ECxFAQ is a Q&A format I’ve started to answer some of the questions I get asked most on Entrepreneur Campfire.
One of the most common questions I get asked about selling on Shopee is this:
How is it possible for Shopee to charge zero commissions… and zero payment fees… and offer shipping subsidies on top of that?
That’s a good question.
From a purely business perspective, it won’t make any sense. It almost feels like Shopee is even paying you to sell on its platform.
So what gives?
As business owners, it may be hard for us to imagine why Shopee would build this platform, let you sell on it, let you earn money on it, but not charge for it?
But for Shopee and the company behind it, it makes a lot of sense.
Shopee is in a very competitive space.
Before Shopee was even launched in 2015, other marketplaces like Lazada, 11Street, Lelong, Qo100, and eBay Malaysia had already built their foothold in Malaysia.
In the words of Renée Mauborgne and W. Chan Kim, authors of the Blue Ocean Strategy, Shopee started in a very, very red ocean.
Buyers and sellers who have been comfortable buying and selling on existing platforms would find it difficult to switch to a completely new platform.
So in order for Shopee to persuade buyers and sellers to at least give Shopee a try, Shopee would need to give them a good reason or incentive to do so.
One of the ways to attract sellers to the platform is to offer them something that other online marketplaces are not offering. And in this case, some obvious ones were: zero commissions, zero payment fees and subsidized or even free shipping.
This, in turn, would translate into lower prices on Shopee compared to any other online marketplace in Malaysia, attracting customers to the buy on the platform.
Offering these incentives, as you might have guessed, doesn’t come cheap. Since launching Shopee, its parent company Sea Group has made a loss of $251.6million.
But this money has not been spent in vain. To date, it has In Malaysia, Shopee has surpassed Lazada as the most popular shopping app.
But the money is not being burned in vain. All the money has translated into big gains for Shopee. Today, Shopee is the most popular e-commerce app in Malaysia, ahead of former champion Lazada.
In fact, thanks to what Shopee is doing, Lazada has also dropped its commissions to zero recently. For buyers and sellers in Malaysia, this is a double win as the cost of things and doing business continue to drop, allowing for higher profit margins.
As sellers on Shopee, most of you will most likely be most concerned about this question:
Will Shopee keep these zero commissions and subsidies forever?
I do not have any inside news about Shopee’s plans, but in the end, every e-commerce marketplace wants to make profits.
Whether or not they will one day begin charging commission on the platform depends on which business model Shopee adopts. There are business models that enable Shopee to maintain its platform as commissions-free.
In the mid-term however, Shopee is focused on growth. With strong competitors like Lazada following behind Shopee’s every move, it will be an arms race that won’t end anytime soon.
I hope this has answered your questions about why Shopee has chosen to waive their commissions and shipping.
If you have any other question, send them to me here.