The Roll
Out Continues
Electronic commerce in industrial
goods and commodities is thriving in India,
and companies are developing innovative business models to tap it
Cover Story E-Biz: B2B
Exchanges
| SNAPSHOT |
| Industry
size.
NA |
Key
players. Alibaba,
IndiaMART, Matexnet,
Metaljunction, Tradeindia |
Profit
perspective. 10-15%
margin on transaction-led business; higher in non-transaction
business |
| Online share.
$100 bn
($15-20 bn by exchanges) |
Current
growth rate. 40%
|
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. |
