India is a growing force in the global e-commerce landscape, boasting the third largest online shopper base worldwide, with 140 million e-retail shoppers.
This number is expected to skyrocket to 370 million by 2030, as reported by Bain & Company. However, despite this impressive growth, the Gross Merchandising Value (GMV) for the Digital Commerce Retail Market in India stands at a mere ₹2.85 lakh crore, accounting for ~ 4.3% of the total retail GMV in the country according to Indian Brand Equity Forum (IBEF).
To put this in perspective, countries like China and the UK have e-penetration rates of 25% and 23% respectively, dwarfing India’s figure. (Source- IBEF)
Furthermore, 20% of internet users in India engage in online shopping, showcasing a significant untapped potential waiting to be harnessed.
Business Models: Inventory vs. Marketplace Model
E-commerce in India has primarily operated through two models:
- Inventory Model
- Platform Model.
Inventory Model
It involves companies maintaining extensive product inventories sourced from vendors. This allows them to leverage their negotiating power and bulk purchasing advantage to secure products at lower prices.
Even though India’s regulations prohibit Foreign Direct Investment (FDI) in inventory-based e-commerce models. Companies have found loopholes through partnerships and indirect investments to circumvent these restrictions.
Marketplace Model
Here the companies connect sellers and buyers, offering a comprehensive transaction platform that encompasses everything from-
- product discovery — order fulfillment — grievance redressal.
Challenges in the E-commerce Landscape
- The dominance of large integrated e-commerce solution providers in India has created an oligopolistic market, resulting in an uneven playing field. This makes it difficult for new entrants to penetrate the market due to the substantial investment required to establish similar infrastructure.
- Concentration risk is another concern, as a single point of failure could disrupt the entire industry.
- Imitation Game Additionally, these major players possess valuable consumer behavior data, enabling them to launch their own successful brands and manipulate product visibility and promotion, putting other brands at a disadvantage.
Another significant challenge lies in low digital adoption
- Despite India’s immense internet user growth and robust digital infrastructure, the penetration of e-commerce remains low, particularly in sectors like grocery and Furniture.
- Brick-and-mortar stores lack the discoverability and deep discounting capabilities enjoyed by well funded online brands.
- Moreover, smaller vendors struggle with digitizing their processes, making it difficult for them to establish an online presence.
Even smaller e-commerce companies face significant barriers in this oligopolistic market, limiting their ability to bridge the gap by onboarding these vendors.
Enter ONDC: Revolutionizing the E-Commerce Landscape
ONDC, ( Open Network for Digital Commerce), is an open-source network that aims to revolutionize the Indian e-commerce ecosystem. Similar to the Unified Payments Interface (UPI), ONDC serves as a digital infrastructure that connects buyers, suppliers, payment providers, and logistics services seamlessly.
Currently, e-commerce companies like Amazon handle everything from ‘Search to Catalog Management to Logistics’. ONDC unbundles these capabilities and allows different function-specific entities to interoperate in the process.
With ONDC, buyers can access the catalogues of all partner applications, such as E-Samudhaay, through popular platforms like PhonePe.
This integration empowers customers to explore a wide range of products offered by local small vendors and leverage partner logistics services for convenient delivery.
The current network comprises several prominent companies in various roles. It includes popular buyer applications like Paytm,PhonePe and Meesho onboarded as Buyer applications.
Buyer Apps bring customers to the network.
Companies like Unilever and Magicpin, a local discovery and rewards platform, eSamudaay, a collective aiming to empower entrepreneurs with DIY digital tools and enable them to run digital businesses serve as seller applications.
Seller Apps provide the catalogs of products to the network.
The network has partners like Dunzo, Delhivery, and Shiprocket in the Logistics segment.
These logistics partners play a crucial role in facilitating efficient and timely deliveries for the transactions made through the network.
Collectively, these companies contribute to the digital ecosystem by enabling transactions, streamlining logistics operations, and providing a seamless experience for buyers and sellers.
By breaking down barriers and fostering collaboration within the e-commerce industry, ONDC paves the way for;
- More inclusive and competitive marketplace.
- Democratize access to resources
- Level the playing field for smaller players
- Promote innovation.
ONDC allows companies to build on top of the infrastructure to tap into the enormous market potential of the Indian market.
Furthermore, by leveraging the power of digital connectivity, ONDC aims to boost e-commerce penetration and reshape the future of Indian retail.
The Indian e-commerce landscape holds immense potential for growth and transformation. With the advent of ONDC, the E-Commerce industry is going to grow by leaps and bounds.
The Way forward
- ONDC is set to achieve significant growth in the number of transacting consumers, aiming to reach a buyer base of 90 crores by the year 2030.
- Additionally, it aims to generate an additional Gross Merchandise Value (GMV) of Rs3.75 lakh crores in the E-Commerce sector.
- Furthermore, ONDC envisions expanding the Pin Code Coverage of E-Commerce across India, ensuring that more areas are included in online commerce services.
- Simultaneously, the initiative aims to onboard over 12 lakh sellers from the Digitally Excluded section onto the ONDC network.(ONDC Strategy Paper)
ONDC is set to democratize the E-commerce Industry in India allowing all players to innovate and collaborate without any barriers.
Welcome to the New World!!
Author(s):
Jacob Jose with insights from Brijesh Damodaran
