How ONDC is killing the duopoly of Zomato & Swiggy?

Open Network for Digital Commerce (ONDC) is an Indian Government initiative to counter foreign companies in the e-commerce segment. Due to e-commerce's rapid growth in India, small retailers have been adversely affected.

It is a NOT-FOR-PROFIT system founded by the Department for Promotion of Industry & internal trade (DPIIT) in the year 2022. The founding members are Nandan Nilekani, RS Sharma, & Adil Zainubhai. Initially, ONDC was launched in Bengaluru and now it is active in these five cities: Bangalore, Delhi, Bhopal, Shilllong, and Coimbatore.

What Actually ONDC is?

• ONDC stands for Open Network for Digital Commerce.
• It is a platform that is accessible from the search bar of various applications like Paytm, Meesho, Magicpin, etc. from where customers can place their orders.
• ONDC is a network for both: sellers and consumers. Sellers can list their items and consumers can buy them from the best listed available options.
• The prominent idea behind ONDC is to connect buyers, suppliers, payment interfaces, and logistics providers through open-source protocols.
• It works on an inventory-based model instead of a marketplace model.

Marketplace Model VS Inventory Model

Marketplace Model

This model is facilitated by a centralized platform where multiple sellers can sell the products to their potential customers. Here, a seller is not only solely responsible for the whole process like packaging, dispatching, and delivery. If a seller doesn't have a packaging facility, then a centralized platform can do that in return for some commission fees.

For E.g. if there is a seller 'S' that sells electronic devices but doesn't have any packaging facility and on the other hand there is a platform 'P' where there is a huge demand for electronic devices but this platform doesn't produce electronic devices, then, in that case, platform 'P' will consult with seller 'S' and will do packaging themselves and for delivery, it may consult a delivery partner 'D'. Finally in this whole process platform 'P' earns the commission.

Shopclues, eBay, ETSY, and Amazon are marketplace models. eBay was the first marketplace model in India.

Inventory Model

In this model, a buyer buys products in huge stock known as warehousing of products from suppliers and when an order is received the buyer is solely responsible for the whole process of packaging, product quality, dispatching, and delivery. Since this model contains the highest level of accountability, it is also more profitable than the marketplace model.

Zepto, Jabong, and LastOne.com are inventory models.

In 2016, the Indian Government passed a circulation that states: Amazon and other foreign companies can't use the inventory model and must have to use the marketplace model in India for E-commerce businesses.

Why ONDC is Necessary?

As e-commerce is growing in India, it is having a negative impact on small businesses/retailers. Flipkart/Amazon has huge discounts with additional benefits like no-delivery charges, buy now pay later, buy one get one, etc. Small retailers can't afford to have that many options & technology to compete with these tech giants in an open market.

For example, if a person visits a shop to buy a smartphone and it costs Rs 15,000, but he/she is getting the same smartphone for Rs 10,000 in a Flipkart flash sale, then that shop will surely lose its customers.

Zomato/Swiggy earns a commission whenever any restaurants list the items on their application. So, to maximize profit restaurants increase their product price, and finally, customers have to pay more than needed.

For E.g. If a restaurant has a product of the price of Rs 200 then Zomato will take Rs 70 as a commission fee which means the restaurant is incurring a loss of Rs 130. So, to maintain their margin of profit the restaurant can increase the product price from Rs 200 to Rs 300 and finally, the customers end up paying more.

In this whole process small retailers are losing their customers and customers are losing their money. Only tech giants are making a profit. So, to end this duopoly of Zomato/Swiggy the Indian government introduces ONDC.

According to Money Control:

ONDC food & grocery orders double in a week to shoot past 10,000 a day.

--Money control

40% of the 10,000 orders are from Bengaluru and the rest of the orders are from Mumbai, Kolkata, Delhi, and Hyderabad.

Benefits of ONDC

• It is promoting Micro and small businesses/retailers. ONDC has removed the reliability of any third-party application for small retailers to sell their products.
• It is providing huge discounts compared to Zomato/Swiggy.
• It can end the duopoly of Zomato/Swiggy and Amazon/Flipkart.
• ONDC is as revolutionary as UPI and as of now, it is free for all.

Challenges of ONDC

• There are a few unanswered questions: Is ONDC accountable for the damaged products? Are there any AI tools used in their platform for smoother customer interaction?
• Since this is a common platform where restaurants and customers can be integrated. So, it is the sole responsibility of restaurants to provide the best facility to their customers.
• ONDC is sharing the customer details of their listed restaurants. So, it can be a data privacy issue as well.

Conclusion

ONDC was launched in the previous year but it is gaining immense popularity in the past few weeks due to its deep discounting and other features. It is now considered a tough competitor for Zomato/Swiggy and Amazon/Flipkart but still has some major problems to deal with.

With the vision of empowering small-scale businesses and ending the duopoly of foreign companies, the Indian government is continuously improving the ONDC platform to reach a larger scale of customers.