ONDC – Open Network for Digital Commerce | Complete Analysis

On the 8th of May Government of India have launched the pilot phase of ONDC in some cities which means an Open Network for Digital Commerce this is a freely accessible online system for traders and consumers and the reason why it is very important is that the Government intend to breakdown the digital monopolies and duopolies of Giants E-Commerce companies like Amazon, Flipkart, Myntra and etc.

where the expert like Nandan Nilekani is associated with this project and Anand Mahindra is been praising the ondc project

What is ONDC?

Department for Promotion of Industry and Internal Trade(DPIIT) has launched its ONDC project a few months back by appointing an advisory committee with the primary aim to stop the “Digital monopoly”
This is the first step toward open-source marketing who is going to help all retail sellers.
ONDC aims to enhance an open network, developed on open source methodology, using open specifications and open network protocols depending on the platform.
The Quality Council of India has been given the responsibility of integrating an e-commerce platform with an open network.
On ONDC, the buyers and sellers will be able to transact business without being available on the same e-commerce portal.
ONDC will be an open network that will enable medium to wide-scale participation of multiple gateways used by various players of digital commerce in India.
Along with Education in the enterprise, will also introduce you to online solutions, Proper infrastructure related to logistics will also be ensured for these enterprises. ONDC developers say and are in the process of dealing with entities like SIDBI and NABARD.
There are some important objectives with is using to set ONDC and they are
• Creating an Open, Inclusive, and Competitive marketing to promote interoperability
• Making Digital Commerce small-Business Friendly
• Unlocking new avenues of innovation to reimagine digital commerce
• Ensuring rapid digitization of MSMEs and consumption.

ONCD is based on its foundational pillars :

1. Open Network
2. Public Infrastructure
3. Open Ecosystem

There is an Idea to develop a large infrastructure where millions of people can easily purchase or sell the product at low cost by comparing multiple E-commerce stores this Idea is scaled and already tested. Where an open ecosystem will ensure that by inventor’s communities there is new Innovation or new updates, creative ideas, and new Ideas should be created for more benefit of the Buyers and Sellers and the process, ONDC will play an enabler role.

ONDC will be an open network that will make different digital commerce stories discoverable and all the E-Commerce applications linked with ONDC. It will create an easy and durable platform where a small Vendor will get an opportunity to create large-scale democratization and the large e-commerce application can play the role of a volunteer for ONDC.

Similarities between UPI and ONDC?

If there is any scheme or project launched basically Experts do not take long to express their opinion about many aspects related to it. It becomes a piece of breaking news for news channels or is a part of a debate or Scheme id decoded in various ways to understand the Advantages and Disadvantages of the Indian Economic

As the same happen in 2016 when UPI came into the market UPI stands for Unified Payment Interface. Some experts full of skepticism were just waiting for UPI to Fail so that they could get another chance to make fun of India But the project Developed by the national payment corporation of India (NPCI), what UPI has done in these 6 years, even Critics seem to be becoming his fans. Even Google too requested to launch a system like UPI.

Many countries of the world are in preparation to launch UPI under India’s assistance in many
As Like UPI India has recently launched Another Game changer in the market and this time they have targeted E-commerce Monopolizing Companies like Amazon, Flipkart, Myntra
This is for ONDC. ONDC stands for the open network for digital commerce, Along with Big business, providing an Online Platform to small and Medium Sellers, will help in taking India’s Economy forward manifold. Many experts are telling that ONDC become the UPI of E-commerce

Why do experts consider ONDC to be a UPI of E-commerce?

The way UPI Democratize Digital payments, will ONDC can be Successful to Establish an Open Network by Eliminating the monopoly of E-Commerce?
RBI Introduced UPI which aimed to simplify, facilitate and democratize digital payment and NPCI helped to Develop UPI. The special feature of UPI was to make transactions one step faster than IMPS (Immediate Payment service), NEFT (National Electronic funds Transfer), and RTGS (Real Time Gross Settlement)
Helpful features of UPI was
• With the help of the UPI platform, instant money transfers can be done between two banks.
• UPI Also Allows you to merge multiple bank accounts into a single application
This process of instant money transfer can be done 365 days a year, seven days a week and at any time throughout 24 hours. And you didn’t want to refill your all details just you have to generate VPA which helps to generate UPI with all these benefits and zero cost of usage, UPI is considered nothing less than a revolution. Since its launch, in just 6 years, billion-trillion dollar transactions have been through UPI.
In the Financial year 2021-22, payments using UPI crossed 1 trillion dollars. In April 2022, there were 5.5 billion transactions through UPI payment, valued at more than $127 billion.
Because of these huge benefits Government thought to implement this same in E-commerce to democratize with UPI therefore ONDC Came into the picture.

