Our 3,000-word handbook on India's e-commerce policy confusion - The Morning Context

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25 highlights

  • The amended rules are quite sweeping in both their definitions, including in their ambit the said “e-commerce entities”, as well as the best behaviour (“interests of consumer” in bureaucrat speak) that they want to hold the said entities to.

  • As reported by Reuters, India’s Ministry of Consumer Affairs, Food and Public Distribution, which notified the Consumer Protection (E-commerce) Rules in July 2020, has proposed amendments to the same a year later.

  • In itself the definition is nothing new but emphasizes that related marketplace sellers like Amazon’s Cloudtail and Appario, and Flipkart’s OmniTech Retail, RetailNet, etc., are each a “related party”. By adding the “fulfillment of orders” phrase, it aims to bring the platform’s logistics arms (Flipkart’s eKart) and other service providers (for example, installation) under the ambit of these rules.

  • Imagine Google’s policy department getting a notice from a government agency that the search results in India for “protection against coronavirus” are discriminating against the “well-known Ayurvedic medicine, Patanjali’s Coronil” by not showing it in its first page of results.

  • This is not to say that platforms are altruistic; they have business metrics to track and everything from the display ads on a homepage to the “cross-selling” on a product page may be catered to meet them.

  • Not only are e-commerce marketplaces’ core technology/product brought into question, their physical product offerings aren’t spared

  • Banning flash sales has been a key demand of offline retailers associations like the Confederation of All India Traders and online ones like the All India Online Vendors Association, who claim that this sales model of preferred brands and sellers (Cloudtail, OmniTech Retail, etc.) has hurt the interests of small offline and online retailers.

  • Thus, having neutered platforms from running their technology and selling their related-party/preferred products along with others, they are pushed further back in time where the concept of major sales like Big Billion Days and Great Indian Festival do not exist; every brand, e-commerce platform lives in the perfect equilibrium of bureaucratically sanitized mediocrity. Traditional brands and newer platforms (think Reliance Jio or the Tata “super app”) would love this purported level playing field

  • As noted in the definitions discussion, logistics providers, including warehousing, are also covered by these draft rules

  • Leaving nothing to chance in case there are loopholes in the pattern laid out so far, we find a blanket ban on “related parties” using information (data, knowledge, etc.), being listed and allowed to work (for example, sell on the marketplace). The relation is defined as a “common chain of shareholders or having ultimate beneficial ownership or having veto or voting power”, and so on.

  • In case an e-commerce platform can fly through all the roadblocks of data usage, development of private labels, partnership with preferred brands, managing operations, and dealings with related parties, in the end it can even be stopped from advertising a sale in print, social media and even their own platform

  • However unlikely, if all the new rules are accepted and implemented, then the Big 2 (Amazon and Flipkart) face an inevitable squeeze.

  • Stating the obvious: supply and demand do not start and then scale in isolation. Similarly, for e-commerce platforms, it is a virtuous cycle where products and brands help refine discovery (search, advertising) and drive sales (regular, festive, flash), which in turn drives more demand, attracting newer products and brands (including the development of private labels).

  • It bears reminding that Xiaomi, the leader in smartphones, and Flipkart started together on their market leadership journey through their first flash sale in 2014 with the Mi3 smartphone—selling out thousands of units in a few seconds. Amazon rose to challenge Flipkart in the smartphones category using its own exclusive arrangement with OnePlus (see our note on the 2019 Diwali sales). Myntra, the e-commerce pioneer in the fashion category (later bought by Flipkart), also found private labels and exclusive arrangements to be a way to drive market adoption, gain market share and realize elusive profit margins.

  • The second thing that e-commerce platforms built for scale and customer experience was their fulfilment and allied services. There is no point in selling thousands of units if they will be delivered weeks later (something Flipkart realized after its 2014 fiasco) or incorrectly.

  • One of the reasons why Amazon was never able to scale its appliances business in the US was that its supply chain was never meant to carry them. In India, Amazon built separate capabilities that have helped it emerge as the leader in categories like washing machines and refrigerators.

  • Not only that, it realized that in order to replicate the offline purchasing experience, it needs to provide installation services, setting up Amazon Home Services. Flipkart acquired Jeeves to do the same.

  • As per the widest interpretation of the proposed rules, both the platforms have to stop doing this or at least provide them to every marketplace seller and brand on the platform.

  • Therefore, if you take away discovery of products and pricing (especially during sales) you disrupt the growth flywheel. If operations are shackled to follow some of the above-mentioned draft rules, the suboptimal fulfilment experience will drive down demand even before brands look for alternative channels.

  • While JioMart’s platform itself and category coverage (grocery excepted) are nowhere near those of its competition’s levels, a straitjacketed Amazon and Flipkart may give it the opportunity to tread on their respective market shares and consumer demand.

  • In addition, the proposed restrictions on online sales put them at a disadvantage with offline single and multi-brand retail, who face no such constraint when advertising and promoting their own sales.

  • What about the other conglomerate with “super app” ambitions of its own? It is not inconceivable that a consumer who orders a lot of unhealthy snacks from Tata-owned BigBasket gets nudged to order vitamin supplements from another investee company, 1mg, while being offered discount gym coupons for CureFit, where its digital head hails from.

  • These are sweeping definitions that can technically cover even digital services like Netflix and Spotify, other marketplace platforms like Uber and Zomato, or any entity that comes under the scope of “all goods and services bought or sold over digital or electronic network”

  • Even if the cost of compliance increases, major e-commerce entities are best suited to tackle them. For example, Amazon takes on the combined might of the far stricter and fine-friendly European Union and American regulators every day of the week. It might be the smaller startups and traders that have taken to digital commerce who might get caught more easily in the “consumer interest” net. Ironically, restricting sales, discovery, sellers, brands and allied services are in no one’s interest, least of all the online buyer.

  • If the original rules have not been able to change the power dynamics or slow the inexorable march of e-commerce penetration, then how seriously should the new rules be taken? It is also important to note that despite the lengthy additions to the document, there is nothing on enforcement or potential penalties.

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