Get insights of the fireside chat with Joel Neoh of Fave at the Echelon Asia Summit 2018
In 2017, Malaysia’s eCommerce industry crossed US$1B with half of Malaysians buying online. It is expected to grow 18% CAGR year-on-year.
But what is happening on the ground? How have the likes of Lazada, Shopee and the large eCommerce companies changed the game? And how do eCommerce startups navigate the big boys?
To ask these questions, I got the opportunity to interview exclusively with Joel Neoh, founder of Fave, a Malaysian-based eCommerce startup that has received US$15m in Series A funding. Fave also acquired Groupon assets across Singapore, Malaysia and Indonesia.
These are excerpts of our fireside chat on the first day of the Echelon Asia Summit 2018 in Singapore.
The evolution of eCommerce in Malaysia
How has eCommerce changed in Malaysia over the last 10 years?
Neoh shares, “eCommerce was non-existent 10 years ago. Ninjavan was not available, the biggest post company was post Malaysia. It takes 3 weeks for you to get a parcel. It might even go missing somewhere, transportation platforms were non-existent. The only thing that was up and coming was digital media. If you look back, it just shows how far we have come.
[Today], the largest investor in Malaysia is Lazada. They are by far the largest, with Shopee coming in, making shipping free for everyone. I’m not sure how they really make money. In the last 10 years, there are hundreds of ecommerce [startups] that started and dying in the process. Everyone’s fundraising and burning money for the past 10 years. Eventually there are new players that have built scale that has now become large marketplaces for small sellers to sell their products.”
Limited niche fitness market pushed Fave to expand range of services
One thing that intrigued me was the intent of acquiring Groupon assets in Singapore, Malaysia and Indonesia. How did they fit in the strategy of Fave?
In a nutshell, as Kfit crossed 10,000 subscription customers, Neoh noticed more customers were dropping off than joining the platform. After speaking with the various gym owners, he realized people were not following through their fitness goals.
“So it’s almost like we are building a product that is a leaking bucket continuously. The average lifespan of a customer that signs up for gym [membership] is 4-5 months. And on the other hand, another problem of Kfit or Kfit’s model has, which is today on Instagram, we are following all these good-looking people going to gyms or studios. But the problem is that they are the minority of the population. We are following them because they look good, but we are actually not going to the gym.
It was very difficult for us to go out of a niche segment. It was a choice point for us to know as company if you want to solve the problem of the masses in fitness, we actually need to be an online content company. Because for the masses, the better way is actually to work out at home. So at some point we said are we a content company or platform company? And generally I think we wanted to serve more people also so we decided to expand the KFit platform to all services and then we formed [Fave].”
Revamping the Groupon model to its own Fave model
Groupon failed in their business model. So what did Fave do differently?
“Firstly it’s that we stopped doing e-commerce. Groupon actually 60% of its business was selling products and goods and that’s difficult. Out of the two winners, there are hundreds of companies are in the graveyard. The biggest challenge for ecommerce is to scale up and is to solve cross border.
The challenge is that if you never solve cross border, you never get the selection and price benefits of all the supplies of different countries. And that’s why when you look at Shopee which is backed by Tencent or Lazada that is backed by Alipay, I think that’s the only way in which you can create a large space, is to leverage cross border supply. In which today if you shop at Lazada, half the things I buy actually come from China.
Different challenges in the markets of Indonesia and Singapore
As Fave expanded, Neoh found it very difficult to make money in Indonesia. He noticed the Indonesian startup unicorns were not doing well at the unit economics.
He explains, “An average order value in Indonesia is anywhere from 5 to 10 times lower than that in Singapore. Singapore is nice, we are always profitable in Singapore… Singapore’s unique economics is usually very positive, it’s a good place to run a business and Malaysia is somewhere in between Singapore and Indonesia.
So today what we’re solving in Fave is not e-commerce. We’re actually what they call the online to offline space which is correlated to mobile payments by enabling a lot of merchants including restaurants and retailers to get them to this mobile payment environment.
