ONDC, arrange as a non-profit firm, is a community that lets sellers show their services and products throughout all taking part apps and platforms. It makes use of open specs and protocols that will standardize operations like cataloguing, stock administration, and order fulfilment. The argument is that this might provide a substitute for giant platforms with ‘monopolistic energy’ by offering an interoperable decentralized community that will place extra energy within the palms of the small sellers and provides higher selections to prospects. Immediately, there are over 35,000 sellers on {the marketplace} and 38 lakh merchandise.
Whereas the corporate was integrated on the final day of the calendar 12 months 2022, it was within the works for not less than a 12 months previous to that. As per a Reuters report of Might 2023, ONDC goals to boost the share of e-commerce from almost 8% to 25% within the subsequent two years. And like the web site sums up in two phrases, one of many many said targets of ONDC is to make e-commerce extra inclusive, for customers in addition to the smaller suppliers.
With the 2 architects of Aadhaar—Nandan Nilekani and R.S. Sharma—a part of the nine-member advisory council, there might be little doubt about both the standard of the concept or the execution. The success of ONDC can be a matter of pleasure for the nation.
With the runaway success of Unified Funds Interface (UPI), the hype round ONDC is kind of comprehensible. Some have even used the metaphor ‘e-commerce’s UPI second’. Nevertheless, the 2 are as completely different as chalk and cheese. And there are some questions each about the issue that ONDC is attempting to resolve and the efficacy of its answer. Mint explains:
Is the metaphor simplistic?
Funds, particularly home financial institution transfers, are far much less nuanced than e-commerce, and success within the former doesn’t robotically guarantee success within the latter. Traditionally and culturally, society in India has regarded down upon life supported by borrowed cash. Therefore, debit playing cards in India even in the present day far outnumber bank cards to the tune of 10 to 1. Mint, in April, reported that in 2022, lower than 9% of all of the digital funds by worth ( ₹149.5 trillion) had been made via bank cards, and the steadiness 91% had been via UPI, debit playing cards and different pre-paid devices. And UPI contributed to a whopping 84%. Earlier than the launch of UPI in October 2016, all debit-based transactions had been via a mix of money trade, on-line financial institution transfers, debit playing cards, and mock bank cards (bank cards that had been actually used as debit playing cards).
Due to this fact, the UPI protocols, created by the Nationwide Funds Company of India (NPCI), merely leveraged the ubiquity of smartphones and rising web penetration to cut back friction and allow every kind of non-credit transactions through smartphones with an very simple person interface. UPI was not focusing on the shopper section that cared for credit score.
So, if the metaphor of the ‘UPI second’ within the context of ONDC is about democratizing on-line commerce by offering expertise to the small gamers, one that will allow them to compete with the massive daddies of e-commerce on a stage enjoying discipline, then that metaphor is inaccurate as a result of UPI did no such factor. In non-credit funds, there wasn’t any massive daddy with monopoly energy that UPI checkmated.
E-platform monopolY?
Considered one of capitalism’s most long-standing dilemmas has been about balancing the advantages that aggressive forces in a free market unleash with the monopolistic energy an unbridled free market might create.
It’s straightforward to view platforms like Swiggy and Zomato as some kind of ruthless profiteering firms exploiting their duopoly energy to create super-profits for themselves. The commissions they cost from eating places are considered as exploitative and costs they cost prospects are steep. But, for the fiscal 12 months 2022, Swiggy reported a internet lack of ₹3,629 crore (greater than double the lack of ₹1,617 crore reported in fiscal 12 months 2021), and Zomato reported a lack of almost ₹1,100 crore in the identical interval. So, despite all of the purported privileges and energy that include a duopoly, removed from making a super-profit, these firms are struggling to maintain their head above water and there are critical questions as as to if the dearth of profitability is merely a short lived phenomenon or is symptomatic of a extra elementary query in regards to the viability of the enterprise mannequin.
One of many accusations that a number of well-funded e-commerce firms have needed to deal with has been that they’ve used easy accessibility to capital to construct unsustainable and unprofitable companies by providing artificially low costs to customers and better earnings for suppliers. And now, when these firms are attempting exhausting to cut back money burn and develop into sustainable, they’re accused of being exploitative and monopolistic even when there are not any particular indications that they’ll ever be massively worthwhile companies.
Good marketplaces?
A pure market depends on the 2 events on the platform—the customer and the vendor—to execute a deal. {The marketplace} merely fees a small fee for facilitating the deal (small most likely in comparison with what a platform would possibly cost). The issue with pure play marketplaces has at all times been that buyer expertise is inconsistent due to an absence of standardization throughout suppliers on varied elements of a transaction like pricing, cost phrases, logistics, packaging, service ranges, returns, decision of buyer complaints, and so on. For all these very causes, companies like Amazon that began off as marketplaces, ultimately pivoted to a ‘full-stack mannequin’ or right into a platform, the place they standardized many of those elements of a transaction and thru steady monitoring and audits ensured compliance. In addition to Amazon, different firms like City Firm additionally began off as a market however pivoted to a full-stack mannequin.
