In our previous article, we provided a comprehensive overview of ONDC, answering fundamental questions such as what it is and how it operates. We also explored the potential that it holds for startups.

ONDC 101: Understanding the basics

In this article, we will build upon the foundation laid in our previous piece and provide a comprehensive analysis of ONDC’s position in the e-commerce industry. Specifically, we will conduct a detailed comparison of ONDC with other e-commerce platforms, while answering the following questions:-

• How does the pricing of ONDC compare with that of Zomato?
• How does the pricing of ONDC compare with emerging e-commerce players Instamart and BlinkIt?
• What is the difference in commission taken by each platform as compared to ONDC?
• Does ONDC have the potential to challenge established players like Amazon and Flipkart in the Indian e-commerce industry?
• Is ONDC a disruptive force that could fundamentally alter the e-commerce landscape in India, or is it simply an evolutionary step in the industry’s development?

Initially, various media touted ONDC as a “giant-killer” project aimed at dismantling the dominance of Amazon and Flipkart. However, the question remains: Where does ONDC actually fit in the complex and ever-evolving Indian e-commerce landscape? Can it carve a niche for itself in the face of stiff competition from established players, or is it destined to coexist alongside them?

When it comes to assessing a marketplace, it’s essential to consider both the buyer's and seller's perspectives.

In this article, we’ll start by examining the buyer’s viewpoint.

The Food Delivery Comparison: ONDC vs Zomato

I tested two different restaurant orders via ONDC and Zomato. While ONDC offered prices that were on par with or sometimes higher than those on other food-tech platforms, thanks to their discounts and promotions, ordering from Zomato might give customers a more favorable value proposition.

The Grocery Shopping Comparison: ONDC vs Swiggy Instamart and Blinkit

In the realm of grocery shopping, ONDC opted to list products at their maximum retail price (MRP) and charged a delivery fee for each order. However, Swiggy Instamart and Blinkit, two quick commerce apps, offered discounts and free delivery for orders exceeding a specific amount. In addition, these apps have a more extensive range of SKUs, better item categorization, and an overall improved user experience.

It’s important to note that the comparison presented above may not be entirely fair.

• Swiggy instamart operates with its own dark stores, eliminating delivery charges, and
• The Blinkit-integrated store is located 4 km from my residence, while the ONDC-integrated store is 12 km away.

As ONDC is still in its early stages and focuses on fostering hyperlocal sales, it’s highly likely that the price disparities will decrease as more stores join the platform.

However, the buyers may encounter certain other challenges that ONDC is currently working to resolve;

Inventory issues

• Currently, the digitization of SMEs in India, excluding payments, is negligible.
• According to industry players, ONDC is currently unable to fulfill 70% of orders placed by buyers due to poor inventory management practices by SMEs.

Customer experience

• The current platform-centric e-commerce model places a significant emphasis on user experience. To effectively compete with existing e-commerce players, the buyer-side app’s user interface and user experience must be significantly improved.
• It still faces certain growing pains, such as imperfect grievance redressal, partial returns, and longer delivery times.
• Additionally, as ONDC focuses on enrolling neighborhood retailers, issues related to digital adoption, inventory updating, and quality are likely to arise, and questions regarding who bears the costs of these mistakes are expected to emerge.

To resolve the above ONDC is currently building IGM (Issue & Grievance Management) protocol to manage issues and grievances between buyers and sellers.

Now shifting our focus to the seller perspective.

Every seller encounters two primary challenges:

• Discovery
• Commission deduction

Currently, most e-commerce platforms offer solutions to enhance the discoverability of sellers. This can be achieved through various methods such as verifying the product or highlighting the seller’s reputation based on customer reviews and ratings.

ONDC has also implemented a comparable model where buyer apps assist in increasing the discoverability of sellers and displaying customer reviews.

However, for product categories such as grocery or FMCG goods, the distinction between purchasing from Seller A or Seller B may not be significant.

