Lazada Business Model | How Does Lazada Make Money?

Lazada Group is a Singapore-based multinational technology company built to mimic Amazon’s business model in Southeast Asia and capitalize on the retailer’s weak regional presence. 

Lazada is one of many eCommerce giants that have been able to diversify its revenue streams. 

The company earns money on the Lazada Marketplace by charging a 1 to 4% sales charge and offering groceries delivery subscriptions and other services.

Lazada entered the Southeast Asian market in 2012. The company wanted to present Lazada business model similar to Amazon’s while capitalizing on the company’s limited presence in the region. They accomplished everything they set out to do after just six years and much more.

What is Lazada?

Lazada is Southeast Asia’s largest eCommerce platform, effectively an Amazon for the region. Traders worldwide can use this portal for marketing their products in Indonesia, Singapore, Vietnam, the Philippines, Thailand, and Malaysia.

According to Google and Temasek, it is the first time Southeast Asia’s internet economy has touched $100 billion. The figure is projected to quadruple by 2025.

Lazada Business Model

Lazada is headquartered in Singapore and is one of its key participants. We will discuss its operations, founding history, and the numerous revenue streams it utilizes.

Mission and Vision of Lazada

Lazada’s 7th-anniversary party showcased how they value their values and envision the future. He remarked that their aim and vision for the future is to “accelerate Southeast Asia’s progress through trade and technology.”

He continued, “We are a SEA firm, and we are enamored with the region and its diversity, which also adds a significant degree of complexity.” 

We intend to revolutionize retail, both online and offline. We will provide offline integration in the next few years through other projects.”

Lazada’s objective is not to be merely a basic shopping platform but to provide technology, logistics, and payment solutions for the growth of local businesses and consumers.

A unique purchasing experience is also essential to shift away from the traditional “search, click, and buy” model. Poignant called this “shoppertainment.”.

How Does Lazada Work?

Lazada is a business-to-business-to-consumer marketplace paradigm in which merchants offer goods on its platform. 

Lazada was created to make it simple for eCommerce companies in China, Hong Kong, the United States, and Europe to expand into Southeast Asia. 

One of the most attractive aspects of Lazada is its international fulfillment center located in Hong Kong.

You can ship all of your products to the Lazada fulfillment center in one shipment and then leave the logistics to Lazada. 

There is no need to worry about shipping, refunds, or misplaced things — the Lazada center will take care of everything for you!

It is possible to manage multiple Lazada stores in multiple countries from a single account. You can browse any store by simply logging in to the Lazada seller center.

The company sells items in the following categories:

  • Computers and electronics
  • Health & Beauty
  • Food & Pets
  • Living & Household
  • Women’s and men’s fashion
  • Automobiles & Motorcycles

Lazada facilitates the shipping, payment, and return processes for its customers to ensure a seamless shopping experience. Merchants should therefore focus only on providing relevant goods to the most appropriate customer group.

Customers can shop Lazada’s desktop website as well as the company’s mobile apps. They also sell certified products (since consumers in Asia are often defrauded by false or substandard products).

How Does Lazada Make Money?

How does Lazada plan to positively return on investment after investing billions of dollars in the business? 

Lazada Business Model

Lazada’s revenue streams are diversified, like those of its parent companies Alibaba and Amazon.

Like many other eCommerce giants, Lazada developed multiple revenue streams over the years.

Let’s take a closer look at them.

Lazada Marketplace

Lazada is a marketplace, including merchants and consumer products, similar to Amazon and eBay. Lazada then handles both payment and shipping (if the seller is Lazada authorized).

The merchants are given intensive assistance to boost sales conversion and, therefore, total items sold. 

Therefore, Lazada has undertaken several initiatives aimed at growing its merchant base. Several examples include Lazada University and Super eBusinesses.

Lazada charges a commission of between 1% and 4% on each sale, depending on the product category.

Top Up & eStore

The Top Up and eStore provides customers with the option to top up their prepaid phones or download other services such as Spotify or Xbox.

You can also buy gift cards, insurance, or coupons for food and beverages.

There is no public information on commissions, and they are likely determined by each deal.

LazMalls

LazMalls is, in a nutshell, a more opulent version of LaszAl’s primary marketplace. Lazada offers “selected brands from around the world and locally, exclusive online retailers, and authorized brand distributors.”

The 15-day return policy and next-day delivery provide customers with further protection. There is a screening process and a set of criteria that will be met by merchants interested in selling on this platform.

Lazada earns revenue from merchant fees on every transaction. There is a 5% cap on it.

Grocery Delivery Through RedMart

The Lazada Group purchased grocery delivery company RedMart last year. Singapore is currently the only country that offers the service.

There is often a wide margin of error in grocery delivery and a high degree of operational complexity. Singapore has an established consumer base and intricate infrastructure, making it an obvious place to enter. However, Lazada has stated that it intends to expand to another city before the end of the year.

Lazada Business Model

A core part of Lazada and RedMart is partnering with established grocers such as Adyen to offer food delivery services. It does so by deducting a commission from the order basket and charging a fixed delivery fee.

Fintech Solutions

Lazada’s Gross Merchandise Volume (GMV) amounts to billions of dollars, so its commitment to payment and finance options is logical.

