Started with lots of fanfare and positive expert predictions – Indian B2B e-commerce got everything right during initial days. A huge market, virtually no competition, excellent fund flow from investors, ready market waiting to be disrupted – but somehow the smooth sailing has, of late, run into choppy waters. The largest Indian B2B e-commerce marketplace having ample VC money has downed shutter, leaving over 500 professionals jobless apart from blowing a hole in investor balance sheet. Many smaller ones are either closed or in the process of shutting down. What’s happening ?
Ace InfoBanc pvt Ltd was one of the first to get into B2B E-commerce bandwagon. Being in online B2B market for long – it was comparatively easy for us to develop B2B e-commerce marketplace with unique offline-like features like automatic volume based discounting, pre-sale negotiation, lot-based trading, detail spec comparison among vendors, online credit etc. We accepted only manufacturers as merchants to ensure maximum arbitrage for business buyers (distribution cost in India being upwards of 40% – dealing straight with manufacturers gave us the price advantage). We got good response from market – transactions were growing, so also number of buyers and sellers. But there was one problem – the business remained loss making.
The numbers may be good to impress VCs but the business is not sustainable !!
Unit Economics is not Everything
Unit economics is a good indicator – but only initially. In the long run, a business has to take into consideration various related costs. The earnings from e-commerce transactions were not enough to meet even staff salary. Growing sales meant more investment in customer service, logistics, marketing etc. – but return was not enough to justify. Incurring loss is not really an option for us – we are not VC-funded, continued loss means only one certainty – downing shutter.
The Reason
We sat down to analyze the reason – it was not very difficult to track down the culprit. We found, most of our customers are retailers whose average order value is quite low, consequently our margin too. However, the logistics cost was high as retailers needed door-to-door supply. The road to profitability has to be through high order value, respectable marketplace margin and low delivery cost.
Why do we get only retailers as customers? Because they are the ones easiest to reach!
The Way Out !
To be sustainable – a B2B e-commerce marketplace needs customers whose average order value is high, able to offer respectable margin and is ready to accept low-cost, point-to-point delivery (e.g. by truck) instead of expensive door-to-door service demanded by retailers.
The market segment that answers such requirement is – Distribution Partners (distributors, dealers, super stockists, C&F Agents etc.)
A distributor represents 100-500 retailers – essentially a market aggregator and consequently orders much higher volume. They have their own transport vehicle and godown – so, no need of expensive door-to-door delivery service. Respectable marketplace margin can be secured by cutting down intermediaries between manufacturer and distributor and creating unique marketplace values such as credit, escrow, safe and convenient transaction, credit rating etc.
In essence, B2B transaction is an outcome of distribution – as shown below
Distribution Process
Why No One Is Addressing Distribution Market ?
Indian distribution market is highly fragmented, archaic, unorganized and consequently toughest to crack. Even discovery is a challenge – there’s not even a decent directory of distributors. We know, as we have been working in online B2B distribution space for years. Vanik.com is India’s largest portal on distribution opportunities. We have been serving scores of SMEs – helping them build distribution channels across India.
Indian B2B E-Commerce – Putting Cart Before The Horse ?
Indian B2B e-commerce marketplaces are chasing the transaction part, overlooking the underlying process driving the transaction. B2B transactions being result of distribution agreement – B2B e-commerce transaction process must take this fact into account and endeavor to capture the whole. Unlike consumer market, B2B market is rationally driven, with definite expectations at both buyer and seller ends. Understanding the expectations and designing e-commerce systems to offer maximum value will lead to lasting relationships and sustainable business ventures. Quick fix solutions like capturing retail transaction may provide impressive numbers but the business will not be viable.
Entrepreneurs working in B2B e-commerce space must understand that distribution is core of B2B transaction. Any attempt to start B2B e-commerce transaction without taking note of underlying distribution agreement is akin to putting cart before the horse!
E-commerce transactions resulting from distribution agreement between manufacturer and distribution partners will not only go much beyond unit economics at lower delivery cost but will be repetitive in nature – returning high lifetime customer value. Such a foundation of high yielding customers engaged in repeat purchase ensures sustainability of the venture. Additional income from financial services, credit rating etc. are icing on the cake.
Conclusion
Entrepreneurs in B2B E-Commerce space have to re-invent their business as part of distribution trade. Transactions being outcome of B2B distribution – B2B e-commerce has to reflect that. Jumping straight to e-commerce transaction through mobile app or B2C-in-reality-but-pretending-to-be-B type e-commerce marketplaces will never be able to build sustainable businesses. The place of horse is always in front of cart – not the other way round.
Amit Chatterjee is Founder of Vanik.com – India’s Largest Online-To-Offline (O2O) Marketplace On Distribution Opportunities
Twitter @infobanc_com
Linkedin: https://in.linkedin.com/in/amitdelhi
Contact: amit@infobanc.com
Amit Shroff
Nice Article. Distribution had lot of challenges and legal formalities. Hence I totally agree with you that a market place need to understand the requirement of distributor and manufacturer.
But need you to answer a small question. How do you appoint an authorised distributor for a company, with an ecommerce model one can purchase the product provide they meet the MOQ and can offer the price being asked by manufacturer.
Additionally, we are a new retail ecommerce market place for bakery industry, looking for supplies for cake boxes, cupcake boxes, stainless steel product used in baking.
Can you help us connect with some supper stockist or retail for our platform – Bakerykart?