The Landscape and the Big B2B Opportunity
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In the late nineties when the Internet arrived, it was B2B that was thought to be the big opportunity. Companies like ChemConnect, VerticalNets and Ariba built technology platforms that were to revolutionize the way business is done. Things did not quite turn out that way though. ChemConnect and VerticalNets folded up. Ariba survived, acquired FreeMarkets and some other companies but was ultimately acquired by SAP, and is now one of their offerings, albeit not a very prominent one. Incumbents got into the act setting up e-commerce platforms too but the survivors, Xiameter and Elemica, are not exactly making waves.
One notable exception was Alibaba which started with a commerce model but pivoted in time to become a digital directory of suppliers and their products. A hungry for business China and a curious world wanting to exploit the low priced Chinese opportunity created just the right environment at the right time, and the rest, as they say, is history. Not only did Alibaba become a very successful B2B venture, it later created a huge B2C marketplace, the online payment giant, Alipay and a slew of other value-added services to become one of the biggest Internet companies in the world.
What Actually Works
For any product, Alibaba can throw up tens of thousands of prospective suppliers. For example, a search on Titanium Dioxide threw up 30,378 results one day, some of the Gold Plus, some Gold and Silver suppliers, and some without any qualification. Now, what does a buyer do with 30,378 prospective sellers? He needs no more than 3 to 5 with whom he could interact and do business. At Alibaba, he can at best click on a few randomly and hope he has hit the right button. Further, most B2B buyers already have a set of approved vendors from whom they buy regularly. Only for the items they have a problem in procurement or when they have something new to buy, are the times they look for a new supplier, and this is normally a small fraction of their total procurement. While the millions of suppliers in Alibaba at a few thousand dollars a year generate billions of dollars of revenue for Alibaba, Alibaba just about scrapes the surface of B2B commerce.
The Indian Contour
Back in India, we have Indiamart and Tradeindia with business models similar to Alibaba that have hundreds of thousands of suppliers on their platform receiving leads from buyers. Given the size of the market in India, these have not quite scaled up like Alibaba nor generated the financial return. Based on the latest accounts submitted to the Registrar of Companies, Indiamart in its 23rd year since inception (FY 2018) lost INR 72 Cr on revenues of INR 410 Cr.
Metal Junction, a partnership between Tata Steel and SAIL is another successful B2B transaction platform in steel and coal. The transaction on their platform value has risen from INR 94.35 Cr in FY02 to INR 1,01,250 Cr in FY18. They have reported a total transaction value of INR 6,58,108 Cr from inception in the Year 2000 until FY18. With strong support from sellers, Metal Junction has carved a place for itself with over 5400 buyers on its platform. Based on documents filed with the RoC, for FY 2017-18, on a turnover of INR 204 Cr, they made a Profit After Tax of INR 42.4 Cr.
Power2sme and OfBusiness started with the transaction in a few items like steel, cement and chemicals and have added financing to their portfolio of services. Much of their work happens offline.
B2B companies have also emerged in MRO items on the lines of AmazonSupplies. IndustryBuying, Moglix and Tolexo being the lead players. It has been reported however that Tolexo is shutting down their B2B retail operations and IndustryBuying is trimming manpower to half. Moglix is reported to be moving to supply chain optimization for the manufacturing industry.
There have been attempts to create excess inventory platforms, e.g. Liquidation, MatexNet, Exinvent and Xstok to name a few but those have either not scaled or fizzled out.
Udaan has created huge investor interest with its model of serving retailers of consumer goods and is already a unicorn based on its valuation for the latest round of funding. They will have to compete with parts of Flipkart and Amazon in the same business. The jury is out on how much of an impact they will make. In the meantime, Shotang, another company in the same space have shut down.
Clearly, B2B commerce has not turned out to be the opportunity most thought it would be 20 years ago. That said, 20 years is but a short period of time, and I believe digital will revolutionize B2B over the next 5 to 10 years. Companies that embrace digital will create huge value for themselves while the ones that do not, will be left behind.
The Big Opportunities in B2B
So why is it that the action so far just scrapes the surface in B2B, and what will make it happen the whole hog? Let us examine how B2B works before we draw conclusions.
In B2B, companies interact with other companies – vendors and customers to buy and sell. Other than the rare monopoly or short supply situation, trade is governed by customer requirements which vendors compete to fulfil. Vendors engage and build trust with customers to secure, retain and grow their businesses. Unlike B2C where buyers go to sellers (shops), it is sellers that go to buyers in B2B.
The business process involves information flow, decision making, document flow, material flow and cash flow; some of these internal to the organization while some others, external. For internal, companies set up digital enterprise solutions like ERP, SCM etc. but external engagements have thus far been largely offline. That, in spite of the obvious merit of digital in bringing down costs, increasing effectiveness and being scalable.
With the widespread availability of the internet and mobile and deep familiarity of people with these, timing is just right for the B2B action to mature as well. There is greater acceptance and desire to use digital for business and if a good option value creation were available, it will be adopted pretty soon.
Engagement is the key in B2B and that is what the successful solution will focus on. It will have to be a digital platform that can attract a large number of companies to engage in a secure and trustworthy environment. To do so, it will have to be vertical focused, neutral and well governed. Such a platform can create tremendous value for businesses by:
Enabling discovery and access to customers, vendors and business associates in a simple and economical manner.
2. Enhancing customer proximity and providing a deep understanding of customer behaviour to improve both short-term and long-term business performance.
3. Influencing customers in a simple and economical manner.
4. Automating workflows and driving transparency to increase efficiency and reduce costs.
5. Providing superior user experience to build loyalty and grow business.
6. Rendering information for superior decision making.
Interactions and engagement on the platform will start as an add-on to the existing methods - phone calls, WhatsApp, emails, personal meetings and meetings in events and exhibitions. It will move more and more on the platform as value delivery becomes obvious. More companies (of the vertical) will join the platform, with network effect finally driving most if not all industry players to it. This is the big B2B opportunity for incumbents as well as the platform that brings them all together.
It will take a world-class team and a world-class technology platform with multiple features and machine learning to deliver the digital advantage, the first mover having a decisive edge.
The platform’s first task would be to create a reasonably large focused business community in the chosen vertical to serve as the magnet for companies to gravitate towards it for finding and engaging with customers. The platform must be good enough to provide deep engagement in an easy and convenient manner giving participants not only an experience they are delighted with but also quick business rewards. This will drive more businesses to the platform. Soon a tipping point will be reached to drive large scale adoption.
The future of B2B is bright, the future of B2B is digital…