Listen to the podcast to learn about
04: 15 - ONDC: Interoperability & Unbundling
16:15 - Why will Customers use ONDC?
29:30 - “ONDC is not a finished product. It is a capability”
31:00 - Business models, Unsolved Areas and New Opportunities
42:30 - Success Metrics for ONDC
Read the complete transcript below
Gaurav Ranjan 00:55
Hello, everyone. Welcome to this new episode of Prime Ventures Partners Podcast. I’m Guarav, your host. And today I have a special guest with me, Shireesh Joshi, the Chief Business Officer of ONDC, Open Network for Digital Commerce. Over the next 40, 45 minutes, we’ll try to learn from Shireesh what ONDC means, what do we have for sellers, buyers, ecosystem participants on the ONDC network. But before we get into that, Shireesh, we’d love to know a little bit about you. I was checking a profile and you have been with corporates for two decades now, FMCG company, telecom companies. So how did the switch to ONDC happen? If you could just share a little bit about your own professional journey and the transition to ONDC?
Shireesh Joshi 01:45
Sure. So my professional journey began in the FMCG industry. I worked for Procter & Gamble. And that spanned India, Taiwan, and Southeast Asia, the responsibilities over healthcare and healthcare essentially, and laundry and cleaning products. So three categories. That spanned about 12 years. From there, I moved to China and I was working with PepsiCo on their food business, with that for seven years out of Shanghai. Then I came back to India and I was the chief marketing officer for Airtel for three years. So I got into services for the first time. And then I was the head of the strategic marketing group at Godrej for five years. That was at a group level, not with an individual company. So there were a variety of projects and engagements with various businesses. So, that was really a multi-business experience.
So there’s a fair bit of product segments and categories that over the years of what I’ve been exposed to. After Godrej, I was on my own independently as a consultant. And so that got me involved with another different set of businesses that I had not been part of. And one of the sounding out calls came from ONDC around the middle of last year saying, “Hey, this is what the government is after. You’ve been in consumer and retail businesses all these years. Why don’t you let me know what you think.” And so I was sounded out. And that, “If you have capacity, then we would like you to also work with us.” So it began with a consultative conversation. But it so happened that my consulting projects were drawing to a close and this was heating up and one thing led to another, so I joined this full time. So that’s the brief history of my time, if you will, and how I got here.
Gaurav Ranjan 03:30
Great journey, so far. Great. So moving on ONDC, right, ONDC, as the audience would know, stands for Open Network for Digital Commerce, and lot has been written about it, said about it, but we’ll love to learn from you, in short, what ONDC stands for, what are some of the common misconceptions, what it is, what it not. And then you can further deep dive from there.
Shireesh Joshi 04:00
Right. So the most important notion to understand about ONDC is the idea of an unbundled interoperable world in eCommerce. That’s a very different world from where people are used to today. And based on my experience of eight months of briefing about ONDC, even after talking about it, the gravitational pull of the eCommerce that we’re used to is so strong that even the interpretation continues to be in terms of the way eCommerce is today. So, that takes some time. And I think your viewer should invest time to let that sink in. Now, here are a few thought experiments, right. Which bank do you have your bank account in?
Gaurav Ranjan 04:45
Shireesh Joshi 04:47
Okay. So you have with HDFC, I have one account with Citibank. Now imagine if I were to send you money from Citibank to HDFC, and the requirement was that I cannot, that I have to open an account in HDFC, get an HDFC checkbook and only then be able to pay you money. Imagine if that were the case, now that’s not, but imagine if that were to be the case. Or what telephone operator are you on?
Gaurav Ranjan 05:10
I’m on Airtel.
Shireesh Joshi 05:12
You’re an Airtel, so am I. But let’s say you were on Airtel and I was Vodafone. And if I had to call you, and imagine if the requirement was that I can’t call you from Vodafone, I have to take an Airtel SIM and only then be able to call you.
Now if those two, not reality, but if those two were how things were, then we would’ve said telecom is not interoperable because it requires both parties to be in the same operator. Banking is not interoperable because it requires both parties to be in the same bank because only then can interaction take place. Or imagine if you and I had to have the same email client. If you were on Yahoo, I could not send you from Gmail. Or if you were an Outlook, I couldn’t send you from Hotmail. So if that was the case, we would say it’s not interoperable. Now that’s not the case, thankfully. And so it doesn’t matter which bank you are with or which bank I am with, whether it is IMPS or UPI or NEFT, I can send you money because the banking system is interoperable.
