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Opportunity for startups to grow through cheap digital ad buys has gone, says Zalora boss

Quek Siu Rui, Tito Costa, Veronica Chew and Tito Costa

Quek Siu Rui, Tito Costa, Veronica Chew and Newly Purnell

Singapore-based online fashion retailer Zalora launched its brand using almost only digital media three years ago, but regional boss Tito Costa said today that the opportunity is closing for startups looking to take advantage of relatively cheap online media buys in Southeast Asia.

The company backed by Rocket Internet initially spent 90 per cent of its marketing budget on the internet, but the earlier years since launching presented a “peculiar opportunity” for startups looking to advertise online, Costa shared at the Wall Street Journal’s TechCafe event in Singapore this afternoon.

“It’s simple to build a business around online. It’s simple to build value versus acquisition cost and it allows you to scale channels and gain more customers. We chose not to spend on those that don’t bring in as much value,” he said of the company that hired 1,000 people within six months of launching in Southeast Asia after receiving US$100 million in funding.

“Early on, we spent on the likes of Google and Facebook, taking advantage of the opportunity to reach a lot of people at low cost. But over the last two years in Southeast Asia, with more players entering the market, that opportunity seems to be coming to an end.”

“Previously, advertisers were not spending online, they were spending on traditional media, so there was a big opportunity as the cost per click was very low. You could build a large audience without investing too much. It was a very peculiar opportunity.”

Zalora ad

BBH ad for Zalora

Zalora has since spent significantly on traditional advertising, hiring the likes of BBH for regional brand pushes in key markets Malaysia, Indonesia, Singapore and Vietnam. Tech In Asia reported that, in 2012, Zalora launched a marketing offensive that led to net negative income of US$91 million in 2012, according to leaked documents.

In the year ahead, Costa says that Zalora plans to launch pop-up stores to encourage new customers to signup for its e-commerce service. “We learned that in the fashion vertical you cannot download the touch and feel of a product,” Costa said. He said the firm also plans to improve its mobile offering.

Quek Siu Rui, the twenty-something co-founder of Singapore-based peer-to-peer mobile marketplace Carousell, which has received funding to expand into Malaysia, Indonesia and Taiwan, shared at the WSJ panel discussion that when the company launched it did not spend any money on marketing.

“We didn’t spend anything on marketing in the beginning because we had no money to,” said Quek about the firm which has since received backing from Sequoia Capital.

Carousell“When we first launched we focused on the product and making it good enough. When we’d done that, we went about building a community through non-scaleable methods, going to flea markets and personally engaging with people to paint a picture of what a better marketplace looks like.”

“The first community would set the tone for the market. We wanted to solve the problem of the empty marketplace. We seeded it manually, going from community to community, growing gradually. Then the network effect kicked in – without any spend on marketing at all,” he said.

“The focus was on making the seller successful,” he said.

WSJ+The TechCafe was the first in a series of events from Wall Street Journal’s new subscriber loyalty programme to be held in Singapore, and also featured Veronica Chew, co-founder and CMO of Healint. It was moderated by WSJ reporter Newly Purnell. The programme, called WSJ+, consists of a series of events and special offers, including free access to Evernote Premium and HarperCollins e-books.

The Dow Jones-owned title was the first international newspaper to launch a global subscriber loyalty programme.

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