Thursday, August 4 2022

This month, retail giants and government regulators around the world will be closely watching India’s rollout of the Open Network for Digital Commerce (ONDC) in 100 major cities.

ONDC is a government-backed initiative that was designed by non-profit think tanks. The project, championed by Indian billionaire and Infosys founder Nandan Nilekani, aims to create a level playing field in online commerce by putting tens of millions of Kiranas (Indian family businesses) on an equal footing with web giants such as Amazon, Google and the Indian Flipkart (subsidiary of Walmart). According to Reuters, Amazon and Flipkart currently control more than 60% of India’s e-commerce market.

ONDC caps referral fees for platforms that refer buyers to a seller at 3%, a far cry from the roughly 30% cut that third-party sellers lose on major commerce platforms existing electronics.

Buyers will find themselves in an unprecedented situation: Amazon will make a commercial offer on the Flipkart application and vice versa. Searches on Amazon.com can result in eBay listings, illustrating how ONDC can make online commerce seamless.

“We have a chance to start over and remake the digital world to be more fair and transparent for all participants. Together with ONDC, we hope not only to create a level playing field for India and all businesses operating there, but also to give the world a glimpse of how open trade can generate non-zero-sum positive results for businesses. and society,” Nilekani said in an email exchange.

Even medium-sized companies are asking for ONDC. The program effectively creates an open order book for purchase requests that any store in the network can fulfill.

ONDC sees itself as creating a digital foundation for commerce that integrates inventory, logistics, dispute resolution, and more. After a successful launch in five Indian cities, Delhi, Bangalore, Bhopal, Shillong and Coimbatore, a nationwide launch is planned according to Union Minister Piyush Goyal.

If it works as expected, the ONDC could be a fundamental game-changer for e-commerce, heralding a future of open competition with less dominance from vertically integrated platforms, and showing U.S. regulators ways to tackle their own monopolies.

An open market

ONDC is not a specific application, intermediary or software. Rather, the ONDC is a set of specifications designed to foster open exchanges and connections between buyers, technology platforms and retailers.

At its core, ONDC is an open network backed by a set of open standards similar to India’s Universal Payments Interface. In fact, ONDC’s underlying open standards are an adapted version of the Beckn Protocol, a global open source standard from India that can be used even beyond retail for industries such as mobility and health, Beckn Foundation CEO and co-founder Sujith Nair said in an email exchange.

Open standards are the hidden foundation of America’s economic and technological infrastructure. Everything from shipping containers to database query languages ​​is based on open standards. Unlike closed standards, open standards are both transparent and free to adopt.

Open standards underpin open networks such as the Internet. A set of core technology standards enables interconnection between many types of systems. Open networks and efficient standards promote competition and eliminate friction and barriers to entry.

According to Nilekani, ONDC aims to democratize digital commerce, replacing a platform-centric model (where both buyer and seller must use the same platform or app to transact) with an open network that allows – and even requires – platforms and the interaction between apps and commerce. ONDC provides open specifications and open network protocols that all players in a market can use to connect and share information.

Currently, e-commerce in the US, Europe, and India makes platforms the arbiters and middlemen. To compare prices or offers, an online shopper has to switch between platforms, which creates difficulties in comparing similar products based on supplier prices, shipping costs, taxes, etc. .

Although search engines such as Google Shopping offer the ability to compare prices between online stores, they mostly limit their searches to large e-commerce companies with the budgets and technical know-how to list products and manage complex data flows from inventory systems.

Since the ONDC operates as a set of standards, it will allow consumers to choose one of many shopping platforms. Each platform will receive the same product, pricing and availability information, based on the same set of standards. Your kirana corner owner will only need to manage one tool in order to provide information to many platforms. The idea is that it will smoothly bring kiranas into the digital world without forcing traders to become digital mavens.

ONDC can also unlock the ultimate advantage for kirana businesses: proximity. As Amazon races towards same-day delivery and venture capitalists continue to bet big on short-window delivery startups that promise to deliver within an hour or less of an order being placed, local Indian traders already have “less than an hour”. trade resolved due to their location down the street from a buyer.

India is a natural laboratory to test the concept. It has one of the highest digital finance participation rates in the world, at over 80%, according to Nilekani. The Indian government is pursuing an aggressive digitization policy. ONDC aims for 25% of all internal Indian trade to be done online within two years. This is triple the current online penetration rate of eight percent of internal commerce.

ONDC may provide a smooth entry for kiranas, but ultimately all players will benefit. Local e-commerce competitors of giants Flipkart and Amazon, such as SnapDeal, who want to compete on user experience and pricing on a level playing field, register with ONDC. Google has also shown interest. Indian tech companies that provide e-commerce services and capabilities to midsize companies see ONDC as a potential boon to their own operations.

Reduction of barriers to entry

There are challenges and risks for the ONDC. Even if it succeeds, its effect may not match its intent. Bringing the tens of millions of existing kiranas to the platform will require a massive and well-funded adoption campaign. Amazon and Flipkart will continue to benefit from economies of scale that allow them to negotiate lower prices. Any move to restrict trade that leads to higher prices could trigger a backlash from consumers – and the big platforms could end up being the ones that benefit the most from ONDC.

In the case of India’s Unified Payment Services (UPI), which was designed to provide an open standard for payments, Google Pay and Walmart’s PhonePe have captured a dominant share of transactions. The government is exploring mechanisms to generate more competition, but this will be difficult without directly restricting user behavior.

However, the combination of ONDC and UPI could reduce barriers to entry. By opening India’s business bases, the two could pave the way for greater competition by allowing new entrants to challenge incumbents with greater ease.

For retailers and governments around the world, ONDC provides a glimpse of what open retail might look like in practice. Ultimately, everyone – buyers, merchants, and even platform giants – would benefit from the accelerated adoption of e-commerce and the creation of a bigger global economic pie.

Alex Salkever, Ismail Amla and Vivek Wadhwa are the co-authors of a book on building billion-dollar businesses, From incremental to exponential: how great companies can see the future and rethink innovation.

The opinions expressed in Fortune.com comments are solely the opinions of their authors and do not reflect the opinions and beliefs of Fortune.

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