- Indian marketplaces first started emerging in the late 90s, when less than three million people were using the Internet. JustDial, Naukri, Fabmart and Baazee were all part of this first wave of marketplaces. Marketplaces as we know them only came much later, starting with Flipkart in 2007.
- With the pandemic, an omnipresent fear of leaving the house meant everything switched online in a matter of days; behaviour which sustained over months. The country saw a 51% increase in digital transactions between 2020-’22.
- This change in behavior meant early marketplaces had to quickly evolve to catch up to the ecosystem; from limited ecommerce platforms to horizontal and vertical marketplaces, and from discovery platforms to full-stack offerings.
- B2C marketplaces offer tangible benefits to both the businesses (easier scaling, greater capital efficiency) and customers (greater choice, convenience, personalized experiences) on its platform.
- Beyond considerations like TAM, marketplace founders must think about certain other elements to ensure success, given the uniqueness of marketplaces as a business model; fragmentation of demand and supply and network effects, to name just two.
Imagine this. It is Friday 8:00 am, and you book an Ola to rush to the office. Only then do you remember you are out of Pet food, and you Swiggy-it. You get it in 20 minutes, in time for you to feed the dog and catch the cab. During the lunch break, you remember it's mom's birthday later in the week, and she is in her hometown, so you Flipkart her a gift. As you Ola back home, you remember it's time to book that December holiday you and your spouse had discussed you head to MakeMyTrip and get it done. You reach home in time for that Urban Company spa at home. It is time to relax with some music from Spotify as you prepare for the weekend show you booked on BookMyShow.
The above was all brought to you by the power of India's many Business to Consumer (B2C) Marketplaces. A dozen years ago, doing the above activities would have taken you at least a few hours (if not days). Today, at the press of a button on your phone, most activities get scheduled in minutes.
Let us dive into what these marketplaces are and what makes them click.
What are B2C marketplaces?
Marketplaces are online platforms that connect customers and sellers of goods or services. They provide infrastructure (e.g., interaction mechanism, payment, logistics) to enable a transaction. A B2C marketplace connects businesses (sellers) to end consumers (buyers).
This simple idea of matching demand and supply using technology has led to the creation of huge businesses globally. The top dozen B2C marketplaces globally (names like Amazon, Alibaba, Meituan, Uber, and AirBnB) are worth $2 trillion in market cap. And it has led to a significant change in how we live our lives.
In India as well, from 2007, when Flipkart started selling books, to today, a large number of marketplaces have come up and redefined many aspects of our lives. From how we shop to how we commute to how we order food, let us look at a few examples.
Before Flipkart, shopping meant traveling to one of several stores to make a purchase, irrespective of what you bought. Customer choices were constrained to only what was available locally. And recurring mundane purchases required a significant investment of time. Today, a consumer can access a vast selection of products on their mobile without ever leaving the comfort of their home.
On a similar note, hailing a taxi used to be a tedious process. You had one of two options. Go to a taxi stand, speak to several drivers, and negotiate prices; or call a taxi operator hours in advance to request a pickup at a specific time. Neither option was reliable, with no guarantee of a cab arriving on time. Now, in the age of Ola and Uber, a customer can book a taxi and have it arrive minutes later by tapping only a few buttons.
It smoothened the booking process by matching demand and supply across multiple customers and drivers. While also offering transparency on the fares charged, pickup time, and driver details.
Food delivery was another cumbersome problem consumers faced. Most restaurants did not offer a delivery service. And the ones that did offer no transparency about where your food was or how long it would take to get it. Alternatively, you could travel to the restaurant, place an order, wait for it, and then take it back home. Of course, this meant waiting between 30-45 minutes and not being able to do much else in that time. Swiggy solved this problem by building a robust three-way marketplace connecting restaurants, delivery partners, and end consumers.
When and how did Indian B2C marketplaces come into being? How have they evolved?
Marketplaces in India started emerging in the late 1990s when less than three million people in India were using the Internet. Just Dial began in 1996 as local search services over the phone and launched their Internet and mobile Internet services in 2007. Naukri started in 1997 as a recruitment classifieds portal. In 1999, the country's first e-commerce website Fabmart began its operations by selling only CDs. The auction site Baazee came into being in 2000.
The next wave of marketplaces started with Flipkart. It came in much later in 2007 and began its journey only selling books.
Marketplaces picked up speed due to a few critical changes in the ecosystem over the last decade.
