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I have been thinking of buying a DSLR to learn photography for a long, but a good camera does cost a lot of money. Being an amateur, I don’t think investing this much at an early stage is necessary. I’m not sure whether I will get time to pursue my newfound hobby with the job that I recently started. Hence, I finally decided to get a second-hand camera, and what better place than OLX to find some good deals?
When you think about the C2C marketplace, the first thing that comes to your mind is OLX. The primary reason being its quirky campaigns. I saw some of these advertisements years ago but still remember them because of catchy slogans and music.
OLX advertises how one can post ads for free on its platform and conveniently sell off anything. But are free ads the only way to advertise on this platform, and how does OLX make money from its business model? To answer these questions, let us take a look at the business model of OLX.
How did OLX start?
An online marketplace for buying and selling goods and services, OnLine eXchange also known as OLX Group was started by Fabrice Grinda and Alec Oxenford for developing countries when they realized that larger players in this segment (like Craigslist and eBay) don’t intend to enter these markets.
Fabrice and Alec saw this as an opportunity and started working on creating such a mobile-friendly platform and could easily be integrated with social networking websites. As they targeted developing nations, where people didn’t have access to good credit facilities, they started providing free service.
OLX started with its launch in Argentina in 2006, and slowly the company entered other markets in Latin America, Asia Pacific, Africa, and Eastern Europe. In 2009, OLX was launched in India.
Naspers, an internet and media giant from South Africa, acquired OLX in 2010. Today, the company is present in 40+ countries with a strong presence in India, Pakistan, Brazil, Portugal, Poland, Ukraine, Nigeria, the Philippines, and Kenya. It has 300 million monthly users worldwide.
Business Model of OLX
Any person who wishes to buy and sell goods and services is an OLX customer. Both buyer and seller need to create an account on the platform. The seller needs to upload pictures of the items they wish to sell along with a brief description and selling price.
The buyers have the option to get in touch with the seller via a chat option on the website or their phone number, negotiate the price and then complete the transaction. OLX doesn’t charge any commission from either the buyer or seller and just works as an intermediary to connect the 2 of them.
Competitors of OLX:
Overall, Quikr and Sulekha are some of the biggest competitors of OLX in India. Since OLX is like a classifieds portal with a presence in various categories like mobile phones, automobiles, jobs, properties, furniture, services, etc. it faces competition from various players in each segment it operates in. Hence, it competes with multiple players at once.
|Segment||Example of Competitors|
|Automobiles||Cars24, CarDekho, carwale|
|Properties||99acres.com, MagicBricks, NoBroker|
|Mobile Phones||Bigger players like Amazon, Flipkart, provide refurbished phones and the option to exchange old phones while buying a new one.|
|Jobs||Naukri.com, LinkedIn, Monster.com|
If OLX is free to use then how does it make money? What is the business model of OLX? Since the platform is free to use, it earns its revenue from advertisements. It primarily focuses on generating more traffic for the platform so that it can attract more advertisers. The following are the sources of revenue for OLX:
Ads can be posted for free on OLX, as a result of which a lot of ads are posted on a daily basis. So, if I post an ad today, in a day it might go from the first page to the second or third page or maybe even further.
To make my ad stand out, I can buy packages where I pay a fee to OLX so that the ad placement gets better. This helps get more traction for the ad and eventually makes it easier for me to sell the product.
The pricing for this service depends upon the category of product you want to sell, geographical location, number of days you want to run the ad, and number of ads you want to run.
The various business package options available are (these may vary according to the category chosen, but broadly these are):
- Others are post more ads and auto boost
Google Adsense Ads:
A huge chunk of the company’s revenue comes from Google Ads displayed while browsing through the OLX website. OLX advertises its platform through various channels like television, newspaper, social media handles to get traffic on its website.
The number of sellers on the platform ensures varieties of products on the page; this attracts more buyers and vice versa. This is called the network effect. There are different kinds of ad placements on the pages (main page and subsequent pages of category listing), and revenue is generated basis CPM (Cost Per thousand impressions), CPC (Cost Per Click), and CPV (Cost Per View).
- Google Custom Search Engine:
Google custom search bar is present in some countries which optimizes the search results using the custom search engine monetization function of AdSense, where the first 3 results are Google Ads (Adword Ads).
OLX Group had another strong year of global growth. We are staying on top of the industry shift from being marketing-led to increasingly product and data-led, growing through a strong customer-centric approach.Annual Report 2020
The following costs are involved in running the platform: platform development and maintenance costs, marketing (since OLX is a C2C marketplace, getting users on the platform is extremely necessary and hence, marketing costs are one of the major expenditures by the company), and customer service.