Likewise, telephone systems are interoperable because if it wasn’t, imagine the nightmare that if I was calling international calls, then I would need a Japan SIM to call somebody in Japan and a German SIM to call somebody in Germany and so on and so forth. That would be an absolute nightmare. So these services, since the time we’ve known them, have been interoperable. In contrast, eCommerce, since the time we have known it, has been completely the opposite. And so the ability to appreciate that a buyer and seller can be two completely different places and still be able to have a transaction that runs as smoothly as if they were on a single platform, that’s an idea that takes getting used to.
So now let’s imagine what’s inside a platform, first of all. So we think of complete services that have end-to-end eCommerce solutions as a platform. There is a buyer side activity on that platform. The idea of searching for a product, adding to a kart, making payment, receiving, tracking information, filtering and sorting by rating or price, however, that’s the buyer side activity. That’s what you and I do when we go shopping on any of these platforms.
What’s not visible to us is these seller side activity, unless you happen to have a selling business that I didn’t know about, you would not see it. And so that’s the place where sellers are uploading their catalogs, updating their inventory, are receiving order information processing. That’s a different set of activities. That’s the seller side activity. And then once an order is placed, there are fulfillment activities, the storage, warehousing, delivery, et cetera, that’s the third leg of the activity.
Now platforms do all these things inside the confines of their solution. And so these components talk to each other in a proprietary language. Because it’s a proprietary language, these platforms, there is no interaction across platforms. So if I, as a buyer on one platform and I discover that the seller I want to buy from is on a different platform, I cannot transact. I will have to go and register on another platform as a buyer, and in that other platform, I’ll be able to transact. Or if I happen to know the seller, I will tell him, “Hey, why don’t you come and join this one because I’m here and buy it?”
So eCommerce requires both parties to be in the same app, in the same platform to be able to transact. Now, imagine if we separated these, that these did not require to be done inside a single organization. So there is one entity that is doing only buyer services, that is helping with the search, adding to cart, making the payment, et cetera, and we actually know this. So when we travel to a different city and we stay in a hotel and we call the bell captain or the concierge, he’s a buying application. So if you tell him that, “I want to eat local food, I want to buy some local handicrafts, and I need a taxi,” I’m asking him to get me three services, none of which he provides, none of which he onboards.
So depending on what I’ve asked for, from whatever directory or whatever resources is, he’ll look up and he’ll say, “Okay, I’ve ordered you a cab,” based on whatever my requirements are. I need an open top Jeep or I want a Sedan or an SUV, whatever my requirement, so he’ll find this solution. And then he will also find a solution for the restaurant because he doesn’t know me perfectly. He’ll say, “Here are 10. I’ve shortlisted 10 for you. They’re all closed by, all well rated. Here are the specialties,” and you can make your pick. “And then here are these solutions for handicrafts, this is a store that sells local hand looms, this one sells so on, so forth.” So he’ll give me a few options.
Now, if I’ve been a regular frequent visitor, then he knows me. So, “Welcome Mr. Joshi. What are you looking for this time?” And because he’s dealt with me, he’ll be able to give me a sharper response. And he has no interest other than to satisfy me. Depending on what I’ve asked, he will modify the solution to make sure he pleases me because I’m his customer, and I will keep coming again and again. Now this is an important behavioral departure from the eCommerce systems. And that eCommerce platform has loyalty to both sides because they have on boarded buyers, they have on boarded sellers. And their purpose of existence is a profit motive. They’re a business and their motivation is profit. And so to achieve profit, sometimes I will do things that are pro customer because I want to grow my customer base, I want customers to feel happy. There are other times I will do something that is pro seller because I want my sellers to also be satisfied.
And there are times when I may prioritize my own needs about both of them and say, “Where is it that I can make the maximum margin or maximum money?” And I will promote that activity. And because I have a captive relationship, I can influence that promotion without any repercussions. So, that’s the behavior in a closed platform. Now in an open platform, things change dramatically. And so the parallel I will give is, think about websites and people who are building and publishing websites and people who are browsing through browsers. Now, if I am building a website, I will build it on Wix or WordPress or something, and I will publish it. I don’t need to go and register on Google Chrome to say, “Hey, Google Chrome, I want your users to see me.” And I won’t go separately to register on Firefox and say, “Hey, Firefox, I want your users to see me.”
It’s an open network. Once I’m published, I’m visible to the entire universe. And so the people who are reading or looking for websites can search through whichever browser they choose, and it doesn’t matter which browser they choose, they will be able to find me. So it doesn’t matter where I published, and it doesn’t matter where this searcher is. That’s the open network. And when they see my website, it’s a seamless experience. You don’t feel that I’m using a browser made by one company, and this website is deciding on the services of another company and they’re connected to some connectivity. It’s still a smooth experience. That’s how eCommerce will become under ONDC.