1.Evolving technology: Internet penetration increased from almost 0% in 1999 to 47% of the population, making way for new business models to scale up. Digital literacy increased multifold driven by
Availability of affordable smartphones
Affordable data plans - powered by Reliance Jio starting in 2016. Jio brought in affordability and accessibility - leading to more internet users across more locations and higher data consumption per user
Move from 2G to 3G to 4G to now 5G, making users spend more time online.
Government's digital push through the Digital India program launched in 2015
2. Rising consumer income: India's per capita income (at constant prices) has been increasing continuously and currently stands at 2x of 2007. This income growth allowed customers to shop more, look for more choices and spend on convenience.
Both these changes led to a significant shift in consumer behavior. India's population of online shoppers jumped from 50 million in 2015 to 150 million in 2020.
This change accelerated with the onset of the pandemic.
2020-2022, India saw a 51 percent increase in digital transactions. With the omnipresent fear of stepping out for even the most minor things, everything switched online in a matter of days and sustained over months.
While the traditional B2C businesses could not handle this change, even the early marketplaces had to evolve to catch up with the changes in the ecosystem -
From e-commerce platforms with limited products (e.g., Flipkart selling only books in 2007) to horizontal marketplaces with selections from thousands of sellers. (Flipkart opened the platform for sellers to sell books, media, and consumer electronics in 2013 directly.)
From selling everything under one roof to focusing on a domain. (Vertical marketplaces - Nykaa coming up as a beauty segment-focused marketplace)
From discovery platforms (JustDial) to becoming full stack marketplaces. (Urban Company offers a full stack model for professional services. It takes end-to-end responsibility for customer experience. From the availability of service providers to quality of service, from formal training of professionals to seamless and transparent payment processes.)
What are B2C marketplaces solving?
Since the need for marketplaces is imminent, with internet penetration continuously growing (expected to be 60%+ by 2025), let's dive deep into what they offer:.
Tangible benefits for businesses (sellers)
1. Easier and faster scaling
Low customer acquisition cost: Since marketplaces offer discoverability for free or at a significantly lower cost - many small mom-and-pop shops are now using online marketplaces to expand their business. Marketplaces also enable smaller sellers to gain customer trust by leveraging the marketplace's brand equity. "Online partnerships with Swiggy and Zomato have enabled restaurants to increase their overall top line by 30% via a large consumer base and strong brand impact," according to a report by business management consulting firm RedSeer.
Wider reach, including international scalability: Marketplaces rarely have any physical limitations regarding the customers they can reach. Through marketplaces, sellers can quickly grow their customer base across geographies and income segments. Amazon India has helped 1L+ exporters sell globally, with a repertoire of 140M+ Made in India products to customers in over 200 countries and territories worldwide.
Supply chain support: For a seller, the marketplace is the ideal choice if it wants a third party to handle shipping, payments, and more. Marketplaces have evolved to become full-stack platforms to take this load off sellers, so sellers can focus on core business expansion versus worrying about back-end requirements. UrbanCompany partnered with Unicommerce, one of the leading warehouse management solutions, in 2019 to strengthen its supply chain operations. It was to manage the supply chain for goods & kits delivery to their service partners so that the service providers would have no hassle and could focus on their business.
Predictable and higher asset utilization: With their more expansive reach, marketplaces unlock the unused capacity of sellers. Swiggy and Zomato have helped restaurants improve their kitchen utilizations with increased order volume, leading to a better bottom line.
Analytics-backed decision making: Data and analysis support provided by marketplaces help suppliers make better decisions on trends, buying patterns, and stock availability. Swiggy has built machine learning models for restaurants that predict how many dishes of a particular type will be sold in a day - helping them manage inventory and forecasting supply. Similarly, Swiggy helps drivers get more orders with a tool called Heat Map, which predicts from which area the following orders will come in.
Cheaper expansion: Marketplaces reduce upfront setup, marketing, and operating costs for entering a new market, leading to a higher return on investment. Flipkart enables MSMEs to access the pan-India market by providing discovery and fulfillment support (with its digital payments company PhonePe and logistics arm Ekart) without any significant capital spend, along with additional support through finance, technology, and training.
Tangible benefits for customers
1. Choice & comparison: Online marketplace platforms allow numerous sellers, leading to a much more comprehensive selection than individual company websites. Features like ratings & reviews, delivery timelines, filter, and sort options enable users to make faster and more informed purchasing decisions. Nykaa offers products from over 4,000 brands with 3.1 million SKUs.
