"You ignore people at your peril. Customers, sellers, employees. They are the heart of your enterprise."
When Alibaba bought a controlling stake in Lazada in 2016, it seemed nothing could stop Lazada from dominating the Southeast Asian ecommerce scene. With Amazon dominating the USA and Alibaba virtually unchallenged in China, Alibaba believed that Southeast Asia with its regionwide ASEAN preferential tariffs, its 600 million population and its fast-modernizing economies was the next obvious growth market.
At the time, Shopee, barely over a year old, was an upstart. In the Philippines, it focused mainly on fashion and at one point seemed so confused about its business model, it opened a physical storefront in Makati.
Fast forward to 2021 and the tables have turned.
Lazada’s Roots: B2C
The Lazada group was founded in 2012 across multiple Southeast Asian economies including the Philippines. Lazada used aggressive marketing and subsidies to acquire customers, and eventually sellers. Lazada’s aggressive strategy quickly made it a household name and Lazada’s 11-11 sale became a much-awaited event. By 2015, Lazada’s gross merchandise value (GMV) exceeded US$1.3 billion, becoming the region’s leading ecommerce platform.
Lazada’s growth did not come without challenges. Southeast Asia is a fragmented marketplace and countries such as the Philippines and Indonesia, with their thousands of islands, present logistical challenges that, at the time, had no quick solutions. Order fulfilment could take anywhere from seven days to a few months. Lazada began by selling from its own warehouses and then expanded to allowing access to third-party sellers on their platform.
Lazada’s seller interfaces were less than ideal but the sheer customer volume coupled with their marketing and delivery subsidies attracted many sellers. Selling on Lazada created any Filipino millionaires. Third party delivery companies sprung up to fill the demand created by Lazada, bridging the last mile from warehouse to homes. Operational issues continued to plague Lazada, with fulfilment after an 11-11 sale at one point lasting well beyond Christmas.
The expectation was that Alibaba would be able to help Lazada manage its ever-present logistics and internal operations challenges. Lazada did seem to continue to dominate the SEA marketplace. In the beginning of 2019, just before COVID-19 hit the region, the iPrice group reported that Lazada was the most visited eCommerce platform in the Philippines, Singapore, Vietnam and Malaysia.
But not all was well behind the scenes.
From gaming to selling
Established by egaming company Garena in 2015, Shopee’s approach to ecommerce were rooted in Garena’s community building and online social engagement philosophy.
Two things differentiated Shopee’s early days from Lazada’s early days. Lazada began as a business to consumer company and began with a laptop interface. From its earliest days, Shopee opened its platform to other sellers (C2C) and launched immediately with a mobile interface. In countries such as the Philippines where mobile penetration is much higher than laptop owners, this makes enormous sense.
In many ways, Shopee benefited from Lazada’s investments in the region’s ecommerce. When Shopee entered the market, SEA customers were already familiar with ecommerce. Certainly, the logistics and payment challenges remained. But the SEA markets were much more advanced in 2015 than they were in 2012.
When Shopee used the same aggressive marketing and subsidy tactics that Lazada used to build its business, it was planting seeds in much more fertile ground.
Culture wars
In the meantime, trouble was brewing within newly-acquired Lazada. Alibaba, the Chinese juggernaut, operates in a very centralized manner. By contrast, Lazada was never centralized, having been established as separate national operations with coordinated marketing and events. Some insiders likened Lazada management to a boy’s club, a group of young, talented people trying new things. This made the company swift at trying new things but might have led to the company’s continued difficulties with operational concerns.
When Alibaba acquired majority ownership of Lazada, management was assured they would be able to maintain independent operations. This was a promise on which Alibaba would not be able to deliver. Disagreements and conflict quickly broke out. With its early beginnings as an investment of Rocket Internet, Lazada already had two internal cultures, the culture of the European expatriates at the top, and the culture of the SEAsian middle managers and staff. In 2017, when disagreements began, the clash of cultures began. Displeased with the conflicts, Alibaba decided to transform Lazada’s internal structure, appointing Ant Financial’s former CEO Peng Lei to head the newly reorganized business as part of the terms of a US$2-billion investment.
Once Alibaba took effective management control of Lazada in 2018, it shifted Lazada’s focus inwards. New marketing initiatives were halted in favor of a full review of internal operations and books. Account management became more complicated and budgeting and spending ground to a near halt, a clear problem in an industry that thrives on marketing communication. At the same time, sellers were suddenly confronted with a new interface, one developed for the much, more sophisticated Chinese market. Lazada sellers went from a less than user-friendly but familiar interface to a highly sophisticated but confusing one.
In 2018, after Alibaba parachuted in managers from China, Lazada suspended its subsidies for shipping. In the meantime, Shopee pumped money into shipping subsidies that benefited both customer and seller, doubling its annual loss in 2018 to US$961 million but increasing its GMV to US$10.3 billion with an impressive 2.5X year on year growth.
As Lazada scaled down its marketing, Shopee ramped up its efforts, ironically using many of the same tactics Lazada used to lead the SEA market. Shopee, much less centralized than the new Lazada, was able to implement much more localized approaches making onboarding of sellers much less complicated. Interfaces for both users and sellers were far more intuitive and user-friendly.
Internally, the changes led to top and middle managers resigning from Lazada in droves, with many of them landing in Shopee and bringing with them precious knowledge and skills gained from Lazada’s early days.
While Lazada continued to be the most visited site in the beginning of 2019, Shopee annual app downloads, monthly active users and user retention rates had surpassed Lazada.
By the second quarter of 2020, Shopee had overtaken Lazada in the region in terms of customer visits and its most recent report claims that it now accounts for 57 percent of sales in the region.
COVID-19 arguably created an unprecedented opportunity for the ecommerce industry. Both Lazada and Shopee benefited but in different degrees.
There are many lessons here but the most important one is this: It is not just about systems and technology. You ignore people at your peril. Customers, sellers, employees. They are the heart of your enterprise.
Readers can email Maya at integrations_manila@yahoo.com. Or visit her site at http://integrations.tumblr.com.
