After hundreds of e-commerce companies catering to individual buyers opened up in India in the last five years, the firms are looking at the business-to-business (B2B) online commerce space. While companies like Paytm and Shopclues which still get most of their revenue — as high as 90% — from their consumer driven business, they expect a faster growth in B2B business.
The B2B business mainly caters to the millions of small and medium businesses which can reduce cost and build scale with the help of the internet. According to market estimates, the B2B online commerce space is expected to grow 2.5 times by 2020 to $700-$750 million. And will eventually follow the global trend — the B2B e-commerce business is valued at $1.7 trillion — twice as big as the B2C e-commerce business.
These sites sell products like safety alarms, switches, relays, pumps, motors, hammers, pullers, plumbing tools, power saws, drills, finishing tools, pipes and valves, among million of other products that enterprises need. All these are available at 15-40% lesser price than in the offline market.
Meanwhile, there are at least three players apart from Paytm and Shopclues that are exclusively targeting the B2B segment: Tolexo, Industry Buying and Power2SME.
While all three are looking at catering to the same sector, which is enterprises, their models are different.
Tolexo, which is a subsidiary of IndiaMART, the online discovery and connecting platform for businesses with Rs 350 crore in revenue, is building a marketplace for sellers who cater to both SMEs and large enterprises. Similar to Flipkart or Snapdeal, the platform is a aggregation of sellers.
Industry buying is based on the same model.
“People are buying things for their home and for themselves, there is nothing for office and enterprise use,” said Dinesh Gulati, director at IndiaMART.
Tolexo has already got 8,000 sellers in six months and has 5,00,000 stock-keeping-units. The business is rewarding as well with net margins of 10-15% if the company is in steady state at an average transaction size of Rs 1,500.
However, Gulati said, “Tolexo is in expansion mode. It is focused on getting more merchandise rather than focusing on revenue.”
Swati Gupta, CEO of Industry Buying, said small businesses in smaller towns pay a lot more as their order sizes are small and transportation is a big cost. “About 50% of our transactions come from tier-II and tier-III cities,” she said.
It does 1,000 transactions everyday with an average transaction size of Rs 3,000.
Unlike Tolexo and Industry Buying, Power2SME aggregates a lot of small orders from SMEs and consolidates it into a big order before placing it to a company like Essar, Sail, or an ONGC. It deals in products like steel, rubber and cement.
“We take a lot of orders, and go in as a large buyer. It is all about scales of economy. Most SMEs who are buying from us are getting it at 3-4% lower, and this goes straight into profitability,” said R Narayan, founder and CEO of Power2SME.
Narayan keeps a commission of the total deal size, which is in the range of Rs 12-15 lakh per order, and one consolidated deal consists of at least 10-20 such orders. Power2SME has an annualised gross merchandise value of Rs 400 crore, growing at 300% year-on-year. However, this is just the beginning and all start-ups are in losses at Ebitda level, and expect to become profitable in the next couple of years. The business will require a lot more investment.
Tolexo has made $2 million of investment in building a mobile app, and is looking at raising money soon. Industrybuying has raised Rs 60 crore from a clutch of venture capitalists. Tolexo’s Gulati believes that growth in internet and increasing number of smartphones will immensely benefit the business. “If by 2017 internet penetration becomes 40%, Tolexo can go up to an annual GMV of $4-5 billion,” he said.
For consumer B2B companies like Shopclues the expectations are equally high.“Our B2B business is 10% of our total GMV, which we expect to grow to 25% in the next few years,” said Sanjay Sethi, CEO of Shopclues.