2. Personalization: Technology today can read the consumer's mind. Marketplaces, with their plethora of data, run analytics on browsing & transaction history to provide user-specific storefronts and search results leading to a personally curated experience. Myntra, Amazon, and Swiggy all use Artificial Intelligence to show recommendations specific to a user based on past preferences, onbrands, types of clothes, colors, styles, cuisine, type of dishes, type of restaurants, etc.
3. Convenience: Marketplaces being online, customers can purchase a product/book a service in the comfort of their home. Marketplaces offer easy returns/exchanges and multiple payment modes to make the entire journey seamless, reducing the amount of effort the customer spends. Flipkart's introduction of the Cash on Delivery feature in 2010 made it convenient for non-card users to shop online.
4. Trust: Marketplaces guarantee service levels. They provide ratings & reviews, order tracking, and customer support services. They offer an extra layer of trust to consumers buying online that is missing from an individual seller. Urban Company builds trust with its users by enabling them to choose the best-suited service provider among many options, rate them accordingly, and provide best-in-class customer support. Spinny solves for lack of trust in a used car purchase by being a full-stack retail platform that ensures an amazing used car buying experience. Spinny also enables people to order on its app, select the finance option, and get the chosen car delivered home.
What does it take to build a successful B2C marketplace?
There are some common factors to consider for any startup to succeed. These are factors like a large total addressable market, significant seller/ buyer pain points, differentiated solutions based on technology, etc., which are needed for any startup to be successful. Founders of marketplaces have to think about certain other elements to ensure success, given the uniqueness of marketplaces as a business model.
1. Fragmentation of supply and demand: Marketplaces are successful in segments with many small and fragmented suppliers and buyers. Few large players on either side can leverage their position and sideline the marketplace. Flipkart has a seller base of 1.1M sellers and 150M+ monthly active customers. Swiggy has 195K+ active restaurants and 20M monthly active customers. Founders of marketplaces should analyze the nature of their suppliers and customers to understand the level of fragmentation. More fragmented, the better.
2. Network effects: A marketplace needs to provide as much liquidity as possible, i.e., matching demand and supply continuously in a timely and financially viable manner. Strong network effects enable marketplaces to achieve this. The network effect is the increase in value of the product/service when the platform's user base increases, i.e., adding every new supplier/buyer increases the platform's value and brings in more suppliers and buyers. More robust the network effect, the more successful the marketplace. e.g., the 3-way network effect on Swiggy - the higher the number of restaurants on the platform, the more customers would join, and more delivery partners will join. Same the other way around as well. The more customers, the more restaurants would want to list, and more delivery partners would like to join the platform.
3. Demand vs. supply: Marketplaces connect buyers and suppliers - they create value by matching demand and supply - the higher the demand the higher would be the supply, and vice versa. Initially, a marketplace needs customers to give business to suppliers and needs suppliers to fulfill customers' orders - it's a chicken and egg problem. There are multiple ways in which marketplaces have solved this problem.
Start with a sharp test bed. For example, Swiggy started with Koramangala as a test bed and ensured their model worked in that limited geography. It is easier to check if the model is hitting product-market fit (PMF) in tightly defined test beds.
Focus on one side of the marketplace. An example here would be Spinny. They initially focused on the used car buyer. They ensured that the buying experience was flawless. And only after that they extended to solve the used car sellers' problem.
Aggregate supply. An example would be TaxiForSure which worked with Taxi aggregators to get enough supply. It enabled them to scale supply faster than aggregating drivers.
Focus on one product line. Flipkart is a classic example here. They focused on getting the book-selling experience nailed before extending it to other products.
Start with a lighter-touch approach. Urban Company started as a connection platform for various service providers to consumers. They used this approach to determine the best verticals to build the high-touch verticals.
Marketplace founders should identify the most critical side to get started and target all efforts to onboard that.
4. Winner takes all/most: Given the network effects, marketplaces tend to be winner-takes-all/most at a steady state. Swiggy and Zomato dominate the food delivery space; Uber and Ola dominate the ride-hailing segment; Flipkart and Amazon are two dominant horizontal e-commerce marketplaces. Understanding the competitive landscape and market size is critical for a founder to determine the potential scale their marketplace can achieve.
Online B2C marketplaces touch millions of lives daily in India across various products and services. With its deep internet penetration, expanding income levels, and increasing propensity to spend online, India is primed for B2C Marketplaces to thrive. Many products and services are already online, but many more are ready for exploration. Through the Decoding Marketplaces initiative, we plan to share lessons from existing leaders, so that budding founders can learn and build unique new marketplaces in the years to come.