The Inside Story: Jabong's Discount Deal And Failure Of Rocket Internet Ventures

There is no room for doubt that Jabong had a strong brand value among fashion enthusiasts and had loyal customer base in India. It offered more than 1,500 international high-street brands, sports labels, Indian ethnic and designer labels and over 150,000 styles from more than 1,000 sellers.

At the end of 2013, Jabong was worth as much as €388 million (about $508 million). In the same year, it reported sales of Rs 438 crore. Even though it went up high to a mark of Rs 869 crore in the last fiscal year, Jabong's value collapsed dramatically, due to multiple factors like leadership issues, market share losses and a funding crunch.

On the face of it we are all acquainted with the Myntra-Jabong's discount deal that happened 5 days ago, but what can be the reason behind the cut-price deal that valued the online fashion store at merely $70 million?
It obviously, preserved Flipkarts' position as India's No.1 e-commerce marketplace facing an onslaught with Amazon India at least for some time. Sigh! Analysts believe that the online market space is aggressively moving towards consolidation of assets to improve the market share but what is the story behind Jabong's tremendously small deal size?

The asking price was said to be near $200-300 million¸ despite forceful bidding by some of the biggest players - Alibaba, Future Group, Aditya Birla's Abof, Snapdeal; Jabong's sale came several points down from $1.2 billion. Where did Rocket Internet go possibly wrong?
Rocket Internet came to India as nothing but a German incubator, bringing on stealth mode ventures like Foodpanda.in, OfficeYes.com, FabFurnish.com, Jabong.com, HeaveandHome.com and many more like that.

Started by Samwer brothers the firm is known globally for cloning business models for a specific market in the online space and then sell when the time is right. One such example can be the sale of 'CityDeal' to GroupOn for $126 million.

Though the Rocket team has assisted numerous successful Internet companies at home and abroad such as e Darling and Top Tarif Zalando, in the recent years its name has been part of extremely negative talks, as their approach has been criticized by many.

Here are a few insights from Vishist Jain, an ex-member of the founding team at Jabong (2011-2014);
Rocket's true strength lies in execution. I have never seen a team execute as fast as they do. There were KPIs (Key Performance Indicators) for everyone to hit. You need a performance-driven attitude to stay at Rocket.

The foundation of Jabong was based on 3 pillars - (a) Successfully clone existing lifestyle businesses already present in US & Europe (b) Make it grow faster than other companies in same space in INDIA by creating a larger product offering (c) Lower the pricing to undercut the competiton.

Soumya Gupta: What were the main problems with Rocket Venture that led to devaluation of Jabong?
Vishist Jain: Building a successful company needs blood, sweat and tears - from a lot of people and for a long time. There was little incentive for the cofounders and more importantly for the cofounding team (a small group of individuals who assist CXOs) to do that. Rocket Internet does not believe in giving out sizeable equity to the team, at least that was the case at Jabong. Individuals who were during the inception left after 2-3 years for better opportunities elsewhere.

At Rocket pure execution wins over differentiation. I feel the focus should have been 80% execution and 20% differentiation. We should have built up features that create a unique positioning in consumer's mind; something that cannot be replicated overnight.

Discounting was also used as a tool to capture market share aggressively. In India the competition was also doing discounting. It therefore boiled down to who had deepest pockets. With Flipkart's acquisition of Myntra, Jabong had a much stronger competition to deal with, in fashion and lifestyle space.

My professor at Kellogg once told me: "The journey's outcome is the sight; the process to reach that outcome is the insight," At Rocket Internet, the outcome for Jabong, as I could understand in the beginning, was to scale and sell it in 3-4 years to a strategic investor. But this brief changed at different points in time: we want to scale, we want to build a sustainable business, we might go for an IPO, there is no dearth of funding to capture the market, let us focus on margins etc. Having a belief and sticking to it is at the core of making things work.

Do you think the leadership at Rocket also affected Jabong's position in India?
Vishist Jain: It might have in a certain way but on a personal note, Rocket's leadership I believe had been in capable hands. Whether it was Mato Peric or Hemant Malhotra, both of them had their own strengths; Mato was very aggressive and could align the entire firm towards a single goal. He could visualize the bigger picture and instill passion in the team to achieve things. Hemant and I worked together for a short duration. He was very analytical and always had suggestions for improvement. Both of them had their own strengths and were great people to work with.

What can be said about the hyper-funding structure and vision behind Go-Java at the later stage?
Vishist Jain: In a way, you can divide the journey of an online business in two phases. The first one is about Marketing - reach your customers and if possible, first and fast. The goal is not to sell product but to create a product that sells. This requires creating a unique value proposition on 7 fronts - product, service, price, incentive, brand, communication and distribution.

But once the business has some acceptance within consumers, it is important to have the operations capability, to create customer delight and have repeat purchases. 'gojavas' was created for that very reason.

More importantly, we knew that some of the global players would enter India soon and they already had strong operations capabilities in other geographies. 'gojavas' was instrumental in keeping Jabong ready for the competition.

I have read that Snapdeal has 42 per cent stake in gojavas and it does last-mile delivery for a lot of ecommerce companies, including but not limited to Flipkart, Jabong, Yepme, Lenskart and Zivame.