While ONDC has not disclosed the quantum of the commission, according to industry sources, ONDC will keep the commission capped at 3–5% at a later stage (for now, it is free), pushing for a massive reduction in costs compared to what businesses have to pay now for selling their goods online.

There is no set commission rate for what the buyer and seller apps can charge; instead, market forces will determine the rate.

To provide a clearer picture, the table below compares the commission rates of established e-commerce platforms with that of ONDC-

Can ONDC be the Amazon and Flipkart killer in India?

Considering the fact that ONDC is at its infancy as compared to these e-commerce giants, this discussion is purely speculative.

In India, the reach of digital commerce within the retail sector is just 4–5%, which means there is room for more market players as well as disruption.

When ONDC first gained attention, the media usually referred to it as a “giant killer” project meant to break up the monopoly of Amazon and Flipkart.

These giants dominate the Indian market with a commanding 60% share. They have turned into the “everything store” and control all aspects of the shopping process, including app creation, payment processing, order fulfilment, and delivery.

But the real problem lies in their private label products, which have a crushing effect on SMEs selling on these platforms

• These products are sold at lower prices, reducing demand for SME products
• These platforms tend to promote their private labels over third-party sellers which has a significant impact on the visibility and sales of SME products

For these small businesses, selling on these platforms is a losing proposition as they pay exorbitant commissions ranging from 18–30 percent.

ONDC levels the playing field by:

· Lower commissions: For SMEs selling through ONDC, the overall expense (excluding delivery fees) is anticipated to be in the range of 6–7 percent.

· Making E-commerce open source: By enabling any seller to list their products and compete on an even playing field with other retailers, ONDC is aiding in the dismantling of the digital monopoly.

The duopoly of Amazon and Flipkart may be threatened by ONDC’s success, but we believe their distinctive growth stories will continue.

In February, Amazon announced its plan to integrate its logistics network and software suite, SmartCommerce, with ONDC. This integration would enable MSMEs in India to build and scale their businesses across digital mediums, with enablers for onboarding to the ONDC network.

Imagine a world where Amazon and Flipkart join forces with ONDC as buyer applications. The existing players in the ONDC market welcome the idea, as they see the potential for the giant e-commerce platforms to bring a new level of exposure to SMEs.

With the entrance of Amazon and Flipkart, the competition will heat up and prices will inevitably drop, reducing the margins taken by the e-commerce platforms. This, in turn, might just lead to the possibility of 100% of all e-commerce transactions in India being conducted through ONDC.

A utopia for e-commerce, indeed.

So, is ONDC a disruption or an evolution?

Despite the challenges, the potential for ONDC is simply captivating.

UPI is a case in point: Most of the 10 Mn sellers in India were unfamiliar with technology until UPI came along. Now, these sellers have the chance to be a part of the next big revolution with ONDC, opening up a world of opportunities for them.

The success of ONDC rests heavily on the seller apps, which act as the backbone of the network. However, getting a new seller onboard is no small feat. It will require a comprehensive approach that encompasses outreach, education, and the digitization of their catalogue according to established policies.

I had the pleasure of talking to a few stakeholders involved in ONDC as a Seller-side app, and their insights were incredibly valuable for this article.

Through these discussions, I have gleaned that there are two plausible scenarios for ONDC’s future:

1. ONDC captures 40% of India’s e-commerce GMV:

• In this scenario, ONDC becomes a catalyst for the retail ecosystem that is currently underserved by existing e-commerce players, offering a platform for small businesses and individuals to launch online stores.
• It will only be a B2C marketplace, but it will still achieve the goal of democratizing e-commerce and providing visibility to hyperlocal SMEs.
• In this case, ONDC will compete with existing digital commerce platforms.

