Zomato vs ONDC: Another round of public vs private good

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ONDC has been the talk of the town. Every day we hear that this can become a threat to e-commerce companies. Zomato faced a burn in the stock market, falling close to 8%  after there were reports that food is cheaper on ONDC. So, let’s understand what is ONDC and how it will impact E-Commerce companies.

What is ONDC ONDC stands for Open Network for Digital Commerce this is established by Department for Promotion of Industry and Internal Trade. It is a public good version of e-commerce. The public good is open and easily accessible to all. It will try to bring all the different e-commerce players into a simple ecosystem. In any normal market, some players bring customers on board, then another party helps in setting up shops while different player provides logistics and transportation services. So the same thing is happening in ONDC under the guidance and support of the government. It is expected that breaking down different activities will lead to higher efficiency in the E-commerce space.

Threat to Zomato Since Zomato also provides food digitally so ONDC is its competition. Recently there was a lot of buzz that ONDC is delivering food more cheaply than Zomato. However, Jefferies pointed out that it’s not due to higher efficiency but because of subsidies given by ONDC. When these subsidies are removed then food delivery from ONDC will become expensive.

Way ahead We can say that ONDC is a public market and these E-commerce apps are exclusive private markets just like a mall or a lavish food court. Since public good is given by the government it is open to all. However, this requires good coordination among different government departments and with private players. That’s a difficult task, hence the execution of ONDC on a large scale will remain a challenge. This can be a positive for E-commerce companies. Still, these companies need to portray themselves like exclusive malls.

Let’s take the example of Zomato, its focus should be on better customer experience. Be it by lower cost, quicker delivery and other logistics-related activities. Or by providing a better experience on the app like making exclusive partnerships with some restaurants, gaining customer insights and recommending new dishes just like Netflix recommends new movies. Good customer care service is also one area that can differentiate the company and entice users towards Zomato.

The problem is, all these things need a lot of funding and investment. Since current financial environment is uncertain, Private Equities (PE) and Venture Capital (VC) have become cautious. This might create a hurdle for the company in raising capital. On the bright side, its financials are improving, in recent quarters operating losses have declined and profit before tax has started becoming positive. Indicating that the company is maturing.

Strategic investors like PE and VCs also need to consider that ONDC is expected to accelerate E-commerce adoption in the country. Mckinsey stated in its report that with advent of ONDC, digital consumption in India can increase 5 fold and reach $340 bn by 2030. This in turn will aid the growth of Zomato and other E-commerce apps.