Shopee Business Model | How Does Shopee Make Money?

Shopee is a popular mobile platform based in Southeast Asia that originally began as a consumer-to-consumer (C2C) platform before developing into a business-to-business (B2B) marketplace serving customers throughout the region. 

Shopee provides merchants with simple, inexpensive payment options to help them develop their businesses.

The app is an e-commerce website and has many fun sections such as live broadcasts and games. 

Additionally, it rewards users with coins, discounts, payback coupons, and freebies, which may explain why it is so popular.

Shopee is a mobile-only marketplace that emphasizes social selling. It’s an open platform, which makes getting started simple. 

Shopee Prefers Sellers are well compensated for their efforts; ratings and reviews largely determine how well you do on this platform.

What is Shopee?

Shopee is an online marketplace connecting businesses and consumers interested in products such as electronics or fashion.

Shopee earns money from marketplace commissions, transaction fees, cost per click advertising on its platform, fulfillment services, and payment processing fees, as well as commissions from restaurants. Shopee is a marketplace-based company.

Shopee, which was founded in 2015, has grown into Southeast Asia’s largest online marketplace. Shopee alone generated $1.78 billion in sales in 2020.

Company NameShopee Pte Ltd
Company TypePrivate
FoundersForrest Xiaodong Li
ProductShopee E-commerce company
Founded DateFebruary 5, 2015
Headquarter5 Science Park Drive, Shopee Building, Singapore 118265
Location ServedAsian Countries
Websitehttp://shopee.com/

How Does Shopee Work?

Shopee is an e-commerce platform that enables users to buy and sell things. Customers can browse many product categories, including the following:

You can buy and sell Electronics, Clothing, Home Appliances, Pet Supplies, and many other items. A customer can shop on Shopee’s main website or through the Mall. 

You can only shop at Shopee Mall for products from well-known and respected brands, like Adidas or Samsung.

Similar to Amazon, brands are not the only sellers authorized on the marketplace. The basic concept is that everyone can sell on Shopee if they have a product inventory.

Shopee does offer a robust educational resource to assist its merchants in optimizing their product listings.

The platform also maintains a Shopee Pros network, which allows the platform’s most successful vendors to discuss tips and receive customized help from the platform’s account managers.

Shopee introduced the Shopee Coin to incentivize buyers to return to the platform. Users can earn coins every time they purchase at the mall. The money can then be used to purchase discounted items on the platform.

Customers of Shopee can play a variety of games with a chance to win prizes apart from the buying experience. Sea Holdings, the company behind Shopee, also owns and maintains the Garena game production studio.

You can access Shopee’s platform by visiting its website or downloading its Android and iOS apps.

Shopee Business Model

Shopee derives the majority of their revenue from advertising and their payment mechanism. Their search placement provides them with cash to sustain themselves in the early days of their careers. 

It’s an important strategy because they rely solely on advertising in most other revenue streams, as Google did in 2000 to defeat their competitors.

Shopee Business Model

Their payment system processes each order, helping to sustain Sea group as well as Shopee’s income.

A monthly visit of 83.5 million people equates to almost 1 billion views a year, perhaps more as low seasons and high seasons vary. Although they are about seven times behind Lazada, their traffic is nonetheless impressive.

How Does Shopee Make Money?

Shopee makes money from commissions on its marketplace, transaction fees, advertising fees on its platform, fulfillment services, and payment processing fees. Restaurants also pay Shopee commissions.

Shopee operates on a marketplace paradigm, matching supply (sellers) with demand (customers). 

These transactions are enabled by implementing necessary infrastructures, such as payment, shipping, and product discovery.

The following sections examine the revenue streams of the company.

Advertising

Sellers can promote their products on various platforms like other online marketplaces like Amazon or eBay.

Vendors advertise their products through three distinct channels: product searches, store searches, and discovery feed.

Merchants can establish an advertising budget before marketing their products to stay within their budget.

A cost-per-click (CPC) practice then compensates Shopee anytime a user clicks on the advertisement.

The cost per click (CPC) rate is determined by several factors, including the search term’s competitiveness. The seller effectively bids on ad space, which means their ads will appear in the space for which they bid.

Marketplace Commission

The majority of Shopee’s revenue comes from commissions paid by sellers whenever they sell something on the marketplace.

