Will ONDC Succeed In Providing A Level Playing Field To Small Businesses?

When Bengaluru-based D2C brand Taamara recently got its own ecommerce platform up and running, it was following a trend that has the attention of small enterprises. Unhappy with the business model of aggregators, small enterprises, including D2C brands, are setting up their own digital commerce platforms that are independent of “monopolistic” practices of aggregators.

Their modest initiatives are, however, no match for the deep-pocketed ecommerce giants whose networks have spread far and wide. What they want is a level-playing field with the likes of Amazon and Flipkart.

The government-backed Open Network for Digital Commerce, better known by the acronym ONDC, is set out to do exactly that – democratise the lucrative e-commerce space.

“We have been looking for the launch of ONDC in which we are willing to participate. ONDC enables sellers to make their offerings much more reasonable as the established marketplaces are charging hefty commissions on the sales, excluding ad-spend, to market products,” said Taamara founder and CEO Naresh Kumar Kalavala.

E-Marketplaces Turning Unviable For D2C Brands

Kreeva, another e-retail platform for ethnic wear, echoed Taamara, an Indo-western fashion brand. According to Manthan Dhameliya, owner of Kreeva, the D2C space is highly competitive, but certain brands get preferential treatment.

“ONDC aims to democratise the digital commerce space by facilitating a level-playing field to all D2C brands across sectors, leading to innovation, business growth, customer expansion, convenient and seamless transactions,” he said.

The likes of Taamara and Kreeva are betting big on ONDC because at present, the thriving ecommerce space is dominated by a couple of players. It is the duopoly of deep-pocketed Jeff Beoz’s Amazon and Walmart-controlled Flipkart.

D2C is a fast-growing subsector in the ecommerce space in India, which is expected to touch $400 Bn by 2039, growing at a CAGR of 19%. The D2C space is forecast to touch $302 Bn by 2030, growing at a CAGR of 23.8% during 2022-2030.

Initially, small businesses thought that e-marketplaces were beneficial to them because they could get instant access to thousands of buyers. With the arrival of aggregators, demand generation was not a worry for them anymore. However, much to their dismay, they soon realised it is actually not a fair game. Dissatisfaction with e-marketplaces has only increased over the years.

“It is actually not an open system. The entire model is built in such a way that in order to access the buyers of the particular marketplace, you have to have the app of the particular marketplace and register yourself as a seller. Only then you will be visible to all the buyers,” said Vineet Toshniwal, CEO & founder of Bizzo, a B2B enterprise that enables small and medium services to do digital commerce.

Underlining that the built-in architecture of the likes of Amazon and Flipkart gives them a sort of monopoly, Toshniwal said whether it is Amazon and Flipkart or Zomato, Swiggy, Ola and Uber, the marketplace model is such that it is built on monopolising or localising the whole thing.

Aggregators started with taking paying a certain percentage as commission. The commission share slowly started increasing. If a new aggregator comes, sellers have to register with the new player. The cycle of registration with new players goes on.

Registering with the marketplaces means sharing the profit or paying the commission to these marketplaces. In the process of riding the wave of aggregators, they ended up losing their brand identity too.

According to Toshniwal, in the case of services, the commission went up all the way to 25-30%. “That’s how the unequal equation started building, which was totally favouring the large aggregators.”

Slowly, small businesses realised that large aggregators are actually subduing them completely.

“They own the customer, and the customer is hooked on to their offerings. They drive the customer, whichever way they feel like,” Toshniwal said.

ONDC Architecture Threatens Aggregators

In an open network like ONDC, the buyer and the seller need not be on the same app of the aggregator. In simpler words, aggregators will have no grip over both, sellers and buyers.

Toshniwal explained that in payments, before the UPI came in, a particular company was operating a wallet and it enjoyed 90% share of the wallet market. The customer and the merchant both were in the same wallet.

“It was a closed loop ecosystem. It worked well as long as both the parties were on the same wallet. A third party came, who was not on the wallet, and was totally out of the system. The closed loop ecosystem was beneficial to a few but those who did not join remained away from the mainstream,” he said.

