Even as the pandemic wreaked havoc and the world waited out 2020-2021 indoors, Big Tech companies seemed unfazed, buoyant even. The world needed tech-enabled services all the more, accessing everything from healthcare to groceries through digital platforms. And while the hubris is now on the ebb, “unicorn” tech companies continue to sprout everywhere, fueled by the power of infinite venture capital. Not one to be left behind, India crossed the 100-unicorn mark earlier in 2022, with a total of 105 unicorns with a combined valuation of over USD 341 billion as of July 2022. It is noteworthy that 22 of these are e-commerce unicorns, with the sector having the highest concentration of such companies.

Amidst this already crowded landscape, the Open Network for Digital Commerce (ONDC) is being launched with the promise of democratizing digital commerce in India. A joint initiative of the Indian Commerce Ministry’s Department for Promotion of Industry and Internal Trade (DPIIT), a handful of state corporations, and private commercial banks like Axis and Kotak Mahindra, ONDC uses open-source protocols to establish a decentralized, interoperable network for digital commerce. It is positioned as a public good alternative to monolithic platform models, such as Amazon and the Indian giant Flipkart.

This essay explores the significance of ONDC for the digital commerce landscape in India, and discusses ways in which digital public goods (DPGs) can counter practices borne out of e-commerce monopolies. Tracing the myriad concerns with the mainstream e-commerce model, the essay examines the extent to which the ONDC as a working model manages to solve them and fulfill its promise of unlocking value for all actors.

Whose Platform is it Anyway?

Dizzying stories of e-commerce “success”, more often than not, are woven on the backs of weaker economic actors in the digital value chain. These include small, independent sellers, restaurateurs, delivery workers, and cab drivers. Having placed themselves at the center of all digital commerce transactions, platforms act as self-proclaimed agents of consumers and service providers alike. The former are plied sufficiently with irresistible offers, while the latter get squeezed in the name of customer service and satisfaction.

ONDC uses open-source protocols to establish a decentralized, interoperable network for digital commerce. It is positioned as a public good alternative to monolithic platform models, such as Amazon and the Indian giant Flipkart.

Various actors have raised clarion calls against the highly insidious tactics employed by digital platforms in their bid to capture the market. They have pointed to platforms’ lack of transparency regarding the functioning of algorithms for recommendations and product visibility. Businesses working with and on platforms also lack access to vital insights held by platforms on customer behavior, customer preferences, historic sales, etc. – insights that are crucial to make informed business decisions.

Adding insult to injury, large platform companies use the very data generated by the activities of their business users to develop competing products and services. Through a carrot-and-stick approach, they lure customers towards their own offerings with lower prices, flash discounts, and quicker delivery times. This is common practice across the board. Amazon, for one, routinely sells Amazon-branded goods on its platform which, starting with batteries in 2009, now include shoes, apparel, and furniture. Similarly, in India, food platforms like Zomato have established their own cloud kitchens to exclusively supply popular food items, while hyper-local delivery platforms like Dunzo are setting up huge warehouse-like dark stores in every other locality.

Another significant issue is that of bundling of services. Platform companies offer a host of ancillary services such as cataloging, logistics, and payments to their business users. However, businesses don’t have the option to choose the services they want, and are forced to sign up for the entire bundle, for which they are charged a composite fee in the form of commissions (up to 20-30%). For instance, to be eligible for Prime deliveries on Amazon, merchants must mandatorily sign up to and ‘pay’ for its Fulfilled by Amazon program. Studies have discovered that Amazon games its algorithms to prefer sellers who avail its fulfillment services (in addition to its own products).

Being the all-seeing, all-knowing arbiter of the digital marketplace, platforms enjoy an unhindered capacity to determine rules of engagement, involving little to no consultation with the different platform-associated entities. Unfortunately, given that platforms provide crucial gateways to consumers, opting out for a seller would effectively mean being cut off from the digital market altogether. Therefore, platform-associated entities have no choice but to be at the mercy of platforms to participate in digital commerce.

Network versus Platform: What does ONDC do Differently?

India’s ONDC is imagined as a network of platforms or marketplaces comprising consumer-end apps, business user-end apps, and gateways at its core. It will also provide horizontal network services like registries, network policies, data policies, reputation ledgers, and payment services.

A potential seller may develop their own app/platform in compliance with the ONDC protocols, or join an existing platform that is onboarded with ONDC. Other market participants like logistics providers and payment service providers may similarly join the network. Moreover, the idea is not limited to product-driven e-commerce; services like mobility, food delivery, and travel are also intended to be catered through the ONDC network.

In contrast to the closed ecosystems of platform companies, an open network like the ONDC would allow buyers and sellers to transact regardless of the app/platform being used by either side, as long as it is compliant with its open protocols. By enabling direct communication between buyers and sellers, ONDC eliminates the role of a private central intermediary and overcomes the silos created by the platform model.

