Yesterday, LightInTheBox (LITB) announced that it was acquiring Singapore’s ecommerce Daigou platform Ezbuy for US$85.55 million, in the form of “non-interest bearing one year convertible promissory notes”.
This is a dramatic development in LITB’s desperate efforts to avoid delisting after the its share prices went below US$1 for 30 consecutive trading days.
The announced acquisition price of Ezbuy was above the market cap of LITB after Thursday’s trading.
LITB took a series of actions, including replacing CEO Quji Guo, to save itself. However, buying Ezbuy is a curious one.
As Ezbuy is not in a good position itself. After hearing the news, a few of Momentum Works’s friends in Singapore wondered “Ezbuy is still around?”.
Past glories
Established in 2009, Ezbuy used to be called 65daigou (65 being Singapore’s country dialing code), with the main business of daigou – helping consumers buy goods from Taobao.
Founded by a few Chinese students in Singapore, Ezbuy was not the only daigou player in the country. Nonetheless, it was one of the first to adopt English language interface and product descriptions, widening the audience dramatically to the local population.
The model is simple and effective: the consumer would place orders using its website or app, and Ezbuy would purchase from Taobao and ship the goods to the consumer.
When Taobao started shipping overseas themselves, daigou platforms were hit hard. Ezbuy, however, survived that blow because of its English interface and cohort of repeat customers.
And the business model was profitable with healthy cash flow because it did not have any inventory.
Good growth numbers gave investors confidence, and Ezbuy raised US$20 million series B in March 2016.
A key initiative after funding was expansion. Ezbuy had entered Australia, and by then it was expanding into neighbouring Thailand, Malaysia and Indonesia. It was also then the current name was adopted, replacing the more prosaic 65daigou.
Also because of the Alibaba background of B round lead VKC, Ezbuy attracted some good ex-Alibaba and ex-Rocket Internet talent.
Turning sour
Before end of 2016, Ezbuy was leading player in Singapore. However, since then a number of crises have seriously crippled the previously confident company.
The biggest is no doubt the 11.11 shopping festival in 2017, when Alibaba closed thousands of accounts Ezbuy used to purchase on Taobao, claiming that Ezbuy was playing unfair to Alibaba’s ordinary customers.
For a daigou platform, not able to buy is obviously devastating. He Jian, founder of Ezbuy, wrote a long public letter accusing Alibaba of bullying – the unwise part of that letter is He exposed Ezbuy’s operational model and its weaknesses.
Aside from Singapore, Ezbuy failed in almost all the other markets. Many kep people (ex-Alibaba and ex-Rocket) have since left, leaving doubts about the viability of Ezbuy as a business.
What happened?
First, change. Since Taobao started improving its overseas shipping, Chinese speaking customers have another choice. This obviously has some impact over Ezbuy and other Daigou platforms, even though Ezbuy lists its products in English.
On the other hand, the acquisition of Lazada by Alibaba has changed the dynamics. Of course Alibaba would prefer that the consumers buy directly via Lazada rather than through a third party. Although for a long time Lazada did not get their cross border act together, it has almost unlimited patience and fire power. Shopee might not be afraid of Lazada, Ezbuy certainly has been feeling the chill.
In addition, doing Southeast Asia is not easy. Aside from Singapore (and to a certain extent Malaysia), many countries’ rules and local specifics are not very straight forward to navigate. Only big players have the ability to negotiate and influence authorities as well as the ecosystem, pushing reforms and benefiting from them.
It is not hard to see why many governments in Southeast Asia have invited Jack Ma to be their ecommerce advisor, and nobody invited He Jian.
In addition, big players have deep pockets and long term vision, something that Ezbuy finds it hard to match. Its business model highly depends on Taobao, which is really its achilles heel.
Just good services will not keep them alive for long.
Ezbuy’s problems
First, it did not pivot fast enough. Daigou is an old business model that can’t scale to unicorn valuation. After fundraising, Ezbuy should have fundemantlly evolved its business model. It has not – well, it tried and did not manage.
It still involved a lot of manual work and it failed to attract enough sellers to list directly with them (instead of going through Taobao).
Both in a way can be attributed to its poor tech team, which failed to build anything agile. The tech also impacted 11.11 in 2016, where millions of orders were stuck or lost, resulting in big losses. Many customers only got a proper response for their missing orders in February 2017.
In addition, Singapore does not equal Southeast Asia. Ezbuy’s story is Southeast Asia. However, it never managed to do anything proper outside Singapore.
Singapore is a specific case here – many residents are aware of Taobao and its vast, cheap offering of SKUs. Offline shopping tends to be expensive and people’s consumption power is adequate.
Other countries differ in this regard. The prices of offline are not as high, and Taobao is not as famous as it is in Singapore. Besides, other, bigger platforms are burning money to grab market share, something Ezbuy is unable to match.
The founding team never really trusted the local hires, and wobbled in investment and marketing activities, eventually losing the early momentum they did in places like Thailand.
Reflections
In fact, Ezbuy has achieved quite a lot and offers a lot of learnings to its peers.
First is obviously the logistics and distribution. It has done quite a bit to control the cost, and thus attract more cost-conscious consumers. These savings are more sustainable than discounts and coupons.
The self collection points are an interesting innovation in this region as well, something bigger players probably will find useful when cash burning reaches a plateau.
A side note: we believe that Lazada’s acquisition of Redmart is largely driven by the attractiveness of its in-house logistics system.
We think Daigou will always exist, but never at a large scale for any single player. Ezbuy would have good prospects if it evolves its business model and captures sellers as well. Ultimately, its Singapore user base is still valuable, if leveraged properly.
That is probably why, even though it was losing momentum, Ezbuy still managed to raise US$17.6 million pre-C earlier this year.
Ezbuy+LITB
Momentum Works pointed a year ago that the ideal ending for Ezbuy would be a trade sale to a player like Amazon, who finds it easier to solve the logistic infrastructure through acquisition.
We did not expect LITB to be the acquirer.
In fact, Ezbuy and LITB are similar in the sense that both are early players in a very promising market, and both lost momentum because of its business model stagnation. Both are fighting for survival.
According to the press release, local operations and strong fulfillment capabilities are the key differentiations Ezbuy has over its cross-border peers.
In fact, we find neither of these supposed advantages actually hold. Ezbuy’s operations are only in Singapore, a market with good consumption power but itself will not sustain a high valuation.
And its strong fulfilment in Daigou business model is not sustainable nor scalable.
Failing to understand mobile and heavily dependent on Google SEO, LITB has none of the key success factors to penetrate into Southeast Asia market on its own.
We mentioned earlier in this article that the acquisition price has exceeded LITB’s own market cap, and the convertible sets the price threshold to be US$3.85, a not so-easy target to hit.
Will both help each other grow out of their respective current troubles? Well, if both stick to their current modus operandi, it would be very, very hard.
But maybe they will jointly created a Pinduoduo in Southeast Asia?
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This article was originally published by Momentum Work in WeChat.
