When Open Network for Digital Commerce (ONDC) was conceived last December, the idea was to reduce the dominance of e-commerce giants like Amazon and Flipkart.
It was also to bring in a level-playing field for small merchants in India’s fragmented but fast-growing $1-trillion retail market.
However, those goals have changed now as large e-commerce players such as Flipkart, Amazon and Ecom Express are in various levels of talks with the ONDC team.
They want to form partnerships like integrating with the network as well as providing their expertise to build it, according to the industry sources.
However, none of these large players have brought their large buyer or seller network to ONDC yet.
There are also players such as Google and Reliance-backed Dunzo, Paytm, PhonePe and Reliance Retail-owned logistics company Grab, which are joining ONDC to provide various services.
“ONDC was initially projected as a platform to take on Amazon’s and Flipkart’s of the world to reduce their dominance and democratise e-commerce in India,” said an industry source.
He added, “Now, ONDC is in talks with Flipkart, Amazon and others to form various partnerships for building the platform.”
Amazon is engaging with ONDC to provide its expertise. It took the firm a decade and an investment of over $6.5 billion to build its e-commerce infrastructure and trust among consumers.
The company has said it is completely committed to the government’s vision of digitisation, which includes kiranas, local stores, and small and medium businesses.
However, it is waiting to get clarity about the architecture of the ONDC platform.
“Once there is clarity about the architecture, you would find Amazon partnering with as many solutions as possible,” said the person.
Amazon’s chief rival Flipkart is also working with ONDC to integrate its supply chain logistics arm, eKart.
“eKart will be one of the supply chain partners for ONDC,” said a person familiar with the development.
“India is creating digital platforms that are open, inclusive and universal. And, that creates more opportunities,” said Nandan Nilekani, chairman of Infosys and a member of ONDC’s advisory council.
The aim is to increase the gross merchandise value (GMV) of digital transactions from Rs 4.5 trillion annually to over Rs 7.5 trillion. It is also to expand coverage of retailers using digital commerce from 15,000 to more than 2 million in the next five years.
It wants to expand the number of Indians using e-commerce from 90 million users to over 250 million.
Experts, however, point out that the true success of ONDC will only happen when the large e-commerce players join the network.
“Getting the larger players on the platform or not getting them will change the growth trajectory of ONDC.
"If Flipkart and Amazon, for some reason decide not to join the platform, then ONDC will take a longer time to scale up,” said an industry veteran whose company is already a part of the ONDC.
A recent JM Financial report (ONDC: Disruption or Evolution) highlights this point well.
“ONDC’s proclaimed focus is on prioritising the local sellers and not the buyers. However, the problem isn’t really on consolidating supply as there are a larger number of local retailers and MSMEs that can be on-boarded.
"The tougher problem will be getting the buyers to switch to transacting via ONDC without any incentives or discounts,” said JM Financial.
The other challenge is to what extent the larger e-commerce players would share their data, algorithms or buying behaviour for better listing.
Currently, the ONDC framework limits data usage and storage.
Assuming that separate buy-side and sell-side apps are part of the transaction, the consumer data may reside with the buy-side app.
This is technically not expected to influence the pricing or inventory while the sell-side app may not get access to consumer behaviour, including conversion rates.
“However, true interoperability will only be achieved when data exchange is enabled,” said JM Financial.
Experts also said the question arises of how a seller can benefit by listing on the platform and what is the motivation for customers to shop on ONDC.
Industry sources said the key to that is to provide a competitive price and a lot of choice for products.
The platform also has to create trust that the product is genuine and has a reliable delivery mechanism.
This would take many years to get formed.
“If a consumer is planning to buy an iPhone, what would encourage him or her to buy it on ONDC, instead of Amazon or Flipkart, which are selling it at competitive prices?” asked an official at an e-commerce firm.
Also, when a consumer searches for a product like a mobile on ONDC network, how would the results be displayed?
Platforms such as Amazon and Flipkart showcase products based on various filters such as price and popularity.
If ONDC’s aim is to democratise e-commerce, will it showcase the product of a small seller first instead of a large e-commerce firm?
Also, firms such as Amazon, Flipkart, Meesho, Reliance and Tata have their own codes.
“How would ONDC ensure all of them have the same language and the search result is true and fair,” asked an executive of one of these companies.
The other big question that needs an answer is ONDC’s financial viability: Will ONDC also take the path that UPI took of zero per cent merchant discount rate?
“So far there is no commission or charge that ONDC is taking, but it will do so in future.
"How much would it be and will it then derail the entire initiative?” asked a senior e-commerce executive.
Salman Waris, managing partner at technology law firm TechLegis Advocates & Solicitors, however, said, ONDC will encourage small retailers to adopt e-commerce and join the online marketplace.
“This would result in bringing separate buyer-centric and seller-centric apps that will be beneficial for anyone who is invested in e-commerce,” said Waris.