Open network for digital commerce or ondc promises to provide a level playing field to small merchants it's proper and say that on dc will move indian e-commerce away from the current platform-centric model dominated by market leaders amazon and flipkart to an open network when the ondc comes in there's a possibility that even a very.
Small retailer would be able to be visible immediately on multiple platforms the government-backed open network for digital commerce or ondc was launched last week in select cities mentored by nandan nilikani ondc is a not-for-profit system which the government believes will be a game changer.
hi everybody on 8th of may 2022 the government of india launched a pilot phase of something called the open network for digital commerce or ondc this is a freely accessible online system for traders and consumers and the reason why this is very very important is because the government.
Intends to break down the digital monopolies and duopolies of giant tech companies like amazon flipkart zumato swiggy and other companies on one side while a legend like nandan nilgani himself is associated with this initiative on the other side aaron mahindra himself had all praises for the on dc initiative.
This is expected to be as revolutionary as upi itself so keeping aside all the hype in this episode today let's try to understand what are the major problems in the market that prompted the government to start the ondc initiative how will it promote the small sellers and businesses against giant companies like amazon and flipkart and most.
Importantly what are the most difficult hurdles that could turn this very same initiative into a flop project this video is brought to you by hyrex but more on this at the end of the video to understand this the first thing you need to know is why is there even a need for ontc because you see we already have super high-tech companies who have.
Invested billions of dollars into researching and developing world-class tech for e-commerce in india right then why is the government trying to intervene well there are three specific reasons for that and all these three reasons come under the canopy of just one factor which is the abuse of aggregator superpower so the question is.
What are the problems associated with aggregator superpower well this problem comes from the monopolizing model of e-commerce and since i explained these models three months ago i'm going to explain this again so if you already remember these e-commerce models please skip to this times time and if you don't here's an explanation of the same in.
India there are two important models of e-commerce through which these companies operate the first model is the inventory model and the second is the marketplace model the marketplace model is the model wherein there are independent buyers and independent sellers and the e-commerce company merely acts as a platform to connect them through their website and.
Mobile app whereas in the inventory model the company procures products in massive quantities from the sellers at an ultra cheap rate to sell it directly to the customer to understand this let's take the simple example of a bookseller in blipcard if a bookseller makes a book at 150 rupees and sells it on flipkart at 450 rupees.
In this case if flipkart acts as a platform it will generate a revenue of 112 250 rupees and this amount also includes packaging and transportation charges so if you see this leaves very less scope for profit but if blip card operates with the inventory model then flipkart will buy 10 000 books from the bookseller at once and then it will use.
Its bargaining power to buy it at just 200 rupees after that it will keep all these books in its warehouse eventually to sell it at 450 rupees on the website so this way they generate 250 rupees in revenue with a little bit of inventory cost therefore they get 100 rupees extra in revenue even for something as small as books so when this is done for huge.
Products that cost 10 000 or 20 000 rupees the revenue difference skyrockets by a billion dollars therefore using the inventory model the e-commerce companies generate way more profit as compared to the marketplace model so if you see if an e-commerce platform wants to make money it by default has to buy products at a dura cheap cost and.
Then increase its own margins in case of amazon amazon had two companies called apario retail and cloutill these are nothing but huge sellers through whom amazon bought its products stored them and sold them in the market in fact there was even an investigative report that stated that cloudtail and.
Apario retail alone contributed to 35 of the total sales on amazon india and they even use these sellers to strike exclusive deals with smartphone companies like apple xiaomi and other tech companies to outplay both smaller players and their rivals but in 2016 the government of india came out with the regulation which stated that amazon and.
Other foreign e-commerce companies cannot use the inventory model and must use the marketplace model to operate in india so if you're a seller on amazon you don't have to worry right now because it's relatively safe to sell on amazon and even right now amazon and flipkart both are incredible platforms to build your d2c brand.
