There is a long, long way to go for ONDC to become what it set out to be given the number of concerns that persist related to sellers, pricing and more
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It’s the oldest debate in tech: open or closed systems?
There have been champions on both sides of this argument and we have even seen companies switch allegiances. Perhaps the most significant manifestation of this debate is the closed iPhone vs open-source Android. But another one is brewing in India — the Open Network for Digital Commerce or ONDC vs ecommerce marketplaces.
Of course, the big difference is that ONDC is not a direct rival to ecommerce marketplaces but we are talking about the philosophies behind each. After its high-profile launch last week though, one thing is certain: there is a long, long way to go for ONDC to become what it set out to be.
We will look into why an open network may not exactly solve some critical problems in the ecommerce journey and why talk of democratisation may be a bit premature.
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Reality Check For ONDC
After the hype comes the reality check. And it says ONDC has not gotten off to the flying start as ‘hyped’. The slow adoption is in line with expectations given the relatively small nature of the pilot and there’s talk that ONDC will usher in the UPI moment for ecommerce.
The open network was first launched in Bengaluru, where it saw a mere 160 orders on its first day, but now plans to launch it in Delhi and Mumbai are accelerating. While ONDC may well be available in more cities soon, there are still a lot of unanswered questions.
The biggest ones are related to how ONDC will bring all ecommerce stakeholders on to one page, but there are other serious concerns too. Such as will ONDC erode some of the trust that has been created among consumers for ecommerce marketplaces? And will it actually tackle marketplace dominance or create deeper entrenchment of larger players?
Teething Issues For ONDC
The ecommerce experience for consumers is built around either a discovery-based, need-based or brand-based search journey.
Each of these involves a different motivation and this is where algorithms of integrated marketplaces have made an impact and created the convenience. So what is ONDC built for?
Experts we spoke to believe that ONDC may not work for all three and that’s why it will be slow progress.
ONDC began its pilot with grocery and food, which are both need-based purchases, where the search algorithm has to be totally different from the algorithm for brand-driven or generic discovery-based shopping.
A consumer may want a blue shirt, but which particular blue shirt they will buy is a process of discovery. In other categories, such as laptops or smartphones, the process is driven by brands. At the moment, it’s not clear what kind of level playing field there might be for categories such as smartphones, where the margins are often different for selling online and selling offline.
And that’s just the first of many problems.
Sellers Await Clarity
“Even for a D2C brand like us, understanding how to launch on ONDC is not that easy. We had to engage a startup to help us navigate onboarding. So I can imagine that a lot of sellers are facing the same issue,” says the founder of a Mumbai-based clean beauty brand.
Startups such as GoFrugal, Plotch.ai, SellerApp, Setu among others are enabling sellers to come on board ONDC. But reaching these sellers is one matter and earning revenue from them is another. Many of the dukaan tech apps for instance have had problems scaling up the revenue earned from onboarding kiranas and other smaller retail stores, who are also being targetted by ONDC.
SellerApp, for instance, provides catalogue management, analytics and other services to sellers on ONDC, similar to how ecommerce enablers have been doing so far for Amazon, Flipkart or other marketplaces.
“For a seller, ONDC is just another marketplace or distribution point. ONDC by itself will not boost the number of orders for sellers, but it does help them get a wider potential reach right now,” adds the founder quoted above.
At this early stage, sellers and ecommerce platforms don’t have complete clarity on how certain things will work. For instance, grievance redressal is still a grey area and guidelines will come soon for the same, so is technical support for sellers. What happens when things break; whom can the seller or buyer approach for fraud or other cases? Further, the network is still evaluating solutions for localisation in regional languages, as per reports, which is another concern.
Leaving sellers to fend for themselves or use third-party services does not seem like the right message given ONDC’s vision of democratising ecommerce.
At The D2C Summit 3.0 last month, ONDC’s chief business officer Shireesh Joshi said, “For more than a decade, we were used to doing ecommerce a certain way. We have to unlearn a lot of behaviour and practices that we have taken for granted and have become second nature to ecommerce. These behaviours will actually change or disappear completely.”
But this is not something sellers are ready for just yet. It may be a step too bold for many of them.
Is The Price Right?
Pricing is another area where ONDC remains opaque. One of the driving factors behind ONDC is predatory pricing by marketplaces which eats into seller margins or forces them to sell at a lower price in other channels.
Although transactions on ONDC are free at this point, it may charge a transaction fee of approximately 1.5% soon, according to industry sources who spoke to Inc42 earlier this year.
Buyer-side apps such as Zomato, Swiggy, Amazon, Flipkart, Paytm Mall and others are likely to charge a commission of 3%-5% on each transaction for food, grocery and other categories, which could increase for larger-value purchases.
The seller-side apps such as SellerApp or GoFrugal may also charge a fee from sellers or restaurants or stores to meet the cost of data analytics. Then there is logistics which is already very price-sensitive in India and could add to more costs on both sides.
This naturally raises concerns of more layers in the ecommerce chain. Indeed, a JM Financial report from earlier this year indicates that in the pilot phase ONDC-listed food or grocery items had similar or higher average prices than Zomato, which was not part of ONDC at the time.
Could it be that other apps will continue to offer a better value proposition for customers than ONDC? Pricing is a major factor that has helped maintain trust around ecommerce and the moment that safety net is taken away, the customer has lower incentive to shop online.
ONDC Vs Bad Actors
It’s a huge gamble in the opinion of many experts, because ecommerce in India may have matured, but it’s still only 3%-4% of retail and as such this is still very nascent.
While there have been comparisons with UPI, which has taken over the digital payments landscape in six years, ONDC’s early execution leaves a lot of room for improvement. It’s taken a decade for ecommerce giants to build trust. Amazon, Flipkart spent billions building trust and features towards trust — from order tracking to recommendations, returns and exchanges, repairs.
“It will take several more years for consumers to trust an average seller on ONDC in these matters. I could be a buyer on Amazon, buying from a seller who’s not on Amazon, so where is ONDC going to create a circle of trust that you get from an integrated player like Amazon?,” asks PeerCapital’s Ankur Pahwa.
This also raises a big question around bad actors in the ecommerce space — whether it is spurious products or counterfeits or first-copies. A Google search will surface many such products — will these then also be allowed into the network?
We wanted to circle back to the open source analogy we used in the beginning. For open source to work, it has to be truly open. And that means trusting the network to root out bad players and malpractices. But at this moment, there’s no answer to that question yet.
Along with concerns from sellers, these unanswered questions have meant that ONDC’s big-bang debut has been a bit of a damp squib. Of course, like we said, there’s still a long time to go and a lot more that needs to be done before we can have the final word on this.
Sunday Roundup: Startup Funding, Tech Stocks & More
- Startup Funding This Week: Indian startups raised just $137 Mn this week, with just 14 deals recorded. Despite the low figure, this tally is more than 2X what was recorded in the previous week, which well and truly underlines the slowdown in startup funding this year
- Tracxn Set For IPO: Ahead of its INR 309 Cr IPO kicking off tomorrow, Bengaluru-based Tracxn raised INR 139.22 Cr in an anchor round from 11 investors
- Investors On Startup IPOs: According to an Inc42 survey, 73% of Indian investors have a negative sentiment toward startup IPOs in 2022. Here’s why
- CCI Vs Google Again: The antitrust commission has ordered another probe against the tech giant over alleged abuse of dominance in the news aggregator space
- Ecommerce Festive Boom? The total ecommerce GMV for the first week of the Indian festive season touched $5.7 Bn, a 4X surge compared to the non-peak season
That’s all for this Sunday. We’ll see you again with another roundup next week.
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