We have always been arguing that with the giants such as Alibaba, Lazada and JD.com entering the Southeast Asian market, smaller e-commerce platforms will increasingly find it difficult to survive, let alone grow.
The same is happening to the Daigou model, which allows consumers in the region to buy things that are either cheap or not available locally on Taobao and other channels in China, Korea or the US.
This model is very simple: the Daigou website or app will list the merchandise available, consumers make an order, and then Daigou company buys the items and ship cross border to the consumers.
With no inventory, essentially Daigou companies are logistics companies.
Evolution of Daigou
Small-scale Daigou always existed, from personal requests to friends to Facebook groups. Many of these are still active, buying things from Italian designer bags to Korean cosmetics.
Daigou platforms came about with Taobao offering millions of SKUs previously only available through traditional international trade.
These platforms are usually started by Chinese students studying overseas (who are familiar with Taobao and everything), and initially servicing the Chinese migrants in respective countries.
Some platforms grew out of their original core audience, such as Ezbuy from Singapore, which received US$20 million series B funding from Vision Knight Capital (VKC) close to two years ago.
VKC was founded by David Wei, a former CEO of Alibaba. Undoubtedly, this link raised a lot of eyebrows back then.
From 65Daigou to Ezbuy
Ezbuy was originally named 65Daigou, with 65 being the country dialing code of Singapore. Like many other Daigou platforms, Ezbuy was started by a few Chinese students in Singapore.
Being one of the first to offer English interface and product descriptions, they stood out very quickly among all the Daigou sites. Many non-Chinese are now able to browse through Taobao products and make orders.
Even when Taobao started shipping directly to Singapore, Ezbuy still kept growing as it had accumulated lots of know-how and operational efficiency. The business was profitable thanks to the absence of inventory.
Dreaming big, Ezbuy adopted its current name after series B funding and started the aggressive regional expansion. At the same time, the positioning was also changed from simply Daigou to the general e-commerce platform.
And thanks to VKC founder’s Alibaba connection, Ezbuy attracted some good e-commerce talent, from Alibaba as well as locally operating e-commerce companies such as Rocket Internet affiliates and Ensogo.
It has been almost two years since the funding boost, how is Ezbuy now?
Well, still doing well in Singapore, with some presence in Malaysia and Thailand. Indonesia is practically a failure, and Australia operations have been shut down. Many key employees from Alibaba and other companies have thus left Ezbuy.
First is the macro e-commerce environment it operates in.
Taobao …. Gave Chinese speakers an obvious alternative; but more importantly, Alibaba controlled Lazada.
Taobao, being a business unit of Alibaba, previously considered entering Southeast Asia by themselves (oh well, with the help of other Alibaba affiliates such as Ant Financial, which owns Alipay, and Cainao, which runs a logistics network). In fact, in the beginning, Taobao approached local experts such as Ezbuy for potential collaboration.
However, now the responsibility of introducing Taobao’s millions of SKUs to Southeast Asian consumers fall on the shoulder of Lazada, together with the support from the group.
Unless Lazada screws up big time, they will own this market. The advantage is so obvious: from seller relations to buying as well as talent.
In Singapore and Malaysia, e-commerce and taxation rules are more straightforward and transparent – this is not the case in most other big markets in the region. Big players also have the advantage of influencing policy-making – Jack Ma recently has been appointed to e-commerce advisory roles in Indonesia, Malaysia and Thailand. He is currently on a tour to the Philippines and Vietnam, obviously to endorse, and to influence.
Also, big players have more resources and longer-term vision. They are not afraid of investing (and taking a loss) for a long period of time to win the market. On the contrary, take the example of RedMart, a Singapore-based vertically integrated grocers e-commerce company. They built probably excellent processes, operations and marketing. However, after six years and more than 50 million dollars burnt, they only achieved GMV equivalent to less than 1% of an offline grocer in the country. Financial investors, especially funds, do not have the patience for the long term; they bailed, leaving RedMart no choice but to sell to Lazada at a steep haircut.
The pressure on other smaller platforms is also enormous. How to survive in the world of Amazon, Alibaba and JD.com? It is not that straightforward – even Shopee is probably still in a danger zone.
In fact, Lazada has recently made Taobao collection available across all major Southeast Asian markets – it is seemingly targeting Ezbuy directly. There are still a lot of issues with Lazada’s Taobao operations, but we believe with Alibaba behind, sooner or later they will figure it out.
Although Ezbuy sill has big numbers in Singapore, the maturing of cross-border e-commerce logistics means that its advantage is fast shrinking.
Facing the imminent threat from big players, Ezbuy failed to innovate in business model since its funding round. The upstream logistics in China are still largely manual, making it impossible to scale.
They made attempts to improve IT systems, but did not change things much. During Taobao’s 11.11 (11th November) shopping festival last year, Ezbuy failed to respond to the sudden surge of order volume, losing or misplacing millions of items. Many shoppers who ordered during that period only received their goods (often a replacement) after Christmas.
Ezbuy also failed to invest adequate resources and respond timely to challenges in other Southeast Asian markets it tried to penetrate into.
Singapore is so unique in many ways: Chinese majority, with many people at least knowing Taobao – hence consumer education cost is very low; good consumption power but expensive offline retail, making Taobao really attractive. The other countries are different: goods are not expensive in many, and consumers often even did not know who Alibaba was. A lot of investment was required at that stage to educate the market, which Ezbuy hesitated in doing, and eventually did not do.
Also, the simplicity of Daigou model meant that the original operating structure was not able to cope with the expansion in both geography and business model. The company needed a lot of talent, building processes and systems – and more importantly, evolve themselves (management structure, culture etc.) to cater to the growth.
Ezbuy management clearly failed in doing so – a lot of good talent was not put to the right use, and worse, not trusted at all. Marketing managers had no budget to do marketing, and country managers could not decide on minute details. You know obviously what that would lead to.
So an opportunity missed – it could have expanded vertically, leveraging the brand recognition, customer base and logistics network in Singapore.
Now, to respond to the threat of Alibaba, Amazon etc. Ezbuy needs much more money to transform itself. Would investors give them such trust? We doubt wise investors would do so.
What we can learn from Ezbuy
Nonetheless, there have been a number of highlights during Ezbuy’s journey that others could learn from.
Such as the efficient logistics – lowering costs through improving logistics is obviously a much more attractive, and sustainable proposition than giving discounts. Ezbuy also did some interesting innovation such as mobile pick-up points that made it operate profitably without giving subsidies.
As long as there are goods moving around borders, Daigou model will always exist. However, we do not believe that an independent, big Daigou platform can survive.
For Ezbuy, the best outcome is probably a sale to Amazon, which is facing some issues with logistics. For Amazon, buying operations would shorten the cycle than building the whole thing anew.
Nonetheless, Amazon will probably not put a lot of emphasis on Singapore and Malaysia markets, where Ezbuy presence is decent. Like Lazada and JD.com, Amazon is probably eying big cakes: Indonesia, Thailand and the Philippines.
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected]