Indian marketplace unicorns are the new incumbents

A perfect storm is gathering over the country’s most dominant digital platforms.

Over the last decade in India, billions of dollars have been spent by startups, venture capitalists and tech multinationals as they seek to rewrite entire sectors. In the process, they’ve managed market shares that took their “offline” or “old economy” peers decades to achieve. This has left companies like Zomato and Swiggy; MakeMyTrip and OYO; Flipkart and Amazon the “last players standing” in sectors like dining and food delivery; travel and hotels; and e-commerce.

Venture Capital Investment

Their venture capital backers have burned billions of dollars in loss-making businesses in the hope that one day when the fires clear, their companies would end up as natural monopolies. Free to increase prices and reduce spends.

Well, that day has come. The fires have cleared, but there’s a new problem at hand.

A slowing economy, widespread and coordinated supplier angst and a tightening regulatory regime are coming together to target the largest platforms still standing. Yesterday’s scrappy disruptors, now the incumbents in their respective sectors, are in the crosshairs of numerous adversaries.

In late June, the Kerala Hotel and Restaurant Association (KHRA), a local trade chapter of hotel and restaurant associations from the state, called for a two-day boycott of hospitality platform OYO. Independent hoteliers who sold their rooms via OYO’s platform had a litany of charges against the Gurugram-headquartered company. These ranged from hidden commission fees as high as 40-45% of a booking; rampant deep discounting; one-sided contracts loaded against hotel owners and opaque delays in payments.

OYO managed to head that off by first threatening to take legal action against potential boycotters. It then got the Delhi High Court to pass an interim order banning any hotel association from boycotting it.

As a dominant digital platform, OYO correctly foresaw the risk of tens of thousands of fragmented suppliers (independent hotels) organizing themselves for better collective bargaining and action. Hence, its extreme response.

But Zomato, one of the two dominant platforms in the food delivery space, misjudged it. Hundreds, then thousands of restaurants came together under a trade body and accused Zomato and its peers of practices similar to those for which OYO was criticized. Aggressive and perpetual discounts; rising commission charges and arbitrary changes to contracts. Restaurateurs also claimed the food aggregators’ ranking and discovery algorithms were rigged towards discounts and their own services.

Are Zomato and Swiggy affected?

The resulting boycott is still ongoing and has forced both Zomato and Swiggy to adopt far more conciliatory tones.

Meanwhile, in the neighboring world of retail e-commerce, Amazon and Flipkart are under the cosh. The e-commerce leviathans are being targeted by multiple trade associations for the same broad reasons. For their opacity of algorithms, deep discounting, and blatant favoritism towards entities in which they held economic stakes.

If KHRA’s court-stymied boycott of hotels against OYO set the ball rolling against large digital platforms, the National Restaurant Association of India’s (NRAI) successful restaurant boycott of Zomato and its peers was the tipping point.

What is the solution?

Almost all of the issues faced by these dominant platforms end up at the door of one of India’s hitherto easygoing regulators: The Competition Commission of India (CCI).

In our story last year on the institution, a competition lawyer who successfully defended a large technology company before it said the CCI was not an alarmist institution. Instead, he said, the CCI preferred to be hands-off given that digital markets were still quite nascent. The CCI will only intervene, he added, if it’s sure that the growing dominance of a company is going to end badly for its competition or the general public.

After ordering a wider probe against Google in April (the news of this was broken by Reuters) for what it saw as prima facie abuse of its dominance, CCI organized a well-attended event last Friday in New Delhi. It brought together a range of industry stakeholders, platforms, trade bodies, media organizations* and individuals to discuss competition issues. The CCI also used the event to reveal the results of its study on the Indian e-commerce market.

It wasn’t pretty.

 

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