2. ONDC captures 100% of India’s e-commerce GMV:

• While it may seem less probable, many industry experts and players have a positive outlook on the potential outcome of ONDC becoming the preferred option for all e-commerce transactions in India. In this scenario, large players may either join ONDC or be replaced by it, further solidifying its position in the market.
• This would involve both buyers and sellers on the platform, and bring instant scale, with further growth from large/D2C brands, MSMEs, and local retailers.
• However, this scenario may dilute one of the main goals of ONDC, which is to empower local entrepreneurs and democratize e-commerce.

Although the decision has not yet been rendered on where exactly is ONDC going to stand in the future, it seems likely that the bulk of the present digital commerce platforms will be compelled to adjust to conducting business with ONDC, similar to how the major banks have warmed up to UPI.

With focused marketing and awareness, ONDC might reach a tipping point sometime in 2023 or 2024, making it as ubiquitous as UPI — and yet another Indian innovation whose impact will be felt beyond its shores.

While ONDC’s win-win proposition could take two-three years to make an impact, let’s not underestimate the power of millions of entrepreneurial sellers.

It is only a matter of time before it becomes an integral part of the e-commerce industry.

Right now, it is a very promising work in progress.

The Ultimate Showdown: ONDC vs E-commerce Platforms was originally published in pravegavc on Medium, where people are continuing the conversation by highlighting and responding to this story.

This article will dive into the exciting world of ONDC, the innovative digital commerce platform that’s poised to make a significant impact on the Indian e-commerce market.

• What is ONDC?
• Who are its participants?
• How is ONDC different from a platform-centric model?
• Where does ONDC stands today and the goals it hopes to achieve in the future?
• What are the potential roadblocks that ONDC may face?
• What are the opportunities for Startups in ONDC?

Introduction:

ONDC is an initiative by the government aimed at implementing and promoting open networks for the exchange of goods and services across the board, with a focus on small and local businesses.

The community-led network has been created to establish an inclusive, open, and reasonably competitive marketplace to counter the hyper-competition of the current scenario, which leaves small businesses in the lurch.

Think of it like this: What if there is a shopping app that shows you products not just from sellers on the app itself but also from sellers on other platforms? And as a seller, what if there is an app that allows you to list your products on multiple platforms rather than just the one you onboarded with?

This is the system that ONDC wants to facilitate by creating protocols and network policies.

Let's begin at the beginning.

What is ONDC?

Closed platform-centric market

We are used to shopping at one specific store, like Amazon, Myntra, or maybe even your local grocery store.

In a closed network, you are only able to buy products from that store, and the prices and selection would be determined by the store.

Open Network Digital market

Imagine what if you would be able to shop at multiple stores at the same time and compare prices and selections? What if you could find the best deals and have a wider range of options to choose from?

Something like a Trivago, but for everything that you would like to buy — This is exactly what ONDC seeks to enable.

ONDC integrates enablers including payment gateways, logistics providers, and buy-side and sell-side applications, allowing buyers to deal with a larger pool of sellers by using numerous sell-side apps.

It’s like a big digital market where everyone can participate.

So, how does ONDC work?

Who are the participants of ONDC?

How does ONDC differ from the current platform-centric market?

What is the current status of the project?

What does ONDC hope to achieve?

The potential impact of ONDC is immense, and its aspirations are nothing short of ambitious. By 2025, ONDC aims to increase India’s E-commerce penetration to 25%, a 5x increase from its current level of 5%.

ONDC’s goal is to achieve the following milestones by 2025:

What are the potential roadblocks for ONDC?

While there are parallels drawn between UPIs' success and ONDCs; the road to ONDC’s success is lined with a few obstacles that threaten to derail its journey to truly revolutionize the e-commerce industry in India. It has a daunting but not insurmountable task ahead.

Let’s take a closer look:

1. Initial struggles

• Slow adoption: Without a large enough selection of products and sellers, buyers may hesitate to jump on board, and sellers may be slow to attract customers without a substantial customer base
• Incentives: It could be a challenge to convince buyers to switch to transacting through ONDC without any added bonuses or discounts
• Investment: Some sellers are reluctant to invest in integration and ramp up on the network if ONDC doesn’t have enough scale and traction.

