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India's Alibaba: IndiaMART's Network Effects

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Dinesh Agarwal and Brijesh Agrawal (“DA & BA”) established IndiaMART with around US$1100 savings in 1996. By 2014, IndiaMART.com was “India's largest online marketplace for Small & Medium Size Businesses”. Its revenue for the year ended March 2014 reached US$32 million. “The company offered a platform and tools to over 1.5 million suppliers to generate business leads from over 10 million buyers… (It had) over 2600 employees located across 40+ offices in the country”.

In keeping with its growth plans, the company evaluated various capital raising activities from time to time, including public or private placement opportunities. Factors that would benefit the company's valuation included a strong track record of year-on-year growth, a sustainable revenue base from diversified product categories, a strong, large and active user base as well as a solid conversion rate of buyer-leads to revenue dollars for its suppliers. The downside, though, was that the company had not been generating operational profits for five years since 2010.

From scratch to US$32 million revenues, DA & BA led the company's many evolutions; what were the major considerations in building the present business model? How did they ensure the development of strong networks in every product category of the multiple-sided platform? One criticism of IndiaMART's weakness was easy replicability – what was the founders' response to mitigating risks presented by this weakness? What should IndiaMART do to attract a fair valuation?

Learning Objective:

The rapidly growing importance of platform mediated networks to the world’s economy has challenged many business protocols and rules of thumbs in managing traditional businesses. It is necessary for business students to understand the concept and its related constructs. The case allows students to tap the minds of the founders and key managers of a successful network-based business platform and see how they manage to drive sustainable revenue from leveraging network effects. The case also presents students with the challenge of examining rationales and approaches in valuating network effects.

The case has the following teaching objectives:
1. Illustrate the core concepts related to platform mediated networks including constructs such as scale effects, network effects, multisided platforms and platform ecosystems.
2. Understand the different types of network effects and their impacts on market players.
3. Understand the complexities of digitally moderated multisided platforms and the considerations in building business model of a multi-sided platform
4. Appraise strategies available for incumbents and new entrants to compete in network ecosystems.
5. Deliberate approaches in valuating platform mediated networks and their associated network effects.

Year of Publication: 2015
Ref. No.: 15/559C
Discipline: Strategy & General Management
Industry: Software & Services
Country: India
Company: IndiaMART InterMASH Limited
Languages: English
Pages of Text: 26