After the failure of its transaction-led B2B venture, IndiaMART is now experimenting with a SaaS product suite and credit facility. While the company is sitting on a data trove, the same could turn out to be a double-edged sword as it is difficult to roll out new technologies and products at such a huge scale.
Anish Munjal runs a car accessories business out of Bawana industrial area in New Delhi. Like most of his peers, Munjal has listed his business on all major B2B platforms including IndiaMART. Over the last five years of his relationship with the company, Munjal would routinely receive calls from its executives, often reminding him to renew his paid package. A month ago, Munjal was pleasantly surprised when an IndiaMART executive called him up with the company’s latest offering.
Munjal was introduced to Pooraa.com, a platform that enables businesses better manage orders, inventory, invoicing, and so on. As a company that has focused only on listings for the two decades it has been in business, IndiaMART’s latest offering indicates that the Noida-based company now wants to spread its wings beyond the ambit of its traditional discovery business.
To be sure, despite its market leadership IndiaMART has been long due for a technological reincarnation, backed by SaaS (Software-as-a-Service) and lending capabilities. When ET Prime first wrote about one of the oldest B2B online marketplaces in India, the company was gearing up for an IPO. Ever since its blockbuster listing in July 2019, IndiaMART’s stock has generated handsome returns for investors, and the company has realised that it needs to do more than just helping buyers and sellers discover each other to keep its growth engine chugging.
So, can IndiaMART 2.0 recreate the success of its previous avatar?
Building peripheral businesses
According to the company’s chief operating officer Dinesh Gulati, its core focus had been on solving for access to market, technology, and finance — common problems that businesses have been facing for years. The IndiaMART platform that we see today is built on that strategy and it has clicked. The company had 5.5 million registered suppliers and 82.7 million registered buyers, as per its latest annual report.
“Post the IPO, the focus area is the next level of problems to solve. We want to go beyond matchmaking by expanding our core services, so that they (the SMEs) find complete solutions on IndiaMART,” says Gulati.
In the latest earnings call with analysts, IndiaMART CEO Dinesh Agrawal had said that the company will continue to remain a technology-based platform, helping buyers and sellers meet and interact with each other while facilitating payment and providing credit financing whenever possible. “So, we continue to move closer towards the transactional route, but in a very different fashion than saying that we will work only for few categories and will do the cash on delivery and pick up the good as well,” he had told analysts.
In IndiaMART’s case, the cautious tone when it comes to moving towards a transactional route — something that every B2B platform has adopted since inception — has its roots in the company’s earlier attempts to diversify beyond listings. In 2014, IndiaMART launched a marketplace called Tolexo, run by its CEO’s brother Brijesh Agrawal. The platform was shut down in 2017 owing to dwindling sales.
“Ad business is from the Internet 1.0 era, which is very basic. Internet 2.0 is all about transaction and facilitation. But Tolexo realised that it cannot do all the transactions because logistics was not fully developed and managing inventory was very tough,” an industry watcher says.
Reasons cited for Tolexo’s failure range from the lack of a mature market for full-stack B2B models to the demonetisation of high-denomination currency notes.
According to an Edelweiss report, “In the B2B business, a fine balance between management of working capital, credit risk and growth is imperative to maximise the return on capital. Due to these challenges, only few B2B e-commerce players have been able to scale up; others have had to either entirely shut down (like Tolexo, Justbuy Live, mSupply) or adapt their business models from end-to-end transactions services to supplementary services (OfBusiness and Bizongo)”.
The Tolexo experiment will have its bearing on IndiaMART 2.0. Instead of carrying out the transactions on the platform (just like on Tolexo), it now wants to be the enabler. In fact, the sheer number of categories (1,38,000 at the last count) that IndiaMART operates in makes it difficult to own the transaction process at all times, thereby making it nearly impossible to build a reliable full-stack delivery model.
In fact, Agrawal perhaps alluded to this in the earnings call when he said that under B2B sourcing, many a time products are customised between the buyer and seller while some are non-shippable. “So we have products like trucks, cranes, elevators, JCB machines etc. So, a small portion of the products may be readily transacted… instead of picking up a few categories and going deeper there, we have taken an approach that lets us open all the categories for pricing and better cataloguing, and over the time find out a minimum common denominator,” he had said.
The common denominators for IndiaMART, it turns out, are credit facilities and SaaS, and experts believe the company is moving in the right direction. “You have to do it some time. They have the scale now and the network effect will play out. They had to do this to keep customers and suppliers interested,” says an analyst who closely tracks IndiaMART. This, according to him, can also help the platform improve stickiness as it would now have multiple touch points with several businesses which would have few alternatives.
The SaaS suite
Most B2B platforms have built at least a skeletal SaaS platform that supports buyers and sellers in carrying out transactions. For instance, Singapore-based industrial supplies e-commerce platform Moglix offers additional solutions under its enterprise and SaaS verticals. The SaaS vertical provides end-to-end vendor-management software, a contract-management platform, and a procurement-analytics platform, while the enterprise division offers cataloguing and packaging solutions besides front-end solutions for both buyers and suppliers. Gurugram-based ‘buying club’ for small and medium enterprises (SMEs) Power2SME offers additional services through its FinanSME and SMEShops verticals.
“Full-stack B2B platforms can create synergies across sales, distribution, working capital, and fulfilment, making it easier for SMEs to grow their businesses,” says Rahul Garg, founder, Moglix.