Shopee is the marketplace’s operator, and it is responsible for both ordering and collecting payment.

Additionally, it offers numerous features to encourage customers to make their purchases online.

Shopee Feed offers consumers product recommendations based on their previous searches and purchases, for example. 

Furthermore, the feed provides real-time updates from friends and family, inviting viewers to participate.

A seller’s effective commission rate is determined by many factors. 

For example, the product type, market, sales volume, and whether an item was sold on the Shopee Mall or traditional marketplace are influenced.

The effective commission rate on the marketplace is between 1% and 2%. Commissions on sales made through Shopee Mall can reach as high as 6%.

Fulfillment

Shopee’s Fulfilled by Shopee (FBS) service lets sellers store and transport their goods directly through the platform.

You can either partner with a local logistics provider (such as J&T Express or NinjaVan) or use Shopee’s fleet of drivers and vehicles to deliver your order.

Each item sellers choose to store and deliver then charged a fee. The charge is based on the size and weight of the package.

Transaction Fees

Shopee charges a transaction fee (about 2%) on top of the marketplace commission to compensate service providers’ payment gateway fees (such as Mastercard or Visa).

The transaction charge applies to routine transactions and payments made through the company’s installment plans.

Restaurant Commission & Delivery Fees

Shopee started a meal-delivery service to compete with Grab and Go-Jek, as announced previously.

The price of each order is not disclosed for Shopee, but it seems reasonable to assume restaurants will compensate Shopee. Commissions are often between 20% and 30%.

Customers will also be charged delivery fees in addition to commissions.

Payment Fees

Shopee launched its electronic wallet (or e-wallet) in 2019 called ShopeePay, previously known as Shopee Wallet.

Customers can use the wallet to purchase goods on Shopee’s platform. Additionally, they can purchase goods and services from retailers who accept ShopeePay as a means of payment.

ShopeePay merchants will then pay a small percentage fee to Shopee when a customer uses the service. The rates are not made public, but it is reasonable to assume they are about 1%.

Who is the Owner of Shopee?

Singapore-based Sea Limited, formerly known as Garena, owns Shopee to the fullest extent.

Sea Limited is a publicly-traded company with a diverse stockholder base. The largest backers are. Rowe Price, Sands Capital Management, Capital World Investors, and the Europacific Growth Fund.

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What is the Funding and Valuation of Shopee?

Crunchbase reports that Shopee has raised $2.6 billion in capital across eight rounds.

Tencent, GDP Venture, Cathay Financial Holdings, and Farallon Capital Management are just a few prominent investors.

It raised $884 million more in October 2017, when the holding company went public. The overall value of its enterprises was $4.9 billion at the time. The company’s market capitalization has surpassed $143 billion today.

What is the Revenue of Shopee?

Shopee has generated revenue of $1.78 billion for its fiscal year 2020, a 116 percent increase from the prior year’s $820 million.

Success Story of Shopee

Shopee was founded in 2015 by gaming developer Garena and is headquartered in the island city-state of Singapore.

Forrester Li and Gang Ye, two Chinese nationals who came to Singapore on academic scholarships, created Garena in 2009.

For Garena, the two oversaw creating various games targeting Southeast Asian audiences, including Duke of Mount Deer and Firefall.

Garena became one of Singapore’s (and Southeast Asia’s) most valuable firms in 2014 after hitting a $1 billion valuation.

At the same time, e-commerce flourished in the region. At the turn of the decade, platforms such as Bukalapak and Tokopedia established a foothold in Indonesia.

Rocket Internet joined the fast-growing C2C market in Southeast Asia in 2012 when it launched Lazada, another C2C platform.

It began investing hundreds of millions of dollars in an endeavor to develop Lazada in all of the region’s major countries.

Entering the region with a large capital infusion enabled Lazada to swiftly establish itself as the market leader in each of the companies in which it operated.

Garena’s executives, who were privy to this development, decided to diversify the company’s operations beyond gaming and into the e-commerce market.

Shopee Business Model

They hired Chris Feng, a seasoned McKinsey consultant, former Managing Director of Rocket Internet in Southeast Asia, and former Chief Purchasing Officer of Lazada, as CEO of Garena’s e-commerce subsidiary.

