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Thursday, May 26, 2022

Indiamart And The Turf Wars Of The B2b E-com Market

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“I went to IndiaMart because traditional marketing routes, including cold calls, were not an option. I was apprehensive especially about giving out my price points but the 1 lakh I spent (on the platform) in the first year generated 400 inquiries and 30 deals. That was a good return on investment,” he says.


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Sailing steady

Karmakar tried out online marketing solutions from other companies as well—some of which he found to be complicated.

With industrial demand picking up this year, he is planning to increase his advertisement spending on IndiaMart.


Unknown to Karmakar, he, and other small businesses, are the cynosure of many eyes. For, in India’s business to business (B2B) ecommerce ecosystem, there is a turf war raging. Not just IndiaMart, this is a battleground where both established multinationals and very young startups are all eyeing a piece of the action. The pie, according to some estimates, is pegged at over $1 trillion by 2024.

Nevertheless, the market maker here is an old warrior—Dinesh Agrawal, the founder and CEO of IndiaMart InterMesh Ltd. Founded in 1999, it is one of India’s largest and oldest online B2B marketplace that lists 72 million products from across 97,000 categories. Everything from industrial machinery and building material to laboratory instruments and kitchen containers. The company claims 90 million monthly visits (on the desktop website, mobile website and mobile app). That is about 10% of India’s internet audience. The pandemic has now turbo charged the traffic. It took the firm 25 years to gain 60 million visitors per month. In just the last two years, it added another 30 million.

Moreover, in a country where generating revenue from the internet through paid subscriptions has been difficult, IndiaMart is almost unique in that 95% of its revenues come from subscriptions paid upfront. Even as the Indian economy faced many headwinds, the company grew 22% (CAGR) since 2015-16 to generate revenues of 670 crore in 2020-21. Last year, its net profit grew by over 90%. In the nine months ended December 2021, net profits climbed 7% to 240 crore from the year-ago period.


While the going seems good, investors appear to be pondering over a crucial question: can IndiaMart stave off growing competition? After all, many of the startups it is up against are well-funded. According to Tracxn, a data site tracking deals, Indian B2B firms saw $2 billion in venture funding in 2021 alone.


“B2B e-commerce has done exceptionally well over the last couple of years owing to the pandemic. Nevertheless, ecommerce occupies only a fraction of the overall B2B market. We expect a multi-year hyper growth in high double-digit percentage in the sector over the next five years,” says Amit Sharma, general partner at Cactus Venture Partners, a venture capital firm.

We will come to IndiaMart’s strategy in a bit. First, let’s take a peek at the company’s main rivals.

A two-front war

IndiaMart’s business model faces a two-front war. There are the large horizontal players on one side and smaller vertical companies on the other.

The horizontal thrust comes from Flipkart and Amazon who are sharpening the B2B play with investments focused on inventory management and delivery logistics. Udaan, a Bengaluru-based startup that started in 2016, today caters to categories that include a broad swathe—lifestyle, electronics, home & kitchen, staples, fruits and vegetables, FMCG, pharma, toys and general merchandise. It is also one of the best funded, with $1.4 billion in its kitty.

Zetwerk, which started in 2018, offers manufacturing and supply-chain services. It has raised $650 million thus far and is an indirect competition. Outsourced manufacturers are some of the biggest buyers on IndiaMart. Both Zetwerk and Udaan are unicorns, or companies with a valuation of over a billion dollars. So is Moglix, a company that focusses primarily on industrial supplies. In January, the firm raised $250 million at a valuation of $2.6 billion.

IndiaMart also faces formidable competition from other vertical players such as Infra. Market, a company in the supplies of construction material, Elasticrun, a B2B platform for rural India, and Medikabazaar that caters to medical and healthcare products.

All this interest and funding in vertical B2B ecommerce doesn’t impress Dinesh Agarwal one bit. Why is that?

“Vertical B2B ecommerce play is a fantasy,” he says. “We were around during the dotcom boom. We, too, were tempted by the craze for verticals and started a bunch of them like IndiaMart Cars and IndiaMart Handicrafts. But we quickly realized that achieving a certain threshold of monthly visitors is next to impossible. We failed at it and speedily exited,” he adds. “Without a minimum threshold, which is a number where you do not have to spend more money to get the next customer, the marketplace becomes a ghost town,” he reiterates.

The AI play

Yash Anand, 48, is a senior advocate at the Supreme Court. He went online to look for garden furniture. After scrolling through Amazon and Urban Ladder (an online furniture store), he ended up at IndiaMart’s site.

“The detailing impressed me. And the option of small orders was a real surprise. I paid 27,000 for six chairs and a table, including delivery by the third party. And this was 5,000 cheaper than the B2C options,” he says.