Marketing Channels and Strategies adopted by OLX
In most of the countries that it enters, OLX is usually the first player in the market and needs to create a market for itself rather than just taking the share from competitors. As a result, their initial campaigns on entering a new market are focused on educating the customers.
Initially, when OLX entered India, the majority of its campaigns were targeted at sellers talking to them about the need for selling their used stuff online. Eventually, they went on to address the doubts of buyers as well and made an effort to answer their questions related to reliability, usage, etc.
In 2013, in an attempt to educate people regarding the usage of the OLX platform, they started a puppet show ‘Bechshala’ in collaboration with NDTV.
In 2019, it rebranded itself and came up with a new logo and new features on its application and desktop platform.
Amarjit Singh Batra, CEO of OLX India in August 2017, spoke about how they use consumer insights to come up with unique and experimental ads. The idea of the “Bech De” ad came from the insight that people did not know what to do on OLX.
Another insight that helped them create an advertisement was that a lot of women, despite being the owners of goods, weren’t using the platform. With this came the “O Womaniya” campaign
After looking at a report, they found out that people were stocking items that they no more used for more than six months, collectively worth about Rs 78,000 crore. This led to them coming up with the “6 Months Break-Up Challenge”.
When OLX was new in India, it spent a major portion of its marketing budget on offline marketing like TV ads, billboards, partnerships with cricket teams in IPL, etc. With the time and the emergence of the internet, it shifted its focus to digital marketing using social media and other channels.
For OLX, India has been a difficult market as they need to reach customers present in around 1,000 cities. They have advertised in five or six languages simultaneously in different scripts targeted towards different regions.
Focus areas for OLX Business Model
- Real estate:
In 2019, real estate was the company’s fastest-growing segment as the average ticket size of real estate projects listed increased tenfold. The company decided to scale this vertical and doubled its sales team for the same.
A year later, in 2020, due to a change in its global strategy (as announced by the company), it shut down its real estate vertical, laying off people from sales and support teams. This led to OLX employees blaming the company for lack of clarity and any strategy for India as the strategy keeps changing every 6 months.
In January 2019, OLX acquired Aasaanjobs, a recruitment marketplace for blue and grey-collar jobs in India, to strengthen its jobs vertical for an undisclosed amount. This vertical was consistently growing organically over the last few years.
With this acquisition, Tim Hilpert, CEO of OLX Markets, said, “We aim to disrupt the ever-growing job market with this portal and further unify our position in the jobs classified market in India.”
- Used cars:
Historically, buying and selling used cars has been predominantly captured by offline unorganized dealers. Looking at this opportunity, in November 2018, OLX partnered with Germany-based Frontier Car Group (FCG) to launch its offline used car selling stores called ‘Cash My Car’ and started with 27 stores across 10 cities.
Today, there are 68 such stores in India. OLX took the help of FCG to set up the technology back-end for Cash My Car and later on help with the scaling up of business operations.
Users have the flexibility to sell a pre-owned car either directly on the OLX online platform, OLX Auto, or offline at a Cash My Car (which is now rebranded as OLX Autos) local store. An authorized vehicle inspection agent physically inspects the condition of the car and the documentation. Based on this inspection, the car is then auctioned online to OLX Auto’s partners across cities. As per OLXs’ claims, the entire process can be completed in 45 minutes.
Currently, OLX Autos is one of the biggest focus areas for the company.
Future of OLX in India
As OLX is present in a number of segments facing competition from numerous players focusing on specific areas as well, its market share has declined in multiple geographies, leading to its exit by selling/merging the local business units with dominant players.
This along with the sudden exit from the real estate vertical in India shows that the company’s management lacks clarity about their future strategy.
All this has been possible because of the first-mover strategy adopted by OLX and its TVC commercials in the initial days which left a mark on people’s minds. Since the company has a large presence, the only thing on which OLX needs to focus is the categories on which it is spending its money and resources along with a long-term plan on how they are going to go about the vertical expansion.
In the OLX Group, we shape the future of trade to unlock the hidden value in everything. We deliver superior customer value by creating a flawless user experience, underpinned by proprietary technology and data. Although we are proud of what we have accomplished so far, we will continue to grow the value of our business by innovating to solve all friction points in trade, both through online and offline productsMartin Scheepbouwer, CEO OLX Classifieds
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