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THE EDGE POST

How Lazada Started?



Lazada Group, founded in 2012, is Southeast Asia's leading eCommerce platform. With a presence in six countries — Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam — company technology, logistics, and payment capabilities connect this large and diverse region. Today, company offer the most brands and sellers, and by 2030, company intend to serve 300 million people. Lazada became the regional flagship of the Alibaba Group in 2016 and is supported by Alibaba's industry-leading technology infrastructure.


Lazada Founders


Maximilian Bittner launched Lazada in 2012 as a marketplace platform that sells products to customers from its own warehouses with financial support from Rocket Internet. The next year, Lazada changed its business strategy to permit additional shops to offer goods on its site. In 2014, the market generated 65 percent of the business's sales.


In 2012, Maximilian Bittner founded Lazada with the intention of establishing an Amazon-like business model in Southeast Asia, to take advantage of the nascent online consumer market and Amazon's weak presence in the region.


Lazada's e-commerce websites soft launched in 2012, before iOS and Android mobile apps for its platform were launched in June the following year.


Market Struggle


The company commenced operations in Singapore in May 2014, where it is currently headquartered. In 2014, Lazada recorded $152.5 million in net operating losses, with net revenues of $154.3 million, although the percentage of losses—relative to gross merchandise value—was lower than the previous year due to growth in marketplace sales to $384 million that year, compared to $95 million in 2013.


Lazada faced challenges in 2015, when consumer preference for brick and mortar shopping was high. Less than 1% of people shopped online, compared to the international average of 10% at that time.


This meant that Lazada had to tackle issues associated with the lack of credit cards, the concomitant requirement for cash on delivery systems, and the need for reliable delivery—especially in rural regions.


The Rise of Southeast Asia Giant


In 2012, Lazada began its adventure on the South-East Asian market. Their objective was to build an e-commerce business model similar to Amazon's, while capitalising on the company's limited presence in the region. Now, after only six years, they have accomplished their objectives and much more.


In the year 2012, website soft launch in Malaysia, Thailand, Indonesia, Philippines & Vietnam. Continued with the year 2014, Lazada launched in Singapore. Marketplace platform accounted for more than 65% of overall sales. Net operating loss of $152.5 million on net revenue of $154.3 million. 38% of GMV. Due to customer preference of physical stores became a big challenge for growth.


In the year 2015 GMV reached above $1 billion. And a year after, Recorded an increase in total of $1.36 billion in annual GMV. In 2016, Alibaba announced the intention of gaining controlling interest with an investment of $1 billion. In 2017, Alibaba Group increased investment by another $1 billion, raising stakes from 51% to 83%, practically own the company. Until a year later, Alibaba Group invested another $2 billion and replaced the CEO. For online retailers, a key metric is growth in Gross Merchandise Value (GMV) the sales value of products sold. In only 3 years, Lazada achieved the GMV of $1 billion and is now the largest shopping platform in Southeast Asia.


Alibaba role’s on saving Lazada


One of the main factors contributing to Lazada's ability to continue to outperform its rivals despite consistently losing money is Alibaba's acquisition of the online marketplace. Fights end in defeat Alibaba needed to invest in Lazada immediately.


Alibaba paid $1 billion to buy Lazada in 2016; as of today, their stake in the business is worth $4 billion. The company switched from a B2C (business to consumer) model to a B2B2C (business to business to consumer) model following the acquisition.


This implies that using the Lazada Marketplace feature, third-party sellers can gain direct access to customers. Additionally, Lazada has grown to enable customers in Southeast Asia to buy products from Taobao. Alibaba is the owner of this Chinese internet retailer. It mostly carries items for the mainstream market.


Why They are Still Losing Money?


Major players like Lazada and Shopee dominate the SEA e-commerce business. The SEA e-commerce market experienced a 43 percent compound annual growth rate between 2015 and 2017, according to Google-eConomy Temasek's Spotlight: SEA 2017. By 2025, the market is projected to reach $88.18 billion, having grown from $5.58 billion to 10.98 billion.


However, in order to increase their market share, these businesses must invest a significant amount of money in marketing campaigns and sales promotions that entice customers. This is the main cause of their significant losses. The justification is that spending money recklessly is a rapid method to develop the internet shopping habit. They think that providing discounts will increase people's confidence in making purchases online.


They continue to step up their efforts to expand the market and encourage more offline purchases online. Additionally, pressure from rivals to keep losing money is increasing because doing otherwise may result in market share loss. Is this a wise course of action? How many startups can afford to spend money in the same manner as they do? Even so, is it sustainable? Time will only tell.

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