Q&A: Rocket Internet's Tito Costa

Q: Rocket claims to be the world's largest internet incubator. What is the secret sauce?

A: I have started 6-7 companies in 15 months, in Italy, Pakistan and Southeast Asia. It's about the people - you have the guidance of entrepreneurs who've done it for 10 years or more, so there is a well-defined method. We've gone from day one, when we take the investment decision, to live launch in 3-4 weeks. Rocket as a central entity develops the IT platform and in many cases it has already been developed, because we have launched verticals in several countries. We apply the same processes and key performance indicators that we've developed across the globe. Although we have to apply them in different regulatory environments and local situations, I would say the footprint, model and mindset is the same. We take on the market risk of acquiring enough customers at a reasonable cost and getting the customers to buy enough to make it profitable in the long run.

Q: In the past there have been quick turnarounds, such as selling auction site Alando.de to eBay in less than 100 days after launch. When you talk about the long run, what is the timeframe for returns?

A: Asia is a long term bet. It takes time to get to the scale you need in e-commerce. It took more than a decade to bring Amazon to profitability. Our European venture, Zalando, got to profitability in less than half that time and we are now seeing even faster developments for Rocket's second- and third-generation of e-commerce companies where we are applying knowledge acquired from all over the world. In the end what matters is building a valuable business.

Q: What is the strategy for Southeast Asia?

A: Our approach is to play the fragmentation in Southeast Asia, the different languages and cultures, to our advantage. We have decided to go for a localized structure in all of our ventures, from marketing to selection of merchandise. For Zalora [an online fashion retailer], we need to provide local brands and styles that are relevant. Indonesia and Malaysia are Muslim countries so we need to provide a Muslim collection, and then Vietnam and Philippines have different needs. We have to differentiate ourselves from Asos, which ships from London or from Amazon.

Q: Is the decision-making centralized?

A: We use a two-tier structure, with a regional team and managing directors that look over the regional software development, mobile development, customer relationship management, and on-site marketing. Then in each country there's a team running the daily business, the local marketing campaigns, operations and buying teams. We centralize what we can, but we are very locally-driven and this will be a key competitive advantage in the long term.

Q: How is Southeast Asia different from other emerging markets?

A: Across the region mobile is very relevant in terms of our traffic. It already generates 25% of our revenue, which is pretty large compared to other markets that we've seen and it is set to grow faster as PCs are substituted by tablets and phones. We've launched a mobile-optimized website to meet that demand.

Q: Of the five ventures operating in Southeast Asia, which are the best performing?

A: Zalora and Lazada [another online retailer] are the two key investments in the region and they are doing well. Zalora has seen average month-on-month revenue growth of 15-20%, doubling every six months.

Q: Zalora has raised over $126 million in the 12 months since its launch, while Lazada has received around $236 million. Why have the ventures been able to raise capital so quickly?

A: Rocket's track record has helped the Asian ventures attract funding from existing and new investors. Our successes include Zalando in Europe, Brazil's Dafiti and Lamoda in Russia. Southeast Asia also has very strong macroeconomic fundamentals that have attracted foreign investment. It's a unique window of opportunity to enter the market, build the needed infrastructure and own the nascent e-commerce verticals, while building significant barriers to entry.

Q: Are local partnerships part of the strategy?

A: We have developed a number of local partnerships. We are working with banks on credit card discounts and cross-marketing in all of our countries. On the operations front, Zalora has partnered with the 7-Eleven retail chain in Singapore. Our customers can pick up orders there, and it now accounts for a significant portion of our deliveries. We are developing this as a pilot program in Singapore and looking into similar tie-ups in other countries as well.

Q: Why were office supply specialist OfficeFab and furniture venture Home24 shut down?

A: These are still active in other parts of the globe but they've been pulled from Southeast Asia. It's a long-term market penetration and domination kind of discussion. We go in with a certain hypothesis of growth and revenue. Sometimes you're not able to guess how the market will react. If the hypothesis is not confirmed within 3-6 months then we decide to pull out.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Venture
• Europe
• Technology
• Early-stage
• Rocket Internet
• seed
• Venture
• Technology
• TMT