Having taken the ‘e’ out of e-commerce by venturing into the offline space, Bukalapak said there is a chance that its thriving O2O play could eventually overtake the online marketplace as its biggest business line.
“I wouldn’t bet against it,” said new CEO Rachmat Kaimuddin. “Yes, e-commerce is currently still bigger, but this (O2O) is a huge business in its own right.”
Having scaled its online marketplace business over seven years, Bukalapak quietly forayed offline in 2017 by launching a second app to empower the mom-and-pop shops or warungs.
The app, called Mitra Bukalapak, enables warungs or agents to sell virtual products like phone credit, data plan, electricity voucher, train tickets. It also has a B2B marketplace function that connects warungs to principals, allowing them to replenish their stock by ordering wholesale goods on the app and have them delivered to their doorstep.
Despite launching in 2017, Bukalapak kept a tight lid on the app for over a year to “keep it away from our competitor as long as we can,” according to the head of product Ahmad Faiz Nasshor in a Medium post. Now, three years on, it boasts almost 5 million offline agents, more than any other startup in the same field.
On the payment agent side, Bukalapak has been sharing the market with players like Grab-acquired Kudo (now GrabKios), as well as listed startups DIVA and Kioson. However, it is in the B2B marketplace space where things are becoming interesting.
After e-commerce rivals Tokopedia rolled out a similar service in 2018, Indonesia is only now seeing big-name investors betting on new players in the B2B marketplace game targeting warungs and traditional small retail, which comprises about 80 per cent of the overall market in Indonesia.
Newly-founded Ula last week raised a $10.5-million seed round led by Sequoia Capital India and Lightspeed India, while GudangAda last month secured $25.4 million in a Series A funding also led by Sequoia India and Alpha JWC. Another player Warung Pintar bagged $27.5 million last year from a host of backers including OVO, Vertex and EV Growth.
While the amount of investment poured into the industry serves as validation of Bukalapak’s thesis, it also represents a potential threat to the company’s foothold in the market. Kaimuddin, who is familiar with SME empowerment from his previous executive role at SME lender Bank Bukopin, said that serving ‘warungs’ is not an easy game to play.
“It is labor-intensive. We need to have networks with principals and distributors. We need to educate warungs that they could sell more by using the app, and we need to convince them. In online (commerce) we can give them vouchers, they would install the app and become our customer. Here it is slightly more high-touch and requires us to play slightly differently,” he said.
Though he insisted that he sees both online and offline operations as a “two in one” way of serving the customers, it is apparent that Bukalapak is pinning great hope on its O2O business. The company has almost 100 employees dedicated to O2O and is convinced that the resources invested would be well worth it.
“We have been doing it for three years, and are lagging behind seven years compared to online commerce. But I have seen the trend and it has been very good in terms of growth and margin, burn and investment. The number is rising well,” he said.
Because of the rising traction of its offline business, Bukalapak no longer sees itself running the same race as other e-commerce companies they are often pitted against.
Bukalapak, which passed the $1-billion valuation mark in 2017 and has amassed a total capital of approximately $500 million, shares space with heavily funded giants including Alibaba-backed companies Tokopedia and Lazada, both of whom have raised a total funding of over $4 billion each. Then there is also Shopee, a subsidiary of Nasdaq-listed Sea Group, which last raised $500 million and is seeking another $1.5 billion.
Given the notable gap in capital firepower, some might say that Bukalapak has been punching above its weight and have done well to be in and amongst the big boys, though never managing to really dislodge Tokopedia and Shopee on the top of the leader board in terms of web visits and apps download, according to statistics by iPrice.
Now, however, Kaimuddin said Bukalapak has internally redefined what it means to be ‘the best’, and it will not be judged by commonly used metrics, nor be gauged in relation to other companies.
“For me, the words “number one online marketplace” has been crossed out. I have replaced it because we are no longer only an online marketplace and the parameter for number one is not clear,” he said.
“If we can serve our customers, they can buy and sell on our platform in a fair way and accessible, and we can do this in a profitable and sustainable way, that is a success for me.”
Indeed, the word ‘sustainable’ has been the big buzzword surrounding the changing of the guard at Bukalapak.
Before Kaimuddin’s appointment, Bukalapak had undergone serious efforts to cut costs in the name of driving higher efficiency towards business sustainability. In September, the company abandoned a number of functions, including smart retail and some marketing roles, and laid off about 10% of its workforce, or around 250 workers.
A professional banker with experiences at a public company and a private equity firm, Kaimuddin hardly fits the profile of a startup leader. However, given Bukalapak’s new trajectory towards sustainability, he is seen as the perfect choice to steady the ship and get people on board with the company’s new direction.
“We want to help people (SMEs), but the fact of the matter is that we are a company with investors so if we want to sustain the business, we need to think about the business justification. At some point, we need to stand on our own two feet. This is what I have been trying to emphasize to everyone,” he said.
It is clear that the aim for him is reaching business sustainability – something he defined loosely as being in a position “where we have the choice of not looking for more capital injection”. Although he adds, the company is currently still very much open to the idea of raising additional funding.
Following last year’s bold efficiency measures, Kaimuddin believes much of the “heavy lifting” has been done, and he now just needs to maintain the efficiency and productivity of the company, which he said is on the right track and closer every day to the point of break-even.
Reaching break-even would be a huge step towards being ready for a public listing, a move Bukalapak has been exploring since 2018. While Kaimuddin is happy to entertain the notion of an IPO, something he claims to be very familiar with in his previous roles, he conceded that the questions of ‘if’ and ‘when’ would not be ultimately down to him.
“I will leave it to the shareholders to decide that. But what I can do today is organize Bukalapak in a way so that if one day we are asked to IPO, we will be ready,” he said.