What are the features that make UPI and ONDC revolutionary milestones in the Indian Economy? How will ONDC be the UPI of E-Commerce?

Inclusivity
The main goal of UPI was to include maximum people in digitization.
ONDC will provide a digital platform to all the small, medium, and large sellers. It wanted to include all products such as Groceries, Clothing, Cosmetics, Electronics, etc

After China and the USA with 14 crores of e-retail shoppers, India has the world’s third-largest online shopper base. Even with the addition of the first 37 crores of Gen-Z consumers among digital consumption platforms, the number of shoppers will increase a manifold by 2030 but in India internet users, only 20% of Indians have involved in online shopping also due to covid there was the large absence of e-commercial market effected therefore supply chain effects most almost.

Approximately 1.2 crore Bhartiya Kirana stores are responsible for 80% retail sector out of which the majority of stores are not only unorganized or self-organized but also digitally excluded. Even some experts believe that through the proper way they can grow very well
Interoperability
This feature was in UPI but now it took place in ONDC too. Through this Fund, the transfer will become an even easy process any UPI-based app can be used that does not have any restrictions like using apps promoted by a particular bank.
If Seller wants to make connectivity through different platforms so for this E-commerce provides separate infrastructure and maintain process with this E-commerce need to make separate terms and conditions also follow the same through this the overall costing get increased and participation becomes Limited that’s why even popular sellers are not available on all platforms.
The reason to bring sellers and buyers on the same platform is to create constrain in the shopping experience. But cannot be done because we have different buyers with different ideas and ways so this is a very challenging thing for the government.

Hence Digital power of the IT sector started to establish alternate which creates an open network on multiple platforms to connect multiple sellers to provide a better shopping experience and choices to consumers.

Security Features of ONDC

Experts also believe that the security feature of ONDC will also attract users. ONDC is also going to adopt several key principles of data privacy:

• Systems whereby transaction data will be stored only with buyer and seller applications and will not be visible to ONDC at all.
• ONDC will not store or view any user data.
• User’s personally identifiable information (PII) and competitive data will be protected from third-party access
• All policies relating to this data exchange will be consent-based and the data will be used for commerce purposes only.
• ONDC enables informed policymaking and network robustness
• Empower network participants Fairly and Equally
• To help buyers in taking informed decisions.
• UPI and ONDC will also benefit the Indian economy.
• UPI transactions have crossed trillions of dollars in value.
• In Rural and Remote which increase the value of the transaction

By the report of Redseer –

The E-commerce market size will touch 5.5 billion dollars. Which has 700 million dollars in the present time

In India, around 12 million grocery stores are operating. But very few shops are available on the online platform. With the help of ONDC, these shops’ online presence will unlock the real economic potential of India.

ONDC will end monopoly, provide ease of operation, and will bring together a large population on one platform.

Major Problem Faced by Government in E-Commerce Space?

Now let us understand what are the major problems in the market which prompted the government to start an ondc initiative how will government make stand for small businesses in front of the giant E-Commerce businesses like Amazon, Flipkart and what are the hurdles in front of the government will face while implementing this program.
To understand this we need to understand why there is a need for ondc as there are already major eCommerce companies who have invested billions of dollars in researching and developing world-class tech in the field of e-commerce in India then why the government is trying to intervene now there are three specific reasons and all these three reasons come under a single canopy called as Abuse of aggregator superpower

Abuse of aggregator superpower

Now, what is the problem with aggregator superpower this problem comes from the monopolization model of e-commerce in India E-Commerce Business models are of two types the first model is the Inventory model and the second is the Marketplace model.

