The government has finally clarified the definition of 'marketplace model' in e-commerce. It has laid down the ground rules for all B2C e-commerce platforms that function on this model.
The new rules have been designed to create a more level playing field between online and offline retailers and a possible fallout of this could be that consumers might no longer be able to avail of huge discounts while shopping online. The Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industry, in its secular issued Tuesday evening has outlined that 100 per cent FDI will now be allowed for marketplace model of e-commerce while the same has not been extended to inventory-based e-commerce.
The DIPP has also stated that only those e-commerce platforms will be considered functioning on marketplace model, which just provide support services like warehousing, logistics, order fullfilment, call centre, payment collection, etc.
As per the new rules, an e-commerce entity cannot permit more than 25 per cent of sales on its platform through a group of companies or one particular vendor. Also, in the marketplace model, warrantees/guarantees will be the responsibility of the seller with the e-commerce platform now required to show the contact details of the seller with post sales customer satisfaction and delivery now a responsibility of the seller.
One of the more critical rules set by the government is that e-commerce entities in the marketplace model will no longer be allowed to "directly or indirectly influence the sale price of goods and services". One of the methods used by many e-commerce companies is to refund sellers for discounts offered. With the new rules, these tactics will no longer be allowed, meaning we might see more price parity between offline and online goods.
The clarification of the definition of "marketplace model" of e-commerce will be welcomed by the industry. However, the new rules, though they might succeed in setting up a level playing field, will also challenge long standing practices in use in the e-commerce industry.
“This announcement is amazing and a clear vindication of our approach. We would like to take this opportunity to thank the government for clarifying this. The opportunity for Askme is to never become a retailer ourselves or to ever compete with businesses who are our customers in the market but to build a platform that can be leveraged by everyone. We strongly believe that India will be a market of many small businesses and are very excited to see the rapid adoption and merchant response to our offerings,” said Kiran Murthi, CEO of AskmeBazaar.
Industry body, IAMAI also welcomed the clarification of FDI and said that this clarification will help build a robust FDI norm in the sector. Dr. Subho Ray President of IAMAI said, “The industry has been seeking this clarification and I am delighted that this has finally come through.”
In a press statement, IAMAI said that the move to allow 100 per cent FDI under automatic route in online marketplace model will usher in considerable investments and will also open up avenues for employment generation.
"IAMAI hopes that going forward, the government will also allow 100 per cent FDI in inventory-based B2C e-commerce activities," it further added.
Rajnish Wahi, Senior Vice President Corporate Affairs and Communication, Snapdeal said, “Snapdeal welcomes the government’s move to provide clarity to India’s fast growing e-commerce industry through the guidelines issued today. These guidelines recognise the transformative role that ecommerce marketplaces will play in the Indian market. True marketplaces like Snapdeal have democratised commerce, providing millions of businesses a platform to sell beyond their geographic boundaries. It is a comprehensive announcement which will pave the way for accelerated growth of the sector in India.”
Aditya Kandoi, Co-Founder of CareOnGo commented, “Foreign investment is a key component driving the Make in India Campaign. By allowing the 100 per cent FDI in e-commerce marketplace the government has helped lift the long perceived bureaucratic mind block around the business and will give the necessary push to the spirit of startup culture in general. Furthermore, the 25 per cent cap on total sales and well formulated policies will help pave a level playing field and curb predatory pricing."
Manu Agarwal, CEO and Founder of Naaptol, said the announcement would bring clarity in operational guidelines that enables the marketplace operator to provide value-added services. "Naaptol strongly adheres to the rules & regulations laid out for e-commerce industry and this move will certainly pave way for a scalable ecommerce ecosystem,” he said.
Though the smaller e-commerce players seem to have welcomed the decision as a positive move, it will be interesting to see the impact it has on operations of the biggies like Flipkart, Amazon, etc. For example, WS Retail, which was originally founded by the Flipkart founders Sachin Bansal and Binny Bansal, is the largest seller on Flipkart. This despite the company's efforts over the past months, to reduce WS Retail's share in the products sold on the platform. Similarly, Cloudtail India, a JV between Amazon and N R Narayana Murthy's Catamaran Ventures, is the largest seller on Amazon India.
Among the top three e-commerce brands in the country, Snapdeal seems to be the only one that operates on a pure marketplace model currently. All three companies had not replied to emails seeking comments at the time of publishing of this article.
Manoj Gupta, Founder & CEO of Craftsvilla.com, also welcomed the clarification around the ambiguity surrounding FDI with respect to marketplace models. "This will also ensure that pseudo marketplace models run by few e-commerce companies are finally challenged and there will be more rationalization of pricing and discounts as e-commerce companies will be required to have lesser control on those," he said.
Akash Gupt, Partner and Leader Regulatory, PwC India said, “The announcement brings about the long overdue clarity on FDI policy, specifically the much debated marketplace model. While on one hand the policy clearly mentions that 100% FDI is permitted in online marketplace, it also lays down operational guidelines to ensure the window is not misused. The cap of 25% on sales by a vendor on marketplace will ensure a broad basing of vendors for a true marketplace. This may require some of the operators to go on drawing board to comply with the conditions. This sector has attracted maximum FDI in the year 2015. With the clarity in policy and given the potential of Indian market, this policy initiative will certainly attract more FDI into the country. Enabling the marketplace operator to provide value add.” services like warehousing, delivery, payment processing etc will improve customer experience and market outreach for small and medium size suppliers.”
As Rahul Agrawal, Co-founder and CEO of Mebelkart explains, "The previous e-commerce norms were being flouted by some e-commerce companies by giving preferential treatment for their own selling companies. This move gives every seller on a marketplace equal opportunities. This is good for the manufacturers, retailers and distributors in India. Earlier it was a fight between capital and local sellers. Now it will be local sellers vs local sellers. Business will not be built just on discounts but also on true value a platform builds. The move on not letting marketplace decide prices is also refreshing."