Thus, instead of all value being stored at the platform level, the network enables the flow of value among the different network participants. This is akin to the technical standards (SMTP and IMAP) developed for e-mail, which allow users of different email service providers to communicate with each other without any provider acting as the intermediary.

There have been several news reports comparing ONDC to the flagship DPG for payments in India, the Unified Payments Infrastructure (UPI), routinely addressing it as the “UPI of e-commerce”. The similarities between the two, however, are limited to their use of open protocols to break open platform silos and connect individuals and entities across platforms through an interoperable network infrastructure. The dissimilarities, on the other hand, are several, and are what make ONDC a highly complex as well as ambitious initiative. For instance, UPI has only one stock keeping unit, i.e., money, while ONDC involves different products and services, along with ancillary services like logistics and payment gateways, each with its own variables. Moreover, ONDC will involve a significant volume of physical interactions as opposed to UPI, which is limited to the digital space.

Decoding the Promise of ONDC

ONDC comes in the wake of a rising political consciousness – in India and abroad – about the highly centralized and consolidated shape of the internet today. The turn of the millennium brought with it Web 2.0 that prioritized user-generated content and ease of use, and led to the rise of the likes of Facebook and Wikipedia. Replicating this formula beyond communication and social media resulted in the creation of digital platforms in practically every sector. Galvanized by first-mover advantage and strong network effects, these platforms first became crucial gateways to the digital space, culminating in the near infrastructural role taken on by apps like Amazon and Uber. Thereafter, absolute control over the platform infrastructure has combined with the singular aim of maximizing profits to create the lopsided and unscrupulous platform economy of today.

Dizzying stories of e-commerce “success”, more often than not, are woven on the backs of weaker economic actors in the digital value chain. These include small, independent sellers, restaurateurs, delivery workers, and cab drivers.

DPGs like ONDC are an attempt to counter such monopolistic forces by employing techno-legal solutions where the law alone fails to play catch-up with technological advancements. ONDC, with its decentralized network of interconnected ecosystem participants, positions itself as an alternative to the intermediary-driven, monolithic platform-centric model. As an open network, it could potentially free the digital economy from the monopoly/duopoly structures that have come to dominate practically every e-commerce sector – Amazon and Flipkart (retail), Zomato and Swiggy (food delivery in India), Uber (mobility), and so on. By virtue of their respective platforms being closed walled gardens, these companies reap huge benefits from the network effects such a design creates, while also amassing infinite amounts of data about the respective markets they operate in. ONDC, in contrast, aims to pry open these closed platform infrastructures through technical protocols that enable interoperability and decentralization.

Buyers and sellers will no longer be bound to or be limited by the particular platform they onboard themselves on; they will have access to and be discoverable by all other entities plugged into the network, regardless of their chosen platform. ONDC’s network structure can also address the problem of portability of trust. Platforms allow sellers to interact with consumers within the platform ecosystem and build a certain amount of goodwill and trust. However, if a seller wishes to change platforms on account of being dissatisfied with her existing one, she cannot port or migrate her hard-earned reputation despite its being based on her own data and market conduct. Similarly, other platform-associated entities, including users, must forfeit all the trust and credibility they have painstakingly built, in case they want to switch to another platform.

The other key intervention of ONDC is that of unbundling the various components of the e-commerce value chain, allowing each entity to leverage their own strengths to participate in the online marketplace. Buyer-side apps can exclusively focus on things like price discovery and user experience without expending resources on seller onboarding (the reverse being applicable for business user-end apps), while logistics service providers can focus exclusively on their domain. Thus, its network architecture creates an ecosystem of microservices and provides flexibility to buyers and sellers alike. This, in turn, is expected to both enhance capital efficiency and reduce barriers to entry, thus giving impetus to sector-specific platforms (like Nykaa, an Indian cosmetics platform) and reduce the dominance of the relatively generalized incumbents.

The Long Road to ONDC’s Promise

Nevertheless, despite all the promise of ONDC, whether it will actually bring benefits to small players in the digital ecosystem. Besides it being in its nascent stages – pilot launched in 20 cities for only select business users and consumers – a few potential issues around ONDC require deeper engagement.

