How ONDC could disrupt & democratize India’s e-commerce sector
India’s e-commerce sector is a digital duopoly. The $55 billion GMV market is controlled by Amazon & Walmart’s Flipkart, with a 60% combined market share. With just 8% market penetration, the future looked bright for the retail giants. However, in April 2022, Department for Promotion of Industry and Internal Trade (DPIIT) launched an alternative to this digital duopoly in the form of Open Network for Digital Commerce (ONDC). Buoyed by the success of Unified Payments Interface, the Indian government had set its sight on e-commerce as the next frontier for disruption & democratization. By creating an open platform for e-commerce, India aims to not just open the floodgates for small businesses to sell directly to customers, but also boost e-commerce penetration in the country to 25% within the next 2 years! While this is great news for small businesses & customers alike, ONDC could prove to be a nail in the coffin for Amazon & Walmart. Let’s find out how exactly the Indian government plans to use ONDC to break this digital duopoly!
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So what really is ONDC? Think of it as a digital mall, with thousands of gates, instead of the 2 we currently have. ONDC is set up as a non-profit company that acts as a network to enable the search & sale of all products & services from various online sellers & platforms on the network. India’s e-commerce sector is currently worth $55 billion in gross merchandise value (GMV). It is expected to grow to $350 billion by the end of the decade. With ONDC, the Indian government plans to achieve $48 billion GMV within the next 5 years. By that time, ONDC aims to onboard 1.2 million sellers & over 900 million customers! The network would also host logistics services including the Indian Post to enable sellers to deliver their products to the customer easily. This would in turn enable small businesses to become independent of the bigger e-commerce platforms who currently provide the logistics support to these smaller online sellers for a cut of their sales. ONDC would charge just 5% commission on a transaction, compared to as high as 25-30% commissions charged by food tech platforms like Zomato or Swiggy for example.
According to the government’s proposal, ONDC aims to break down the silos created by existing e-commerce platforms. With ONDC, the government aims to boost competition in the sector as well as enable more people to join the digital commerce ecosystem. By creating an open platform, ONDC would target the aggregator model being used by current market leaders, which deprives the actual seller of the valuable customer data. ONDC would enable these small businesses to now be able to leverage this customer data goldmine to optimize and increase their sales. The network will also usher the rise of vernacular e-commerce with support for multiple languages. This would in turn help rural customers to join the digital commerce revolution, helping the Indian government reach its 25% market penetration target. ONDC could also prove to be a game changer for D2C brands who are still reliant on Amazon & Flipkart primarily to reach a wider audience beyond their own websites. By integrating third party logistics and payment platforms into ONDC, the Indian government aims to create a symbiotic relation between e-commerce enablers while restricting the duopoly of Amazon & Flipkart.
In April 2022, Woolly Farms received an order for coriander from a Bengaluru based customer - that was the first transaction to be conducted on ONDC during its pilot program. Recently, in August, the network was rolled out officially across 21 cities in India including Delhi NCR, Bengaluru, Shillong, Bhopal & Coimbatore. So who has joined ONDC till date? Some of the notable players to join the network include Paytm, Microsoft, Reliance, Dunzo among others. However, ONDC has a long way to go before it can become a serious challenge to the likes of Amazon & Flipkart. The key to success and the true test for ONDC would be onboarding the millions of small businesses across the country that lack the technical expertise or the deep pockets to compete with these global giants directly. According to the Confederation of All India Traders (CAIT), there are over 80 million small businesses in India that could benefit from a decentralized, distributed digital retail platform, giving these millions of David a real shot against the digital Goliaths in the form of Amazon & Walmart’s Flipkart.