How Does Shopee Make Money? The Shopee Business Model In A Nutshell

Shopee is a Singaporean eCommerce site founded in 2015 by Forrester Li which employs a typical marketplace revenue-based business model. Sellers are charged a commission fee and transaction fee for every sale they make on the platform. Shopee sells a range of ancillary and complimentary services. The company offers to take care of the fulfillment process for sellers and provides its own digital wallet as a payment option.

Aspect	Description
Commission and Fees	Shopee earns revenue by charging commission fees to sellers for each successful sale made through its platform. These fees are typically a percentage of the transaction value and can vary based on the category of the product being sold. In addition to commission fees, Shopee may charge payment processing fees to facilitate transactions, especially for payment methods like credit cards. These commission and payment processing fees constitute a significant source of income for Shopee.
Sponsored Listings and Advertising	Shopee offers sponsored listings and advertising options to sellers and brands looking to increase the visibility of their products. Sellers can pay to have their products featured prominently in search results or within specific product categories. These advertising fees are additional revenue sources for Shopee and provide sellers with a way to enhance their product visibility to potential buyers.
Value-Added Services	Shopee provides value-added services to sellers, such as premium store subscriptions, logistics and fulfillment services, and marketing support. Sellers may pay for these services to improve their online presence, enhance the customer experience, and streamline their operations. Revenue from these value-added services adds to Shopee’s income.
ShopeePay	Shopee has its digital wallet and payment service called ShopeePay. While ShopeePay offers various financial services, including peer-to-peer transfers, bill payments, and mobile top-ups, it also generates revenue through transaction fees, interest on stored balances, and partnerships with financial institutions. Shopee aims to expand its financial services offering to increase revenue in this segment.
E-commerce Advertising	Shopee may engage in e-commerce advertising partnerships with brands and companies. These partnerships involve promoting products or brands on the Shopee platform, and Shopee earns revenue through advertising fees or revenue-sharing arrangements with advertisers. These advertising collaborations further diversify Shopee’s income streams.
Challenges and Competition	Shopee operates in a competitive e-commerce market, facing competition from other major players like Lazada and regional competitors. Staying competitive in terms of pricing, product variety, and user experience is a constant challenge. Additionally, addressing issues related to counterfeit products, ensuring secure transactions, and building trust with customers are ongoing concerns.
Future Growth Strategies	Shopee’s future growth strategies may involve: – Market Expansion: Expanding its presence to new countries and regions within Southeast Asia and beyond. – Diversification: Expanding into new product categories and services beyond traditional e-commerce. – Enhanced Seller Support: Offering more tools and support to sellers to improve their online businesses. – Digital Wallet Expansion: Growing its financial services and digital wallet offerings.

Table of Contents

Background

Shopee is a Singaporean multinational tech company focused primarily on eCommerce. The company was founded by Forrest Li, a quiet and unassuming gaming enthusiast who owns the online gaming platform Garena.

Witnessing the success of similar C2C service Lazada, Li and his associates at Garena decided to branch out from gaming and enter the lucrative SE Asian eCommerce market.

Shopee was launched in Singapore in 2015 as a socially oriented mobile marketplace for the buying and selling of goods. The platform set about eliminating many of the common issues shoppers have when purchasing items on their smartphones.

A secure payment service, Shopee Guarantee, was introduced to help buyers avoid being scammed by sellers. Shopee also incorporated many features more at home on a social media site, including a buyer-sell chat option, newsfeed, and hashtag-based product searches.

With generous funding from its parent company, Shopee then invested in a distribution service that stores and ships products on the seller’s behalf.

On the back of a high-profile endorsement from football star Cristian Ronaldo, Shopee eventually overtook Lazada to become the most popular eCommerce site in the SE Asia region. Expansion into Chile, Mexico, Colombia, and Brazil followed.

Boosted by the COVID-19 pandemic, Shopee revenue totaled $1.78 billion in 2020.

During the same year, Shopee became the third most downloaded shopping app in the world.

