The Ken (the-ken.com) is usually on point with their business takes, but this was a knee-jerk reaction to ONDC, where they say:
In their weekly nutgraf: https://the-ken.com/the-nutgraf/what-happens-if-we-kill-swiggy-zomato-ola-uber/
This article makes an important claim for the wrong reasons. Their claim: “This is the world we’ll live in if ONDC wins. Regulations. Price caps. Limits on incentives. And sub-limits. Coalitions. Negotiations. No transparency.” Quoting a sub-par mechanism on a open network app.
Their claim:
- Moving against Swiggy/Zomato via ONDC, if successful, is going to put the end consumers (buyers) in a sub-optimal place
Marketplace dynamics don’t work like this.
Here’s my argument against this claim.
- Marketplace incumbents have an orchestrating DNA. They take the system variables - supply, demand, regulation and continuously align all players with incentives and processes to their long term benefit. And this is a process of constantly making trade offs between 3 things:
- Buyer’s benefit
- Seller’s benefit
- Marketplace commission
Whatever you give to one of these will come from the other two. You want to give a discount? There goes the restaurant’s margin. You want to make more commission? Buyer’s price goes higher!
- Current incumbents in e-commerce are heavily inclined towards buyers (Amazon, Flipkart) While incumbents in ride hailing are inclined towards drivers (Ola, Uber) You can precisely understand the market and differentiate marketplaces by their position in the 3 trade offs.
- Marketplaces don’t charge a commission for nothing. Look at Uber, they spend a lot on driver retention and supply activation. And you get a higher conversion on Uber only because Uber orchestrated the driver supply to be there near you when you needed it.
- Conversion rate stat for Namma Yatri (Open network app) - hovers around 20% They don’t charge commission, but they don’t regularly get the driver for you when you need it. You want a 3AM driver in Namma Yatri? Good luck with that.
- ONDC says: look, in this trade off, I’ll sacrifice even further on trade off 3 (marketplace commission) and give the surplus to buyer and seller And in marketplaces where no costly orchestration is required, ONDC will thrive with robust policies and dependable providers
- But in marketplaces where a costly orchestration is mandatory, ONDC will occupy only a niche position - driven by coalitions, price-caps, and negotiations.
- Also, in marketplaces where incumbents are charging a high % commission for just connecting buyers and sellers (+rating, + forced logistics), ONDC is coming to eat their lunch, dinner and breakfast. This is NOT most marketplaces in India. In India, most marketplaces offer fulfillment, rather than order filling. And fulfillment inherently carries a high orchestration cost.
- ONDC “winning” is clearly not the defeat of all the marketplaces and having only pure players.
- ONDC winning is
- Higher % of offline sellers, extending online (not evident yet)
- A competitive force preventing incumbents from exorbitant commissions
- Reduction of scale-driven abuse of pricing & commission. No free lunches (high commission for low orchestration)
- Sure, it’s eroding margins. But, It’s coexistence. It’s a check on all marketplaces.
- And when one marketplace goes to one end of the trade off (let’s say seller focused), there’ll be opportunities for the other marketplace to capture profits by taking the counter position.
- It will not be a world driven by coalitions, negotiations, and price-caps. Because in the same world, other marketplaces will coexist!!