Now, once you unbundle, it does an important thing. Once you unbundle, then it does not require one party to do all the business processes. Which means that if, let’s say, I am an entity and you mentioned Mygate, right? And so let’s take Mygate as an example. Mygate has households that are registered with them, so they have a user base. The app is already downloaded on the phone. So if Mygate were to become ONDC compatible, all they have to do is shop on ONDC as a button. So in addition to letting a driver in or a cabin or a guest in, there’s also shop on ONDC. And so all the households that have a Mygate app, with the next update of the app, they’ll be able to shop on ONDC. Mygate does not have to find the sellers, somebody else will. So you and I, with HDFC bank, let’s say HDFC bank takes all the MSMEs and enterprises that have accounts with them, and HDFC goes and tells them that, “Hey, I will enable you to do eCommerce. I’m anyway doing your accounting, give me your catalogs and I will make your catalog visible.”
So now a buyer on Mygate has entered items one by one. A company that makes them, who has an account with HDFC and now able to know ONDC will respond. And so on the Mygate application, this household will see all the sellers of hand towels and soap, et cetera, will add to select and shop. So their shopping experience is exactly as it is on an eCommerce platform. Now, what is the incremental effort for somebody like Mygate? So the incremental effort for somebody like Mygate is only some technical resources for a bit to make Mygate, ONDC enabled. And that’s it. Now for that incremental effort, they now have an eCommerce revenue stream. Same time, what is the incremental effort for HDFC? They already have these as clients. They already have their accounting. All they’ve got to do is now enable their catalog. Once they’ve enabled their catalog, then they have a transaction revenue stream that they’re also earning from.
And the experience is as smooth as a browser, browsing websites when they’re on two completely different entities. So, that’s what gets unleashed. And because of this now, many people will become part of eCommerce without having to provide the complete solution. So you have banks that will become part of it, you have telecom players that will become part of it. You have services like Mygate that will become part of it. You’ll have social media companies that will become part of it. You have messaging applications that will become part of it. All of them will become part of this. Plus they’re very, very small players. Companies that do point of sale software, to do all the billing at a store level, they have maybe 5,000 stores at their clients with, but if they make their billing software ONDC compatible, those 5000 retailers are visible on ONDC network and any shopper can buy from them.
And so in this fashion, you democratize participation. You allow many parties to participate and thereby enable many models of eCommerce. So you alluded to the idea of models. Because it is a mix and match model, depending on what the buyer requirements are and what the sellers conditions are, you can have a mix and match model.
Gaurav Ranjan 14:05
Got it. Great. That is a very detailed overview of ONDC, how different participants on the buy side and sell side can benefit from it. While it makes a lot of sense for the buyer side apps and the seller side app to be part of the network, the real value will be driven by the consumers transacting on the platform. So the question that a lot of people have here is, for any eCommerce transaction or for any eCommerce platform, there are three core pillars, selection, pricing, and convenience. And for an end customer, this is very important. So today they find all these three in any of the platforms, centralized platforms that they’re transacting in. So what is it that will make them move from these platforms to say, a Mygate or any other buy side app? What are the incentives for customers, in short?
Shireesh Joshi 14:55
Yeah. So first of all, one of the opportunities that ONDC presents is the ability to buy all domains from a single application. So today let’s say I’m relocating to a different part of the country, I need suitcases to pack, I need a flight ticket, I need to book a service apartment. Maybe I need to book a cab to the airport. And depending on the destination, let’s say, I want some brokerage services to locate an apartment. Now these are five different requirements. Today, I can’t do them on one platform. So if I go to, let’s say, a taxi aggregated application, I can’t book a flight ticket there. I can go to a travel portal where I can buy a flight ticket, but I can’t find the brokerage services for home renting there. Or if I go to a real estate service provider, I can’t buy suitcases from him.
So today what we call convenience is actually, we have been required as users to register on multiple platforms. We are one individual, but we’ve registered on multiple individual platforms to buy multiple things. And even on those platforms, we can only see those sellers which they have onboarded. So even if I have to buy, let’s say, suitcases, to be sure I’m getting the best deal, I’ll have to maybe check three, four platforms. And I can check them only if I’m registered in those three, four platforms. Imagine if through just one application and it could be Mygate, it could be HDFC, it could be something that is not even an eCommerce today. If through that one application I could search for all these products, not only search for each product, but find all the sellers not registered on a specific platform. When I browse and I search for a website, I’m not looking for websites that are registered in my browser, I’m looking for the entire worldwide web.