Shopee was launched to the public in the summer of 2015, following months of hard labor. What distinguished it from competitors such as Lazada was that the platform was initially released exclusively as an app.

Most internet users in Southeast Asia do not own laptops or other stationary desktop equipment and instead use their smartphones to access the internet.

To that extent, Shopee identified the pain points of competitor platforms and ensured they were addressed immediately upon launch.

For example, it developed its safe payment method (dubbed Shopee Guarantee). Funds are initially transferred to a separate Shopee-owned bank account before being delivered to the seller upon successful delivery.

This was in stark contrast to other C2C sites, such as Carousell (a localized version of OfferUp), which had several reports of purchasers being duped during transactions.

Additionally, Shopee built a variety of social elements that boosted stickiness and trust. 

For example, consumers can communicate with merchants, follow other platform users, consume a newsfeed like Facebook, or conduct product searches using hashtags.

Finally, Shopee eliminated nearly all seller fees, making it incredibly profitable for new merchants to provide products.

Shopee was formally launched in November and December 2015, following a preliminary launch in mid-2015. It launched localized applications in each of the eight markets in which it was debuting.

Garena continued to invest in Shopee over the next year to raise awareness of the platform. Garena eventually rebranded as Sea Limited in May 2017 to emphasize their shift away from gaming.

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Sea additionally collected a stunning $550 million to fund its expansion initiatives in conjunction with the renaming. In October, Sea went public on the New York Stock Exchange, raising an additional $884 million a few months later.

Shopee used the funds to expand its features and services. For example, the platform launched Shopee Logistics Services, a fulfillment service that manages seller products’ storage and shipment.

Meanwhile, Sea proceeded to raise additional capital following its initial public offering. It raised $575 million in June 2018 and $1.4 billion in March 2019. Shopee’s sustained success even elevated Sea founder Forrester Li to the billionaire status.

Shopee, armed with a sizable war chest, was even able to indulge in celebrities. It convinced soccer star Cristiano Ronaldo to become its official brand ambassador in advance of its 2019 holiday campaign.

Meanwhile, new features such as Shopee Live, which enables influencers to host live shopping streams, have boosted the app’s popularity (particularly among Chinese users who knew these from platforms like Alibaba).

Shopee also announced an unexpected expansion into Brazil, where Argentinian giant Mercado Livre has long controlled the e-commerce business.

Additionally, Shopee benefited from escalating tensions and cultural disputes within Lazada, its largest competitor. Alibaba acquired Lazada for $2 billion in 2018 (after a $1 billion investment in 2016). 

The Chinese technology giant replaced many of Lazada’s top executives with its executives, causing a slew of internal issues.

By the end of 2019, Shopee had surpassed Lazada, Tokopedia, and others to become Southeast Asia’s leading online marketplace.

The following year, in particular, was a huge success for Shopee. Stay-at-home orders issued in response to the coronavirus epidemic resulted in the temporary closure of malls, which had been Southeast Asians’ favored means of shopping in the past.

Instead of going into stores, individuals began purchasing online, with many flocking to Shopee’s site. 

Additionally, the pandemic enabled Shopee to onboard thousands of new vendors who had previously refrained from selling their goods and services online (but were now essentially forced to).

Shopee sold almost 200 million products during the 11.11 shopping event (also known as Single’s Day) – more than double its previous year’s total (70 million in 2019).

Shopee also achieved profitability for the first time in its history as a result of its exponential development. Rather than rest on its laurels, Shopee continued to accelerate its growth.

Shopee chose to double down on its South American operations after testing the waters in Brazil. 

Not only did the site increase its employment efforts in Brazil in the first half of 2021, but it also launched in many other nations, including Chile, Columbia, and Mexico.

Along with expanding into new nations, Shopee expanded into new verticals. It launched a food delivery service in many Southeast Asian nations, competing with Grab and Go-Jek.

Despite its enormous success, Shopee ran into some barriers along the way. The site came under criticism in February 2021 for a social media post mocking victims of sexual harassment and assault.

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Then, a few weeks later, its warehouse workers in Indonesia (most of whom are hired as independent contractors) publicly challenged new policies requiring them to significantly increase their effort while still receiving a barely livable wage.

Shopee now employs around 30,000 individuals. The platform is currently available in over a dozen countries throughout Asia and the Americas.

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