Here are the solutions for the e-commerce policy hurdle

The ecommerce policy shared on 26th Dec 2018 has the entire industry talking about its impact and the challenges thrown by it. Articles for and against it are everywhere. The loss of jobs, warehouses closing, small businesses depending on platforms and other topics are being discussed everywhere.

I was amazed at how easily have the people given up on solving the challenges. It's easier than you think to be on the right side of the law and continue making profits. It will however be inconvenient as it will take some technology, a lot of agreements and process changes. Here's my stab at it.

The problem of Cloudtail ownership

The policy says that entities like Coudtail selling on amazon cannot be owned by Amazon. Okay.

So break it off and create a different independent ecommerce entity called cloudtail.com completely owned by Indian partners.

Licence out the trademark, brand name and the ecommerce tech to run it from Amazon with iron clad poison pill long term agreements.

Say cloudtail will pay 10 million dollars or 5% of the business in perpetuity for the use of trademark. It will further pay 3% of the sales perpetually to amazon as platform fees. It will exclusively use amazon pay as payment gateway. The contract can be ended only by some astronomical sum paid out in advance and a 2 year notice etc.

The problem 25% on amazon.com

The policy also says that no entity can sell more than 25% on a platform. If they do, then they will be considered to have their inventory held by platform.

Now this is very dubious wording. How can a platform know what percentage of your inventory has been sold on it? So this one is not amazon's worry but the worry of individual brands.

So if cloudtail has to make sure that not more than 25% of its inventory is sold on amazon.com, then simply it has to make sure that all transactions happen on its own platform ie. cloudtail.com

Now once you have the above in place, list products from cloudtail on amazon.com without any worry. Once the user wants to buy, simply take them to an interstitial payment page owned by cloudtail which can be exactly like amazon. The sales happened on cloudtail for all practical purposes and the payment was received by an indian entity.

If you remember, before amazon.com came to india, it was a price comparison website called junglee.com which would list products on its website and once you select the product, it will take you to the best price website like flipkart and uread.com etc.

The problem of 25% from brand's perspective

So if you are a small seller who was heavily dependent on amazon.com and were only selling online, you can list now on cloudtail.com and sell via the same arrangement.

If anything, it will make coudtail stronger than before.

If its brands like HUL, they can create one umbrella entity on Amazon.com and club the business of all its online participants in one place. For a small online seller, Amazon might be 100% of its business. But for an entity like HUL the small seller's sales combined might be lower than 25%. So for all practical purposes its HUL selling online with agreements with franchisees etc.

Big retailers with offline presence can now sell more than before, so i think the Pantry service is safe.

That leaves the home based seller who is importing from china and selling exclusively on amazon.com. Well for these guys, they can sell on other platforms

OR

If they order 25 units from China to be sold via amazon, now they can order 100 and then they can sell 75 units in china itself to a local customer. How does it matter if the 75% sales happened in India or abroad?

The problem of deep discounting

Well deep discounting hasn't been defined yet or i haven't come across a definition yet. So i guess the platforms can keep on discounting to best of their understanding and wait for it to be cleared by government or courts. Who is to say what is deep discounting? A 2% discount on Rice might be something that kills the seller while a 70% discount in fashion clothing might be okay.

Defining deep discounting is tricky, as it literally tries to legislate the profits which you can earn from a product. So i don't think that the policy makers would attempt that, but i have been surprised before as well.

So I think this is something that courts can best decide and for the time being the amazons of the world should use their sensibility on it.

The problem of ownership of cloudtail

So in my proposal above, Cloudtail is an Indian entity without any FDI. So where will it get the money to run its operations and pay amazon? Overall how will amazon make sure that its business is secure in dealing with cloudtail and some rogue agent will not just take it over?

This again is a restructuring problem but not a difficult one.

1. Amazon can legally fund marketing aspect of cloudtail by marketing its own cloudtail product pages and nothing is stopping it from doing that.
2. Amazon can exert control via the technology platform of cloudtail which it can provide as a service.
3. Loss in amazon.com shareprice from the separation of cloudtail as an entity is a bullet they will have to bite unless they find a structure that is an Indian entity and not controlled by FDI and still plugs into the mothership in US. But earnings over time from above can bring it back as well.
4. Another structure can be barter where its an Indian company has entity in US and amazon takes up stake there and hands over cloudtail here. In essence any indian entity with strong presence in US can be a good contender.

In short i think that there are options for on the restructuring front, but that is something that will have to be thought from inside than outside.

Conclusion

The aim of this write up was to illustrate how a policy is not the answer to competition. Policy is not where you nudge. Like Yoda in Star Wars says, Do or Do Not.

If you don't want foreign companies , throw them out, shut the door like the Janta govt did in 1979. But lets not take these half measures which don't do anything but deepen the resolve.

Lets not send mixed signals into the world.

------------------------------------------------------------------------------------------------

Disclaimer: The views expressed here are my own and don't reflect the views of any of my employers present or past.