Rocket Internet and Its Proven Winners

and its Proven Winners

(PART 1)

Dr. Wendy Hong, Wendy Weng, David Sit

Export E-commerce Series (Issue No. 3, Sep 2015)

: 9 Key characteristics

2

Case Study Takeaways

Source: Fung Business Intelligence Centre

1. Taking of online business (Amazon, Alibaba, Zappos, Airbnb,

Groupon, etc) to new places to minimize risks.

2. Focusing on markets where a competitor has not yet established a significant presence to achieve

advantage

3. the companies into a market leader in short period of time

4. in every specific country to adapt to

local cultural background and customer preferences 5. Heavy investment in developing

infrastructure and fulfillment capability

6.

(cash on delivery, credit card installments, debit card, bank transfer,

on-line payment

7. A strategy to think first about the user experience on mobile, and then translate to the

desktop experience

8. Central support and supervision from the parent company and cooperation-competition

relationship among members to achieve

9. Rolling out different companies in different countries in parallel to achieve

(10 new companies every year)

Company snapshot

• A “global internet platform” that addresses basic consumer needs in markets outside the US and China

• A “company builder and operator” building and scaling online companies that fulfill basic consumer needs.

• “To become the world’s largest internet platform

outside the US and China”

Founded 2007 in Berlin

Focus sectors

• E-Commerce • Marketplaces • Travel • Financial Technology

IPO

• October 2014 • Frankfurt Stock Exchange • The largest European Internet

IPO ever

Market Capitalization

EUR 7.9 billion (2014)

Market countries 110+ countries on six continents

Total Visits 4.4 billion (2014)

Employees 30,000+

4

The world’s largest internet incubator

Source: Fung Business Intelligence Centre; Rocket Internet, Annual Report 2014

5

Top management

Source: Rocket Internet

CEO Oliver Samwer

1972- Born in Germany 1999- Alando.de, Co-Founder

(Acquired by eBay in 1999)

1999-eBay, Managing Director 2000- Jamba! AG, Co-Founder

(Acquired by Verisign Inc. in 2004)

2007-Rocket Internet, Founder 2014-Rocket Internet, CEO

Alexander Kudlich

Group Managing Director

1980-Born in Germany 2005-Axel Springer AG,

Assistant of the Chairman and CEO

2008- zanox.de AG, various managerial positions

2011-Rocket Internet, Group Managing Director

CFO

1968-Born in Germany 1992-Goldman Sachs, from

analyst to partner 2014-Rocket Internet, CFO

Peter Kimpel

Rocket’s geographical presence

*The companies shown may have existence in various regions.

• 36 known members in 110+ countries on six continents

6 Source: Rocket Internet, compiled by Fung Business Intelligence Centre

The Rocket family

7

• Proven Winners

Largest and most mature companies

Usually are the market leaders in the regions they are operating in

• Emerging Stars

Having completed financing rounds beyond seed funding

• Concepts

Having been recently launched or in the process of being launched

Source: Rocket Internet, Annual Report 2014

9 Key Strategies

Rocket’s 9 Key Strategies

“We identify and build proven Internet business models and

transfer them to new, underserved or untapped markets where we seek to

scale them into market leading online companies.”

9 Source: Fung Business Intelligence Centre

Adopting proven models 1

Focusing on untapped market 2

Deep localization 3

Rapid scaling 4

Heavy Investment in logistics 5 Localized Payment

Solutions 6

Mobile-first strategy 7

Achieving economies of scale 9

Central support and internal synergy 8

• Focusing on markets outside the US and China, particularly emerging, underserved or untapped market with sizable market opportunity ,yet obvious complexity (see )

• Nurture on-line shopping habit in these market

• The goal: to be first-to-market and achieve a leadership position

10

• A “clone factory” taking “proven online business models” to new places to minimize customer adoption risks

• Avoiding huge investments in new business model development and testing

• “Proven business models” include those which:

have attracted significant funding from well-known investors

have achieved observable operational traction

have been successful in other regions of the world

• Examples: Amazon, Alibaba, Zappos, Airbnb, Groupon, Uber


Adopting proven models 1

Focusing on untapped market 2

BOX 1

11

Rocket Internet: nurturing e-commerce development in untapped market

• Rocket focuses on markets where a competitor has not yet established a significant presence to minimize competition risk and achieve first mover advantage

