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17 May

Shaka Laka Boom Boom? Not really.

I frequently order food and groceries from Swiggy. In the last month, the price of ordering food has soared, and the number of discounts I could avail of with the Swiggy One membership has reduced too. I paid ₹1200 for the yearly membership and enjoyed free delivery for orders above ₹149. It was good while it lasted. Now, we have ONDC, a decentralized platform being hailed as “the platform that will kill Swiggy and Zomato.”

I have also reached a tipping point with the patience Olympics one has to participate in to get a ride on Ola and Uber. Rapido is still better in this regard, in my experience. But even with Rapido, I've recently encountered numerous instances of riders booking my ride via the platform and then requesting me to cancel the ride on the app and pay me whatever cost the app is showing, in cash. They do this in order to save on the commission Rapido charges per ride. In short, get the ride, i.e., the distribution via the platform, but then avoid paying the platform its commission.

The issue here is not just with the availability or the pricing, but the whole structure of engagement when it comes to platforms and their inherent principal-agent problem — the platform being the principal and the riders being its agents (who are often exploiting the platform due to information asymmetry).

So, when a friend recently urged me to check out ONDC and Namma Yatri, citing lower food prices and zero commissions respectively, I was both a bit excited and confounded.

A major difference between Namma Yatri and Uber, Ola, or Rapido is the commissions. The latter charge about 20% to 30% commission on the total price for the trip. A driver on these platforms gets paid the full amount that is shown to the customer minus the platform commission.

But with Namma Yatri, the full payment is advanced to the driver. The platform earns no commission for facilitating the commute from point A to point B. Naturally, the rickshaw drivers love it, and you will also notice fewer cancellations once you find a ride on the app.

Ola, Uber, and Rapido are licensed platforms. This technically means they can control all aspects such as pricing, commission, who stays on the app and who’s kicked off and more. Namma Yatri, on the other hand, isn’t registered as a transport platform because it doesn’t charge a commission. Its ability to introduce pricing changes is tied to its license.

At Namma Yatri’s launch, TM Rudramurthy, General Secretary of the Auto Rickshaw Drivers’ Union of Bengaluru, said,

“We don’t want any middlemen. We want to provide a good service to the customers. We want them to avail our services with trust, and this is how we can also benefit from the initiative.”

And the live data of rides accomplished and drivers on-boarded do a good job of validating the platform's premise and promise: a customer-friendly app by drivers in collaboration with tech companies.

But certain obvious questions loom overhead when you think of zero commissions, the biggest one being:

How does Namma Yatri make money if it doesn’t charge a commission?

Presently, the app operations are backed by the Nandan Nilekani-led non-profit Foundation for Interoperability in Digital Economy (FIDE) and built by Juspay.

An initial push to create a product with the help of a non-profit could be useful, but in the long run, if Namma Yatri wants to run a sustainable business, it will need to generate money that can be invested back into its operations. Non-profit funding might not suffice when the current operation scales.

To solve this, the platform is contemplating charging a flat monthly subscription fee to drivers using the platform. This is what takes care of the principal-agent problem. But, the way things look today, this subscription solution is tied to another problem:

Drivers will only decide to pay the subscription fee if they're getting enough business off of Namma Yatri. Are they?

Currently, the answer to this question is a resounding “NO.”

If you talk to a few drivers registered with the platform, they will tell you that they haven't exclusively switched to Namma Yatri even though it allows them to make the most money.


Distribution, or rather, the lack of it.

Because Namma Yatri is only a few months old and doesn't charge a commission, they haven’t spent much on marketing to the customer. So, the drivers witness a booking rush during the peak commute hours in the morning and evening, but the customer footfall isn’t enough during the rest of the day for the drivers to switch completely to Namma Yatri.

And now, to solve this classic chicken-and-egg problem with marketplaces, Namma Yatri will have to bring both supply and demand sides onto the platform. And for that, it will need funds. Even running such a platform and keeping the lights on costs a lot. Heck, Google Maps costs a lot if you use it as a business entity. It is not a free service unlike when you use it as an individual.

