May 27 2020
‘Business models, investment channels will have to change’
28 December 2018

Centre’s policy clarification may affect group firms of online marketplace entities

Shareholding structures as well as business models of entities that sell goods online — and in which major online e-tailers such as Amazon have a business interest — may soon have to change, according to industry participants and consultants.

This follows the government’s clarification on Wednesday barring online retailers from selling products vended by companies in which they own a stake. Vendors also cannot have more than 25% of their revenues from a single platform. The rules, which come into effect from February 1, 2019, also bar online retailers from selling goods exclusively on their platforms.

“The concept of equity participation and common control among the e-commerce entities [spelt out in the policy clarification] is worth noting,” said Anil Talreja, partner, Deloitte India. “This will certainly push the impacted entities to take a re-look at their business model, shareholding structure and transactions.” Compliance with the rules would mean a change in the channels that marketplaces invest in. The rules “will impact back-end related wholesale group entities and [marketplace entities would] need to remove them from the e-commerce value chain.”

Franchise channels

“The time has come to look at franchise channels, rather than equity investments channels to do business in India,” Rajiv Chugh, national leader, policy advisory & speciality Services, EY India, said. “Going forward, suppliers will not be permitted to sell their products on the platform run by such marketplace entity.”

Cloudtail India is an example of a seller in which a marketplace platform has a business interest. Among the largest sellers on the Amazon India online platform, Cloudtail reported revenue of ₹7,149.21 revenue for the financial year 2017-2018. The entity is owned by Prione Business Services, which is a joint venture between Amazon and Infosys co-founder N.R. Narayana Murthy’s Catamaran Ventures.

Amazon also has investments in offline retailer Shoppers Stop and was in talks to buy a stake in Future Retail. WS Retail, which was initially controlled by Flipkart founders Binny Bansal and Sachin Bansal, was also an exclusive seller for Flipkart. But in August, it reportedly stopped selling on the platform.

“I think [now] small start-ups may not be able to raise funds from these companies,” said Satish Meena, a senior forecast analyst at research and advisory firm Forrester Research.

Kunal Bahl, co-founder of Flipkart’s rival Snapdeal welcomed the policy updates. “These changes will enable a level playing field for all sellers,” he tweeted.

Anil Kumar, CEO of RedSeer Consulting said the policy is “unilateral as none of the e-commerce platforms or the ecosystem were consulted.” “There is lack of transparency and non-clarity about who is actually going to benefit out of this whole move,” he said.



Related Stories