Shopee revenue generation

Through various fees and commissions, Shopee utilizes the marketplace revenue generation model common to many platforms.

Following is a look at how the company makes its money.

Marketplace commission

When a seller makes a sale, they must pay Shopee a commission.

The exact fee charged is dependent on the product category, the total number of sales, and the location where the sale was made.

Products sold in the regular marketplace attract a commission of 1-2%. Products sold in the Shopee Mall, on the other hand, may attract a fee as high as 6%.

Transaction fees

The company also charges sellers a transaction fee of around 2% to cover the cost of the payment.

Advertising

To increase product visibility, Shopee sellers can pay to promote their products in product searches, shop searches, or within the platform’s Facebook-esque news feed.

Shopee uses the CPC model to make money. When a buyer clicks on an advert, the seller pays a small fee to the company.

Essentially, the fee depends on the competitiveness of the keyword with the seller willing to pay the most occupying the most visible position.

Fulfillment

Fulfilled by Shopee (FBS) is the name given to a distribution service allowing sellers to have their goods stored and shipped by Shopee.

The fee for this service is on a per-item basis and depends on the size and weight of the item.

Payment fees

Sellers can also opt to accept the ShopeePay digital wallet as a form of payment. When a buyer uses this service, the seller must pay an undisclosed fee to Shopee.

Delivery and restaurant commission fees

Shopee also operates a food delivery service called ShopeeFood.

Again, the rates for using this service are undisclosed. But it can be assumed that Shopee collects an order commission from each participating restaurant and charges consumers a delivery fee.

Key takeaways:

Shopee is a Singaporean eCommerce site founded in 2015 by Forrester Li. The platform was created after Li noticed the success of Lazada in the southeast Asian market.
Shopee employs a typical marketplace revenue generation strategy. Sellers are charged a commission fee and transaction fee for every sale they make on the platform.
Shopee sells a range of ancillary and complimentary services. The company offers to take care of the fulfillment process for sellers and provides its own digital wallet as a payment option. Shopee has also entered the food delivery market where it charges delivery fees and restaurant commissions.

Key Highlights

Founding and Background: Shopee is a Singaporean eCommerce platform founded in 2015 by Forrester Li, initially as a socially oriented mobile marketplace for buying and selling goods.
Marketplace Revenue Model: Shopee employs a marketplace revenue-based business model. Sellers using the platform are charged commission and transaction fees for each sale they make.
Platform Features: Shopee introduced features like Shopee Guarantee to enhance buyer security, buyer-seller chat, newsfeed, and hashtag-based product searches to create a user-friendly shopping experience.
Distribution Service: Shopee invested in a distribution service called Fulfilled by Shopee (FBS), allowing sellers to store and ship products through the platform. Fees for FBS are based on item size and weight.
International Expansion: The platform’s success led to expansion into Chile, Mexico, Colombia, and Brazil, making it a dominant eCommerce player in the Southeast Asia region.
Revenue Generation: Shopee’s revenue is generated through various fees and commissions, including:
- Marketplace Commission: Sellers pay Shopee a commission for each sale, varying based on product category, sales volume, and location.
- Transaction Fees: Sellers are charged a transaction fee covering payment processing costs.
- Advertising: Sellers can pay to promote their products on the platform using a cost-per-click (CPC) model.
- Fulfillment: Shopee offers Fulfilled by Shopee (FBS) service with fees based on item size and weight.
- Payment Fees: Sellers using ShopeePay digital wallet pay undisclosed fees for each transaction.
- Delivery and Restaurant Fees: Shopee operates a food delivery service, charging undisclosed fees from participating restaurants and consumers.
Revenue Growth: Boosted by the COVID-19 pandemic, Shopee’s revenue reached $1.78 billion in 2020, making it one of the most downloaded shopping apps globally.
Business Expansion: Shopee has extended its services beyond eCommerce to food delivery, further diversifying its revenue streams.
Key Success Factors: Shopee’s success can be attributed to its user-friendly features, secure payment services, and strategic expansion into various markets.