Death of Monopolies in India: An explainer on ONDC

With a population of around 1.4 billion, India is an enormous market to capture consumers for corporations around the world. The vast population associated with the onset of digitalization has helped conglomerates to gain a majority of the market share leaving behind small businesses in the dust. Corporations like Amazon, Flipkart, Swiggy, and Zomato act like they care about individual businesses but they use various tactics for their gain. For instance, E-commerce platforms like Amazon have complete autonomy on what products they want to show at the top of the list, and which products they want to give their “Amazon’s Choice” tag to. So, there is a high chance of the products shown at the top of the page or the ones with an “Amazon’s Choice” trust tag after a search being sponsored products. This means that the sellers have paid Amazon to show their products at the top of the page or to “earn” a “Amazon’s Choice” tag. This misleads consumers who are not tech savvy and think the product shown at the top is the best product and purchase them. 

But how did they get the market power to conduct such practices in the first place? To know that, we need to first understand the two business models that exist in the Indian e-commerce industry: the ‘Marketplace model’ and the ‘Inventory model’. ‘Marketplace model’ is a model in which the e-commerce firms simply act as a middleman between the buyers and sellers. The firm makes profits through commissions on every transaction. ‘Inventory model’ is when the firm purchases products in bulk and at cheaper rates, stores them in their godowns, and sells them at a higher price. 

Even though the profit margins for the ‘Inventory model’ are higher as compared to the ‘Marketplace model’, corporations like Amazon and Flipkart (which are foreign-owned) were forced to choose the ‘marketplace model’ when the Indian government issued a rule that foreign direct investments (FDIs) will not be allowed for businesses that use the ‘Inventory model’. 

Nevertheless, these corporations have found a way to exploit the ‘Marketplace model’ too and enhance their market power. The ‘marketplace model’ allows firms to have real-time insights into the products sold by independent sellers on their websites. They use this data to manipulate their search engines and benefit their firm. But how do they do that? 

Let’s look at it with the help of an example. Assume that people in Navi Mumbai are purchasing air conditioners with certain unique features (such as Deep Cool, and Invertor back-up). E-commerce platforms such as Amazon have insights into the features that consumers are looking for, the price range that the consumers like, and the area where it gets most of the sales. Amazon will immediately tie up with an AC manufacturer in Navi Mumbai, ask them to manufacture ACs with the features consumers prefer, set the price at a range that attracts consumers, and sell them on their website. They can do this due to the massive amount of backing from foreign funding. They also make a huge profit margin due to fewer logistic costs (lesser delivery costs since the area of manufacturing and delivery will be closer). This is unfair to MSMEs or small startups as they do not have the financial backing to take up the malpractice strategies that the e-commerce giants do. 

So, to fight this, the Indian Government has come up with a brilliant strategy that supposedly challenges these conglomerates and inculcates a more inclusive e-commerce environment. ONDC or One Network Digital Commerce is an open network that is independent of specific platforms. Its main function is to act as a middleman between buyers and sellers, just like a regular e-commerce website. A quick search on ONDC and Swiggy for a single margarita pizza from Pizza Hut costs ₹191 from ONDC and ₹216 on Swiggy. We can see that ONDC is pocket friendly for consumers. But how come the low prices? It is because, previously, restaurants had to hike their products due to the commissions they had to pay to Swiggy and Zomato for allowing them to sell their products on their app. When these restaurants use ONDC as their “middleman app”, they do not need to pay the commission anymore. Hence, the products are cheaper.

Now let us look at how ONDC operates. In ONDC, the buyer not only chooses the product from a pool of various sellers but also chooses the logistics of the order (such as delivery agents). This leads to the democratization of the e-commerce space with no individual company holding autonomy over the entire supply chain. Each part of the supply chain has various companies offering the same kind of services at different rates. The buyer can choose the company that is selling the service at a price that is comfortable for the buyer. This was a much-needed initiative to help MSMEs gain a competitive advantage in the e-commerce space along with the possibility of ending monopolies.

Now let us understand how the ONDC platform works. At the time of writing the article, ONDC is only available through the Paytm app. After logging on to Paytm. Three types of ONDC are available to the users: ONDC Food for food delivery, ONDC Grocery for grocery delivery, ONDC Home Décor for everyday items that people require, ONDC Fashion for various fashion brands of all ages, and ONDC Electronics for satisfying your tech needs. The process of ordering is pretty straightforward and is the same as any other famous e-commerce platform. You choose the category you want to shop from, type in your address and you will get a list of all the brands that have registered in ONDC and are near your location. Pick a brand you like, add the item you want to your cart, and place the order!

However, there are certain limitations that ONDC has to overcome to make it successful. One of the main concerns is, “Will customers care to shift?” ONDC seems to be solving a problem that sellers in e-commerce go through. For customers, it’s pretty much the same with the possibility of slightly cheaper products. But will that be enough? Not exactly. Customers also look for brand trust, reliability, and deep discounts during festival time and big corporations like Amazon, Swiggy, and Zomato have perfected them. They have gained the trust of an invaluable number of consumers who are very hesitant to place their orders from anywhere else. There is no particular incentive for a customer to shift except for those people who are against capitalism and monopoly.

The road ahead for ONDC: Even though the initiative is to provide a better platform for small businesses, ONDC still has to go through several hurdles to stand out. Firms with large finance capital can register in the ONDC network through subsidiaries and use their exorbitant funding to their advantage and out-price the smaller firms landing them in a similar position as they were in other e-commerce platforms. If these problems are addressed and taken care of, keeping the interests of all parties involved, ONDC has the opportunity to be revolutionary. 

ONDC is relatively new and it will take time for both buyers and sellers to shift to a newer ecosystem. There are very few options to surf through as of now in the ONDC platform, especially when comparing it with its competitors who have around lakhs of options for each product. However, this is a brilliant initiative with the backing of great minds such as Nandan Nilekani (Advisor of UPI). This is something that was never tried by any country before. If the people behind ONDC get the same execution as that of UPI, then ONDC will be beneficial to MSMEs and other small businesses along with boosting the Indian economy to new levels.