The Unified Payments Interface (UPI) brought in an open interoperable network. The National Payment Corporation of India (NPCI) published a set of protocols, cutting the buyer-seller equation into two parts. The job of acquiring merchants and consumers got separated.

ONDC is the UPI of ecommerce. In ONDC, there will be a buyer app and a seller app. The buyer apps naturally will have a huge consumer base.

Seller app will only specialise in onboarding the seller. It doesn’t need to worry about the demand part. It will publish the inventories of onboarded sellers in an open API format.

The buyer-side app will send out a query on the ONDC platform. For example, if a buyer is looking for a particular good or service, the seller app will receive a ping and will be able to respond. A buyer app can come and make a query and buy from any seller. The seller app can respond to requests from any buyer.

ONDC Will Hit Aggregator Business Model

In the initial years, marketplaces tend to absorb heavy losses. They want to acquire a massive customer base before they could turn profitable. “Aggregators thought there was a mythical pot of gold at the end of this tunnel because of gaining absolute monopoly in the market,” Toshniwal said.

ONDC is now set to shake up the whole model.

“What the monopoly players have done in the last decade is up for total disruption. Let’s not mince words, there will be a tremendous hit on the existing business model of all the aggregators,” Toshniwal said.

Besides “unfair” commission, aggregators have a firm grip on the precious customer data. Aggregators launching their private labels and coaching the customers is not rare.

“Take the example of cloud kitchens. They first learn the consumption pattern and once they understand the pattern, they work on the big data and will launch a private label or a private label cloud kitchen or anything. They will also tend to favour a certain set of suppliers who are ready and desperate to share more commissions,” Toshniwal said.

With ONDC, supplies will expand because sellers who were sitting on the fence because of the high commission structure are most likely to join open digital commerce. The market will find its own place in terms of what should be the commission structure or the cost. “The B2C moment is here to stay. They want to deal directly. They want to go through the buyer app as one of the options but not the only option,” he added.

ONDC is a threat to the business model of aggregators. The business model was based on monopolising or duopoly. According to Toshniwal, the government is very clear that they don’t want to see huge monopolies and closed systems. “ONDC is a threat to all aggregator models,” he said.

How ONDC Can Be A Boon For D2C Brands

The crucial question, however, is how exactly ONDC will make a difference, especially for small enterprises and D2C brands.

“ONDC is a very lucrative opportunity to showcase our brand and our product offerings without any hassles. Prime objective of D2C brands like us is to make sure that there are no middlemen in the value chain so that the product is offered to the end consumer at a better price,” Kalavala of Taamara.

There is a good amount of cost that goes in as a sales commission and ad-spend when you are listed in any of the marketplaces which has a direct effect on the product price, he added.

According to Toshniwal, ONDC may charge a total commission of 5% for a deal struck on its platform. This will be distributed between the seller app, buyer app and ONDC. On the other hand, the commission for transactions on a big aggregator’s platform can be as high as 25%. 

ONDC opens new doors for catalogue expansion, advanced logistics solutions and implementation of better shopping, noted Dhameliya.

Getting a lucrative space on the marketplaces to showcase a brand is very tough when competing with the established brands and home-grown labels of the marketplaces, which is not the case with open platforms, according to Kalavala.

Big brands have the edge when it comes to premium listings in marketplaces, whereas ONDC will give an equal opportunity for all the sellers irrespective of their size to showcase.

No Conflict Between ONDC And Enablers

In the ecommerce market, many enablers have emerged of late, helping SMEs go digital without relying on marketplaces. The trend of wanting to deal directly with the customers is gaining strength.

“Enablers, like us, will actually give the platform for the small businesses independent business…to not worry about technology, write the complete stack, whether it is listing your services catalogue, defining your availability, pricing, inventory, payments, service WhatsApp integration for communication, email, SMS – everything is all packed into a simple app,” Toshniwal said.

There is, however, no conflict between ONDC and enablers. ONDC is a set of communication protocols. It enables a buyer and a seller to talk to each other. This is done via standard setup protocol.

