#ONDC and #Shopify_Audiences

#ONDC?and?#Shopify_Audiences?- 2 of the most potentially game changing events in the world of ecommerce last week from India and the US.

My experience having led?#ecommerce?in multiple geographies gives me an advantage. I get to compare developments from across various geographies, not necessarily happening at the same time, and draw parallels from them. This is not to say that they will always play out the same way. Too many variables at play makes these things dicey. Take the Alibaba vs JD battle last decade from China and how that has so many parallels with the battle being waged in the US between Shopify and Amazon and you will see some parallels in infrastructure vs software, payments vs supply chain as revenue driver and (most importantly) ecosystem vs owned.

That is a discussion for another day though. Right now, the topic being discussed is ONDC and Shopify Audiences. For folks who don't know, ONDC stands for Open Network for Digital Commerce. The biggest technology success story ever written by the Indian govt is?#UPI?or the United Payments Interface. The creation of a single digital infrastructure for the whole country, integrating banks, payment gateways and service providers like?Google Pay,?PhonePe?and?Paytm?was a stroke of genius.

Why? Well it brought every citizen within the ambit of digital banking, reduced the cost of transactions massively, almost removed cash from the equation and cleaned up the economy. Problem? It converted all players into commodities where no one can charge the customer anything extra without losing their whole customer base (Game Theory Zero Sum Game). So, why exactly are these massive players working within the system? To become the gateway of choice for customers who would then do all other transactions through them -?#Familiarity_Bias

But, the Indian govt has tried the same idea in a few other fields and failed. Why? The major players refused to play ball because they learnt from what happened with UPI and also because they were single industry players who could not drive any additional value from their customers.

So, why does the govt think that they will succeed with ONDC in the same manner as UPI despite recent failures?

First, commerce is a great opportunity and with one swoop the govt would bring most different industries in control and bring transparency into the system. What would make this work? Does Amazon, Flipkart, Reliance and the others see value in this? If they do, the battle is won. But, why would they? After all, they would become commodities, right? Not exactly. The world of commerce is headed towards omnichannel anyway. Customers care less where they buy and are always looking for options. Brands and marketplaces alike understand the change. They all want to own the ecosystem rather be the channel of sale in the long run because that would ensure their success irrespective of where the customer buys.

With ONDC becoming the de facto ecosystem, would the biggies mind? Not really. Why? This would reduce the cost of customer and merchant acquisition. How? Well, by tying it into the UPI ecosystem, the entire base of UPI can be easily integrated into ONDC. The biggest cost for these ecommerce platforms is the cost of acquiring and retaining customers and merchants. However, the govt now wants to provide an ecosystem whereby merchants will be able to manage their data, transactions, catalogs etc in a single base and manage it across all platforms. Basically, what we imagined and built at Eunimart , but way bigger in scale!

Just like in UPI, post ONDC (assuming it succeeds), the big players will focus on differentiating themselves through better market offerings, better supply chain, logistics, marketing and data insights for the merchants. The same Familiarity Bias is the hope. After all, if the govt creates a single infrastructure for commerce, the platforms can't really differentiate themselves through their customer base or lock-in merchants and/or customers through unfair monopoly practices.

How exactly is Shopify Audiences similar in nature? Well, most people I know have been quick to write it off, stating that it does not provide enough differentiation from Amazon, too little too late, merchants won't adopt it, etc. But, just think about it. What exactly is Shopify doing? They are connecting customer data across all merchants using their platform (with the merchant's opt-in of course).

What does this imply? One of the biggest problems for merchants who want to stay away from Amazon's marketplace is the cost of acquiring customers through digital marketing. Amazon has the biggest store of ecommerce customers, drives synergies through these customers and brings the cost of customer acquisition down. But, Amazon also controls the cost of marketing and arm twists merchants to use their marketing. Most importantly, this is a locked ecosystem. This means, merchants have to use Amazon's marketing services alone within their platform.

The fact that Amazon runs ads for its own products for free on their own platform (less space for ads means more costs for merchants), driving up costs of customer acquisition and also controls the costs opaquely is further reason why many merchants prefer to not use Amazon's marketing.

But, is there a good enough alternative to Amazon marketing? That is exactly what Shopify Audiences is meant to be. The positives first. Merchants will be able to use many different channels of marketing and not be limited to one channel. There is no arm twisting in this case as the store belongs to the merchant and they decide how and how much money to spend on marketing. Traffic to the store is not artificially controlled by the platform. More importantly, Shopify will be able to drive synergies across various brands (the same way Amazon can in its platform) by showing products that are typically bought together.

Naysayers want us to believe that Apple's recent changes in tracking will prevent Shopify from driving the volumes they promise. Here is the point though. Will it matter? Won't the presence of a viable and sizeable alternative drive competition, drive costs of Amazon's marketing platform down? Will it drive Amazon to open up its ecosystem and enable 3rd party marketing platforms through their AMS? If yes, is this going to drive equity back to the merchants? The answer to all of the above is likely yes.

Coming back to the ONDC analogy. Becoming a commodity will not matter to the major players because they have very big reasons why they would want to be on ONDC and drive significantly higher revenues. This is both a function of timing and Game Theory.

Timing - The world is moving towards a more connected and omnichannel system where distributed ownership is the norm and not the exception. Platforms have come to realize that they will need to share to win bigger.

Game Theory - ONDC and Shopify Audiences are causing the size of the pie to grow significantly. This means players will be less inclined to play Zero Sum games.

Some interesting times ahead indeed!