However from the government standpoint it clearly states how e-commerce companies will always find a way to increase their profits so there is a dire need to do something to promote micro and small sellers this is the first reason for the ondc initiative the second reason that we all know is nothing but deep discounting as.
You all know 2 200 rupees watch is available for 247 rupees air purifier worth 33 000 is available for 24 000 branded shoes have 60 to 80 discount and so on and so forth these literally used to be the prices during diwali sales and this directly hurts the brick and mortar stores who are not able to match these deep discounts so the second reason for.
On dc is deep discounting that is hurting the offline commerce economy which to us it may seem outdated but from the government standpoint it is an important part of our economy so the government cannot neglect it and lastly we have the imitation game of e-commerce platforms amazon is under investigation in the united states europe and india.
For alleged anti-competitive practices that hurt other businesses amazon.com has repeatedly been accused of knocking off the products of sellers in its marketplace and rigging search results and exploitation of its vast trove of data to promote its own merchandise at the expense of other sellers.
long story short let's say there are 100 sellers who are selling ac's on e-commerce platform called orchid cart and there are five slabs of sellers starting from 15 to 20 000 20 to 25 000 25 to 35 000 35 to 50 050 000 plus and just like any other product there are various different colors and certain.
Feature differentiations like alexa all weather setting and so on and so forth so when these sellers sell on orchid orchid will easily know which price range of ac sell the most what features do the users like because its algorithm can read through the reviews they would even know which color of the ac sell the most and which location registers the.
Maximum amount of sales and lastly what is the perfect timing for the discount sales so after reading through this enormous amount of data our kid would know that in pune white color ac with 25 to 30 000 price range registers the maximum sales with the favorite feature being alexa so what this e-commerce company would do is.
It would acquire a small ac manufacturing company near pune and have its warehouse in pune itself then it will give all the specification to this manufacturing company and while the best-selling ac on orchid sales at 25 000 rupees or kid will sell its own ac which is almost exactly same looking as the best-selling ac which is white in.
Color has an alexa feature but will be priced at 23 000 500 rupees and cherry on the cake is that it will come with a orchid bestseller label or orcid choice label and it will be listed on top of all other products and the best part for orcid is that since their warehouse and maximum sales both happen in pune itself they will easily be able to undercut.
Other competitors in terms of delivery fees also so obviously considering the price sensitive market of india people will buy the orcid choice products instead of other companies products in case of amazon a reuters report states that amazon studied several best-selling brands in india like louis philippe accentia and john miller and.
They launched their own brand called symbol and simple even today such a best-selling brand that there was a time where 11 out of the top 25 best-selling formal shirts in the men's category was from simple i'll attach a detailed report for you in the description so that you can read through this investigative report and understand how.
Exactly these e-commerce companies do it these are the reasons why the government is actually launching the open network for digital commerce so let's try to understand how is the government trying to solve this problem using the on dc initiative the otc is basically a three-legged tool first is discoverability the second leg is open.
Protocol for e-commerce platforms and interoperability and the third leg is price comparison so let's try to understand each one of these legs using a scenario let's start with the first leg which is discoverability today if you want to shop for a hair dryer you will either look for it on amazon or flipkart why only these apps because.
You've downloaded them you've fed your card and address details in it so by default because of this investment that you've made you will rarely consider the possibility of going elsewhere and more importantly if you've got amazon prime then the question of flipkart also doesn't come into play but with ontc if you look for the term hairdryer you will.
See the hair dries from hundreds of other e-commerce platforms and here's where you might discover an enterprise like e-samuday which is a tech startup that has digitalized your local electronic store in your neighborhood you can buy a local make hairdryer at door cheap cost and even get it delivered within just two hours so in.
Short you will have a unified search feature wherein you can get the products from all ecommerce sites without having to download them and without having to switch from one side to the other and this brings us to the second leg which is interoperability for this let's take the simple example of delivery choice let's say you want to order dal makhni.
Now when we use zomato although zumato gives us an amazing advantage of getting all the restaurants listed on a single platform if zomato decides to charge a higher delivery cost then you can't do anything and this is because zomata might have lesser delirious boys in a particular area and if zomato does not have any delivery boys in that.