Whereas firms like Amazon made this shift, they found what many different bodily retail chains had found a lot earlier, specifically why promote another person’s merchandise when you may promote your individual white-labelled merchandise. This evolution was not induced by a need to create super-profits for themselves via exploitative practices however was in response to the basic flaws of a pure play market. Equally, in grocery, too, the preliminary fad with asset-light fashions (a distinct time period for marketplaces) died shortly as a result of the asset-light fashions didn’t tackle the basic buyer requirement of avoiding a go to to a bodily retailer. This elementary flaw within the market mannequin resulted within the inventory-led mannequin (platform), like that of BigBasket, rising because the profitable mannequin.
So, if the migration from marketplaces to platforms was in response to one of many elementary issues of a market, the reversal to a market will deliver again all the issues that had been inherent in that mannequin. Each drawback has a number of options. While you lastly choose the perfect answer after evaluating all the professionals and cons, you have got accepted to stay with the downsides of the answer you have got lastly chosen, as a result of you realize that in steadiness, this answer has extra execs than cons. If after experiencin
g the downsides of the chosen answer, you start to consider it is best to swap to the opposite various, you might be being fickle.
A stage enjoying discipline?
Till firms like Swiggy, Zomato, BigBasket and the others start to generate profits hand over fist, there isn’t most likely an uneven enjoying discipline that wants levelling. The essential query is what side of the e-commerce fulfilment course of—from procurement to order success—would ONDC rework by providing a neighborhood kirana retailer the chance to ship their merchandise to prospects of their locality and but make sure that the entire chain of financial exercise is extra environment friendly than the one facilitated by an organization like BigBasket with its personal darkish shops?
The explanation a buyer retailers with BigBasket in the present day is due to assortment, worth and consistency of general expertise. On every of those key metrics, BigBasket would considerably outperform a kirana for apparent causes. So, how would the ONDC market mannequin ship higher efficiencies? Firms like BigBasket are diligently scraping each penny on the backside of the associated fee barrel that doesn’t add worth.
In the event you had been to go by doomsayers, then all of the small eating places and kirana shops would quickly be killed by the larger e-commerce gamers. That is unlikely to occur anytime quickly. Not everybody likes to buy on-line and never each offline retailer desires to be on a market. Many e-commerce firms are, in reality, seeing a flattening of development, particularly after taking measures that may get them out of the purple. Retail has grappled with channels and channel conflicts for so long as retail existed. When ‘fashionable retail’, which is admittedly the massive format shops, started rising in India, there have been fears that the kirana shops would die. That didn’t occur. Each thrived and each grew. The share of recent retail after greater than three a long time is an abysmal 10-15%!
Expertise has given form to a brand new channel. The wrestle between channels will proceed with one new channel within the combine. However simply as fashionable retail didn’t stay as much as predictions of whole domination, on-line retail too is not going to stay as much as such a prophecy. Firms, each on-line and offline, have now properly begun to take a holistic view of channels from a buyer perspective.
Investing strategically in public items that improve inclusivity is the best factor to do. The query is, what kind ought to they take? Imitating the fashions of the larger gamers might be not the reply as a result of what has labored for them could not work for the mom-and-pop shops and small eating places. There is a chance for entrepreneurs to construct companies by enabling the smaller gamers via expertise associated to stock, demand forecasting, procurement, easy accessibility to schemes provided by manufacturers, and so on. Most small gamers usually are not even focusing on prospects who look after the comfort of house supply. Due to this fact, any answer that focuses on house supply is unlikely to learn smaller gamers as a result of they will by no means beat the pure play e-commerce firms on this.
Is the concept sport altering?
Any game-changing concept ought to contain a elementary change to the present assemble of the sport. As an analogy, it doesn’t matter what modifications you make to the outside design of a automobile physique, it might probably by no means be made to fly as long as the engine that powers the automobile on the bottom stays unchanged. Due to this fact, simply because a present enterprise mannequin is experiencing a set of issues at scale, there isn’t a assure {that a} new enterprise mannequin with beauty modifications will likely be any completely different when it begins to scale.
Customers of Uber/Ola have been going through many challenges, and a few are extraordinarily irritating. However neither customers of Uber nor Ola confronted these challenges when these firms had been small and had been burning money to create an excellent expertise. It isn’t that Uber/Ola are not dedicated to delivering an excellent buyer expertise. It’s simply that the expertise they created prior to now, once they had been a lot smaller, is just not sustainable on the present scale when they’re pushing for profitability. The expertise that prospects had been used to, and had come to count on, merely can’t be offered on the worth factors they’re keen to pay.
So, any optimism that BluSmart, an all-electric ride-sharing firm, is God’s reply to the prayers of city commuters, is misplaced. Any type of beauty change that doesn’t alter the underlying fundamentals is unlikely to alter outcomes.
Whereas the intent behind ONDC is excellent, what isn’t evident are the game-changing components of its enterprise mannequin. Every now and then, India should cope with completely different shades of the controversy across the nature and possession of financial exercise—one which optimizes for employment on the one hand vis-à-vis one which optimizes for buyer expertise (and create some inequality) on the opposite. In some methods, the concept of ONDC is a manifestation of this debate. It might be attention-grabbing to see how this concept performs out.
T.N. Hari is an creator and co-founder of Artha College of Entrepreneurship.
Up to date: 29 Might 2023, 12:37 AM IST