- Carousell is on its way to becoming Southeast Asia’s next unicorn
- Investment from Naver will accelerate it’s “classifieds 4.0” strategy
- Pushing transactions in general goods, while verticalizing in autos and property
Carousell Group, the Singapore-based online marketplace company, is on its way to becoming one of Southeast Asia’s next unicorns. In less than a decade, the company has gone from scrappy startup with an initial $5,000 U.S. investment to an online classified giant with operations in seven Southeast Asian countries and an estimated $900 million U.S. valuation.
With plans to reach profitability in the next three to four years, it’s verticalizing its automotive and property segments while implementing transactional capabilities for general goods and autos. It’s a growth strategy Carousell calls “Classifieds 4.0” and the basis for which it received an additional $80 million U.S. in funding in September from a consortium led by South Korean tech company Naver Corp., the creator of messaging app Line.
“Carousell has built a tremendous platform enabling people in the region to transact more effectively and efficiently. We believe its focus on the products and community will be further consolidating its market-leading position,” Jung An Lee, head of investments at Naver, said in a statement.
Carousell’s co-founder and CEO Quek Siu Rui said the deal means Naver and Carousell will work together to share technology and insights to “make buying and selling even simpler, effective and more inspiring.”
This strategy is a familiar one for Carousell, which has merged with a number of its competitors in order to develop faster and share the knowledge and insights of experienced backers.
High-profile mergers drive market dominance
In July 2019, Carousell and OLX Philippines (including its real estate vertical Property24) merged, in exchange for a $56 million U.S. investment from Naspers, roughly equivalent to a 10% shareholding in Carousell. Later that year, Carousell merged with the Telenor-backed 701Search, which brought the horizontals Mudah in Malaysia, Cho Tot in Vietnam and OneKyat in Myanmar into the fold. Unlike the OLX sites, which were folded into Carousell, the 701Search sites remain distinctly separate brands. The 701Search merger also involved a $20 million U.S. investment from Telenor, a Norwegian telco that actively invests in marketplaces.
“Carousell seems to have the pragmatic view of let’s make markets function and merge, and be the leader and reduce the friction of competition — let’s all share in the upside,” Shaun Di Gregorio, the founder and CEO of marketplace operator Frontier Digital Ventures, told the AIM Group.
“Maybe that’s been borne out of the fact they did grow really quickly and they found that dominating a market is probably not, in the economic sense, the most productive path — it just means you’ve got to spend a ton of money, knock out well-funded competitors, and be pretty brutal in everything you do to get there. In emerging markets, the economics require a clear market leader as quickly as possible.”
Indeed, despite impressive growth in users and traffic, revenue has been a slow trickle. In 2019, Carousell’s total revenue was reported to be around $40 million U.S., of which $16 million was from Carousell itself and the remaining $24 million the result of its merger with 701Search. Of course, for a region where it’s notoriously difficult to generate revenue with classified listings, that result puts it far ahead, of many of its vertical competitors.
Verticalizing in automotive and property
More critically, the two mergers allowed the company to push further into the automotive and property verticals, where it expects to grow revenue more quickly. In 2019, the company launched a property vertical in Singapore and in 2020 it rolled out another in Hong Kong; it’s also sharpened its focus on real estate in the Philippines by rebranding Property24 as Carousell Property.
In Singapore, this puts Carousell in direct competition with PropertyGuru, which recently took over REA Group’s assets in Malaysia and Thailand.
In automotive, the company is trying to figure out how it can make buying and selling cars as seamless as possible. The company already has strong relationships with dealers in Malaysia and Vietnam through horizontals Mudah and Cho Tot, respectively.
“We have a very good position here in all of our markets when it comes to loyalty and stickiness with the buyer community,” Gaurav Bhasin, the CEO for Malaysia and chief strategy officer at Carousell Group, told the AIM Group. “If you want to buy a car, we’ve got some of the best variety, the best way to do matchmaking in the classified space.”