So consumers for the first time will be able to access the entire universe, which is not possible on the platform. Second, platforms, as I mentioned earlier, have an opportunity to, and they use that opportunity to influence what the consumer sees. So that choice is driven by the platform, it is not driven by the consumer. Now, if I look for a suitcase on one platform and I get, let’s say, 1000 responses, I look for a suitcase on a second platform, I get 1200 responses. I do not know whether the platform that gave me 1200 responses happens to have 200 more sellers, or they have the same number of sellers, but the first platform actually hid 200 from me, or maybe hid 1000 from me. I have no way of knowing. Because the universes are not the same, each one has their own universe. But once everyone is connected to the network, then if I search through Mygate and I look for suitcase sellers and I search through HDFC, and I look for suitcase sellers, they’re accessing exactly the same universe.
So when I see the listing, I can now judge which application is providing me information that is appropriate. And so back to my visitor, to the hotel question, if that concierge wants to keep me as a customer, that concierge has to make sure that he gives the option that he knows I will be satisfied by. The day I suspect that the concierge is getting a cut, I stop talking to him and I go somewhere else. That’s what happened with buyer applications, that the moment the consumer even suspects that the buyer application is fiddling with the order at no cost and at no loss, they can simply switch to a different buyer application and they have access to the entire same set of sellers. So if a buyer application doesn’t do the right thing by the buyer, they will lose them. So, that’s the second very important difference in the platform. And so the buyer experience will keep getting better and better.
Plus because of this unbundled nature, new services will get created. And now I’m only one mind, but 1000s of minds come together and they start exploring an idea thing, which is why this startup ecosystem, each startup thinks about a different opportunity and finds it. So by no means is this meant to be the universal, the all and all answer. But think of it that, let’s say, in six hours time, you’re going from the office to the airport and you discover you left your mobile charger at home. Now, even if you were an express loyalty club member of one of these platforms, you can’t get a 2 hour delivery. It might come tonight, late tonight or early tomorrow morning. Or if you’re in a third location and you’re ordering, they may deliver to your home, they might not deliver to that location.
Now, if I’m going from my office to the airport, what if I could search by the path? So I entered my travel journey and I said, “This my travel journey is an input to buy a charger.” Now that is an experience that can get created, and it is possible because no entity is having to do all the parts. Because if I built an eCommerce platform, I would’ve enabled certain services. Now, as somebody who is able to read GPS signals, who can take my map as an input, who then access ONDC, writes a code to look at distance from that travel journey and gives me an order of entry, not by rating, not by review, not by pricing, not by percentage discount, but by proximity. So as more people think about it, they’ll be able to find more solutions.
Now, today, when I want a haircut, there’s just a couple of places I know. And the way I do it today is I give them a call, I check if there’s time available, they confirm, and I go and do it. Now, what if I discover that there’s an important meeting that is coming up, I was putting off my haircut for a few days, now I have to go and get it now. How do I find out who else is available and what capability they have? So there are needs that today, because they don’t exist, we don’t think about them.
Gaurav Ranjan 20:15
Yeah, there’ll be new use cases that’ll be built, that we can’t think of today. And it’d be driven, one, by consumer, change in the consumer behavior, second, by platforms innovating on top of the network to create new use cases. Great. I mean, one of the points that you mentioned earlier was that Mygate or an HDFC will see this as an additional revenue stream and that will maybe drive customer acquisition on their platform. So, that’s a very good point. I mean, lot of comparison has been done with UPI. I know the reasons for UPI’s success for a lot of participants, the PSP and the platform, they put a lot of effort in consumer awareness. So do you think the same effort will be required by the seller side and the buyer side apps in the platform? The short question here is who will do the marketing or consumer awareness side of things? Who will take care of marketing, the consumer awareness side of things on ONDC?
Shireesh Joshi 21:15
So I think the parallel is valid to that extent, which is that the applications will do a lot of the marketing. But as happened with UPI, UPI itself also had some communication as will we. Two big differences, vis-a-vis the UPI situation, first, it required people to download a new application. Google Pay, PhonePe, all these things in exist, it needed to be … So UPI compatible applications needed to be downloaded because existing applications that existed had not yet incorporated UPI. That has changed now. So banks have done that. So through the same banking application, you can do UPI payments. At that time, that was not the case. So at that time, first, consumers had to download an application specifically to make this UPI payment. Second, this method of payment was new. The only mobile to mobile payment early was mobile wallets that worked very differently.
Again, that was not interoperable, that required both parties to be in the same wallet. So the idea that I’m on PhonePe and somebody else is on Google Pay, and I can still pay them money and it’ll go through, people had a hard time getting to grips with that. They did eventually, but that was new. So the product was new and it required a new application. In the case of ONDC, most cases you may not even need a new application, whether it is HDFC bank or Mygate, the app already exists. All that I have to do is update an app that I already had. It continues to do what it did for me earlier, and now it is also allowing me to do one more thing. And apps have been doing that. Each of these apps, whether it is a payment app, whether it is Mygate, as they’ve established themselves, they’ve kept adding new and new services.