2. SMEs adopting digitization

• Integration: Despite the majority of SMEs expecting their online sales to increase due to digitization, digital marketing, and online order management are two key challenges
• Inventory issues: Currently, the digitization of SMEs in India is negligible, if we exclude payments. According to industry players, ONDC is failing to fulfill 70% of orders placed by buyers due to poor inventory management practices by SMEs. So far, only 4,000 orders have been executed through ONDC since September 2022 in Beta mode.

3. Onboarding large sellers

• Dominance: Digitally savvy large players will likely have the upper hand in terms of pricing and inventory and might dominate ONDC as well
• Self-preferencing: Larger players may choose to show results from their own sellers, marginalizing smaller retailers.

4. Customer experience

• The current platform-centric e-commerce model places a heavy emphasis on the user experience
• ONDC has a few growing pains to work through like imperfect grievance redressal, partial returns, and longer delivery times
• To compete with the existing e-commerce players, the buyer-side app’s UI/UX needs to be significantly improved
• With ONDC concentrating on enrolling neighborhood retailers, digital adoption, inventory updating, and quality issues are likely to come up and the question of who bears the cost of the mistakes is expected to emerge.

5. Ownership of consumer data

• The ONDC framework currently restricts data usage and storage
• Most platforms use consumer transaction data and behavior to determine what inventory to carry and how much to charge
• Separate buy-side and sell-side apps are involved in a transaction. Consumer data may reside with the buy-side app, which is not expected to influence pricing or inventory, while the sell-side app may not have access to consumer behavior, including conversion rate, after viewing the listing.

Despite these challenges, the potential for ONDC is simply captivating.

UPI is a case in point: Most of the 10 Mn sellers in India were unfamiliar with technology until UPI came along, and the uptake of UPI has been phenomenal. Now, these sellers have the chance to be a part of the next big revolution with ONDC, opening up a world of opportunities for them.

What are the opportunities for Startups in ONDC?

As a startup, there are several opportunities you can explore within this framework:

· Building on the ONDC infrastructure: Startups can build innovative applications and solutions using the ONDC infrastructure, such as creating verticalized marketplaces (buyer apps) or supply chain solutions.

· Leveraging ONDC for business growth: Startups, especially D2C brands, can use ONDC to reach a wider customer base and expand their business. Once a business lists its products or services on a Sellerside App, using the ONDC’s open protocol, the business can be discovered by consumers on all buyer-side platforms.

· Inventory management systems: Startups can build inventory management systems that integrate with ONDC and enable sellers to build catalogs and manage their inventory across multiple digital commerce platforms.

· Offering customer service and support solutions: Startups can build solutions that can integrate with ONDC and offer customer service and support to businesses and consumers.

· Reconciliation service provider: ONDC network has provision to establish separate agencies like Reconciliation Service Providers (RSP) and Settlement Agencies. Either the buyer app or the seller app can be the collector of payment from the buyer. In the case of a COD order, the logistics service provider would be collecting agent from the buyer. Once the amount is received from the buyer, RSP & Settlement agency will be responsible to initiate settlement to the recipient on the basis of settlement terms in the contract

Will ONDC have enough market share to justify startups building exclusively for it?

Initially touted as a “giant-killer” project aimed at dismantling the dominance of Amazon and Flipkart, the question remains whether ONDC can truly deliver on its promises.

In the upcoming article, we will address the question of how ONDC stacks up against other e-commerce players in India.

Can ONDC emerge as a viable challenger to the likes of Amazon and Flipkart?

Will ONDC cause significant disruption or simply bring about an evolution in the industry?

Stay tuned for our analysis.

ONDC 101: Understanding the basics was originally published in pravegavc on Medium, where people are continuing the conversation by highlighting and responding to this story.