(by Vivek Pai and Nikhil Pahwa)

E-commerce service provider Snapdeal has entered into a 50-50 Joint Venture partnership with the cable TV distribution network, Den Networks Ltd. to set up a shopping TV channel.

The TV channel will operate as a marketplace for selling unbranded and branded merchandise, services and third-party vouchers, to television home shopping audiences. While further details about the service were unavailable, the channel will presumably be available to all Den network customers. The network currently operates in Delhi, Karnataka, Uttar Pradesh, Gujarat, Rajasthan, Maharashtra, Kerala, Haryana, Jharkhand, West Bengal, MP, Bihar and Uttarakhand and claims to reach an estimated 13 million households.

Snapdeal is not the first online retailer wanting to appeal to the TV home shopping audience. In April, Naaptol had announced looking for funds for launching its own 24-hour television shopping channel. The company had said then it expected to close the deal in three months, but no further developments have been reported on this front yet. Previously home shopping TV channel ventures including HomeShop18 and Star CJ had branched out into e-commerce, with Homeshop18 launching its website in January 2011 and mobile apps in 2013 and Star CJ going live with its website in February 2011.

Why a joint venture?

Perhaps to offset carriage fees. Carriage fees were the money extorted by TV distribution companies to carry channels on their network, for subscribers who are paying for subscription, which has now been legitimised by the Indian telecom regulator TRAI. It is a significant component of costs. At $5.25 million in FY11, Carriage Fees for Homeshop 18 were as high as 27.4% of its revenue. It has remained in the $5.5 M to $6.5 M range since then. By giving DEN equity, it is possible that Snapdeal is reducing its potential carriage fees burden.

TV vs Web

Interestingly, while Homeshop18 went from TV to web, Snapdeal (like Naaptol before it), is going from Web to TV. From what we’ve heard, TV homeshopping is a demographic that is very different from an online demographic. From our interview with Homeshop18 CEO Sundeep Malhotra, and their IPO filing:

1. TV has fewer SKU’s on sale: 

“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.”

2. TV is about impulse, Internet is about search:

“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.”

3. Average order value: based on Homeshop18’s IPO filing

– Internet: $44.1 (Rs 2011) in FY11, $27 (Rs 1299) in FY12, $19.4 (Rs 1064) in FY13, $25.0 (Rs 1501) in H1-FY14.
– TV: $49.5 (Rs 2255) in FY11, $45.1 (Rs 2171) in FY12, $43.4 (Rs 2383) in FY13, $38.6 (Rs 2319) in H1-FY14.

4. Average gross commission: on TV is substantially higher than on the Internet.
– Internet: 19.4% in FY11, 12.8% in FY12, 15.0% in FY13, 17.2% in H1-FY14.
– TV: 30.8% in FY11, 26.3% in FY12, 29.0% in FY13, 29.9% in H1-FY14.

Last we heard, HomeShop18 was preparing for an IPO.

Snapdeal expansion

Snapdeal had entered into an agreement with Tata Housing to sell its properties via a new real estate vertical on Snapdeal’s website in August. The company had also added a hotel and catering supplies vertical to its website the same month, and had acquired the fashion and lifestyle product discovery platform Doozton in April. It had also extended its same day delivery service, Snapdeal Plus to 15 new cities in May.

Ratan Tata, the Chairman of Tata Sons, had made an undisclosed amount of personal investment in Snapdeal last month. The company has raised over $300 million in funding as yet including the $100 million from Temasek Holdings and others in May, $133.7 million from eBay and others in February, $50 million from existing investors in June 2013 and $52 million in 2011 in separate rounds of funding from Bessemer Ventures Partners, Indo-US Venture Partners and Nexus Venture Partners. The company had also appointed a new head of corporate development to be responsible from acquisitions, investments and partnerships, Abhishek Kumar, last month.