And how do they let people know? They flag it on their homepage, they have ways of notifying, et cetera. And so they have means by which they do it, and that’s how it’ll take place. The other big, important difference is eCommerce is completely familiar. It’s been present in the country for more than 10 years. So searching for a product, adding to cart, selecting, paying, all those are known habits. So for a buyer, this is nothing new to learn. As far as a buyer is concerned, earlier, I was going to platform A or to platform B, now inside some third application, I’m clicking a button and having exactly the same experience. That’s it. So the entry gate is the only thing that is different.
Gaurav Ranjan 23:15
Got it. That brings me to a very important point, right, moving onto the seller side, right. So while you are right on the buyer side, people are already well versed with eCommerce, they know how to search, place orders, do payment, et cetera. On the seller side, one of the big drivers for ONDC is that they will onboard, will help get the small sellers onto the platform and drive business with them. Now, the challenge is that a lot of players who try doing it in the past, the challenge that they faced was digital hand holding of these small merchants on the platform, right. So who will do the heavy lifting here in terms of onboarding, in terms of digitization of catalog, in terms of their inventory management, setting up their payments, et cetera? So what are the incentives on the seller side again for platforms to do it?
Shireesh Joshi 24:00
Sure. So, as I mentioned that some of the early joinees on the network are entities that already have sellers as their customers, POS software companies being one example of that. So they already have, and because they’re doing billing, they actually already have the catalog and inventory. And so for them, the step to go one beyond that is not very difficult. What we’ve also done is even in the existing pilot phase, about one third of these sellers have never been on eCommerce before. And so these seller applications that have onboarded them actually help digitize their catalogs and bring them onboard. If you really think about it, let’s think at a very simplistic level, then we’ll get to the more sophisticated catalog. At a simplistic level, there is an image, there is a description and there is a price. Now you can add layers of sophistication. The description, let’s say, if you’re a garment, then you have color choices, size choices, et cetera. There will be levels of sophistication.
A basic level of catalog can be very easily created by pretty much anyone. All phones have cameras. It may not be very pretty, it may not be very effective, but it’ll be functional. So what will happen, initially, of course, there are companies, as I said, who are engaged and who are doing this, so one part of the handholding is with the digitization of catalog and inventory. Catalog will be relatively easy. Mentoring the discipline of updating inventory through digital means will take training and behavior change because people are so used to doing over the counter. They don’t have to keep tabs once a year, or maybe twice a year, 30th September and 31st March, they will close the store to an inventory check and they’ll figure out what they sold today. They’re not keeping track of it every day. And if they’re running short, they will just call the distributor.
But they will also see the benefit that once they go digital, this effort that happens twice a year, et cetera also goes away. They’re able to do it, but it requires a certain behavior change. So some things will happen quickly, something will happen slower. There is an educational one, but we are also counting on the fact that once things start gaining momentum, people will educate people. When the big social media platforms that we are aware of and probably you and I have both signed on for today, they didn’t advertise in their initial years for us to come on board. It was some friend or the other who was already on that platform who would messaged us, and we joined that platform and then we invited others and that’s how … So people brought people.
And because of the unbundled nature, ONDC has exactly that same capability. The reason why so many startups were attempting to digitize the undigitized was that before ONDC, there was no open protocol. So their only way of doing it was to onboard these people as sellers, and also spend the effort to find buyers. And stitching the entire chain doesn’t come easy. And very quickly, you realize the size disadvantage you are when you compare one close platform and another close platform. But in an open network, then size does not matter. So if I go back to the website, I don’t have to be seen only by the world’s biggest browser. Some kid could write their own browser software, and he may be the single user, one user browser. As long as it has the HTTP protocol enabled, he can still see all the websites. So power is not dependent on size anymore in an open network, it’s dependent on quality of service. And that’s the shift that will take place.
So a lot of the behavior that goes into grabbing size, you will see a reduction in that behavior as a nature of that open network. And it’ll shift towards experience. So I would urge your group ecosystem companies to think about use cases, to think about experience. And there’ll be immense opportunities to create solutions that don’t exist, and that are not even possible. Today, for example, people who do multiple orders don’t get to choose the delivery, the delivery gets chosen for them. And so if you order 10 items and especially during festival times, you might have, or particular times you might order more, then you’ll have your doorbell ringing that many times to deliver. Now, what if you, as a buyer could add to the delivery kart? So there is an add to shopping cart, there is an add to delivery cart and you’re choosing only one delivery part.
