It’s time to build SaaS for Indian SMEs

Marketplaces

Tech-enabled marketplaces are built to increase the utilization of SMEs' capabilities by building distribution for them, i.e. plugging in the demand. They take the onus of digitizing the seller/supply; building a layer of trust; and acquiring the buyer/demand (Exhibit 1). Some marketplaces that are household names today are Zomato/Swiggy (Restaurants), Uber/Ola (Cabs), Amazon/FK (Grocery), BigBasket/Blinkit (Grocery), UrbanClap (Local Services), and their b2b counterparts like Udaan (Distributors), and Moglix (Industrials).

These marketplaces are primarily a tech + operational layer trying to organize these sectors and monetizing by taking a percentage commission on every transaction varying from 10% to 50%, with Amazon at the extreme high end (Exhibit 2). These margins cut into the seller’s operating margin thereby decreasing their net take-home income.

Marketplaces justify taking these commissions to the sellers because they are the ones who are pulling in the demand (acquiring buyers). This justification fails to exist when the end consumer does repeat purchases from the same seller on the marketplace, or when the digital transaction behavior has been set out by the marketplaces and then sellers see no incremental value in these marketplaces.

Came along ONDC

Today Marketplaces own both the buyer ecosystem and the seller ecosystem. The idea behind ONDC is to unbundle these marketplaces and make them interoperable just like UPI did for digital payments. The main thing ONDC has to offer is building trust via network policy, protocol, and transaction-level certificates. ONDC is essentially an attempt to shift the buying from - an operator-led platform (marketplace) approach to an enabler-led interoperable decentralized network (Exhibit 3).

The concept of an open network goes beyond the platform where the buyer and the seller must be part of the same ecosystem (marketplace), to, a network of interoperable apps where the buyer could be present on a different app/ecosystem from the seller. With no gatekeeper (marketplace) in between, the seller’s operating margins can increase. Buyers in turn will get access to more sellers and hence more choice of products along with price discovery.

Marriage of Marketplaces and ONDC

With ONDC, there seems to be a notional competition for the marketplaces, but instead, ONDC can succeed in expanding the pie. ONDC can enable the next 500M buyers and 50M sellers to start transacting digitally. There will be a number of companies owning the “seller ecosystem”, and “buyer ecosystem” and some enabling these two ecosystems to transact digitally. Existing marketplaces can also tap into the ONDC network to offer more products and services to their buyers without having to acquire so many sellers.

Digitizing the sellers

Sellers who do not wish to be a part of any marketplace (due to increased costs) but still want to sell more, can start receiving and fulfilling orders they receive from buyer apps that are part of the ONDC network. In order to do that, they either have to become part of the ONDC network on their own, which requires tech know-how, or, become part of a seller ecosystem/app (Exhibit 4). The seller app can enable these sellers to fulfill ONDC orders and offer a good buying experience, by enabling them to maintain an accurate product catalog; real-time inventory status; order fulfillment; digital payment collection; accepting returns, etc.

On Monetization

It is hard to build a large business in India just by monetizing through pure software subscription, just because Indian SMEs have a low propensity to pay for software, varying from $2 to $100 per month. Using ONDC, SME SaaS builders can now monetize on transactions as well (without spending marketing budget on acquiring buyers), by enabling their SME customers to start fulfilling orders from the ONDC. For over-the-top revenue, SMEs would be ready to pay a small commission (1% to 10% depending on the category) to the seller app.

Would love to hear your feedback on this. Also, if you are building a Seller SaaS in any of these categories - Local Services, Healthcare, Manufacturing, Exports, traders, and eCom sellers, and wish to brainstorm with us, do reach out to us at [email protected]