Bartering is Back in Style! These Startups Tell Us How
Globally, the barter economy is on the rise. In the US, barter transactions have grown to $16 billion in value annually.
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Bartering, a way of transaction popular from 6,000 BC, is today, not based on the inherent need of goods, but extracting maximum value of your goods as a consumer and your skills and services as a business. Aiding this rise of barter economy are online bartering platforms, having a tinge of community building to it. However, it is easier said than done to crack this market.
Bartering marketplaces are an offshoot of the existing sharing economy. However, it tweaks the rules of the existing marketplaces as money, a common measure of value, goes out of the window. Online bartering leverages the established user base in online classifieds space and serves as an alternate platform for people to get rid of their old goods, particularly when they are cash-strapped.
The Give-And-Take Economy
Globally, the barter economy is on the rise and there is no slowdown in sight. In the US, barter transactions have grown to $16 billion in value annually. While similar data is not available for India but a 2015-16 finding by classifieds platform OLX India pegs the value of unused goods stocked in homes worth a jaw-dropping Rs 78,300 crore, up against Rs 56,200 crore in 2014-15. As online shopping and smartphone sales strides ahead, bartering is set to become ubiquitous in our ways of consuming goods.
Online bartering transaction is a very recent phenomenon, probably only three-years-old. Within this period, close to a dozen start-ups, like Let's Barter, Barterkiya, and BarterDaddy, have come up as the first barter platforms in this virgin market. "Goods of lesser value bought online today, will be second hand in two-three years. To get rid of them, people can either give it to retail stores or OEMs, in buy back schemes at throwaway prices. This happens very rarely. Or they can sell it on platforms, like OLX and Quikr, which doesn't ensure a sure shot transaction.
Bartering is a great alternative to getting the intrinsic value of a product," says N R Venkatesan, Founder Director, Barterkiya – based in Chennai and started in May 2016. While start-ups, like Barterkiya, offers customer-to-customer (C2C) exchange of goods, including cars and bikes there are few, like BarterDaddy, that facilitate business-to-business (B2B) exchange that brings into the fold barter of goods, as well as services and skills by business.
Business bartering, however, has been in existence for quite some time, wherein companies give away their unsold inventory to other businesses. This also helps them expand in the market and get more customers.
"Businesses run exchange offers, as one form of barter, to clear their leftover or unused stocks and achieve sales target. Real estate companies can save cash on media buying by giving office spaces in exchange. Businesses can lend their services in exchange, for let's say, for raw materials for any product they need or a five-star hotel stay for its top management," says Harinder Sharma, Founder of Gurugram-based BarterDaddy.
Sharma has been bartering his properties at a lesser price than the market rate for media houses, including Brand Capital (the investment arm of Times Group) and NDTV for media buying. Two years back, he decided to take this model online.
"100 percent barter is practically not viable in B2B and hence, usually part-cash and part-barter ratio of 30:70 works," adds Sharma. BarterDaddy has more than 100 companies bartering on the platform. Apart from businesses, professionals, including lawyers, chartered accountants (CA) etc., have been using the platform to exchange their services for any products they like. This helps them build their clients portfolio as well, without spending a dime.
"If a lawyer can serve up to 50 clients but have only 10, then the rest 40 can be added via full barter or part-cash part-barter," explains Sharma. However, service bartering is currently a distant cousin of product bartering, as according to Sharma, 80 percent market is dominated by the latter, while former account for the remaining share. Logistics in bartering is managed by the respective two parties, even when it is an inter-city exchange.
Problem Of Value And Volume
C2C bartering has always been tough to execute because of two prime challenges – lack of double coincidence of wants (mutual need of each other's product) and lack of a common measure of value (money to measure the value of products). That's among the major reasons why 80 per cent barter happens in B2B because usually unused goods are bartered in B2B, without the problem of valuing them.
"B2B barter happens considering the price of unused/new products or charges for a particular service. For e.g., if I charge Rs 50,000 for my services as a CA and I'm barteringwith a rice producing company, then I will ask for rice worth Rs 50,000," maintains Sharma.
Nonetheless, finding the match for products (double coincidence of wants) to be bartered remains critical to the entire model. But, Venkatesan believes that once the activity gains momentum with more awareness about online bartering to derive value from their used goods, this problem will subside. For lack of a common measure of value in C2C, consumers will estimate the value of their product the way they do on OLX and Quikr. Based on that estimate, they can exchange their goods and pick what they
believe is of similar value.
"People may not necessarily get what they want but they may have preferences to choose other products.Though, the value of used products is always subjective but this problem existed in online classifieds as well. People had no clue how prices of goods have to be decided. But over time, such platforms have been successful in letting people decide the value of their goods. So, valuation will not be a real challenge in future," says Venkatesan.
Estimating bigger goods, like a car and property, are easy with existing online tools. But it becomes difficult when you try to measure value of daily household items and products like television, mobile, laptops etc.
Virtual Currency ?
Amidst such challenges, there's already been a significant number of causalities with either shutdown, pivots or lying dormant, including ClapShare, Faida, XChange-it, BarterStreets, AdalBdal. Delhi-based Ambuj Singh, started BarterStreets in July 2015, but pivoted to book-only bartering platform, The Book Shelf, around July this year.
"I was working on the idea since 2012, but last year, I realized that people came looking for specific products to get in exchange on BarterStreets. For e.g. if someone wants a football, for us to wait for some other user to come up with football was too much. This way, getting traction was too tough and people were also not enthusiastic about it," says Singh.
He adds, "When it comes to books, it is more about trying out new books, apart from the book that we want. This factor works in bartering." However building traction is always challenging in any consumer business. "While traction is always a challenge, but in bartering the fun is in the "discovery process" that leads to inbuilt virality of this concept. Also when people get what they perceive as a great deal, they brag about it. This bragging is the key ingredient in scaling this model," says Rahul Narvekar, Founder CEO, The India Network. Narvekar's venture fund Scale Ventures invested in Let's Barter - Delhi - based online bartering platform, in September 2016.
Currently, no laws govern online C2C bartering in India, given the low value of goods being traded. However, in B2B, dummy invoices are raised, based on the estimated value of goods being exchanged between two parties.
"Bartering is a grey area in India. In countries like Australia, barter companies have convinced the government to accept it as a virtual currency. In India, RBI considers bartering as a normal sale and purchase process. Businesses have to raise invoices for each other as dummy transaction, which is documented. This is just to be compliant with laws," opines Sharma.
While everything boils down to traction for online bartering, the space may be ripe for growth in next three years as we move gradually transition towards a cash-low if not the cashless economy.
(This article was first published in the December issue of Entrepreneur Magazine. To subscribe, click here)