And so throughout the day, you’re adding to the delivery cart, and at the end of the day, the delivery partner takes all those items and comes and rings your doorbell once and gives it all in one. That will also become possible. So the idea is that ONDC is not a finished product, it is a capability. And it is up to the participants to use that capability. It’s like Lego bricks, you connect the bricks in whichever fashion you want to say, “Okay, I think this is an opportunity. Here is the combination of bricks I’m going to put together, this is the solution that I’m going to go after.” With the benefit that the moment you learn that, that contraption you’ve created needs to change, you don’t have to throw it all entirely out, which is what you would’ve to do today and start fresh. You will remove a few bricks and you’ll have a few different bricks and you’re good to go again.
That’s the capability. And so when the comparison happens, you asked at the outset, what is the common misconception? One of the common misconceptions is that we are a competition to existing marketplaces. By definition, we are like a highway and those are like vehicles. And highways don’t compete with vehicles. All vehicles will drive on that highway. So we are the highway on which all vehicles, existing marketplaces, non marketplaces, new entities, everybody will come and join.
So this is apples and oranges, so you cannot compare one. The important thing to remember is that because we are a highway, we’ll allow all sorts of vehicles. Some vehicles will compete with the existing vehicles, some vehicles will be completely different.
So you’re offering a bus, I’m going to offer a Metro. You’re offering a Metro, I’ll offer taxi. You’re offering a taxi, I’m offering an auto. You’re offering an auto, I’m giving you private driven vehicle. So different people will find different solutions. We’ll all tap into that connectivity that is being provided, but it’s really up to their imagination, creativity, and capability to identify the business opportunity and go for it.
Gaurav Ranjan 30:05
Got it. Very interesting the way you drew parallels to a highway or Lego blocks, that’s the right way of thinking about it. You can pick whatever you want to bundle in your own core product, and then build whatever you want to, together with that. So moving on to the third leg, which is how should startups think about it, right? And there are two parts here. One is, you did touch upon some of the use cases, say Mygate or payment service provider who have acquired large number of users, can open up eCommerce and alternative revenue channels. But what are some of the other existing business models or some existing startups that can leverage the ONDC network? And some which are not very obvious, I mean, logistics is quite obvious, payment is obvious and demand side is obvious. But what are some of the non obvious things where existing business models can get into the network?
Shireesh Joshi 31:00
So there can be variations. And let me talk about a few of the things that we’re hearing from some of the partners. So for example, there is a furniture manufacturer, a furniture seller who said that he’s struggling with doing online commerce because of logistics seasons. And we said, “What’s the difficulty? I’m sure you can find people who can ship it anywhere.” And I said, his problem is not shipment. His problem is that once it arrives at the destination, then somebody has to unpack it correctly. If it’s a table and you scratch it, then the customer is going to just return it. It’s to be unpacked correctly. And because it’s online commerce, the customer is seeing it for the first time. So if the color is a little different or the shape is a little different or size is not tall, short, et cetera, they may choose to return it. In which case it has to be repacked correctly.
So he needs unpacking and repacking services. Now companies often do it on their own, but that’s an opportunity available at scale. So all furniture manufacturers, all appliance sellers, et cetera, if somebody could create, let’s say packing, unpacking services, so not even shipment, just packing unpacking services, then any large item sale party could co-opt them as a partner and do it. Or you have opportunity, let’s talk agriculture. And agriculture, it’s not a pick and drop the way it is with restaurants. And so products may need to be stored. And so somebody could provide just pure storage facilities for a period of time, that could become an opportunity. Or when we ship stuff, things get back in sealed packs which are barcoded.
Now, each company has their own set of packaging that they use. Somebody could say, “Here are the industry standard packs that I will create: 10 gram item, 100 gram item, half kilo item, one kilo item, prebarcoded, anybody can use it.” Because when anybody can use it, then even a small retailer can just simply buy them off the shelf, pretty much like we buy A4 sheets or standard sized envelopes and be able to pack their stuff in it. So as you think about the unbundled nature, there are so many business opportunities that become possible because now you have to stop thinking that, okay, eCommerce means I have to stitch an entire experience together. You could build a catalog tool. Let’s say if you’re a technology company, you build an image processing, can you help a hand cart vendor build a catalog? This is how to aim their mobile phone. It scans their card, identifies all the vegetables and can maybe even render it in all 27 Indian languages. All they’ve got to do is enter the rate per kilo, catalog is ready.
That can be a free service, that can be a chargeable service. That can be a commission chargeable service of software free to download and 0.1% of transaction. So like this, it’s really open to imagination. The key thing for people to let it sink in is the unbundled nature, because the moment you let that sink in, then your mind will really open up. Otherwise, the thinking will always be that, “I will think of the product category that people have a hard time buying, and I will go find sellers of that category. And I’ll look for buyers of that category. I’ll try to bring them together, I’ll promote it and build that network.” That’s the eCommerce mindset that has existed till today. You have to take that apart.
