Less than three years ago, R Narayan sat in offices of large steel companies for hours to strike a deal – buy from them and sell it to other smaller enterprises. The math was simple – bulk procurement led to lower prices, which will be passed on to the companies who bought from Narayan.
Narayan is the CEO and founder of Power2SME, an e-commerce company selling to small and medium-sized enterprises (SMEs). Forget funding, Narayan didn’t have a single supplier onboard when he raised his first order of 250 tonnes of steel from the six small and medium manufacturing units. After some initial hiccups, one of the largest steel makers of the country became Power2SME’s first supplier.
Now, barring a few, all steel manufacturers are suppliers to Narayan.
Power2SME aggregates orders from many SMEs, and makes a bulk order to the steel maker. So, is the case in polymer, other products it deals in. In March alone, the company raised orders worth 35,000 tonnes of steel (the largest steel distributor does 70,000 tonnes). The company earned revenue of Rs 600 crore.
The business needs not offer discounts like the consumer-led e-commerce businesses such as Flipkart, Snapdeal and Amazon. This has led investors to look at B2B e-commerce as the new area to park capital.
“For a B2B company to be profitable, it requires less investment. The burn is less and so are the discounts. We will make net profits this financial year,” said Narayan.
According to data collected by HT, the business-to-business (B2B) e-commerce companies have raised about $93 million (about Rs 618 crore) in the past six months, while the companies selling directly to consumers raised $410 million (Rs 2,723 crore). The gap is huge, but two years back none of the B2B e-commerce companies were funded.
Market estimates the B2B online commerce space to grow 2.5 times by 2020 to $700-$750 million.
However, the global trend in different, especially in the United States and China,where B2B e-commerce is valued at $1.7 trillion, double the size of business to consumer (B2C).
But, Narayan is not alone.
Companies such as Tolexo by IndiaMart, Industry Buying, OfBusiness, IndustryKart, and Moglix, are some of the others eying the enterprise e-commerce space, which have been backed by investors.
“B2B e-commerce has just started in India. Globally, 10% of all transactions happen over the internet. In India, it is just 1%,” said Swati Gupta, founder and CEO of Industry Buying, which sells online everything from safety alarms, switches, pumps, motors, hammers, plumbing tools, power saws, drills, pipes and valves, among thousands of other products that the enterprises need.
Companies like IndiaMart, which help manufacturers, suppliers and exporters connect over its platform, have started Tolexo, a direct competitor of Industry Buying.
Dinesh Agarwal, founder of IndiaMart, has invested Rs 100 crore in his new venture.
“We have become so big that we can go for an IPO (initial public offering),” said Agarwal.
But, why aren’t there any unicorns in the B2B space?
“Globally, the B2B e-commerce is bigger. But, there is no single large player, as the needs of the enterprises there are different, and every B2B e-commerce company is trying to solve one pain area,” said Agarwal.
Maybe it is just profitability that led companies such as Paytm, Shopclues and Snapdeal to enter the B2B space last year.
Is that a concern for the standalones? “Paytm’s industrial buying business is one-fourth of ours,” said Gupta of Industry Buying.