In Part 3 of our interview with Dinesh Agarwal, CEO of b2b marketplace IndiaMart.com, he talks about the companys revenue streams, the switch to lead generation from a listed and affiliated services model, on competition including China’s B2b behemoth Alibaba. We also asked Agarwal about his take on an auction based model, and a marketplace model like that followed by Elance.com.
Q. What are your key revenue streams?
Ans. We create websites, microsites and catalogs. We do a complete turn key package – designing, hosting, offering higher listing on Indiamart, Search Engine Optimization. We submit the sites to various business directories. So this is a subscription package where you know the website designing and hosting portion has become a minuscle in terms of revenue. Most of the people come to Indiamart not to have a four page microsite designed for Rs. 25,000, but because they see that there is a value in listing that they get on Indiamart platform.
Q. What kind of value adds are you offering on top of that?
Ans. On top of that there are pure advertising services which are more of a top listing, premium listing, banner advertising on a relevant category, special listing on product search. So these are value added products; We also have hundreds and thousands of micro product-specific portals for Apparels, Plastic, Chemicals etc. So we offer sectional sponsorship. We are slowly and slowly moving from a listing fee based model to a lead based model. Our initial model always contains a minimum commitment, where we gave a minimum guarantee – if you are spending Rs.25,000 with us please expet atleast 50 good enquiries in a year from the website. We’ve realized that some customers have matured enough to be able to go to pay per click or pay per lead model as well.
Q. So how do you look at it going forward now?
Ans. We launched a buy lead section, a business prospect finder section, which is mostly for lead generation section. So is a mix of things – a cataloguing plus basic listing fee that comes under subscription revenue, pure listing fees which are on the top of basic listing fees that could be premium listing and payed listing and banner advertising. Then there is a pay per lead revenue. If you see then 5-6 years back 80-90% of our business was purely cataloguing and subscription revenue only 5-10% was pure listing fee and advertising fee. Today 60-70% is cataloguing revenue and about 30% comes from purely listing and premium listing fee…you know those are experienced Internet and Indiamart users, and going forward I think that pay per lead would also become a sizeable chunk of that.
Q. From a listing based model, do you see yourself launching a marketplace like E-Lance and facilitate the entire transaction?
Ans. I don’t think that we can move to a transactional model in the immediate or medium term. , but if we take the basic concept where we can connect the buyers and sellers, without the money part – it’s the pay per lead model. That’s in the trade offer section at Indiamart.
Q. What about auctions?
Ans. As I said, the price discovery does not happen, though we tried an auction model in late 1999. What happens is that B2B is slightly different than B2C – it’s not an off the shelf product, nobody wants an off the shelf product. Most of the people have their own sizing, colours, quality parameters and the deals are not in few thousand rupees but mostly in few Lac Rupees. Buyers and sellers have to talk 5-10 times before they can settle on a price. For example, if there’s an offer to buy 50,000 pairs of socks – there someone is going to make a pitch that I can offer you one variety in 30 days for 1$, another for $1.25 or this kind for $1.3 etc, depending on quality and size. So the price discovery would not take place on a B2B Market Exchange. But I can facilitate buyer and supplier discovery, and whether they do business depends on their requirements.
Q. If you’re looking at a lead generation model, and your primary clients are the sellers – the number of leads would go down in a downturn…
Ans. Yes, but then at the same time the requirements for these leads would go up. Then the sellers who might not have been using the Internet previously but going around the world to trade fairs, would look at the possibility of using the Internet to sell their product. See the Internet finds you unknown buyers, unknown markets. We ourself as a company have discovered some market possibiities which which were strong on the internet.
Q. Like what?
Ans. Like travel. We had never ever even focussed on travel being a B2B company. We might have made a few travel websites by chance and we found that those customers were more satisfied and at that point of time we started doing a lot of marketing on travel and a significant amount of revenue started coming from it. A little more later, in terms of service we discovered that packers and movers became hot. Engineering goods also started doing very well. So we keep discovering new categories where suppliers and buyers find each other. The Tnternet throws you unknown possiblities, just by trying it out. I am sure that in this kind of a downturn lot of suppliers would come to Internet to try out different things. That may not compensate fully for the total market loss that happened because of the downturn but it ened mup making a new market for us.
Q. Talking about the competition, your success depends on the buyer base that you have. Won’t an Alibaba come in with a fairly large global database of buyers whereas you would come with a large database of sellers?
Ans. Alibaba comes in equally with a large number of suppliers from China – that is their strength and weakness both. Indian suppliers typically do not want to compete with Chinese suppliers, and they will have to do that on an Alibaba type of platform. The whole world has been looking at China as their supplier, which is why Alibaba has done so well. If the buyer preference changes, they will start logging on more to IndiaMart more because they know that AliBaba provides chinese suppliers.
Q. But then it becomes important for Alibaba to market their services in India better to develop their supplier base. Then there’s going to be competition for you to get suppliers…
Ans. Obviously, and if you really see the market size is very large. It’s a trillion dollar trade opportunity. By the entry of Alibaba, the supplier base will be more educated – more competition is more market development. If you see the example of Naukri.com and Monster both are existing together, and both are equally big. If you see China, it has an equally large player called Global Sources, Made in China, EC21 and there might be 200 smaller ones.
Q. So what about TradeIndia then?
Ans. I cannot comment on them. They are primarily a print company, while we are primarily an Internet company. See when I started I was only 1/10th of their size. Today we are probably 3 to 4 times their size. We have been consistently growing at a 50-60% rate and they must be growing at a slower rate. They must have their own set of market priorities and choices. Growth of anything below 40% is not acceptable for me, and I don’t know if in any of these years they would have achieved any of these minimum figures. So TradeIndia has always been a good follower of ours on the Internet.