Gaurav Ranjan 34:00
So break the entire value chain into micro competency where you can build solutions like … So, that brings me to a follow-up question. So what are some of the unsolved areas, where you are looking for new participants, new startups, new entrepreneurs to come in and solve those problems? What are some of the new opportunity areas that can come up with ONDC becoming mainstream?
Shireesh Joshi 34:30
So we’ve not got organized around that as a system, but they come up from time to time. So when we began reaching out to the local governments in the markets where we were initially going in, to say, “Now, let’s try and create some more support,” the governments basically have interest in multiple areas. So one is they’re supporting the local startup ecosystem, which is great. We could talk to them. They want to promote the local MSEs, so we could talk to them about how they can join ONDC. In many states, local handicrafts, et cetera, are also an important subject. And importantly, in most states, agriculture is important. So agriculture kept coming up. As we are trying to get our farmers to access eCommerce and getting our FPOs, et cetera, to be part of it, “We are building a program or a system,” the central government programs also like eNAM and so on.
So as we started talking to them and we started examining, what does it take for agriculture products to be on eCommerce? Now agriculture does many things differently. First of all, in a lot of cases, it doesn’t complete packed, standard rates and measures packed with the MRP and a barcode level, it doesn’t come with that. In many cases, a price may not be declared by the seller, it is on the buyer to buy. So it’s a different pricing business flow. Then many times for a buyer to buy in a physical Mandi, somebody is looking at that produce, is grading it, and that determines the price. Now for eCommerce, how do you provide this scalable distance grading? And so there were problems to be solved.
And so with support from NABARD, NABARD is a shareholder, and obviously in the agriculture domain, we ran a program where we actually identified some of these challenges. We invited participation of startups, and more than 500 startups participated in that hackathon challenge. And we had people submit their solutions to these challenges. And so now with those solutions, we are now building an app that can enable agriculture production. So, that’s how these things emerge. So some things emerge, like the furniture example was a gentleman who walked into our booth at one of the Retailer Association of India events. So like this, some people reach out to us, some we discover in the course of our interactions. Now, recently speaking to handloom and handicraft parties, a lot of them have interest in exports because Indian handicrafts have exports. They want to know how will international buyers be able to buy from their catalog. So, that’s an opportunity.
So somebody can set up an international payment, an international logistics, doing whatever regulatory clearances are needed. If you are exporting out of India, or the customs at the delivery end, if that may be required. So if somebody can provide that solution, then you’ll be able to participate. So these opportunities are coming up all the time. Yeah, I think one place for your ecosystem companies to begin is just look around you, whatever business you are in. And if you think with this unbundled opportunity mindset, I’m sure they will find connections they can put to use.
So many companies are working with natural language processing or various Indic language. Somebody can just build a module where the buyer and seller are not operating the same language. So you have a seller who’s selling a kit for bisi bele bath out of Bangalore written in Kannada. And you have a shopper in Kolkata wanting to buy in Bengali. And so, as long as somebody has written the conversion software, that transaction can go through because it can get converted now. All that person has to do is build that software and the buyer application can pay a royalty fee for embedding whenever that gets assessed and they have a revenue stream and they’re able to do it.
So it is up to your imagination. There’s no other way to describe it. What we will hopefully build though, is that we will try and create, and that’s a thought, probably it’s not a fruition in a physical form yet. All these conversations that we have and we spot, if there’s a way for us to make it public so that anybody can just say, “Oh, here are things that … ONDC has already spotted as possibilities.” Now, the thing is that we do not know how big these are. We may have heard it from one party, we may have heard it from 10 parties. It may be a big thing, it may be a small thing. So that doesn’t take away the requirement from anybody getting into the business to do their own assessments and their due diligence before deciding whether they take it on.
But I would say, begin with the idea of unbundling and what the word that can trigger. Second, look at the business you’re already in and see what adaptation can be made. Remember, you have to do only a little bit, you don’t have to do the entire chain. So as long as people can do the other parts, you’re good to go.
Gaurav Ranjan 39:00
Got it. Great. So for innovation to happen, and for private players, for entrepreneurs to jump in, one of the big questions is where is the profit pool, where is the money, what are the business models, right? And with a lot of public digital rails that have been built, that has been a question always. So in the case of ONDC, I know it’s still early, but how should startups building here, entrepreneurs building here think about business models and profit tools?