At this juncture, the idea of zero commissions starts looking a little wobbly.

Namma Yatri may not be registered as a platform, but it effectively plays the same role a platform does. Even though the app doesn’t charge any commission and is currently paying operational costs out of its pocket, to become a sustainable business, it will require a steady flow of funds to promote and solve the demand side (customers hailing autos) of the problem.

At its current stage of operation, it will keep competing with incumbents (ride-sharing platforms) who have solved the demand side issues and are not limited by fund flows. When a driver, presently registered on the app, learned about the possible monthly subscription fee, he opined —

“It will sting if we have to start paying commissions here too. You can’t first show us that we can get the rides for free and then ask us to pay.”

The driver isn’t wrong in feeling betrayed by the messaging, but the elephant in the room is often overlooked in such conversations:

Someone has to pay for the services a platform provides.

The point is if the customer is not paying Namma Yatri and even the driver isn’t paying Namma Yatri for what it facilitates, constant government subsidies or civil organizational backing will be required to run operations.

You see, platforms like Swiggy or Uber need to be paid for the aggregation, distribution, logistics, quality control, and customer service they provide. Individual sellers can do it too, but for that they will need to invest in their own distribution, logistics, and customer support and they will ultimately transfer this cost to the customer via increased product prices. And perhaps, every seller doing this independently is much worse in terms of efficiency, reliability, and quality control compared to having a single umbrella platform like Swiggy or Uber.

Platforms create efficiency and serve as an umbrella for trust in any transaction between buyer and seller. They streamline parts of the value chain in which neither the buyer nor seller have expertise.

Highlighting the tasks a platform undertakes, Nitish Bhushan, Head of Central Operations, Uber India & South Asia, explained —

“We have tech and engineering expenses, marketing spends to onboard more drivers and riders, and many other costs. Facilitating a market is not free.

Commissions are used to cover our costs and make the business model viable.

To be absolutely clear: Our commission ≠ our profit.

A flexible commission structure, and one that ensures a fair margin for aggregators, will ensure the sustainability of e-hail autos and also encourage investment in the space, leading to the introduction of new features and services.”

Many businesses are waking up to this realization and slashing the customer discounts or services they initially offered to onboard customers.

At the outset, the promises made by most platforms seem magical, but that fantasy can only be short-lived.

Unlike Sanju from Shaka Laka Boom Boom, who used a magic pencil to make things appear out of thin air, goods and services cost money. They cost money to produce, distribute, and maintain.

In the end, either the customer pays or the government pays via subsidies or the investors pay. Someone has to pay for the services a platform provides.

In Namma Yatri's case, it seems like the seller will eventually pay a monthly subscription fee to the platform, but ultimately this cost will be transferred to the customer. And if Namma Yatri intends to sustain itself, it will have to rethink or reframe its promise of zero commissions. After all, noble intentions don’t guarantee business.

Funny thing is, even Amazon charges a hefty commission to its sellers, which is reflected in the increased product prices. But you don't see customers complaining there! It's only when you show the prices separately that the customers seem to object. So, it seems to me a problem of messaging more than anything else.

You transfer the cost of the platform to the customer via hidden prices and no one bats an eyelid. But if you try to inflate delivery charges or impose a rain fee, you will immediately find people complaining.

In the case of ONDC, you may get food for cheaper but what about the experience of using the platform or any sort of customer support or quality control? Both of them are totally missing, and providing both of them to ensure customer satisfaction and trustworthy service is why Swiggy and Zomato charge the commissions they charge.

Creating seamless experiences costs money. And it's high time the consumers of this country understand this simple truth.

A lot of this blame can also be attributed to these platforms themselves, who made the consumers feel that these business models were really that cheap to run and that this convenience had zero costs associated with it — while in fact, this addictive habit was being fueled by VC money up until now.

It's a fact that cannot be discounted, wished away, or subsidized.

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