In August last year, Tiki.vn, commonly called the Amazon of Vietnam, secured series B funding of possibly up to $3 million to tackle the general e-commerce market in Vietnam. In December last year, Lazada, which operates general e-commerce sites across Southeast Asia, secured $250 million in funding to take on the region, a percentage of that going to Vietnam. Now, Vingroup, one of Vietnam’s biggest companies, with an almost $3 billion valuation and properties ranging from malls to resorts, is about to pump more than $30 million into becoming the e-commerce leader in Vietnam within five years. That’s right, the e-commerce battle in Vietnam just got much more interesting.
Vingroup’s vice chairwoman and former CEO Le Thi Thu Thuy has moved over to be CEO of VinE-com, the new e-commerce division. Thuy told Bloomberg, “after five years, we hope to be the biggest e-commerce player here.”
The estranged path from offline to online
It is not easy to take an offline business and spin off a fully online business. Brick-and-mortar businesses like Barnes and Noble learned this the hard way in its battle with Amazon.com. Amazon, which started from the beginning as an internet company, is accustomed to the margins and business model of an online business. As Brad Stone’s book The Everything Store points out, Barnes and Noble only ever saw online as a side business and neither had the foresight nor courage to put all its eggs into the online basket. This lack of dedication to an online business thus allowed Amazon to capture the market.
Will we see the same thing here with Vingroup? There’s also parallels in Vietnam for the Amazon versus Barnes and Nobles comparison. Vietnam’s Fahasa and Vinabook also went through a similar battle for the online bookstore market. Fahasa, one of Vietnam’s biggest bookstore chains, failed to build a viable business selling books online while Vinabook and its later competitor, Tiki.vn, swooped in. If most of your executives are managing the offline business, and you assign just one person to take care of the online business, the result is fewer resources and priorities for the latter. A sad ending is inevitable.
As the Innovator’s Dilemma notes, it’s companies that are capable of cannibalizing themselves that can continue to innovate and create more value and therefore money. It will take this kind of a mentality for VinE-com to really beat its competitors. Transitioning from an offline business to an online business is not easy. Does Thu Thuy have what it takes to go online? Her background, after all, is in finance.
Or will it be a browse online, buy offline play?
At the same time, $30 million is nothing to shrug off. It’s a huge number, and if Vingroup is moving its vice chairwoman and CEO to take full responsibility for it, this may indicate a real commitment. The strategy at present is unclear, but it is possible that the VinE-com group will leverage its real estate, mall, and tourism properties to promote its e-commerce products. One possible direction is for the e-commerce division to cannabilize Vingroup’s other retail properties. Another direction is getting consumers to try products offline and buy them online, or the opposite, sampling online and buying offline. The former strategy has been done before with great success at startups like Warby Parker, which sells glasses online while allowing consumers to check out at physical showrooms.
(Edited by Paul Bischoff)