What The Future Looks Like For Ecommerce

ONDC is sure to disrupt the ecommerce business. However, the market is large enough to accommodate all types of players. For example, wallets remain operational despite everyone taking the UPI route for payments.

The future will be hybrid. The overall offering universe will expand. A BookMyShow, while holding on to its theatre inventory, may offer a complete end-to-end evening entertainment package — pick up from home, drop by a taxi, dine out and a movie. Ola may also offer such a package. It’s all available through ONDC, Toshniwal said.

“In the intermediate term, there will be disruption, but overall the size of the pie will be much larger as we have seen in UPI,” he added.

ONDC is the UPI moment for ecommerce. The cost of doing business will dramatically come down for the businesses, prompting a whole group of people who are sitting outside ecommerce to join the ONDC bandwagon.

“This is not a winner takes it all model. The market is too huge in services alone. We estimate the target addressable market to be over 10 Cr small and independent businesses which are engaged in providing services. No one player can actually service the market. It will be a multi-layer chain. Somebody will provide the platform, somebody will provide the insurance or warranty related, somebody else will do the logistics separately, quality assurance. Each one will be specialised, rather than one player trying to specialise in everything,” Toshniwal said.

Payment Aggregators Have A Key Role To Play

ONDC allows buyers and sellers to transact with each other irrespective of the platform they are listed on. Over the long term, ONDC is expected to bring in a larger number of digitally-enabled buyers and sellers, thereby expanding the digital commerce ecosystem. The decentralised network, therefore, holds much significance to payment aggregators.

“Multi-party digital payments and settlement solutions will bring significantly greater opportunity to be integrated not only on the B2C side but also in B2B trade,” said Kunal Jhunjhunwala, founder and MD, Airpay.

Airpay is taking initiatives focused on digitisation and onboarding small sellers and  MSMEs on the ONDC network. ONDC will bring down the cost of onboarding and servicing a large number of merchants and consumers.

Jhunjhunwala said Airpay is looking to enable micro-entrepreneurs, including neighbourhood kirana stores, through its suite of financial products and digital solutions.

5G To Spur Growth In The Whole Digital Commerce Ecosystem

According to Vidhu Nautiyal, co-founder and chief revenue officer of CloudConnect Communications, ONDC will play a critical role in enabling SMEs to use cloud communication’s digital services.

This would be a significant benefit for small and independent enterprises because their firm would be visible/discoverable to all purchasers on any B2C platform or via a direct search.

It is anticipated that once ONDC is fully implemented, practically every mom-and-pop shop in India would have an online presence.

“The introduction of 5G will have a significant impact on how transactions are handled in the cloud. Here, 5G comes to play, with the potential to transform the payments industry and technology. Consumers will have more options, knowledge, and personalised content at their fingertips thanks to the high-speed, always-on connectivity,” said Nautiyal.

Low-cost connections and real-time access to hyper-intelligent services will alter the perceptions of the digital and physical worlds, he added.

Huge Scope For Logistics Companies In ONDC Environment

Apart from ecommerce, ONDC can assist SMEs reach out to all parts of India through other industries such as logistics.

ONDC also intends to attract logistics companies and others who can work with vendors to deliver goods to customers. Real-time transactions in the retail and food delivery space have begun in various cities under ONDC, including Shillong and Delhi, Nautiyal noted.   

ONDC aims to raise ecommerce penetration in the next two years to 25% of India’s consumer purchases from nearly 8% at present, said Devesh Gangal, country marketing manager at courier delivery service Borzo, while highlighting the huge scope for logistic companies to make a play for ONDC.

He further pointed out that ONDC hopes to sign up 900 Mn buyers and 1.2 Mn sellers on the shared network within the next five years, while achieving gross merchandise value of $ 48 Bn.

The logistics companies obviously need to keep up with the changing and demanding scheme of the ONDC environment.

“Although with current capabilities, a lot of innovation and work is still required, especially while ensuring that the massive requirements are met,” Gangal added.