 Self-preferencing: Firstly, the strategy paper published by ONDC is silent on how ranking and discoverability of products is to be done on the consumer-end apps. This means that a consumer-end app could game its algorithms to promote its own products and direct traffic to its own business entities. While technically, every seller may be accessible to every buyer on the network, a small seller may never end up reaching customers, on account of her offerings getting buried in the search results. Brij Purohit, founder of a business user-end app SellerApp, tells us that the contract between ONDC and consumer-end apps explicitly provides that the latter must provide all sellers visibility on their platforms. But mere visibility is not enough, for a seller may still be excluded in effect by tweaking the search and discovery algorithms. A seller we spoke to, aptly compared the consumer-end apps with news editors who enjoy absolute authority to decide what kind of content ultimately reaches consumers. All of this begs the question, whether ONDC can, in fact, fulfill its promise of unlocking value for the smaller players of the digital ecosystem.

Deep discounting and market capture: A second legitimate concern is that of capture of the network infrastructure and its resources by incumbent platforms. Distortionary practices like deep discounting and predatory pricing are routinely employed by platform companies to capture the market. And it is not far-fetched to imagine the same companies developing consumer-end apps (given these would be directing consumer traffic) and employing similar tactics to control the ONDC network as well. And small businesses, which ONDC aims to serve, would not be able to compete with their near infinite amounts of capital.

This concern has been voiced in the Indian Parliamentary Committee Report on E-commerce (2022) as well – about local businesses being squeezed out of the ONDC network on account of failing to compete with the lucrative discounts and sales offered by prominent e-commerce companies. Such a phenomenon is already being observed in the context of UPI, where up to 80% of the Indian digital payments market has been captured by two prominent players, i.e., Google Pay and Walmart-backed PhonePe, whereas the market share of the only major Indian player, PayTM, has seen a steady decline. And the much-touted opportunity for innovation and disruption for domestic entrepreneurs in the fintech space has remained a pipe dream.

To make matters worse, if the network is, indeed, captured by a handful of consumer-end apps, small sellers may end up having to spend large amounts in marketing and promoting their products on those apps, thereby replacing the high commissions of the platform model with high marketing fees in the network model.

Labor issues: The weakest segment of actors in the digital commerce value chain – delivery personnel – may not see much respite either. ONDC treats every network participant as an equal and independent agent freely competing in the digital marketplace (and thus, leaves much to “market forces”). However, this has been the flashing point of delivery worker agitations across the world – that they lack the financial and social capital to negotiate with multinational digital behemoths at an equal footing, which has resulted in the meager commissions, absence of social security, and lack of job security that define gig work today.

But their woes could very well continue in the world of ONDC as well. For when logistics companies are jostling to corner the logistics market through tactics like deep discounting, it will probably be the delivery personnel who will absorb some (if not all) of the losses. Theoretically, of course, they’d be free to move to another logistics player that pays better; but if and when the logistics market starts consolidating as data-driven markets are wont to do, that choice will hardly be free at all.

Regulation of aggregated data: Another significant question is that of data, i.e., the aggregated, non-personal data – with its affordance for highly accurate and valuable market insights – that gives platforms their indomitable power. Business users have long complained about platforms’ absolute refusal to share such data, in addition to using such data to develop their competing products and services.

SellerApp, which has already onboarded over 2000 small sellers, has promised to provide individual sellers real-time data on their performance, a decided improvement from the platform model. But this fails to address the issue of how aggregated, anonymized data will be handled. For it will be the various consumer-end and business user-end apps that will have access to such macro-level data. And if a handful of companies end up dominating the buyer and/or business-user side of things, they will be the ones to walk away with the lion’s share of profits in the long run. The National Restaurants Association of India (NRAI) is in talks with ONDC to build a repository of aggregated, anonymized data. “Those who contribute to the common pool would also be given access to insights from it,” said NRAI’s Thomas Fenn. In its current form though, ONDC does not have an imagination on how the intelligence capital of the network can be democratized for benefitting the relatively weaker actors in its network.

Lack of accountability: In addition, the ONDC strategy paper does not provide for a comprehensive grievance redressal mechanism, both for business users and consumers. It makes a passing mention about establishing mechanisms in line with the Online Dispute Resolution plan published by NITI Aayog, but does not go into details. Assuming a three-way online dispute redressal mechanism is, indeed, established involving the business user, the logistics provider, and the customer, it must be noted that such a fragmented mechanism could also create gaps for the process to fall through. Based on our conversations with prospective ONDC participants, the general expectation is that it will be based on the principle of caveat venditor, where the ultimate responsibility will lie with the seller. Additionally, individuals who have seen the onboarding agreements being signed with ONDC’s participants informed us that most such agreements expressly clarify that no recourse will lie to ONDC in the event of any issues arising among the various network participants.

In its current form though, ONDC does not have an imagination on how the intelligence capital of the network can be democratized for benefitting the relatively weaker actors in its network.

The lack of clarity on issues of accountability lies at the very heart of ONDC, in the ownership and governance structure of the entity itself. Established as a private non-profit company, its shareholders comprise private and public banks, and public sector entities like BSE, NSE, and QCI. At the same time, it is being actively pushed by various ministries and government departments alike, all of which gives it a veneer of state backing and accountability. But the motley mix that make up its shareholders are not bestowed with the kind of fiduciary public duty as is a public institution.

