)

4. Direct via Tele Sales (Customer calling and Placing order – Happens rarely now)

5. Via Affiliate networks (Bloggers, Coupon Websites, Review Websites etc)

6. 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 .

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:

1. Web Portal (E-Commerce : Highlighted Above so not getting into the depth of this)

2. Web Portal Listing Fee and Convenience Fee (Sellers charged listing fee for selling on FlipKart and Customers charged Convenience Fee for faster Delivery)

3. 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)

4. Logistics (FlipKart Logistics Pvt Ltd Singapore – To ship products of sellers)

5. FlipKart Digital Media (Selling Ads (to sellers and brands) and other related products like co-branding and co-advertising)

6. Myntra (Competing with its own online fashion category but a big boost to the overall online fashion for FlipKart)

7. FlipKart Cash and Carry (FlipKart’s wholesale division)

8. FlipKart Nearby (FlipKart’s Grocery Division – Now Shut Down, No description below)

9. Product Launch (Unofficial – I think they do charge people to launch a product on their MarketPlace)

10. 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

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:

1. 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.

2. 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).

3. 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 Coupons Official, Online Sale Offers, Discount Deals [rather snatched away from SnapDeal].

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.