The marketplace model is a model wherein there are the independent buyers and independent sellers and the E-Commerce company provides the platform merely to connect the buyer to the seller

Inventory Model & Marketplace Model

In the inventory model the company buys the product at an ultra-cheap rate from the seller and sale it to the customer directly through the E-Commerce Store or mobile application
To understand this let’s take the example of XYZ E-Commerce Store selling the book online if this eCommerce Store works on Marketplace model if a seller make a book at the cost of Rs 300 and sale it at the cost of 400 rupees then the profit made by this company is of Rs 100 which include packaging and transportation cost which leaves very less scope of profit but another hand if the same company works on inventory model then the XYZ company will by the books at the cost of Rs 200 per book by procuring thousands of book and using this for the bargain purpose and eventually it will keep all this procured books in the warehouse and later on sell to the customer at the same rate of 400 rupees making the profit of 200 rupees on each book with little bit of inventory cost where before they used to get 100 rupees of profit here the profit and doubled just by changing the model from Marketplace to inventory for a small commodity like book when considering the large commodities like TV refrigerators AC and many other the profit Skyrockets

If E-Commerce Store wants to gain a profit they have to go to the inventory model which makes them buy the product at a dirt-cheap rate and sell them keeping that large margin.

In the case of Amazon has two companies Appario retail and Cloudtails they are you, sellers, through which Amazon brought the products and sold them in the market there was also an investigative report stating that Appario retail and Cloudtail both contributed to a whopping 35% of sales of Amazon India they also use this company to crack the deals with large smartphone companies to provide exclusive offers making it difficult for small businesses to sell this product.

3 Reasons Why ONDC was Introduced?

Inventory Model Effect on Small Retailers

In 2016 Government of India came up with and regulation that stated that foreign E-Commerce companies cannot use the inventory model but have to operate on the Marketplace model. The government also knows that eCommerce businesses will find some other way to make a profit so there is a need to do something to promote small and micro sellers this is the first reason why government introduces ONDC.

Deep discounting

The second reason is Deep discounting which means providing a huge discount on a product for example 2200 rupees watch is sold for 247 rupees 33000 of air purifier is sold for 23000 whereas the branded shoes was been sold with a discount of 62 80% used to be the prices during the Diwali sale this affects the small Store or small retailers which are not able to give such heavy discounts as discounting is hurting the offline commerce economy as it seems to be outdated to us as per the government point of view it is an important part of economy so the government cannot neglect it

Anti-competitive business models

The last reason is the imitation game of e-commerce there is a report published for anti-competitive Business models followed by these giant e-commerce companies and promoting their own products at the cost of the retailers attached with these companies.

For example there is XYZ E-Commerce Store having 10 to 15 retailer selling AC having different colour different price range and different features now this company will collect the data from all the sellers as in which AC is selling at which location which colour is most liked by the customers at which price point are there buying it and using this data the XYZ E-Commerce Store will tie-up with small manufacturing company of faces in the particular area where the sale is high and keep the inventory in that particular region to reduce the inventory cost now this AC will complete with the best seller AC at the cost less than 2000 to 3000 and it will also come with a label of choice or best seller label and will be listed on the top of all the products and since the sales of the particular AC is high in that particular region where the inventory is been set so they can also undercut the cost of delivery India is price sensitive market customers will prefer buying XYZ companies AC over other manufacturers

In the case of Amazon, the Reuters report stated that Amazon studied several best-selling brands in India like Louis Philips and John Miller, and launch their own brand called symbol and symbol is also the best-selling brand in this particular niche and out of the 25 top-selling formal shirts 7 formal shirts where of symbol this is a third reason why the government is launching the ondc

How the Government is trying to solve this problem with the help of ONDC?

