The art of a good unicorn | How ONDC will catapult D2C (Direct-To-Consumer)
The ONDC (Open Network For Digital Commerce) will provide a further impetus to the D2C (Direct-To-Consumer) business model, which has already been on the rise against the backdrop of COVID-19.
There’s someone who sells bed sheets made of beautiful Egyptian cotton in a physical store and now, she plans to sell them online as a D2C brand. So, what can she do? Launch a website? Use an e-commerce company? Those come with additional costs and logistical obstacles. Even if she, somehow, overcomes all of that, she still runs the risk of not being noticed amongst the crowd of sellers, especially when behemoths may engage in anti-competitive practices that may hurt the small entrepreneur. But how can she cut the middleperson? Despite the massive wave of Covid-induced digitisation, she still had challenges with digital technology. What if she didn’t want to contribute to the monopoly of Big Tech? What if she didn’t want to enrol on various online sites? How can her bed sheets be subject to more visibility and accessibility? That’s where the ONDC (Open Network For Digital Commerce) comes in.
The biggest advantage of the ONDC is that anybody may join: Even the smallest retailers in the most remote area.
Let's try and understand what D2C (Direct to consumer) as a business model is. It works when the business owner sells products directly to consumers, instead of going to wholesalers, who goes to distributors, who goes to retailers and, finally, goes to consumers. The D2C entrepreneurs distribute their products through chosen channels, like e-commerce platforms, retail stores and social media. And now, the ONDC is another platform they can use to their advantage.
A new distribution approach is offered by the D2C business model: online-only retail, direct distribution, and social media marketing. It's a vertical business structure without a middleperson. Due to the abundance of VC funding, the lack of fierce rivalry and the extraordinarily low cost & great return of social media marketing, this model quickly gained traction. The simplicity of the paradigm is riveting.
To compromise the monopoly of e-commerce leviathans and move away from a platform-centric model, the Government of India established an open network. Helmed by innovation superstar Nandan Nilekani, this open-expertise community would support small merchants in India's $1 trillion retail business, which is fragmented but rising quickly. But why?
Small mom-and-pop shops ('kiranas') and shopkeepers, who have been concerned about their dominance, can now breathe a sigh of relief. For consumers and business owners to buy and advertise goods and services online, the government wanted to develop an openly available system. This also means that juggernauts like Amazon and Walmart-owned Flipkart would have their power restricted.
With aggressive sales and discounts that jeopardised the viability of D2C entrepreneurs, these Goliaths have invested around $25 billion in India to control nearly 80% of the digital economy. In essence, it turned into a few monopolies in a congested area. No longer, though. By enabling retailers and merchants to expand their reach and increase their economies of scale, the ONDC undermines the foundations of these monopolies. This implies that India effectively has its own e-commerce ecosystem and may eventually quit depending on Amazon and Walmart, releasing them from their economic shackles.
The biggest advantage of the ONDC is that anybody may join: Even the smallest retailers in the most remote area. By ensuring that they have an equal opportunity to connect with big organizations, serve customers online through e-commerce platforms and protect their individual ventures, small business owners have some skin in the game. There may not be operational obstacles like product cataloguing and onboarding. With the ONDC, D2C entrepreneurs can finally have the digital empowerment they always wanted and their products and services could come on the radar of the masses.
And many are calling ONDC the UPI of e-commerce. It has the potential to democratize the digital commerce space and put forth a level-playing field for D2C companies and bring micro, small and medium enterprises and small traders online. Before UPI, in the payments space, a company had a wallet and would enjoy the lion’s share of the market with the merchant and the consumer using the same closed-loop ecosystem. UPI made it more interoperable, just like how ONDC wants to be. No matter the platform or software, the open network makes for a good platform for buyers and sellers.
It is now much more feasible than ever, thanks to the COVID-19 epidemic, which has accelerated prospects and digitization. To make it all possible, there must be strong accessibility, affordability and ubiquity of tools. Recall how incredible UPI and India Stack have been at capturing the whole Indian market; this is another example of an open network producing a broad ecosystem.
D2C brands are now better equipped to take part in the brand-new, rapidly expanding sector of digital commerce. It remains to be seen if the network will be able to accomplish its objectives. After all, the behemoths have reached their current position by continuously improving their operations and learning what attracts merchants and customers and what doesn't. Can the ONDC recruit necessary parties like buyers, sellers, warehousing providers, logistical intermediaries, and others? Can they make sure that people switch over smoothly from popular e-commerce platforms to their own system?
Both entrepreneurs and startups will undoubtedly face many challenges adopting a new system. Although that can be difficult and Herculean, it might go smoothly once they acclimate to it. To provide a seamless transition from existing systems or the status quo to anything new, platforms must also figure out solutions for the same. Long-term opportunities must be offered by the ONDC in order to support their populations and increase their revenue.
Nonetheless, before the ONDC, it was a winner-take-all market for small entrepreneurs. Here, this could be for the masses and brew many more entrepreneurs and startups. D2C entrepreneurs have been at the mercy of wicked algorithms. Now, they have a chance to be their own boss. This could be a tectonic change with the hegemony of Big Tech being challenged. This open-source network may spur more D2C entrepreneurs. It’s no longer about leaning against the glass of the conference room, it’s about sitting at the adult table. Here’s to equity.
Shrija Agrawal is a business journalist who has covered startups and private capital markets before it was considered cool in India
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