Who Adds Value To business? Distributor Or Manufacturer? – An Analysis

Several Founders, Co-Founders, CXO Bankers, CXO Fintech professionals & people who participated in the ePanel discussions:

  • Mr. Kamonasish Aayush Mazumdar, Founder & CEO at Foodieverse
  • Mr. Ishan Vaish, India Partnership Manager- Worldwide Developer Relations, Apple
  • Mr. Riaz Maniyar, Founder & CEO at easy2lend.com
  • Mr. Piush Kothari, Head of Business Operation, Walt Disney Direct to Consumer & International
  • Ms. Monica Jasuja, former Head of Digital & Emerging Partnerships, Mastercard
  • Mr. Vikas R Panditrao, Co-Founder, Forum of Industry and Academic Knowledge Sharing (FIAKS)
  • Many other CEO/CXO Bankers & Fintech professionals on FIAKS Forum requested to remain anonymous

The emergence and growth of business models like Netflix, Acko, and Farmers’ Markets point to a larger transformation – the outing of intermediaries across industries.

Direct distribution channels where products and services reach users and consumers without third-party brokering posit several advantages:

  • Producers themselves have greater control over the product & its distribution
  • The cost in terms of commission is curtailed, enabling greater margins

Moreover, if an established distributor takes over manufacturing, it further benefits from its existing network of users. As is rightly pointed out, ‘The company closest to the user wins!’

An interesting point therefore arises:

  • When the endgame of user acquisition becomes costly, owners need intermediary, cutting-edge distribution channels to reach the targeted product growth.
  • However, distributors with their established user pool can become profitable owners of the product itself.
  • A use-case to prove the reasoning would be OTT models: While we have Netflix originals, technically NF is “buying rights” to own what some content creators are creating.
  • As the debate continues, we see Disney, a producer, become a distribution platform for its own productions.

The profitability of owning and distributing also varies by industry:

  • In the case of online travel aggregators (OTAs) like MakeMyTrip, they have a better chance of making money than the airlines themselves. However, allied sectors, especially interstate bus services armed with their own fleet & hotels, are relying on direct distribution.
  • Cases like OTAs & Amazon demonstrate that sometimes “owning” is a deterrent and non-scalable in some industries, in which case distribution is more visible to the users & therefore, more profitable.
  • Gaming is another interesting industry. Nintendo, Sony, and MS are all in the distribution and platform business – and due to the sheer nature of the business, they make very few games; most content comes from creators.
  • In the medical industry, Practo runs a great distributor model. Whether they ever will own diagnostics, or hospitals or doctors is a question for another time.

Technology firms have a trade-off between high value and volume of transactions & low margins. When there are low margins, no room for user growth, usage growth, price growth – it is necessary to ramp up ownership, production & of course, distribution. The fintech industry has taken this path as well, the most recent incident being the acquisition of IndiaBulls Mutual Fund Business by the fintech wealth management platform Groww.

 To answer the question ‘Why IB sold out?’

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2021-07-03T21:11:21+05:30July 3rd, 2021|Categories: FIAKS bespoke|Tags: |Comments Off on Who Adds Value To business? Distributor Or Manufacturer? – An Analysis

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