The difference is that in Indonesia is everyone is using cash. 90 to 95 percent of people will be using cash. There is only less than 10% of people that use card compared to Singapore where almost everyone uses card to pay and Malaysia is somewhere in between. As always right, 50% card and 50% cash. So when we look at it, Singapore is our largest market … people in Singapore are more adept to adopting mobile payments or going cashless.”
Partnerships with e-wallet companies in growth strategy
Given that Groupon assets were acquired, I probed Neoh on whether Fave was on the continued quest of acquiring more strategic assets.
He says, “If we want to acquire a company or acquire something, so we said go acquire an e-wallet license so we can be one of the hundred of companies that have e-wallet licenses so can confuse more consumers to put money in multiple wallets. E-wallet licenses are going crazy right? Every company is trying to apply for an e-wallet license, the reality is that the goal of an e-wallet is to make it convenient for consumers, the reality is that it’s a start, we have hundreds of companies trying to do the same.
“But eventually, there is going to only be two or three. I think we are quite clear on who those two or three are. We got local champions who are going to build it and we got Chinese companies that are trying to enter the market. So for us, we don’t plan on acquiring any company. We are looking at partnerships with mobile wallet companies, especially the ones we feel have great potential, because we are two peas in a pot as we work with merchants trying to get them onto our platform. And the e-wallet leads to acceptance and reward.
“Our common enemy is cash [users]. So we need to convert, shifting the behaviour is tough because cash has existed since two thousand years ago. I think it’s amazing how China, in 5 to 10 years, it has completely shifted to a cashless economy. I think we are more into collaboration. Anyone is building a mobile wallet that can scale is a great partner to us.”
Predicting trends in e-payments in Malaysia
WeChat claims there are 20m users in Malaysia, two-thirds of the population and is targeting to launch WeChat Pay. I asked what e-payments trends does Neoh foresee?
“If I looked at the giants who are going into the space, it’s very early in the race, it’s kind of like a marathon and everyone has just started. I feel that the companies that has the most potential are banks. [They] are natural wallets as all of us have money in the banks, savings accounts, debit and credit card, something we talk about cashless, we keep talking about mobile wallets, but cashless is cards too. When I talk to banks, they feel threatened by the mobile wallets, but I think it’s kind of strange since they are mobile wallets too that consumers can engage better.
“Grab will probably be the front runner, as we’re already using grab on a daily usage. It is only natural for that to be an extension to their space. For Chinese players with deeper pockets, there are a lot more work to be done to build an ecosystem, so I think the local platforms are the banks which have an advantage. But we shall see in 5 to 10 years who will emerge on top.”
Advice to Malaysia e-commerce startups
As I end off this interview, I asked Neoh for advice to eCommerce startups competing against the giants of Lazada, JD.com and the likes.
He concludes, “Ten years ago when you talk to people they always look up to American or European companies, but we find that today it is very different. People are proud to be a Singaporean or Malaysian company and I think we are no less competitive than larger companies or outsiders of the region.
“I think a lot of times the older companies, speed is always the challenge. My mom, as I was growing up, always read me a story about David and Goliath. It is not about how big you are, but how smart and how fast you can adapt. I think that that’s what small companies have and in fact every big company has to think like a small company. They have to break it out.
A lot of people here don’t want to join big companies because they are slow. If you’re an executive at a company, you actually don’t get anything done. A lot of times you talk to a senior director at a company, he hates his job, because he cannot do anything because there are a lot of bureaucracies. I think being fast and nimble, being a David, I think we’ll probably emerge a winner.”
This fireside chat is part of the ongoing Echelon Asia Summit 2018 that is happening on the 28-29 Jun 2018 at the Singapore Expo Hall 7A.
e27 publishes relevant guest contributions from the community. Share your honest opinions and expert knowledge by submitting your content here.
The post It is not about how big you are, but how smart and how fast you can adapt appeared first on e27.