About three million of India's eight million SMEs have used online markets. Many large companies like Larsen & Toubro, Aditya Birla Group, Ashok Leyland and State Bank of India use them too. Importantly, almost all the B2B exchanges are already profitable and growing at a fast clip (35-40%). However, except for IndiaMART (Rs 38 crore revenues), none are willing to share actual revenue numbers. But rough estimates indicate that the revenues of most companies could be in the Rs 40-150 crore range.

Though most companies don't disclose financials, it is clear they are doing well. IndiaMART claims its top line has been growing 50% year-on-year since 2003. Its paid user base has grown from 100 in 1997 to 14,000 and generates 500,000 buyer enquiries per month.

Founder & CEO Dinesh Agarwal says the company has been able to sustain growth because it chose a listings-based business model as early as 1999. This was when transaction-led B2B e-commerce models used by global players such as Ariba and Commerce One were in vogue. Commerce One's subsequent bankruptcy in 2004 is now well documented, while Sunnyvale-based Ariba, whose stock in 2000 had a market capitalisation of $40 billion on the Nasdaq, is now a shadow of its old self.

Companies such as Tradeindia, therefore, decided to stick to a simple business model-take the offline yellow pages model online. Revenues are earned from listing fees of anywhere between Rs 3,000-13,000 per year. Considering the number of listings run into several lakh, this can add up to a sizeable revenue stream. However, until 2003, factors such as the dotcom bust and the US recession hit home hard. "We had to take losses for two years, but since the business model was built on utility and not ideas, we were confident that it would survive," says Tradeindia's Khosla.


Riding The Boom
The big acceleration came post-2003, when the Indian economy gained momentum and certain changes became evident in the SME market. "Second-generation SME promoters began to take charge of businesses, and due to better awareness of the Internet, online sourcing began to gain ground. Since then, revenue growth has been 50% year-on-year," says Agarwal.

A different model is the one that Bangalore-based Matexnet has evolved. Founded in 1995, the company runs an online marketplace for old and unwanted assets. The core of the company's business model is a specialised database that maps over 2,000 SMEs and 400 large corporates. But it goes a step further than IndiaMART or Tradeindia; It offers an online auction service. Last year, the company's auction platform handled Rs 1,500 crore and this year it expects to do Rs 5,000 crore (Read 'The Scrap Dealer' in Outlook Business, March 8). Apart from listing fees, Matexnet earns 1.5-3% of the transaction value per auction.

Another successful model is the proprietary or industry-backed e-commerce market. Kolkata-based Mjunction Services, which runs Metaljunction, the world's largest online marketplace for steel and allied products. It has sold over 6 million tonnes of steel since its inception in 2001. Backed by Steel Authority of India and Tata Steel, the portal follows a pure transaction-led model.

The company launched trading platforms for selling and buying of steel in its first year. "We were to make losses for the first four years and break-even in the fifth year. But we got a head start for we were able to address both ends of the market at the same time," says Viresh Oberoi, the firm's Managing Director. Oberoi, too, did not reveal profit numbers. As of March 2008, transactions across Mjuntion's five portals (it has since diversified into coal and auto parts, among others) stood at over Rs 10,000 crore.


Tea Industry Set To Take A Dip
Riding on the success of Mjunction, tea auctions could become the next big success in industry-backed B2B e-commerce platforms. In March, the Tea Board of India signed up NSE.IT, a subsidiary of National Stock Exchange, to implement an electronic tea auction platform for the industry. The platform, which is expected to be rolled out by the end of the year, will be tested in Kolkata, Guwahati, Siliguri, Coonoor, Kochi and Coimbatore. About 40-50% of India's annual tea produce, which is 900 million tonnes per year, is sold through these centres.

This is the Board's second attempt to take auctions online. Back in 2005, it had given IBM the mandate to develop a trading platform, but the system had to be abandoned due to software failures. If tea auctions go online, it will mean better price realisations for tea producers since the number of buyers will increase. Potentially, 400-460 million tonnes per year can be sold online.

As various models evolve and co-exist, the overall B2B opportunity here is beginning to attract attention from overseas. Last month, Alibaba, China's leading B2B e-commerce company, announced a multi-year strategic partnership with Mumbai-based yellow pages services company, Infomedia India.

Tradeindia's aggressive expansion plans this year may well have something to do with Alibaba's entry. "Competition is good, it keeps you on your toes," says Khosla. The good news is that for Tradeindia and other third-party marketplaces looking to move up the value chain, venture capital money has finally started smelling the B2B opportunity in India.