IndiaMART.com’s successful business model featured on CNBC as analysed by McKinsey

CNBC,

CNBC: It seems that not all dotcoms have been affected by the slowdown. Strange as it may sound, a few websites are actually making profits! Namarata Tandon caught up with one such dotcom- IndiaMART, and found out what makes it tick.

In trading is a small export house that specializes in wooden furniture. In 1996 they set up a website to attract overseas buyers. It was a wasted investment because not one customer came to their site. In 1999 they were approached by IndiaMART.com with the promise of a redesigned website, a listing on IndiaMART’s online directory and guaranteed response from importers.

Vikram Jain (Proprietor, Intrading- a client of Indiamart.com): The result was that we went from not having any traffic at all to getting a yahoo registration approved within a year. We also got, possibly, I think about 20 emails a day coming in from no emails coming. (From) Enquiries that we generated, we completed orders. We started doing business on the Internet which we never earlier thought possible.

CNBC: IndiaMART.com is an online directory of Indian exporters and manufacturers. The site lists nearly 70,000 Indian firms under 450 categories. There are other Indian B2B directories on the Net, but what makes IndiaMART more successful is their strategy of getting high visibility on search engines.

Dinesh Agarwal (Founder & CEO, IndiaMART): (Thinking of) Internet as a medium, the first and foremost thing that comes to one’s mind is going on to online directories, or online search engines for searching any product. We thought if we are able to do some promotion on Internet search engines, most of the worldwide buyers would be able to find us immediately through the search engines.

CNBC: This strategy allows IndiaMART to guarantee buyer queries every month. This combined with the fact that listing on the site is free of cost makes IndiaMART a very attractive option even for those who are not actively seeking to promote their business on Internet. Once business from the Net starts pouring in, clients are encouraged to develop online catalogs- their own webpages linked to IndiaMART’s site. The prices are steep but customers still come to them in the hope of getting of being part of a highly visible B2B site.

Ashutosh Padhi (Associate Principal, McKinsey): There is nothing distinctive in the strategy that they are pursuing. Many other companies have tried to follow a strategy that is very similar to what IndiaMART has done. Where I think IndiaMART has done an extremely good job is that they have managed to match cost to revenues. Therefore, despite that fact that their revenues have not grown dramatically, and are still at US$1million level, their costs are actually much lower than that and as a result the company is showing a profit.

CNBC: From three people in 1996, the company has grown to 170 people spread over offices in three cities. Revenues in 1999 were 135 lakh rupees. In 2000 they rose to 287 lakh rupees- a rise of 112%. Profits during the same period doubled from 6 lakh to 14 lakh rupees, and the operating profit margin from 9.97% to 12.09%. It was the only dotcom which showed any profits in the Netsense-Business World Survey conducted in May this year. IndiaMART has recently launched B2B auctions on its site and is hoping this would be a major revenue earner two years from now.

Ashutosh Padhi: I see this as a company that will continue to be a very interesting player within a certain niche. Today I am hard-presed to visualize a scenario in which this would be a 50-100 million dollar company five years out, but I would argue that with the cautious approach that the management of this company seems to have, they would probably be continuing to make profits and they would continue to have made progress and acquiring more revenues and customers within the space in which they operate.

IndiaMART has combined sound business practices with an understanding of the new economy. It has grown slowly and steadily, away from media hype and hopes to leverage on its solid Net presence in the years to come. Namarata tando, CNBC India, New delhi.

CNBC: Well, hype doesn’t always ensure success…