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.

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) organising 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 criticised. 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.

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

Meanwhile, in the neighbouring 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 favouritism 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.

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 organised a well-attended event last Friday in New Delhi. It brought together a range of industry stakeholders, platforms, trade bodies, media organisations* 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.

Food Fight

First up on the day’s menu were food delivery platforms.

The representatives from Swiggy and Zomato sat at the two ends of the table. Sandwiched in between were an increasingly belligerent group of restaurant owners and industry association members.

 Accusations and justifications flew fast and thick. While the industry lobby and restaurateurs were out for blood, the tech giants were in a mood to reconcile. All of it made for a really awkward family dinner between quarrelling relatives.

 Anurag Katriar, a member of the NRAI and executive director of deGustibus Hospitality, minced no words as he underscored the core conflict between the warring aggregators and their restaurant partners. “Every discount kills my bottom line. If you want to give discounts, then please fund it entirely on your own,” said Katriar. As spontaneous applause broke out in the hall, the reps from Zomato and Swiggy shifted uncomfortably in their chairs.

 In fact, all of last month, aggregators like Zomato have been walking on a bed of coals. An escalating pricing war—over Zomato’s flagship subscription scheme Gold—saw over 2,000 restaurants owners (and members of NRAI) threaten to dump the scheme, and ultimately, Zomato’s platform. The antagonism towards Zomato Gold and other “deep discounting” schemes by platforms like magicpin, Dineout, etc., isn’t new. From its very launch in 2017, Gold has been a double-edged sword for its partners. While it promised to increase footfalls, restaurant bottom lines were taking a huge hit with the scheme’s variations of the buy-one-get-one offer.

I appreciate that data was first used by this [restaurant] industry. As a tech player, we are opening new opportunities for them. The sooner we get to “we”, rather than “us and them”, the better. Zomato has been part of this industry and I see this as a temporary speed bump in our relationship

Mohit Gupta, CEO, Food Delivery, Zomato

 Two years of skirmishes, and one #logout campaign later, NRAI has assembled its disparate members into one cohesive action group. And with an e-commerce behemoth Zomato—most recently valued at $3.6 billion—running for cover, they’ve tasted blood.

 “We made our complaints known to CCI almost ten months ago. This meeting is a result of that. It’s a tipping point. We aren’t going to be silent anymore,” said Thomas Fenn, on the sidelines of the conference.

 Fenn, a member of the NRAI and partner at Delhi-based restaurant Mahabelly, had sharp criticism against the aggregators on stage. He laid out a buffet of complaints, chief amongst which was the lack of data sharing between platforms and their restaurant partners. “We’ve been in the data business longer than them. We used to do it through feedback forms,” said Fenn. While analogue methods like forms might seem feeble against mighty data algorithms, Fenn’s larger issue was that by cutting off restaurants’ access to customer data, including masking their numbers, aggregators were culling them out of the food delivery experience. “No one should have exclusive rights to this data,” he said.

 The vast tracts of consumer data, claimed the merchants, have also allowed platforms to morph into suppliers. Restaurant partners cried foul over Swiggy’s three cloud kitchens, built completely from gleaning unmet demand from consumers. Rahul Bothra, chief financial officer at Swiggy, cut a lonely figure on stage as he insisted that cloud kitchens were in the consumers’ best interest. “There is a market for affordable home-cooked meals. Restaurant food is occasion-driven. At the price point of Rs 100-150 ($1.5-2), we’ve opened up a marketplace. We’re inviting our restaurant partners to join it,” said Bothra. His conciliatory tone was swiftly undercut by both Katriar and fellow-panellist Munaf Kapadia, CEO of The Bohri Kitchen.

“Then why don’t you share that data with us, instead of opening up your own kitchens?” Katriar fired back, swivelling his chair in Bothra’s direction.

“If we haven’t been able to fulfil their demand, trust me, neither can you,” he added. The restaurant lobby was particularly agitated about how customer data put both Zomato and Swiggy in a powerful position. The platforms were opaque about this data, they claimed, and used it to their advantage. While Swiggy has capitalised on it by playing both trader and marketplace, Zomato, claim the restaurants, have used it to offer outrageous discounts.

 Deep discounting, cloud kitchens, data sharing—all key weapons in the arsenal of food delivery platforms—have left the bottom lines of restaurants in shambles. Katriar points to data culled from 40-50 restaurants on the effective discount they’ve had to offer as Gold partners. “It came to 34% of their topline revenue,” claimed Katriar, speaking to The Ken. Zomato and Swiggy have disputed this number in their deliberations with the NRAI. They claim the discounts are closer to 24%, which is still a high number, says Katriar.

 Restaurants’ strength in numbers has paid off. According to a senior member of the NRAI, Swiggy has even promised a time-table for its discounts, instead of running them year-round. There’s also an initial agreement about a uniform commercial contract for all restaurant partners. Most importantly, restaurants and aggregators have begun negotiating a differentiated commission charge for various restaurant tiers, said the NRAI member.

