Understanding ONDC: India's Decentralized E-commerce Initiative

India being third largest e-shopper market with just just 4.3% e-retail penetration, with high internet speed and smartphone penetration this whitespace has to be addressed & for that.

Government launched ONDC with a vision to integrate all the ecommerce platforms into a decentralized, unified digital network, making it interoperable. Once this is achieved, ONDC can carve better business opportunities for all eCommerce participants (merchants, logistics partners, tech firms, payment service providers, etc.)

In simple terms, Where anyone can sell and everyone can buy from each other online.

The misconception that ONDC is here to “kill” popular marketplaces like Amazon, Flipkart, Zomato, etc is wrong & neither it should. Instead, the plan is to address the various drawbacks of some platforms (intense competition impacting industry profitability, high commission fees, lack of transparency, limited control, etc.)

Still 95% of the retail market is present offline despite the eCommerce adoption. The fragmented retail market has the opportunity to be more visible and accessible through ONDC which was not possible via traditional marketplaces,” CEO of Retailers Association of India Kumar Rajagopalan

What is it doing currently to increase adoption?

Firstly, It is promoting discounts, The incentive programme that is being floated by ONDC provides a subsidy of INR 50 to a consumer on every transaction above INR 100 and maximum of INR 100. In addition, ONDC also subsidises consumers with up to INR 40 on every transaction, explaining cheaper or no cost deliveries, but here’s the catch a buyer can only use the discount for up to five transactions per month. On the other hand, a buyer app can only offer up to 20 discounted offers per brand per day

For instance, if a user is ordering from a restaurant, they might find their discount ineligible because there have already been 20 orders before the said user for that day, the discounts are aligned from seller’s perspective rather buyers, ensuring every seller on its platform gets minimum orders to keep them on the platform.

Secondly offering better pricing, Inc42 had discovered a huge price gap(30% - 40%) between products listed on the two foodtech majors and ONDC, which is largely down to lower commissions on the government-backed digital commerce network ( refer the picture below)

It has partnered with Dunzo(D4B) to provide last-mile delivery services to numerous local enterprises on the ONDC network. D4B is one of the first and key logistics partners on the network

Currently, ONDC is averaging 9,000 orders per day, 64% down from the peak of 25,000 orders per day, & very low compared to average of ~1.2 Mn orders on Flipkart and ~1.4Mn orders on Swiggy

In order to succeed ONDC need to win trust and solve convenience to the level which most ecommerce giants have achieved and it must achieve economies of scale in order to sustain while doing it.

Head winds for ONDC

Firstly, it’s non-profit. So how it survives in the long term? From where will it make tremendous investments in technology and infrastructure like Amazon or Flipkart did?

The way its spending now, I am not sure how much the government would be interested to keep funding a loss-making entity just to break a monopolistic market.

Secondly, it’s tech. The government has a very bad reputation in the user friendliness for all things digital. As a shopper, consumers want to feel good, not click through boxy buttons 5 times before finding what you need and on the other hand todays platforms be it foodtech, ecommerce or quick commerce has fine-tuned customer experience and service.

Thirdly, onboarding usually most platforms help to setup stores for their vendors but I don’t how ONDC is going to do it .And honestly the switching cost for most of the suppliers is very low given its very easy to get onboarded on any platform

Fourthly, Delivery Time : Flipkart might be still behind in this but amazon’s delivery has grown fast in the last couple of years and so does quick com platforms like zepto I remember waiting for a week to receive my order a few years back but now we have one day delivery available. We order in the morning and it will be made available by the evening and that is insane. As most of these platforms have optimized their logistics time and cost & with this behaviour already created with consumers, it is a major challenge for ONDC to pick up.

Lastly, RTO costs: most platforms have a good return and replace policy and decent customer support. we can return it easily if we do not like it or if there is a mistake and the pickup will also be free for that. since ONDC will rely on third party we have to see how that works out because again sending back will cost money. If I have to deal with small businesses on their personal website and they ask us to send it back to them and I would not like that very much as I will have the liability if any damage occur during transport and they don’t.

Although ONDC has a governance policy, One major challenge on top of this Is that there is no control on the price parity, making it difficult for small vendors.

Despite all the challenges, Google's interest in using ONDC and banks' desire to avoid missing another UPI-like opportunity highlight the potential impact. Additionally, ONDC addresses a significant market gap.

ONDC just might be the next big thing. There is always a possibility of it being a big success, but I think it will take a large amount of time to beat market giants given that they already have an excellent e-commerce infrastructure that ensures lowest price, optimized costs and fastest delivery.

Let’s see how it pans out

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