In April, when most e-commerce businesses were struggling to raise capital, following the Indian government not allowing foreign direct investment in multi-brand retail, TV and e-commerce business Homeshop18 raised $30 million from OCP Asia and Network18. We had spoken then with HomeShop18 CEO Sundeep Malhotra then about the companys plans, and also two key questions – how TRAI limiting advertisements to 12 minutes per hour would impact their business, and how it is that HomeShop18 has approvals for FDI when others don’t.
MediaNama: How do the TRAI restrictions on advertising impact your TV business?
Malhotra: The advertising regulations don’t impact us. We have no advertising revenue on our television business. It’s completely led through transactions.
MediaNama: How about shows on other channels with airtime. Wouldn’t they classify as advertising?
Malhotra: We were doing that, fundamentally, on colors. The model is diagonally opposite to a teleshopping business. We are not in the business of buying slots and selling magic. We run our own 24 hours channel, our own Internet business and through mobile. We sell brands and guaranteed products.
MediaNama: There is a transaction between Colors and Homeshop18. Colors is selling airtime to you, so that’s advertising?
Malhotra: it’s a great locomotive to build brand awareness and recruit an audience. The shows that are built are specifically built for Colors. HomeShop18 is the service provider there.
MediaNama: How is the online business doing in comparison with the tv business
Malhotra: It’s a 2 year old business, but both of them (TV and Internet) are growing. There’s so much of a latent demand for products across the country. They’ve been both doubling the turnover every year.
MediaNama: So how’re you distributing your management bandwidth and money?
Malhotra: For me, it’s one business. The Internet the business is headed by a COO, with his own team out of Bangalore, and there’s a separate COO for the TV business. The money is focused on a lot of things, it’s not just Internet and Television. A fair amount of money is going to get into infrastructure for scaling up.
(The money raised) is predominantly for the next phase of growth. It’s not segregated across Net, TV or mobile, because the infrastructure for growth scales across business. We’re not just an Internet only company. We’re the only one that has three screens. Behind all of that is a unified back-end in terms of reach, housing, logsitics and infra, and the CRM. That is the reason why it helps us leverage the scale.
TV, by function and by virtue, has limited bandwidth in terms of product. The categories are slightly different and limited in numbers. The web has unlimited opportunity, in terms of our capability to showcase products. On TV we handpicked 3000-4000 products every year. On the web, it’s these plus 14 million products.
We’re neither a marketplace nor warehousing everything that we sell on the web. Even an Amazon doesn’t do that. You have to build supply chain and forecasting mechansims which enables and connects inventory for your warehouse and preferred partners. Suppliers are not that organized
MediaNama: How do you choose what to sell where?
Malhotra: We keep doing vendor evaluation. The second thing we do is build smart forecasting tools and robust supply chain warehousing and delivery mechanisms. This is the base on which virtual e-tailing works. TV is just the show window of the shop. To make it work, you need the tech back end and infra. It’s also the right path of the business which enables you to scale up. If I keep a book on the website or TV, how would I ever know how much would sell on TV or the web? especially on the web where you don’t have historical data. What kind of inventories will I keep. TV is about impulse, web and Internet is about search. Hence, it is about a long tail of products, and TV is about specific products and propositions to drive impulse. So your product mix is different. In our case, we don’t just have the range and the long tail, we also have our TV products on the internet. No matter what anyone else has, we have our range of products on TV, and in addition we’re the only ones who produce videos on the web. These are new domains for the user on the web.
MediaNama: How does the uptake differ, when you provide a video and when you don’t?
Malhotra: We haven’t done an analysis on that, but it helps demonstrate the product better.
MediaNama: What are you doing around personalization?
Malhotra: There’s a lot that is happening, because we’re in the process of putting it all together. We’ve invested to build a very strong referral model. This is a consumer model linked on your past purchase. It’s not something that can be built in a hurry. It involves data mining, data analysis, compiling data and streams of data over a long period of time. Only then it throws up meaningful analysis. We’ve been gathering data, and now we’re building tools around it. We’re getting into personalization by the end of the year. The homepage could be different on the basis of your IP (address). It’s a little too early, and it’s important once the market matures.
MediaNama: How much do you spend on Marketing? E-commerce businesses have been built largely on high marketing spends.
Malhotra: We’re spending a fraction of what they (others) are. The Internet business is not a business that gets built in a hurry. It’s a business where everyone needs to get focused in the long run. While it’s about a long gestation, it’s a business that you can scale up at any given time. We’ve given a different strategy, we’re building everything in a way we want for the long run. We are in no hurry to prove that we’re growing faster than the rest. We have a clear line of sight to profitability. It’s important if you see China. You can be a multi-billion dollar topline company. We want to build a robust, strong and profitable business. TV is profitable at an EBITDA level. The online business is about … we’re moving the right direction.
MediaNama: There’s a talk of an IPO for Homeshop18…
Malhotra: These businesses can’t be built in a hurry. Just like you build solid infrastructure and solid management bandwidth. An IPO is one of the many options which exist for many business.
MediaNama: What about an exit for your investors?
Malhotra: Lets not make an IPO bigger to be than what it is. An investor can find an exit without an IPO. Investors are getting Indian companies to merge. It brings financial discipline, and a company should move to an IPO when they have that discipline.
MediaNama: Are you a marketplace or an ecommerce venture?
Malhotra: We’re the only company in the space that has FDI approval. We’ve been through every round of government evaluation without an issue. Our ecommerce is a reflection of what is on the TV. From an FDI point of view, all I’d like to say that we’re the only company.
MediaNama: When the government hasn’t allowed FDI in multi-brand retail and e-commerce, how is it that you’re the only company with FDI approval?
* Please see note below
MediaNama: What’s your take on Amazon potentially entering the Indian market with a marketplace?
Malhotra: I have no clue, but whatever Amazon does, it’ll be a new thing. Competition is good. Some of these international guys can teach us so much and help the market mature much quicker.
*Note: In response to this question, Malhotra asked us to visit him in his office so he could explain how HomeShop18 is the only e-commerce venture with FDI. We accepted that offer. If the approval was given to HomeShop18 as a TV business, then could it apply for its e-commerce business? It’s been almost a month and a half since this interview, and HomeShop18’s PR representative is yet to confirm a time for that visit, despite repeated requests. We don’t think the meeting will take place in the near future, if at all. Please note that we’re in favor of FDI in e-commerce. However, shouldn’t the same policy apply to all?