The ONDC is 3 legs tool

• the first leg of ONDC is Discoverability
• the second leg of ONDC is an open protocol for e-commerce Platforms and interoperability and
• the third leg of ONDC is a price comparison

So let’s try to understand each one of these legs using a scenario

Discoverability

let’s start with the first leg which is discovered rating today if you want to shop for a hair dryer you will either look for it on Amazon or Flipkart why only these as because you downloaded them & you feed your card and address details in it so by default because of this investment you might consider them more importantly if you got Amazon Prime then the question of Flipkart doesn’t even stand a chance. On ONDC when you look for the term hair dryer you will see the hair dry from 100 other E-Commerce platforms and close why you might Discover and Enterprise like e-samuday which is a tech startup that is digitalized your local electronics store and Billboard you can buy a locally made hair dryer at low cost and even get it delivered within just two hours so in short, you will have a unified sold you can get the product from all E-Commerce without having to download them and without having to switch from one website to the other

Open Protocol for E-Commerce Platforms and Interoperability

This brings us to the second leg which is interoperability.

For this let’s take the simple example of delivery choice let they you want to order Dal Makhani now when we use Zomato although Zomato gives us an amazing advantage of getting all the restaurants listed on a single platform

Sometimes you need to pay the high delivery costs then you can do nothing about it and this is because Zomato might have lesser delivery boys in a particular area and if Zomato does not have any delivery boys in that particular restaurant’s area then you cannot place the order but with the ONDC even delivery companies will be listed along with aggregators customers restaurant.

ONDC will tell you that Zomatos they are not available but then so delivery in that area so you can place your order through Zomato but will be picked by Dunzo 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 of listed and get it delivered by this way there is a huge delivery company can actually feeling which will follow prevent companies like please like Zomato and swiggy from one applies in the delivery space

Price Comparision

lastly, we have the trivago feature which is nothing but the Price comparison

There was a time in there were hundreds of Websites showing hundreds of hotels with different prices so Trivago came in and said that you choose the hotel and we will list all the Listed hotels from all the websites and then you can choose the most economical option of all these Websites.

What is more intense to do with e-commerce so Amazon secretly pushes up its price range you will not be blind-sighted by the Amazon ecosystem and every day actually have the opportunities to see other E-Commerce companies with vessel E-Commerce cost this is how the government intense to empowerment and the consumers by breaking the three rows a single network to drive both innovation and Skill eventually transforming all the businesses from retail goods, food to even movie and the reason why we are looking forward to this project is that this is one of the most complex problems for the government has ever solved and brilliant mind like Nandan Nilekani it would be very interesting to see how government actually solved these problems to break the Monopoly and duopoly of giant Tech company.

Hurdles in front of the Government to implement ONDC?

Now let’s look at the hurdles that the government has to actually overcome in order to ondc initiative successful

1. Listing Space

The first need we must understand is the fact that the biggest factor for E-Commerce company success is not their product but their suitable listing space. In the case of India, we begin complaint the listing model as it is completely based on the reviews ratings and etc so the scarcity of screen space itself brings inequality similarly a seller with maximum reviews maximum at least stay way ahead of the smaller seller because when it comes to those sellers the possibility of sales is higher.

So listing is itself drives inequalities so we don’t know how this is going to be taken care of by ONDC

2. Trivago Model Implementation

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 the price war you will see that we have been companies like dunzo and Zomato and on the other hand we got smaller local aggregator services now here Zomato will take another billion-dollar funding and it will undercut all its competitor by which small player will be forced to actually decrease their cost eventually those companies will drain out of cash and then will be out of business so this way the purpose of price comparison could be defeated if bigger players engage in credit Terry pricing and lastly after all the stream the

3. Parallel Impact of E-Commerce Companies – COBWEB Situation.

After all the casting the Amazon, Flipkart, Zomato, and Swiggy have engaged in. They have spent thousands of crores with the hope of becoming profitable now the government itself is actually closing down their avenues of profit and this could be a disaster for these Companies.

For example, Zomato cannot open Cloud kitchen because it apparently looks like an anti-competitive platform Zomato has a good chance of making money through delivery because it could use the platform advantage to actually rack up the prices but through ONDC it might have to compete with Dunzo and other delivery companies.

This Company has to go down at the end of the day as this gold mine of data that Zomato and swiggy and Amazon-like E-Commerce companies have that’s not being unleashed for the profit at all and this creates a paradox so if these companies Run profitability sellers and restaurant might face losses but on Other Hand, if they don’t run profitability since they have billion-dollar funding the Logistic Company and the small aggregators will face losses and this is a big hurdle in front of Government to solve this problem it is like a cobweb