A key private investor, Kotak Mahindra is also developing a consumer-end app, prompting legitimate concerns about the room for such players to influence the network for their own ends. CEO of ONDC, T. Koshy, stated that of the 15 board seats, only six are reserved for shareholders while four are nominated by rotation, thus negating the possibility of the network being hijacked by any one shareholder. He also mentioned that ONDC intends on establishing a user council to receive users’ recommendations. However, these measures by themselves do not constitute sufficient checks and balances to assuage such concerns. Government bodies, generally imply a certain level of inherent trust and public accountability. But the individuals running ONDC are not accountable to its users or the public at large. Thus, there is a pressing need for clear government oversight over ONDC itself.

Atomization through individual choice: Finally, ONDC makes the classic neoliberal folly of leaving several nitty-gritties to matters of individual choice and market forces. For the mere removal of barriers to entry is only the first step towards leveling the playing field. It does nothing to address the inherent power asymmetries in a market spanning multinational digital behemoths to delivery workers, which necessitates institutional protections for the latter (and other weak actors). Besides, consumers’ rationality can hardly be relied upon. It is also not the case that the fear of losing users will force consumer-end apps to give equal visibility to all sellers or that business users will easily switch apps if they are treated unfairly. But despite an increasing consumer consciousness, convenience and user experience tend to trump most other concerns. And it is hardly fair to put the onus on an individual user to call out dominant platforms’ unfair conduct, especially when they are getting highly lucrative and tempting discounts from the same platform.

Need for Regulation

There is no doubt about DPGs being an effective tool to undo some of the consolidation seen in the e-commerce world. It is definitely a good starting point. But a technological approach alone fails to address the inherent asymmetries of the digital marketplace, which require the law to rein in incumbents, so the weaker actors can make use of DPGs in a meaningful way.

Among the numerous stakeholders we spoke to, there was consensus around the fact that ONDC must go hand-in-hand with statutory regulation. Else, it is likely to get hijacked and exploited by dominant e-commerce players, given their advanced technological capabilities and deep pockets. Kush Agarwal, an online seller active in voicing small sellers’ concerns with platforms, was skeptical about their prospects on the network in the absence of legal oversight, particularly regarding manipulation of algorithms by consumer-end apps and commissions chargeable by business user-end apps. “We (sellers) need to have our own representatives on the ONDC board, someone who will have our backs,” Agarwal said.

Necessary regulation will need to be brought in, mandating algorithmic transparency, especially on the part of consumer-end apps, along with provisions on regular technical audits for search algorithms. ONDC itself will only monitor the network behavior of participants (i.e., whether they are compliant with the network policies), and not their in-app behavior per se. This makes it all the more necessary for the law to step in to ensure that apps and software are not manipulated to take unfair advantage of the network infrastructure.

In addition, certain kinds of anti-competitive conduct such as self-preferencing, deep discounting, and developing competing products (using data generated on a given platform) must be expressly prohibited by law. Provisions on sharing data with business users – both individual and aggregate (anonymized) data – would also need to be brought in, along with those setting minimum standards of fairness and equity that operate a priori. The EU has made some progress on this front with the adoption of the Digital Markets Act, which designates digital platforms as “gatekeepers” if they provide critical gateways to customers or meet other prescribed quantitative and qualitative criteria for market dominance, subsequent to which it lays down certain do’s and don’ts for gatekeepers vis-a-vis their business users. The U.S., too, is making an attempt to rein in the unbridled power of platforms with the ACCESS Act. Both these legislations make for good reference points for formulating similar regulations for Indian digital commerce as well.

To further eliminate any chance of a conflict of interest, the law could go one step further and provide for structural separation of the platform layer from the physical layer, wherein an entity running a consumer-end app would be prohibited from being a seller on the network, whether directly or indirectly.

The DPIIT is currently working on making revisions to the e-commerce policy, by way of which an e-commerce regulator is expected to be established. In addition, the Ministry of Consumer Affairs is also expected to finalize the amendments to the e-commerce rules soon. Most of the stakeholders we spoke to had pinned their hopes on these legislations to bring some much-needed clarity.

For if ONDC must meet its objective of giving impetus to small sellers and entrepreneurs in general, then their interests must be protected at the outset through some kind of affirmative action to make up for their obvious lack of negotiating power as against large platform companies. Else, consumer-end apps will likely be the new “gatekeepers” of the digital marketplace, and the network another tool in tech companies’ absolute takeover of digital commerce. And instead of being a network of independent economic actors, ONDC will simply become a platform of platforms.