The Ultimate Showdown: ONDC vs E-commerce Platforms
Introduction
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.
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.