Russia & CIS

Africa & Middle East

Asia- Pacific

Latin America

• Operations in emerging, complex markets with growth potential:

— Low e-commerce penetration and limited competition

— Underdeveloped logistics infrastructures

— High import tariffs

— Tight government regulation

— Underdeveloped offline retail infrastructure

Europe • A solid foundation in Europe with the headquarter in Germany

Source: Fung Business Intelligence Centre; Rocket Internet, H1 2014 Results and Business Update, Nov. 2014

BOX 1

12

• Deep localization in operations and logistics in every specific country to adapt to local cultural background and customer preferences

• Localization concerns ( )

• Operation team

• Customer interface

• Sourcing team

• Payment methods

• Logistics and fulfillment

• Marketing strategies

• Customer services

• Sacrifice profitability at the beginning to achieve market leadership

• Aiming for beak-even within 6-9 years after launch

• The goal: To grow a company as quickly as possible to achieve a leadership position in the markets


BOX 2

Deep Localization 3

Rapid Scaling 4

Localized operation team with deep local

knowledge to better understand the unique

opportunities and challenges of local market

Country-specific shopping portal with local languages and specific

product description

Local sourcing teams to find the right mix of

products in specific market

Diversified and localized payment methods; 80% of total payments via

cash on delivery

Heavy investment to establish

localized and self-operated logistics

solutions to overcome the logistics obstacles

Localized marketing strategies in line with

different cultural characteristics and consumer

preferences

Localized customer services conducted in

local languages

* Please see “Export E-commerce Series (Issue

No.4)” for detailed case study on Lazada

• Launched at March 2012

• The largest and fastest-growing on-line B2C marketplace for general merchandize in the “ASEAN 6”

• Market share in the ASEAN 6: 20%

13

: The 7 localization strategies


BOX 2

14

• logistics as the biggest obstacle to e-

commerce in Rocket’s target markets:

underdeveloped infrastructure, yet

diversified logistics requirements

• Heavy investment in developing in-

house logistics infrastructure and

fulfillment capability to address

logistics challenges and deliver better

shopping experiences

• As an important strategy to achieve

localization and fast scaling

• Diversified and localized

payment methods: credit card

installments, debit card, bank

transfer, on-line payment, etc.

• Cash on delivery as the

mainstream payment method

in less developed areas:

Southeast Asia, Africa, Latin

America, Russia.


Heavy investment in logistics 5

Localized payment solutions 6

15

• To cover all important mobile

platforms from day one

• To think first about the user

experience on mobile, and

then translate to the desktop

experience

• For some member companies

(e.g. Zalora): 80% of

businesses generated on

mobile devises

• Central support and supervision from

the parent company ( ) and

cooperation-competition relationship

among member companies s to

achieve synergy ( )

• Rolling out different companies in

different countries in parallel to

achieve economies of scale

• 10 new companies every year ( )


Mobile-First Strategy 7

Central support and internal synergy

8

Achieving economies of scale 9

BOX 3

BOX 4

BOX 5

16

• The parent company acts as the headquarter, providing financing and a platform for building and operating a new company.

• Four pillars of the platform:

– Infrastructure: management teams, functional experts, local professionals, and strategic partners

– Technology: one centrally established proprietary technology platform for setting up new businesses

– Process: highly structured and repeatable company building process

– Network: global and local network as well as internal member companies to achieve synergies

Central support from the parent company

Cooperation-competition relationship among members to

achieve synergy

• Relationship among members similar to franchisees under the same brand

• members benefit from each other in 4 areas: sourcing, knowledge exchange and best practice sharing, customer acquisition, and talent attraction

• Rocket fosters internal competition by sharing performance data among members


BOX 3 BOX 4

17

Rocket as a “company builder”

• Replicate tested model and experiences into new members with standardized execution process paired with regional team proving local knowledge

• Retaining major ownership stakes in member companies (up to 80-90%)

• An unique yet highly standardized company building process:

– Step 1: Identifying proven Internet business model and best practices

– Step 2: Selecting the target market

– Step 3: Recruiting the operation team to run the model and build the company in the target market

– Step 4: Scaling the model in a short period of time in the market

• A clearly-defined and rigorous process for shutting down companies


BOX 5

Rocket’s Proven Winners


19

*The companies shown may have existence in various regions.