Shireesh Joshi 39:20
So there are four parties, if you think about the future state. One is the buyer application that has brought the buyer. One is the seller application that has enabled the seller. One is the logistics company that has delivered the good, if it is a physical good. And then there is ONDC that has provided the network services. Right now, ONDC services are free, we are not charging. But as and when we do begin charging, and there will be a time in the future when we will, we are not for profit, but we will have costs that we would want to cover.
But the way we want to cover it is to charge a very, very small negligible fraction of a very, very large volume of transactions. So individual transactions will not even feel the ONDC charge. Let’s leave that aside because even when it comes, it will be very, very small. So for an item, now let’s split the product and the delivery as almost two items being bought. I am buying the product and I’m buying the delivery service. So let’s start with the product.
So now that you split it in this fashion, there are only two parties. There is the buyer application that brought the buyer and the seller application that enabled the seller. They will have a machine-to-machine interaction to determine what is the commission. So buyer application, when they broadcast will quote the seller application, when it responds, will respond, whether it’s within the range or not the range, and they will have a protocol by which they will converse on something that’s acceptable. When the conversion, a common acceptable one, a transaction will go through, otherwise it’ll fail for that reason. And they’ll have to look for another seller.
What we anticipate is because of the nature of an open network and because many parties can bring the same buyer or the seller. Just look at your own phone, I’m sure there’ll be at least a dozen applications currently on your phone. Anyone of which could become a buyer application. So because of that commonality and openness, there’ll be much greater degree of competition, or also much greater opportunity for scale. So we anticipate that the commissions will come down over a period of time, and that the larger pool will actually go to the sellers. And all the other providers along the way will earn a small trim of a large volume.
Gaurav Ranjan 41:25
Got it. That makes sense. Great. So moving on to the last part, in terms of success metrics, what will be success for ONDC?
Shireesh Joshi 41:40
If we go back to the reason why ONDC was created, ONDC was conceived two years ago during the first wave of the pandemic where the Indian government like any other government at that time, the only tool available to contain the virus was to contain people and lock down all movement. And the moment you lock down all movement, the question becomes how do people access essentials? And coming on the back of the success of UPI, the thought was, “Could be create something like UPI, where two parties could do an eCommerce transaction without needing to meet physically, and create a design that’ll be so easily doable and acceptable that everybody will do it.” And from there, this got created.
So one success for us is just the way UPI has enabled population scale inclusion on digital payments. Can ONDC enable population skill participation in eCommerce? Now eCommerce is definitely far more complicated because for UPI there’s only one SKU, that is money and rest is just quantity. Second, it is delivered electronically. Whereas in commerce, there are millions of SKUs, most have delivered physically, and which comes with its own questions of returns, pilferage, damage, et cetera, et cetera.
So it’s not as straightforward one, but that is one yard stick, which is, have we been able to get population scale participation in eCommerce. Second, which is a corollary of that, is that it has people who were never on eCommerce before being able to join. So today eCommerce penetration is in single digit percentages. Unlike let’s say our neighbor like China, where we are hearing reports of 35% penetration.
So if we were to get to those levels, we will be seven, eight times the eCommerce scale at us today, which definitely means that many people who are not on eCommerce before have joined. So one is the overall reach of eCommerce, and second is to ensure that that reach comes with previously undigitized participants. Those are really the two headline KPIs.
Gaurav Ranjan 43:35
Got it. Great. Thanks a lot, Shireesh. Before we wrap up, one final thing. So we have a lot of entrepreneurs and startups in our audience. If they want to build on top of ONDC, what is the best way to reach out to you or your team and who to reach out to?
Shireesh Joshi 43:45
So I would say that the first place to begin is every Tuesday at 3:00 PM, which is my hard stop just now. We do a briefing call. And so joining that briefing call gives them a full and proper idea of how ONDC and what it functions. That is an important part for them to then determine how they want to participate, and in which part they want to participate. Once they decide that, based on the briefing, then the next step is that we send them a link with a profile sheet where they give that information. Based on that, we group them and add them to the follow-up channels. So whether it is the GitHub or Slack channel or invite them to an implementation call, et cetera. So the follow-up steps are really dependent on, one, the roles that they’ve chosen, and secondly, profile information that they have shared.
And thereafter, we do the hand holding to help them. So if it is a technical briefing and they’ll be invited to the technical briefing, we’ll teach them the APIs, the MVP, et cetera. If it is a business team, then we’ll walk them through the network policy that they have left over here with … And those are essentially the two kinds of work streams, the technology and the policy agreement. And thereafter, they go into testing in the live environment and then fully live. So for any questions they can write to the team, T-E-A-M, @ondc.org. Remember it is .org, not .com. So firstname.lastname@example.org.
Gaurav Ranjan 45:05
Great. Thanks a lot, Shireesh, it’s a pleasure talking to.
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