Is it more of Amazon, which already owns 50% of B2C eCommerce in the US? If you consider the top 10 eCommerce companies in the US, they own more than 80% of eCommerce by GMV.
Should arming the rebels be the prerogative of Shopify? When an average joe sets out to build a business, do they have access to local demand if they don't choose to be a part of the 'Shop' app? Can they compete with top CPGs to get the 'Buy Box' recommendation? If they choose to offer a better price on their DTC operations, will 'Buy with Prime' penalize them with lower visibility on Amazon?
These are pertinent questions for the vitality of small businesses in America and America itself.
An eCommerce marketplace's customer-centricity is inherently against sellers' independent, omnichannel/DTC efforts. It is not a flaw but the intended consequence of being customer-centric. Would a marketplace prefer that a shopper sees a lower price on the DTC website of a brand than its own listing of the same SKU? That is not customer-centric. The algorithm will step in to correct it with price or visibility adjustments. This is how good platforms work. They can deliver a consistently good experience for the customer on their platform, even if it means a bad outcome for the brand or the customer when seen holistically.
Let's talk about good roads. A nation's economy depends on its infrastructure. Good interstate connectivity is how the American economy prospered. Better roads are directly relevant to the ascent of the supermarket movement. Today, that road is digital. The road and the tolls are owned by the best platforms out there. They function well, largely. But they are not about level-playing.
Every time I write about the active role of government in economic endeavors, I get the choicest of abuses in my inbox from people who otherwise don't respond. That's par for the course. I want to present a model that caught my attention recently and it is a good answer to platform dominance that upsets the level playing field for the average joe trader who wants to make a living with eCommerce.
I have the benefit of being plugged into both the American and Indian digital infrastructures. The difference is telling and here is why:
When I step out of my home in India, I don't carry a wallet nor do I need to carry an NFC-enabled phone. I transact with individuals or businesses by typing in their phone numbers or scanning their QR codes. I don't even need smartphones to participate in digital payments. The beauty of this is not very apparent unless you realize that the government also opened bank accounts for every un-banked person with a phone number. If you are selling trinkets on the street, you now can accept digital payments. All you need is a phone number and a national identity number (roughly like SSN but more connected to every digital service).
The digital authentication of people and their bank accounts (in case of a commercial transaction) happen 50M times a day in this infrastructure. India's fintech penetration is 87% against the global average of 64%. Nearly a trillion-dollar worth of GDP is powered by this interoperable infrastructure. It's called the 'United Payments Interface (UPI)' – a government-owned, interoperable payments protocol.
I see the checkout wars between Amazon, Google, Shopify, PayPal, and the other 1-click checkouts. All of them try to own the customer. As a customer, I have to choose. I do. When I shop in the US, I usually use the native checkout of whichever platform I use. But in India, I use UPI. I don't use credit cards. I use UPI-powered wallets. There are restrictions on how the wallets can use my data. In other words, the monetization of my transaction data is largely under my control.
The Indian government recently launched a new initiative called 'Open Network for Digital Commerce', a UPI-style unbundling of digital commerce platforms.
Marketplaces/Intermediaries are essentially in the information arbitrage business. They connect supply and demand. Once the transaction happens, they enable physical fulfillment that involves 3 parties – the buyer, the seller, and the 3PL. Each one is a node in a network.
ONDC aims to be an open protocol-based network that connects supply, demand, and fulfillment. The network broadcasts demand to various nodes; gets catalog data and inventory availability to the shopper in real-time; enables payments via UPI; and fulfillment through the partners on the network. This isn't all theory. Walmart-owned Flipkart, Reliance-Retail-backed Dunzo, and Alibaba-backed PayTM have signed up to be a part of the pilot. Amazon has signaled its interest to be a part of the network.
The network opens new buyers to the sell-side participants and sellers to B2B commerce platforms. A seller isn't beholden to Amazon and can still reach a shopper. Amazon can respond to a shopper who is not on Amazon's app.
A nation's vitality depends on how competitive it is and how broad-based wealth creation is. America needs more manufacturing and not less; more local trade and not less. With inflation eating up margins for small businesses, they need more ways to conserve cash. Taxing big corporations is not the answer, however popular it sounds. The big problem is not big marketplaces and platforms pay low taxes. It is that their dip into the economic activity creates enough distortion in the playing field that in the long term it challenges a nation's vitality.
Is any information arbitrage worth a 40% take rate? Shouldn't there be a better way to solve it? It's easy and more popular to tax an economic player than to take a step back and ask what value they bring to the table and if there is an alternative. Besides, a nation's distorted economic incentives challenge its vitality over centuries and not decades. It's hard to recognize patterns that don't fit into one human lifetime. It doesn't mean that it does not happen.
If you are fascinated by the above illustration, you may like to watch or read Ray Dalio's Principles.
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