Particular restaurants area then you cannot place the order but with ontc even delivery companies will be listed along with aggregators customers and restaurants so onc will tell you that zomatos valley are not available but dunzo delivery agents are available in that area so you can place your order through zomato but have it picked up by.
Dangzhou or you can directly ask your dunzo or any other delivery partner to pick up your order from the restaurant similarly you can place your order through e samuday which has all the moment pop stores listed and get it delivered by dunzu so this way there is a huge lacuna that the delivery companies can actually fill.
In which will further prevent companies like somato and swiggy from monopolizing the delivery space and lastly we have the trivago feature which is nothing but price comparison online hotel search long story short if you remember there was a time when hundreds of websites had.
Hundreds of hotels listed with different prices so trivavo came in and said that dude you choose the hotel and we will list all the prices from all the websites and then you can choose the most economical option of all this is exactly what ontc intends to do for e-commerce so if amazon secretly pushes up its prices you will not be blindsided.
By amazon's ecosystem and you will actually have the opportunity to see other e-commerce companies with a lesser cost this is how the government intends to empower merchants and consumers by breaking the celos to form a single network to drive both innovation and skill eventually transforming all the businesses from retail goods foods to.
Even mobility and the reason why i'm really looking forward to this project is because this is one of the most complex problems the government has ever solved and with brilliant minds like nandan nil kani sir it would be very interesting to see how the government actually solves this problem to break the monopolies and do a police of giant.
Tech companies and this brings me to the most important part of the episode and that are the hurdles that the government has to actually overcome in order to make the onc initiative successful and where does my skepticism actually lie but before we move on i want to thank our partners hireek for supporting our content people one of the most.
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Special link in the description and download the hierarchy tab to find your ideal job moving on to my points of skepticism the first thing you need to understand is the fact that the biggest factor for e-commerce companies success is not their product but their suitable listing based on consumer preferences and you know in our case we being.
Youtube creators we often complain about the fact that the video listings on youtube is not done equally as in mega creators are given way more preference or entertainment content is recommended way more than educational content but if you look at it from the perspective of an engineer who's actually working on this problem if i give you 10 000 videos.
And i give you only 100 slots to list them obviously you will list them on the basis of comments likes and views right so the scarcity of screen space itself brings in inequality similarly a seller with maximum reviews maximum sales will obviously get listed way ahead of the smaller sellers because when it comes to those sellers the possibility of sales.
Is way higher so listing in itself drives inequality so i don't know how this is going to be tackled by ontc secondly when price comparison is done like trivago on the outside it might look like an amazing idea but if you look at the fighters in this prize war you will see that we have big companies like dunzo and zumato and on the other.
Side we've got smaller local aggregator services now over here zumato or dunzo would take another billion dollar funding and it will undercut all its competitors by which these smaller players will be forced to actually decrease their costs eventually those companies will train out of cash and then be out of business.
So this way the purpose of price comparison could be defeated if bigger players engage in predatory pricing and lastly after all the cash drain that amazon zumata and sugar have engaged in after they have spent thousands of crores with the hope of becoming profitable now the government itself is actually closing down their avenues of.
Profits and this could be a disaster for example zomatonov cannot open up its own cloud kitchen because it apparently looks like anti-competitive zomat has a good chance of making money through delivery because it could use its platform advantage to actually rack up the prices but now through odc it might have to compete with done so so even.
Delivery price has to go down so at the end of the day this gold mine of data that zoom ato swiggy and amazon like companies have that's not being unleashed for profit at all and this creates a paradox so if these companies run profitably sellers and restaurants might face losses but if they don't run profitably since they have a billion.
Dollar funding the logistics companies and the small aggregators will face losses and i have no idea how ondc is going to solve these problems so if you know the answer to the same i would love to know about it in the comments section that's all from my side of today guys if you learned something viable please make sure to the like button in order to make.
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