I am supremely excited about the direction which governance in this country is taking and how it promises to foster innovation. Initiatives such as India Stack, Jan Dhan, UPI, Aadhar and e-KYC will shortly begin to transform our country into a data rich country. What will be interesting to note is the impact that it will have on the shape, size and structures of businesses in India.
One of the most likely trends that will see strengthening is that the nature of large businesses will change from large employee-based corporations to a model where they will aggregate smaller businesses on their platforms.
In short, we are clearly entering an age when the next megatrend in business models in India is going to be about facilitating B2B commerce. In a country, where its 50 million small businesses have been the backbone of the economy, this is likely to happen before anywhere else in the world.
Traditionally, discoverability, market access and access to structured capital are some of the biggest challenges for these SMBs. Platforms facilitating B2B ecommerce solve these using technology which improves their discoverability and access to markets and capital.
No wonder B2B ecommerce is attracting significant investments as well now. As per a recent Traxn report, over $124M has been invested in the sector since 2006, with $94M invested in the last 15 months and over $75M in the first three months of 2016 alone in 15 deals. B2B commerce space has seen exponential growth in investments and funding with major investments being in Marketplace space with over $67M in 26 funding rounds since 2012.
Here are some of the factors, which will play a key favorable role in making B2B ecommerce the next big wave in India and make it much more attractive for venture capital investments:
Large market size:
As per a Zinnov study, India has nearly 50 mn small businesses, spread across its rural (45%) and urban (55%) centers. These small businesses employ over 40% of the country’s workforce and contribute to over 35% of the country’ GDP. The sheer magnitude and scale of the market potential is phenomenal. Unfortunately, traditional large global enterprises have tried to sell to them in ways that have succeeded only in the developed parts of the world. The way to succeed with these small businesses is to first enable them to sell better and that is what B2B ecommerce platforms are doing increasingly. Plus, the market is large enough to accommodate several large players at the same time.
Favorable unit economics:
In India, transaction costs such as logistics, payments and collections have always been high due to our infrastructural challenges. Hence, in B2C ecommerce models unit economics at a transaction-level are difficult to justify because of low transaction size and high transaction costs. However, in B2B ecommerce since the transaction sizes are significantly larger, even at lower margins, the transactions can be unit economics positive.
Lifetime Customer Value:
The LCV of a B2B customer is significantly higher than a consumer due to the significantly higher frequency of purchase decisions and the size of every purchase. Both these factors also contribute to higher predictability of the purchases, leading to significant improvements in demand forecasts, transaction costs and convenience. For example, at Shotang our average transaction value is well over INR 20,000 and the average frequency of purchase by the retailers is 4 times a month. This is significantly higher than AOVs of B2C ecommerce platforms, which are well under INR 2000 today.
Reshaping value proposition vs Marginal value proposition:
I think the biggest difference in businesses that are successful and the ones that are mega-blockbuster-hyper successful is the kind of value proposition that they offer to their customers. Successful businesses are built around value propositions that offer only marginal utility to their customers. Normally these businesses help their customers save time or provide convenience such as delivery, discovery, hyper-local commerce or outsourcing.
However, mega-blockbuster-hyper successful businesses are known for the ways in which they reshape the lives or operations of their customers forever. These businesses are characterized by their ability to help their customers sell more or make/save more money. In a lot of cases, they make an impact on their customer’s customer and hence alter equations in the value chain permanently. Several software products and telcos have treaded this path in the recent past. B2B ecommerce, to my mind, does exactly the same and more by helping both the buyers and sellers make more money, sell more and focus on their customer’s customer.
Lastly, I’d like to conclude by saying that, if India has to produce a world beating, large global company B2B ecommerce might as well be the finest plank to leverage on. The time for B2B ecommerce has certainly arrived!
This article has been authored by Anish Basu Roy- CEO, CO-Founder, Shotang.