Reuters stated in June 2022 that the "Indian government in April launched its Open Network for Digital Commerce (ONDC) as a prospective alternative to dominant global giants Amazon.com and Walmart in its fast-growing e-commerce market". The Open Network for Digital Commerce (ONDC) website greets us with the message "Everyone's Commerce" when we log on. “Experience India’s biggest e-commerce revolution!” another page on the site states. “Purchase products or services from a huge catalogue of sellers across India. Locate online your neighbourhood food, clothing, or utility stores.”
What is Open Network for Digital Commerce and how does it function? What is it trying to solve? What is the way ahead like? What is the future like for ONDC? Such are some questions looming through Raghav’s mind, an economics enthusiast, after reading various news headlines about it.
What is Open Network for Digital Commerce and How does it functions ?
The Department for Promotion of Industry and Internal Trade of the Government of India formed the private, nonprofit organisation known as Open Network for Digital Commerce with the goal of creating open networks for e-commerce in April 2022. The Open Network for Digital Commerce initiative is being led by T Koshy of EY with the help of a 9-member advisory group that includes people like Nandan Nilekani, the co-founder of Infosys Ltd., and others. It is fundamentally a network of numerous small and large-scale e-commerce enterprises that intends to end Amazon and Flipkart's dominance in India.
The project aims to increase opportunities and dismantle digital monopolies by helping independent merchants, micro, small, and medium-sized businesses, and other small businesses to join online markets. Major firms like Flipkart and Amazon have said they would support the initiative. However, by doing this, they will be able to source goods from the ONDC's seller side and lose their monopoly. This would enable platforms with significant business-to-business sectors to access the ONDC network's seller side and provide goods in addition to reaching out to new customers. The flowchart ahead precisely depicts the working of ONDC.
How do e-commerce behemoths established Monopolies ?
A corporation has a monopoly when there is no rivalry in a given market or sector, and it is free to establish its prices without interference. Companies create monopolies by acquiring rival businesses in the market through horizontal integration or by vertically integrating to control the whole supply chain from production to sales. They have the power to set prices and create obstacles to entry for rival businesses.
Understanding the Amazon case will aid in interpreting how a monopoly is created. Because of its excessive influence in the e-commerce industry, Amazon has been charged with operating as a monopoly. According to the claim, other companies find it challenging to compete because the corporation can charge incredibly low costs on its platform. The documents make it clear that Amazon has been favouring a small number of vendors on its India platform for years, lying about its relationships with the sellers in public, and using the sellers to get around the country's increasingly strict regulatory framework.
What is ONDC trying to Solve ?
It is intended to promote open communication and interactions among customers, IT platforms, and retailers. For all online business transactions, ONDC will make sure that buyers and sellers utilize the same platform or one app. With its help, independent small enterprises will be able to trade with e-Commerce giants without having to contend with their onerous policies and exorbitant commission fees. By only charging a 3% referral fee for locating buyer 2, ONDC surpasses this.
Typically, Flipkart, Amazon, Swiggy, and Zomato deliver search results based on the brands that give them higher profits or those that invest more in platform advertising. Merchants who are unable to do so have little customer exposure. Hence, discoverability on e-commerce platforms is one of many issues that ONDC addresses from the viewpoint of the merchant
What are the Hidden Challenges that can be faced ahead ?
Undoubtedly, the arrival of ONDC carries with it several challenges mentioned further.
Since the majority of small business owners lack the technical know-how necessary to participate in this program, a huge awareness campaign must be planned. Additionally, they lack the financial means to compete with Amazon and Flipkart's discounts. In contrast to UPI, ONDC may prove to be a challenging environment to deploy. Additionally, it will be challenging to convince clients to leave the incumbents, who are providing a satisfactory service. a limited ability of new sellers to compete. No trust portability for sellers. Concentration also runs the risk of giving the network too much influence. The challenge faced by sellers who wish to be present on several platforms is the last.
However, some of the aforementioned challenges have been diluted by the increased use of UPI and other such initiatives.
What is the future like for ONDC ?
Initially, among the lenders in talks with the ONDC to establish buyer platforms were the State Bank of India, Axis Bank, PNB, ICICI, HDFC, Kotak, and IDFC. By using these, the banks would be able to promote the use of their credit cards, loans, and other services. Startups that would join the ONDC are additionally attractive to the venture capital companies Sequoia and Accel. Bharti Airtel and Vodafone Idea, two telecommunications companies, are also discussing how they may make use of the platform. Recently, giants like Protean, Google Cloud, Plotch.ai and NPCI (National Payments Corporation of India) are in talks to join forces to Make ONDC Network Integration Seamless for Enterprises and to enhance ONDC’s Payments & Settlements.
The Project that was started last year is progressing, from barely 30 transactions per day a year ago to 600 transactions now, the platform is home to 26,000 merchants that provide more than 27 services. By bringing in a diverse group of players, it hopes to spur more creativity. By 2025, the Indian e-commerce market, which is currently worth $700 million, is anticipated to reach a value of $5.5 billion.5 Therefore, the ONDC, a disruptor in the Indian Economy, is expected to benefit significantly in the years to come.
Sources of the Blog
The ONDC way: How India's e-commerce sector is being disrupted (businesstoday.in)
What Is a Monopoly? Types, Regulations, and Impact on Markets (investopedia.com)
Amazon documents reveal company’s strategy to dodge India’s regulators (reuters.com)
What is ONDC, and why is everyone talking about it? | Explained News, The Indian Express
ONDC's UPI-like e-commerce platform aims to break Amazon, Flipkart’s hold in India (indiatimes.com)
Author: Chaarvie Yadav
{Graduate of 2022 Batch from Lady Shri Ram College for Women. Presently pursuing a Master's degree from Delhi School of Economics}
Illustrator: Ujjwal Bhuvnesh
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