Friends and foes

Even as barbs were exchanged on stage, on the conference sidelines, the restaurant lobby and aggregators posed congenially for a group photo. Hands were shaken, backs slapped and promises were made to meet soon and resolve issues. While it seemed like the quarrelling family members had made up, no one’s holding their breath. The ball is squarely in the platforms’ court.

 This is a tenuous peace though. Even as discussions continue between the two warring factions, the fragile peace is already under threat. Zomato, according to reports, has plans to extend its Gold offers to online delivery.

 “If they insist on it, there can be no further discussion,” says Katriar, signing off. 

No reservations

If the food and beverage industry’s problems with platforms had boiled over into open revolt, things were simmering when it came to the hotel space.

For the past 2-3 years, the relationship between online travel agencies (OTAs) and hotels has been stretched thin. Somewhere around the end of 2016, the bigger hotel brands—the likes of Oberoi and Lemon Tree—were the first ones to realise that power was shifting disproportionately in favour of OTAs like MakeMyTrip (MMT), Yatra, and Goibibo (now owned by MMT).

Deep-pocketed online aggregators were throwing money at users in the form of discounts and cashbacks in their bid to gain market share. As a result, felt the bigger hotels, their brands were being diluted. A year later, smaller, budget hotels joined this chorus. The Federation of Hotel & Restaurant Associations of India (FHRAI) accused OTAs of distorting market prices through their deep discounts while simultaneously charging hotels exorbitant commissions.

Last year, the issue reached a crescendo. Hotels in Ahmedabad, Gujarat, stopped listing on Goibibo and MMT. The boycotts spread to Mysuru in the south and Sikkim in the north-east as well. OYO, the SoftBank-funded hotel aggregator, has also faced similar charges. While OYO was listed on an earlier invitation to the event, no OYO representative was present on the day.

For representatives of other OTAs, however, there was no dodging irate hoteliers at the event. Nirav Gandhi and Gurbaxish Singh Kohli, both from the FHRAI, offered no quarter to executives from MMT and Cleartrip on the panel on “online hotel booking”. Addressing Mohit Kabra, the chief financial officer of MMT, Kohli was blunt in his assessment. “We are not here to pull each other’s collar and ties, but let me tell you, we are not happy with you,” said Kohli, who runs Pritam Hotels in Mumbai. Gandhi, the promoter of Express Hotels in Vadodara, was even more scathing. OTAs, he said, were mainly concerned with valuation gains while fooling people with the word “tech”.

While both Gandhi and Kohli represented hyperlocal hotel chains, Adarsh Manpuria reiterated that even larger, pan-India chains such as Fab Hotels were unhappy with aggregators. While Manpuria, the cofounder of FabHotels, did not go into details, he mentioned that FabHotels no longer works with MMT. According to reports, MMT de-listed FabHotels from its platform after agreeing a deal FabHotels’ much larger competitor, OYO. Manpuria alluded to this when he said platforms must be fair and neutral.

Kabra, for his part, only broke his zen-like silence to say that pricing came from suppliers. “We only provide offers and couponing,” he said.

This hardly satisfied the gathering, as FHRAI members rounded on Kabra with a slew of questions and allegations. These ranged from allegations of false reviews/ratings, OTAs charging commissions as high as 40%, discounting without the consent of suppliers, and a lack of growth in the tourism industry.

“There are only 1,200-1,300 rated hotels. Then, tell us, who has rated the 70,000 hotels on your platform? Most of these are false reviews and ratings”

Nirav Gandhi, owner of Express Hotels, Vadodara


Jimmy Shaw, FHRAI member and managing director of the Waterfront Shaw at Lavasa, Pune, even accused MMT of promoting unregulated “bed and breakfast” properties who do not have the required certifications.

Unsurprisingly, the FHRAI is now banking on the CCI to clamp down on OTAs for their monopolistic practices. But the FHRAI isn’t content to just wait and watch. The association has already started taking steps to find a solution for what it believes to be malpractice. For one, FHRAI is setting up a series of meetings in the coming months with OTAs to sort out points of conflict.

On the sidelines, Kohli informed The Ken that the ministry of commerce has taken an active interest in the matter and has asked for the hoteliers’ issues and suggestions. “We are collating all this information and we will send it to the Department of Industrial Policy & Promotion (DIPP) very soon,” he said. He expects the final suggestions to be part of the broader e-commerce policy the govt is working on.

Flashpoint

As aggregators locked horns with hotel owners on stage, Jimmy Shaw, CEO of Food Marshall Tech Services, could barely contain his contempt towards OTAs like MMT. During the Q&A, Shaw confronted MMT’s Mohit Kabra: “I’ve written to you several times about the illegal hotels on your platform. You still haven’t responded to me.”

As the world’s third largest hotel association, the FHRAI is now using its considerable clout to even out the long-skewed power dynamic between hotels and OTAs. “The government has been very receptive on this matter. Some solution should be in sight in another three months,” he said. 

