For representative purposes. photo credit: iStockphoto
the story So Far: The central government wants to formally launch the Open Network for Digital Commerce (ONDC) this year to “democratize e-commerce” and “provide an alternative to proprietary e-commerce sites”. While it has urged companies to join the ONDC platform, major e-commerce players such as Amazon and Flipkart have been reluctant to come on board. Commerce Minister Piyush Goyal had recently asked these companies to join ONDC soon or risk being left behind.
What is ONDC?
The government wants to change the fundamental structure of the e-commerce market from the current “platform-centric model to an open-network model”. ONDC is modeled after the Unified Payments Interface (UPI) project, which many see as a success. The UPI project allows people to send or receive money, irrespective of the payment platform they are registered with. Similarly, the government wants to ensure that buyers and sellers of goods can transact in the e-commerce market irrespective of the platforms on which they are registered. So under ONDC, a buyer registered on Amazon, for example, can buy goods directly from a seller selling on Flipkart. To make such transactions a reality, the government has mandated companies to list themselves on ONDC. The pilot version of ONDC was launched last year in a few major cities and thousands of vendors have already joined the platform. However, Amazon and Flipkart are yet to on-board their main shopping platforms on the ONDC network.
Why is the Center pushing for this?
The government believes that ONDC will end the dominance of the e-commerce market by a few big platforms. It added that the e-commerce market is currently broken into “silos” operated and dominated by private platforms. For example, Amazon and Flipkart have been accused of promoting certain seller entities in which they hold indirect stakes. Food delivery apps like Swiggy and Zomato have also been accused of charging high commission from sellers. With an open network like ONDC that connects buyers and sellers across platforms, the government hopes to level the playing field and make private platforms redundant.
what the critics say
Critics argue that the purported benefits of an open network for digital commerce are currently unproven. One is that sellers are free to list their products on various e-commerce platforms even in today’s platform-centric e-commerce model. Buyers also regularly shop on the platforms. Then there are services like price-comparison that are offered by various private websites that bridge the information gap and help buyers make better decisions. Therefore, critics argue, the dominance of the e-commerce market by platforms such as Amazon and Flipkart cannot be due to any captive hold that these platforms have on buyers and sellers. Furthermore, the alleged monopoly to enjoy the platform is no different from the limited monopoly that any business has today on its own assets.
what lies ahead?
The ability of the government’s technocrats to come up with an efficient alternative to the e-commerce platform will be tested as the government rolls out ONDC. It remains to be seen if and how the government’s open network will list products offered by various vendors. Competition generally drives e-commerce platforms to prominently list products that are most likely to capture the imagination of buyers. Their on-boarding and listing of sellers is also heavily influenced by sellers’ ability to fulfill customer orders. In fact, platforms can invest money to create unique on-boarding and listing processes. If open network rules prevent platforms from profiting from such investments, they may stop making them. This will ultimately affect the quality of services available to the consumers. Creating an efficient marketplace for the sale of goods and services could become a major challenge for ONDC.