Automotive is responsible for just over 30% of Carousell’s total revenue. The challenge now, he said, is how the company can transform its traditional classified businesses — where dealers pay to list cars — into transactional offerings.
Singapore as autos test market
Currently, the company is using Singapore, where it’s made several automotive-related acquisitions, as its pilot market. Through the 2019 acquisition of OneShift, a car-valuation and data-insights service, and Revo Financial, a dealer-led auto finance tool, Carousell has rolled out a transactional platform called SwiftQuote.
On SwiftQuote, individuals can get a free car valuation, receive bids from dealers willing to buy their car, or list it on Carousell to sell privately. They can also apply for car loans and insurance, and request a free, pre- purchase vehicle inspection of a car they intend to buy.
Of course, what works in Singapore isn’t guaranteed to work in other markets. Due to government incentives, cars in Singapore tend to be no more than 10 years old and are inspected regularly to ensure their roadworthiness. As such, buyers have more confidence to buy a used car without a warranty — though Carousell offers the pre- purchase inspection for buyers who need additional peace-of-mind.
In markets like Malaysia and Indonesia, cars are generally much older and the company knows inspections and certified cars will be needed to give buyers confidence to transact even just partially online. The question is: Who does the inspection? Most other marketplaces have their own inspection centers and a team of vehicle inspectors. But Bhasin said Carousell is trying to figure out if that model will work at scale.
“One inspector can only do one inspection in 45 minutes to an hour … so that’s one of the key areas we’re trying to invest our time and energy into,” he said. “We’re trying to solve that problem of how we scale up inspections.”
Figuring out inspections
It’s in this area of certifications that the company is drawing on insights from the general goods category of the Carousell marketplace to determine how buyers and sellers might respond to different certification initiatives. For instance, can cars be certified by the dealers selling them? Or does the certification need to come from a third party? How do you tackle certifications in the c-to-c segment?
“That is where our learnings from what we’re doing in the e-commerce space — whether it’s luxury bags or small electronic items —- are going into the automobile space,” he said.
The general goods segment is where Carousell’s transactional capabilities are most advanced. In Singapore, Taiwan and Malaysia, it offers payment and shipping services. In Singapore, it also operates a smartphone certification program that provides buyers with a 12-month warranty, free tracked shipping, and a seven-day exchange if a buyer changes their mind.
“That’s giving us a lot of insights into how the user experience has to be tailored to give confidence to buy a phone online,” Bhasin said. “And it’s giving us lots of insights into bringing the right partners into place because either we can do it ourselves or we can speed it up by getting the right partnerships.”
Logistics has been the trickiest part. Then need to be low cost, convenient and as easy as possible to encourage users to complete transactions online.
Carousell has arrangements with businesses so sellers can bring items to a central drop-off point — in Malaysia that’s the post office, but in Taiwan it’s any 7- Eleven.
Carousell’s strategy director Kaijie Ng told us the key to using central delivery and collection points is to strike relationships with businesses that are already a part of daily life. “People in Taiwan go to the 7Eleven every day,” he said. “So, the adoption rates in Taiwan are much higher than in other markets.”
Even though Carousell offers escrow for all items, Ng said it’s still hard to get buyers to complete transactions online for high-value items. “They’re nervous about the escrow service. People aren’t sure how the dispute- resolution service works — they worry it will be a ‘he said, she said’ situation.”
Likewise, some sellers would prefer to meet in person rather than wait for funds. Resolving some of these issues comes down to educating the market, but the company is looking at practical things it can do, too. “We’re trying to shorten the payment times once the buyer confirms they’ve received the item so that the funds are released instantly to the seller,” Ng said.
The transaction business is presently broadly margin-neutral as it focuses on getting to scale. Its other verticals are generating revenue, though the company remains unprofitable. Still, it’s in an enviable position: it is strong in all of its verticals and is either the market leader or the No. 2 in all of its markets. Now it just has to execute on its well-planned strategy to reach profitability — and unicorn status.