Open marketplace model & extensive use of tech helped us become the first profitable e-com business in India

E-commerce is still in its early stages in India where its adoption is triggered by heavy discounts and low-price grey market replicas of branded products. However, it is a positive industry which will continue to grow, with larger wallet size, wider customer audience and wider availability of products.

India is unique in its journey of e-commerce, where there are broadly three key target customer segments—NRI customers, who were the basis of the earlier boom in 2000-2001, triggered by gifting to India; and urban metro customers (primarily men) who are the reason for the current boom, started in 2010-2011 triggered by heavy discounts. In our view, the third big boom will come in the next decade, starting 2020, where the customers will be tier-2/rural/urban women, triggered by aspirations, mobile penetration and convenience. Nowhere in the world the journey of e-commerce has been so stark and contrasting but that's what makes India unique in lot of ways.

We at Craftsvilla believe that e-commerce is a consumer business and profitability is the key. We recently announced our profitability for the second quarter of 2013, in contrast with other e-commerce companies in India who are burning millions of dollars every month. We hope that other players also achieve this goal in reality, rather than on paper to boost the healthy 'real' growth of e-commerce in India.

Following are the key things that contributed to our profitability:

Capital-efficient marketplace model: Before others jumped onto the bandwagon of marketplace model, Craftsvilla.com launched it in early 2011. The sole reason was that inventory models require such huge investment and operational bandwidth that it becomes unsustainable in the long run, and therefore has a longer path to profitability. We aggregated supply from artisans, designers and retailers from all over India virtually onto a single platform and successfully launched the marketplace model. Please note that we have raised only $1.5 million in seed funding over the last three years, which reflects the capital efficiency of the marketplace model we operate in.

Extensive use of technology to keep headcount minimum: While it sounds unrealistic, Craftsvilla's headcount is only 10 employees. Why we are able to grow without increasing the headcount is because of the extensive use of technology to replace any manpower requirements. For example, we made our customer care scalable by creating an online mechanism for dispute resolution and by enabling direct customer-seller communication. We have made our finance function scalable by creating automatic payments to seller and by integrating SAP with our web-store for automatic invoicing and accounting of payments.

Growth with zero spend on ads: We are probably the only e-commerce company in India which is not spending on paid digital advertising and still growing at healthy rate of 10-15 per cent month-on-month. Our monthly ad spend is zero. We attract customers primarily through active blogger community, active search engine optimisation and heavy usage of social media platforms such as Facebook, Pinterest and Tumblr. We also recently started our referral agent model, whereby housewives and students can sell Craftsvilla products online or in their neighbourhood with zero investment. In just a short period of three months, we have signed up more than 1,000 agents.

Open model that enables sellers to go online in a short time: We have adopted the open marketplace model unlike others who primarily operate a managed marketplace. Our philosophy is that frictionless and touch-less marketplaces are more capital efficient rather than managed marketplaces operated by retailers such as Snapdeal and Jabong. It requires these retailers to help sellers in uploading products, appoint key account manager for seller on boarding, provide sellers with logistics support and package material and so on. We, on the other hand, put the onus on the sellers themselves.

They can register on Craftsvilla in a minute and start uploading products on their own within hours. The next day, they are live on our site and start selling with zero manual intervention from us. We believe sellers are part of our extended team and regularly look forward to them for help - in training other sellers, organising events in other cities, writing blogs about us, etc. This fundamental shift in philosophy is what other marketplaces will also graduate to since managed marketplaces are not scalable beyond a point, unless supported by continued heavy venture capital investment.

(The author is the founder and CEO of Craftsvilla.com, an e-commerce marketplace for handicrafts.)