Lazada works with other Fintech companies in the area to accomplish this. The collaboration between Lazada and the crowdfunding platform Funding Societies in Malaysia is one example. 

Lazada merchants can take advantage of various financing options to fund their businesses, thanks to the agreement.

Another example is the recent relationship with AsiaKredit, a Singapore-based financial institution. The partnership enables Lazada users to purchase things monthly (similar to the business model of Klarna).

LiveUp Program

LiveUp is an exclusive membership program offered by Lazada that enables consumers to save money on various services and various partners. Several examples include the following:

  • 4% discount on all LazMall orders
  • Deliveries over SGD 40 are free at RedMart.
  • Free Netflix for two months

Additional partners include Grab, Foodpanda, Agoda, and anywhere. Customers can choose to pay monthly or yearly.

What is the Funding and Valuation of Lazada?

Crunchbase indicates that Lazada has raised nearly $ 4.2 billion in nine funding rounds. Alibaba acquired a 51 percent stake in Alibaba in April 2016, making it its dominant shareholder. The value of Lazada at the time of the transaction was $ 1.5 billion.

Alibaba increased its stake in the company from 51% to 83 percent just over a year later, in June 2017. A $1.5 billion investment was necessary to complete this transaction, which valued the company at $3.15 billion.

Alibaba invested $2 billion in March 2018 without disclosing the valuation. If you’re curious, the 2017 and 2018 investments were made primarily in the secondary market and did not count towards the aggregate amount invested ($4.2 billion).

No plans have been announced for an IPO as of today. There is certainly no financial reason to go public with Alibaba as a powerful and solvent investor. That is not the case with its competitors, which we shall discuss in further detail in the following section.

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Success Story of Lazada

If you think Lazada was started by a couple of local entrepreneurs who happen to have a sense of branding, you are mistaken.

Lazada was founded in 2012 by Rocket Internet, a German internet investment association. Rocket is known for its eerily similar approach to business. 

Thus, it copies (mainly American) businesses and creates identical businesses elsewhere globally, where it does not yet exist.

Its operating approach is defined by selecting outstanding performers (from McKinsey or Goldman Sachs) and providing finance and expertise. 

One of their most well-known investments is the European e-commerce behemoth Zalando, which is a carbon copy of Zappos in the United States. However, let us return to Lazada!

Lazada launched its website in March 2012. Its early business idea was to sell consumer products directly to potential buyers, such as clothing or gadgets (B2C). 

The corporation began operations in Indonesia, Malaysia, the Philippines, Thailand, and Vietnam in the early 2000s.

The company added the current marketplace format in 2013. (B2B2C). This enabled third-party merchants to sell products on their site. 

The segment of the company accounted for more than 70% of all platform spending in 2014. The same year saw the introduction of Lazada in Singapore.

Lazada’s first focus in the years following its start was focused on increasing its expansion. Unsurprisingly, the company lost more than $200 million in its first two years. 

Lazada Business Model

Asian consumers frequently prefer to buy from large local malls instead of Lazada (and continues to do so).

The growth was outstanding, but losses kept piling up. Rocket’s investment in Lazada was also unsustainable because it is a publicly traded firm. 

Alibaba chose, therefore, in 2016 to purchase a majority share of Lazada. The company bought 51% of the company for $1 billion.

One of Alibaba’s co-founders, Lucy Peng, succeeded Maximilian Bittner as the company’s new CEO in 2018. She resigned from that position in December 2018. Lazada co-founder Pierre Poignant has taken her place.

Lazada has also acquired and invested in many businesses that it has integrated into its platform. The most famous acquisition of the company in its acquisition of Singapore-based food delivery startup RedMart in 2016.

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Who are the Competitors of Lazada?

Lazada competes in a wide variety of consumer goods categories, making Zalora and Harvey Norman possible competitors. The analysis will solely look at competitors with a marketplace model to keep things simple.

Lazada’s four main competitors are Amazon, eBay, Tokopedia, and Shopee.

There are also Carousell and Bukalapak in the space. 

Lazada is rumored to be in merger talks with Alibaba regarding the latter. The combined company would immediately become the market leader in Indonesia.

Can Lazada ship and operate internationally?

Lazada Global Shipping is the name of the service (LGS). Apart from Southeast Asia, Lazada has just begun enabling merchants to ship items globally. Therefore, Lazada will handle all aspects of fulfillment, from packaging to shipping.

Key Takeaways from Lazada Business Model

Lazada is an international technology company based in Singapore that specializes in eCommerce. It was created to replicate Amazon’s business model for the underserved Southeast Asian market.

The startup company was founded by Rocket Internet, a venture capital firm specializing in technology.

Alibaba acquired the company for $4 billion due to the company’s excessive capital burn rate.

The buildup of Lazada has undoubtedly been expensive, but it appears to be leading the charge for Southeast Asian commerce supremacy.

It began implementing a comprehensive shopping experience for retailers and consumers alike. Lazada will attempt to emulate grab and Go-Jek by expanding its offerings and forming partnerships to become one of the region’s “super apps.”

Lazada charges merchants in the Lazada Marketplace a transaction fee ranging from 1% to 4%. The fee on sales in the upscale LazMall might reach 5%.

You can join Lazada’s membership program or sign up for meal delivery as part of its services. Consumers and merchants benefit indirectly from the corporation’s increased access to credit and payment choices.

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