Source: Rocket Internet, compiled by Fung Business Intelligence Centre


Global Fashion Group (GFG)*

• Adopting the business model of Zappos

• Founded in 2011, grouping Rocket’s 5 leading fashion ecommerce companies ( Zalora, Dafiti, Lamoda, Namshi and Jabong)

• Operating in 27 countries across 5 regions: Latin America, Russia & CIS, Asia Pacific, India and Middle East

• offering international and local fashion brands, as well as a selection of internal brands

• Benefits from combing 5 companies under the GFG:

To deliver economies of scale in sourcing international brands

To obtain preferential global agreements for marketing and logistics

To strengthen the joint private label efforts

To facilitate best practice sharing across functions

General Merchandise

Global Fashion Group

Home & Living

1

2

3

20

4 Food & Grocery

*Please see forthcoming report for detail.

21

General Merchandise* • Adopting the business model of

Amazon

• Operating in 3 regions:

South America

Southeast Asia

Africa

• Providing large portfolios of products from popular brands

• Combining self-operated retail platform with marketplace model, with the inclination towards the latter

• Sophisticated in-house logistics capability to reach vast areas of the markets

General Merchandise


Home & Living

1

2

3

4 Food & Grocery



22

Home & Living*

• Operating in two regions:

Europe

Brazil

• Innovative and careful display of products

Theme-based category

“Shop The Look”

Carefully selected products

Elaborate presentation

• Strong in-house logistics capability

Ability of delivering a wide range of products

Effective delivery

General Merchandise


Home & Living

1

2

3

4 Food & Grocery


Source: Fung Business Intelligence Centre; Rocket Internet, Annual Report 2014

23

General Merchandise


Home & Living

1

2

3

4 Food & Grocery

Food and Grocery*

Foodpanda

• “A marketplace for food delivery and takeaway”

• Focusing on Eastern Europe, Southeast Asia and Africa

• Mobile centric

HelloFresh

• Subscription commerce

• Delivering recipes with the required pre-portioned ingredients

• Just-in-time business model



Performance of Rocket’s Proven Winners: Revenue/GMV Bridge (Q1 2014 vs. Q1 2015)

24 Source: Rocket Internet, 2015 Q1 Proven Winners Update, July 2015.

* This diagram excludes the section of food & grocery

data_a

Performance of Rocket Proven Winners: Net Revenue/GMV Growth (Q1 2014- Q1 2015)



Performance of Rocket Proven Winners: EBITDA Margin



Conclusion

• With the “Rocket Formula” (proven business models + emerging markets + deep localization + fast scaling + synergy ), the Rocket proven winners have achieved astonishing growth during the past several years and are becoming formidable e-commerce competitors in their respective markets.

• However, it is not realistic to expect Rocket members to maintain current explosive growth for a long period of time, considering the experience of e-commerce development in China, US and Europe.

• They are facing increasingly keen competition as global giants and newly emerged players are rushing to the emerging markets.

• It’s still too early to predict whether they can gain a dominant position in their respective markets.

Conclusion

28

29

Forthcoming reports on Rocket Internet & its Proven Winners

General Merchandise


Home & Living

Part 1

Part 2

Part 3

Part 4

Part 5 Fo

rth

co

min

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& its proven winners

CONTACTS

Business Policy and City Clusters in China

Wendy Hong

Vice President

[email protected]

(852) 2300 2475

Wendy Weng

Research Analyst

[email protected]

(852) 2300 2467

David Sit

Senior Research Analyst

[email protected]

(852) 2300 2479

30

Fung Business Intelligence Centre 10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong Tel: (852) 2300 2470 Fax: (852) 2635 1598

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Rocket Internet and Its Proven Winners