Not buying what you’re selling

Of all the panels, the one on online retail was by far the loudest. Traders associations were vociferous and vehement in their criticism of ‘predatory pricing’, private labelling and ‘preferential treatment’ of a select few sellers by marketplaces like Amazon and Flipkart.

The government and regulators, too, came under fire as traders charged them with not enforcing changes introduced in the foreign direct investment (FDI) policy for business-to-business e-commerce. See, it isn’t that the government never put in place rules to ensure a level playing field for small traders. It’s just that marketplaces kept finding ways to circumvent these rules.

Take Press Note 3 (PN3), for instance. For the uninitiated, in sectors like telecom and e-commerce, policies are made or clarified via government press releases, called “Press Notes.” Press Note 3, issued in 2016, was of particular importance. It sought to ensure that no one seller or group of companies—ostensibly those favoured by marketplaces—could account for more than 25% of a platform’s total sales. In addition, it also aimed at preventing marketplaces from owning inventory.

The result? A web of retailers, all with one arm’s distance to the marketplaces, ensuring that while PN3 was followed in letter, it wasn’t implemented in spirit.

In 2018, another Press Note—Press Note 2 (PN2)—was issued. Ostensibly to fix the loopholes in PN3. But while the intent was clear, implementation of the new, more detailed rules—more specifically, determining compliance—was practically untenable. Once again, group companies became non-group companies, and it was business as usual for marketplaces.

Little wonder then that brick-and-mortar traders still point to a lack of neutrality among marketplaces—both with regards to sellers and products. Of 500,000 registered sellers on Amazon, claimed Kush Agarwal of the All India Online Vendors Association (AIOVA), 80,000 have received just one order in the last year. 40,000 received at least 10 orders. Only 10,000 sellers have received considerable business, he alleged.

“We need strong regulation. The CCI must address the abuse of dominance in these markets. Even if it’s about domestic companies. Like predatory pricing practices by Reliance Jio”

Arul George Scaria, NLU, Delhi


The interim findings of the CCI study on the e-commerce market showcased these concerns. According to the study, certain sellers are treated preferentially and are more visible. Platforms also channel most of their products through a select few sellers.

Private labels, too, were an issue, raising concerns over conflict of interest. “PN3 is clear that platforms are technology providers who cannot own the inventory,” said Pawan Kaul, head of corporate affairs at e-commerce platform Snapdeal. PN2, he says, was brought in because of how platforms had circumvented the inventory rule. Despite this, marketplaces have still found ways to hold on to their private labels. “Enforcement was an issue then, and it is now,” Kaul concludes.

Rahul Sundaram, senior corporate counsel of Amazon and the sole e-commerce representative on the stage, did his best to hold his own. Pointing to a study by India Brand Equity Foundation, Sundaram reiterated how small online retail is in the overall scheme of things. The study stated that 93% of retail in the country happened offline, with modern trade—large traders or retail chains like Reliance Retail, etc.—accounting for the bulk of the remaining 7%. “E-commerce is a very minuscule percentage of the overall market,” he said.

Of 500,000 registered sellers on Amazon, 80,000 have received just one order in the last year. 40,000 received at least 10 orders. Only 10,000 sellers have received considerable business,

Kush Agarwal, Member, All India Online Vendors Association (AIOVA)

For all the noise and outrage, representatives of retailers associations agreed that e-commerce was the future of Indian commerce. “But,” said Praveen Khandelwal of the Confederation of All India Traders, “no predatory pricing; no deep discounting”. 

Pankaj Mohindroo of the Indian Cellular and Electronics Association (ICEA), however, was quick to remind Khandelwal that the issue of predatory pricing and deep discounting was hardly restricted to just marketplaces. “Reliance Jio sells a phone which is worth Rs 2,500 ($35) for Rs 500 ($7) and destroys 50% of the feature phone market, is that acceptable to you?” he asked Khandelwal.

Even as Khandelwal struggled to justify Reliance Jio’s strategy, the significance of Mohindroo’s question sunk in. This was not a battle between foreign entities and Indian traders. Or between online-only platforms and brick-and-mortar stores. This was about the unceasing, all-consuming creep of big business. A field that would never truly be level. So, what then? Perhaps the day’s hosts—the CCI—could provide some parity.

“There are a few key questions that have come up before the panel. Whether we need regulation? Yes, we need strong regulation. What’s the role of the CCI? Unlike my co-panellists, I feel the CCI must be addressing the abuse of dominance in these particular markets. Even if it’s about domestic companies—for example, predatory pricing practices by Reliance Jio,” says Arul George Scaria, assistant professor at National Law University, Delhi.

After being rather hands-off when it comes to the digital economy, the CCI has finally shown a willingness to act by ordering a wider probe against global search giant Google. Offline businesses will hope the CCI extends this newfound vigour to the platforms that now tower over their respective industries.

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