Individuals were never IndiaMart’s customers, and suppliers at the site mostly cater to bulk orders. The company’s artificial intelligence (AI) engine, however, has been stealthily working to shake up things a bit. They can perhaps identify and nudge even people looking for small orders to make a transaction, and at a price that is competitive.

Investments in cutting edge technology like AI is one leg of IndiaMart’s survival strategy. And while every new-age company uses exponential technologies, IndiaMart has one advantage—over 20 years of customer data.

“Our machine learning and artificial intelligence engines tell us how many of the 90 million monthly visitors our marketing teams should call back. We are able to predict this given our two decades of data. Through correlation, we can say which visitor has a realistic chance of making money,” Dinesh Agarwal says.

The company’s analytics engine also helps the sales team identify potential customers who can gain from subscriptions or premium yearly memberships. Product information and recommendations are being chiseled, much like in a B2C ecommerce site. Search solar panels and you get wattage information; look for an electric pump and you are informed whether it’s single or double phase one; type printing press and you get information around maximum printing length.

“Keeping up to date with digital capabilities is pivotal to helping B2B businesses grow and retain existing customers,” says Anand Ramanathan, partner at Deloitte, a management consultancy. “We will see the focus move towards personalization through data analytics and AI,” he adds.

Fintech manoeuvre

A second leg in the company’s strategy is a string of acquisitions. Agarwal invests in companies that complements IndiaMart but moves the needle even beyond its marketplace model. You can think of this as a pivot of sorts.

He has spent millions on acquisitions that will provide a useful service to medium and small enterprises: accounting. IndiaMart has acquired five digital accounting platforms over the last two years.

“We know how to sell subscriptions. We are profitable because people trust our services, make money from them, and are thus comfortable paying for them. Our research tells us that apart from selling and purchase transactions, the entrepreneur has one important need, which is accounting,” Agarwal explains.

In January this year, IndiaMart entered into an agreement to buy 100% stake in accounting software company Busy Infotech for 500 crore. This is IndiaMart’s biggest acquisition, thus far.

“The company aims to simplify the accounting ecosystem for the customer. Today, the ecosystem is fragmented for book keeping, GST, contingent liabilities, accounts payable and receivable or revenue per customer. For almost any accounting need, there is no unified solution. We believe that we can create a digital on demand marketplace in accounting fintech, going forward,” Agarwal says on his big-ticket purchase.

The idea, he further explains, is to offer software as a service (SaaS) package for accounting needs to his existing and potential clients.

Here, Agarwal seems to have done his homework quietly. In 2019, he acquired a 27% stake in accounting software firm Vyapar. Back then, the company had 10,000 paying subscribers. Today, it has 100,000. The penetration of goods and services tax (GST) created a massive demand for proper book keeping.

Amit Sharma of Cactus Venture Partners thinks this strategy may work.

“Selling add-on services, especially in the SaaS domain has sizeable demand. We will likely see innovation where these solutions will be taken to tier 2 and tier 3 cities, which could be a game-changer. The amount of customization and engagement models required for such penetration is likely to be different for the ones currently on offer,” he says.

IndiaMart, meanwhile, has also partnered with companies in other fintech domains, such as payments.

Its partnership with Tazapay, for instance, will help the firm launch international payments and take on the big daddy of the field—PayPal.

“With Tazapay, we are now launching an international payment service complete with an escrow facility. We will charge only 2% for international payments. These will be immediate payments and the customer will not have to worry about the payment reflecting two days later in their accounts,” Agarwal says. “Overseas payments have been far too costly and the rollover of cash takes far too long,” he adds.

More to do

There is one area where nimble startups, and larger horizontal players, perhaps beat IndiaMart—customer care.

When orders get stuck, the process is redressed far better at Flipkart and Amazon, industry watchers said. To avoid hiccups, particularly when orders costing millions are involved, IndiaMart needs to massively upgrade its call centre, and back-end systems. The company says it is refining its background checks on both suppliers and sellers while aggressively hiring, for both marketing and back-end customer service.

Some analysts remain bullish about the company’s prospects. While IndiaMart’s stock is currently way off from its 52-week high of 9,710.70—it closed at 4,867 on the NSE on Wednesday—they see an upward momentum. Kunj Bansal, share analyst and chief investment officer (CIO) of Investment Illiteracy, a personal finance advisory company, says: “IndiaMart has the advantage of having already onboarded a critical mass of customers. Their AI play will help fine tune its sales; the fintech acquisitions will open a new line of subscription business.”

The company, he adds, has moved beyond the small and medium scale businesses and is now signing up bigger companies, broadening its product range. All this could make IndiaMart an exciting company to watch over the next three years.

Agarwal appears excited, too. He says he is ready for the turf battle, which will only get more intense over the next few years.

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