How B2B marketplaces are riding the SME wave

Sanket Gupta, owner of Pune-based plastics products maker Shri Ram Plastics, hasn't had to deal with the polymer traders in Pune and Mumbai since a business partner told him about online B2B marketplace Bizongo. He now buys goods worth Rs 10-12 lakh a month on the Bizongo platform. "We make the payment in the morning and the order reaches us by the evening," he says. "They also follow up to re-stock the products. The entire process is hassle-free."

Small business owners such as Gupta are proving to be a big draw for B2B marketplaces such as Bizongo. At a time when B2C e-commerce startups are struggling to make money and keep investors happy as losses pile up, companies such as Industrybuying, Tolexo, Bizongo, Power2SME, Omnikart and Moglix are riding on the need of small and medium enterprises (SMEs) for goods they can easily source at optimal prices.

No wonder, then, that many of these B2B marketplaces have also attracted investors (see graph).

What makes them attractive? "The B2B players might not be as sexy as the Flipkarts or Amazons," says Peesh Chopra, managing director, Peesh Venture Capital, "but their unit economics and fundamentals make a lot more sense."

Pricing it right The average ticket size on a B2B platform is much bigger than its B2C counterpart. For instance, Power2SME claims the average ticket size on its platform is Rs 20 lakh, while for Bizongo it is around Rs 1 lakh. These startups charge 1-12 per cent commission, which can go up to 40 per cent depending on the product sold.

"The good thing about SMEs is that they think like a consumer but pay like a business," says Jaspreet Bindra, senior vice president, digital innovation and e-commerce, Mahindra & Mahindra.

Getting the pricing right is key. R Narayan, founder and CEO, Power2SME, says SMEs get 1.5-5 per cent lower prices when they procure materials from Power2SME. The firm claims that it has been profitable from day one.

Realising that SMEs typically buy in small lots, Power2SME pools the demand of hundreds of SMEs for multiple products, thus ensuring competitive prices for raw material and access to big suppliers. Power2SME works with vendors such as Steel Authority of India, Tata Steel, Essar Steel, JSW, Rathi Steel, Posco Steel and JSL. BEBB India Pvt Ltd, which runs Power2SME, has tied up with more than 40,000 SMEs and claims that 80 per cent of its buyers are repeat customers.

For the same reason, Emtex Engineering Pvt Ltd, which runs Industrybuying, has a separate portal for SMEs. "Small SMEs in tier 3 cities not only buy less but their buying patterns also vary," says Swati Gupta, co-founder, Industrybuying. "For them, price discovery is a bigger challenge." Large companies, on the other hand, have a clear procurement requirement.

Gupta claims Industrybuying is growing at 20 per cent month-on-month, with nearly 2500 sellers on board and 60 per cent of the buyers coming back to the platform as repeat customers.

Meanwhile, Bizongo, run by Smartpaddle Technology Pvt Ltd, which claims a monthly gross merchandise value of Rs 3 crore, also allows buyers and sellers to negotiate on prices.

Tolexo, Moglix and Industrybuying are marketplaces for sellers who sell maintenance, repair and operations (MRO) goods and cater to both SMEs and large enterprises. While Tolexo runs a pure marketplace model where the vendor's contact details are available to the buyer, Industrybuying and Moglix have a closed marketplace model where the seller's identity is not disclosed.

Bracing for the big fight Even as they go after these small buyers, the startups acknowledge the looming threat from the biggies of the B2B e-commerce world – Alibaba and Amazon – but say they are ready for the big fight.

"We have the technology, a bigger vendor base in place and also have the supply chain figured out," says Gupta. "Alibaba coming to India will be a non-event for us as it has been already in the market via the main Alibaba portal and also have Indian merchants online."

In December 2015, China-based Alibaba Group Holding Ltd had launched an online platform called SMILE (Small and Medium Industries Leveraging Export) for Indian SMEs to connect with global business traders, especially Chinese suppliers.

Amazon, too, is ramping up its game in the B2B space, with the launch of AmazonBusiness in May last year.

Aniket Deb, co-founder, Bizongo, however, claims that in the B2B business, homegrown players will lead the way. The global players would "function in a different way as they would try to leverage their existing solutions" he says. "That is why Amazon has started its B2B business only in Bangalore and Mangalore."

When contacted, Amazon declined to comment on its B2B business.

Current challenges Gupta of Industrybuying says that while there is enough demand for online sourcing, the real challenge lies in supply chain management and fufillment. "The effort lies in getting the vendors to understand e-commerce and then getting them on board," she says.

How fast both buyers and sellers adapt to the online model will determine the success of B2B e-commerce. As Sreedhar Prasad, partner, e-commerce and start-ups, KPMG says, B2B purchases are finalised on the basis of factors such as technical specifications and lead time, and it will take time for them to go entirely online. "Scalability is directly proportional to the adaptation of online model by procurement departments and how fast they can do it remains to be tested," he says.

Payment collection is another challenge, points out serial angel investor Ajeet Khurana, who has backed online B2B marketplace Omnikart. "The traditional industry operates on a 30-day or 90-day payment cycle. In light of that, the balance sheet and the risks become very different, especially when dealing with larger players," he says.

Brijesh Agrawal, founder and CEO, Tolexo, however, brushes away these misgivings. With online platforms selling products at a uniform price, irrespective of the delivery location, he sees more online buyers signing up. Tolexo, run by Tolexo Online Pvt Ltd, claims to have more than 2 lakh buyers on board, with 2000-3000 transactions closed every day.