When the Davids took on the Goliaths of e-commerce

The recent high stakes battle to enforce or delay the implementation of FDI regulations for e-commerce platforms had an interesting sub-plot normally not associated with policy battles.

Most policy issues are discussed in a gentle manner through consultations with trade bodies, concerned business representatives, and key bureaucrats.

However, the recent face-off over Press Note 2 drew in large parts of the online world, for whom this was an important opportunity to remedy a festering issue of FDI violations by some e-commerce platforms.

As is well understood by now, FDI is allowed only in the marketplace model of e-commerce and such platforms are permitted only to act as technology platforms connecting buyer and sellers. However, using massive FDI funding and leveraging their connect with brands, some large marketplaces were behaving like de facto sellers.

They started competing with third-party sellers by creating and financing pseudo sellers, who would buy from the platform’s wholesale entities and sell to end consumers on the platform. These sellers, known as alpha sellers in trade lingo, were helped with exclusive deals, special discounts, higher visibility, and traffic routing to capture a large part of the high-value traffic.

Then, on 26th December 2018, as companies and key executives were slowing down for a year-end slumber, came Press Note 2 as a bolt from the blue.

Suddenly, this cozy structure was under attack. And as timelines go, this became pretty much a surgical strike with the government mandating an end to this modus operandi within a short period of four weeks.

Teams from Bentonville and Seattle rushed to Delhi to plead with the government to reconsider the decision. As one policy executive shared earlier in the process, this was an attempt to drive three outcomes in decreasing order of preference - discard, dilute or delay. Attempts to discard were aborted as the executives ran headlong into a determined government.

Various trade chambers like IAMAI and US India Strategic Partnership Forum (USISPF) were roped in to plead for dilution on key clauses. Once the government pushed back on the same, an all-out campaign was launched to delay the implementation date from 1st February 2019 to at least four-six months later. This was in the hope that after the elections, national priorities may not focus on the same.

The US government too got involved with the office of the US Trade Representative batting for the US-based Amazon and Walmart (on behalf of Flipkart). It is understood that key officials from the US Embassy in New Delhi also leaned on their counterparts in MEA to ask for more time.

By mid-January, it looked like the regulations may get deferred and this provoked great angst in the brick and mortar businesses. Trade associations like All India Mobile Retailers Association (AIMRA) rallied their members and urged them to reach out to the PMO, Commerce Minister and to DIPP in this regard. Apparently, more than 60,000 emails, tweets, and videos were sent out by the trading community urging authorities to implement the new guidelines.

CAIT and SJM also took great offense to what they felt was an attack on India’s sovereign right to decide its own trade policy. While CAIT sent out an open letter on 24th January to the Prime Minister urging him to stand firm, SJM sent out a letter on 25th January 2019 questioning the intent and investment practices of Walmart and Amazon.

Other industry association like Indian Cellular and Electronics Association (ICEA) also joined the fray on behalf of their members and fought for implementation of the guidelines.

Domestic e-commerce platforms like Snapdeal, Shopclues, Shop 101 and many others also wrote to the authorities expressing their point of view and confirming their readiness and willingness to adhere to the guidelines promptly. This is probably the first time many startups have banded together to make their voice heard with the government on an important policy issue.

Many online brands also expressed their apprehension that private labels being built by Amazon and Flipkart-Walmart were ruining their business and that all high volume, profit-making product categories were being usurped by the marketplaces through their private labels in fashion, accessories, groceries, household supplies and much more.

Towards the end, it became a battle of Amazon and Walmart v/s everybody else in the online ecosystem. Both the e-commerce majors realized that it wasn’t a usual battle of online v/s offline, but this was also a battle of online v/s online. Not only were they pitted against other platforms in the business landscape, but they were also being opposed by other players, both big and small. In addition, they were also up against an ideological wall that seemed to loom higher due to the elections and blatant US push on this count.

By the last two days of January, it was clear to all that barring some last-minute surprise, the notification would come into effect. Late on 31st January 2019, DIPP put out a statement confirming the implementation from next day. The big players were felled by a law that they had worked around for the last two years.

Later that evening, Amazon starting shuttering Cloudtail and Appario operations. Amazon Pantry displayed empty shelves and Echo devices disappeared. Flipkart is currently in a similar scramble.

This was an atypical battle that the Davids won by working together in pinning down the Goliaths. While we may not have heard the last of this issue, it is clear that this has been a watershed moment for India’s startup ecosystem, where domestic startups made their voices heard and prevail on an important policy matter.