In its next stage of growth, IndiaMART wants to have a presence at different operational levels in a wide range of businesses. “Many of these SMEs don’t have a customer-relationship manager or a receptionist. So, we give cloud-telephony services while organisations with some scale do use our lead-management system. These are an integral part of the SaaS plug-and-play suite that you get on IndiaMART. This completes the entire loop of the transaction,” says Gulati.
Pooraa, IndiaMART’s new order-management system, allows businesses to manage several tasks from pricing to dispatches from a single dashboard. The service starts at INR8,800 per month and goes up to INR50,000 per month, depending on the number of customers. The 40-member team running the platform under Tolexo’s registered entity (Tolexo Online Pvt Ltd) is currently focussed on growing business in select cities such as New Delhi and Mumbai.
Courtesy of Poora
In September 2019, when Pooraa was being conceptualised, IndiaMART invested INR36 crore for a 26% stake in Simply Vyapar Apps, which provides business-accounting software for billing, GST invoicing, and stock inventory.
For IndiaMART, Vyapar was a direct fit into its model since 80% of the company’s customers used the mobile-based app on a regular basis while nearly half of them used it on a daily basis. “We believe this investment is a strategic fit to IndiaMART considering it can integrate with our lead-management system and provide a holistic customer-management platform for SMEs,” the company had said in its earnings call.
Considering the sheer size of transaction data that IndiaMART is sitting on, providing credit was the obvious next step for the company. In fact, the lack of credit was one of the reasons why the marketplace model of Tolexo did not find any takers back in 2014. “I think the challenge in B2B is that a lot of people want to operate on credit… traditional e-commerce channels operate on a prepaid or cash-on-delivery model. So, there was a fundamental disconnect,” Brijesh Agarwal explained in an earlier interaction.
And now, IndiaMART is experimenting with lending services to garner a larger share of its customers’ wallet. “We have started to aggregate all kinds of credit-based payment options on the payment gateway…. we would try and work with NBFCs to see if we can expose them to the kind of transactions that are happening on IndiaMART… but all of this will take a lot more time and patience,” the company’s CEO said in the Q2FY20 earnings call.
But IndiaMART’s entry may be a tad too late. Its peers are far ahead in the technology-adoption race. Udaan, OfBusiness, and Power2SME have been providing credit for some time now. OfBusiness even acquired an NBFC and began its lending operations just seven months after setting up the B2B marketplace in 2015. The company follows a credit-led model wherein it helps SMEs secure financing to buy from the OfBusiness platform itself. Currently, lending brings in two-thirds of its revenue. Canadian e-commerce giant Shopify has also launched a vertical, Shopify Capital, which provides starter loans to small businesses.
Obviously, the e-commerce landscape looks nothing like it was when IndiaMART started its journey more than two decades ago. But does that mean it’s too late to embrace technological evolution?
Wind on its sail
The very fact that IndiaMART is aspiring to grow beyond its core business is good news for its investors.
“If you have just one capability that is confined to listings, it is not very valuable. Listings is just discovery… you are not minting the whole lifetime value of the customer — you only have him for a transaction. He will come back to you only when the transaction is renewed,” says Asish Mohapatra, CEO of OfBusiness.
However, despite its late entry, IndiaMART does have edge on various fronts. To begin with, most new B2B companies have well-defined, narrow go-to markets, and hence they lack the scale that IndiaMART has been able to garner through its large number of categories.
Secondly, it is extremely difficult to topple a two-decade-old company whose first-mover advantage has helped it gather over 60% market share and an enviable buyer-seller database. Moreover, despite the rapid shift in B2B platforms towards transaction-driven platforms, a large section of SMEs still prefers settling payments in the traditional way rather than on a third-party platform.
And lastly, unlike the B2C segment, B2B customers are less prone to the lure of discounts and many of them end up staying with their preferred platform for a long time.
However, IndiaMART will have to deal with two big challenges. B2B is no longer the ignored cousin of hotly pursued B2C segment and investors are writing bigger cheques these days. This shift in sentiment is owing to the emergence of more sophisticated business models. For example, Udaan, with its credit and logistics support, breached the USD1 billion valuation mark in a record two years. In comparison, IndiaMART’s market capitalisation is still USD0.88 billion even after 24 years of existence.
Further, though IndiaMART is building a war chest for its new businesses, it is by far dwarfed by the sheer size of funds flowing into its rivals. And while many of its competitors cater to niche industries, some are focused on having a longer presence through the transaction chain. In comparison, IndiaMART has always been merely an intermediary between buyers and sellers.
“There is a need to facilitate the transaction and IndiaMART is far behind in that journey. The organisation’s DNA today is listings and lead generation. You can’t change it overnight. Udaan made a conscious call to enable transactions as soon as they started. In comparison, IndiaMART has always been a proponent of the fact that they would enable discovery, and transaction happens elsewhere,” says Rohit Dangayach, CEO, Wholesalebox, a B2B online mobile app-based marketplace for garment retailers.
Additionally, the company’s large database may also turn out to be a double-edged sword since it becomes even tougher to roll out new technologies and product strategies at such a huge scale. Newer players, in comparison, are nimble enough to try out new strategies and dump them if they don’t work.
As IndiaMART tries to find its feet in this new territory, the newcomers have already started innovating. While one may appreciate IndiaMART’s eagerness to stay ahead, it’s going to be a tough race for a player of this size, especially when pitted against agile, new-age competitors.