Intermediaries monetising access to consumers will impede
e-commerce growth in India: Edelman

New Delhi, January 18, 2012

Indian businesses would be providing a remarkable opportunity to consumers by moving to ecommerce, but any intermediary who steps in to monetise access, would impede that transition, according to Prof Benjamin Edelman of the Harvard Business School.

Prof. Edelman was speaking at 10th CIRC academic lecture on Future of Online Markets –Market Dynamics and Regulatory Challenges in India on Wednesday. Advocating easy access to online markets as being critical for spurring competition and reaping consequential benefit such as greater choice, lower prices, Edelman cautioned the industry about the behaviour of dominant players who could make it less attractive for a business, especially a small and medium enterprise (SME) to find its consumers online, without being forced to pay the intermediary.

Citing the example of search markets, he dealt with various conduct of Google, which enjoys a whopping 93 per cent market share in India, which may have exclusionary effects on SMEs and new ventures. “If Google gives preference to its own products and services over competitors, SMEs in some key verticals like travel would invariably find it more difficult to grow their business, as getting consumers to their website would become tougher and costlier,” Prof Edelman said.

Advocating a suitable regulatory mechanism to ensure a free and fair internet for businesses to thrive, Prof Edelman suggested that search results seamlessly include listings from other search services. This inclusion, he said, would help assure a continued competitive marketplace for specialized search.

Speaking at the event, Geeta Gouri, a Member of the Competition Commission of India said, “Online is a fascinating story. However, one can’t deny the presence of competition issues there. Online markets are oligopolistic and are all about network economies.” Admitting that answers to several of competition issues in the online space are yet to emerge, Dr Gouri pointed out that the network effect is constrained by a downward sloping demand curve.

Mahendra Swarup, President of the Indian Venture Capital Association (IVCA) remarked that it is essential to maintain a competition to provide a healthy ecosystem for SMEs in the online space. Corroborating Prof Edelman’s call for regulation, Mr Swarup, “The Media has to be treated differently from any monopoly or oligopoly. Normal laws of competition cannot manage a media monopoly. Advertisers will always push monopolies to become stronger. Google’s power to influence thinking is what we should be worried about. If they misuse this power, it can have disastrous effects on the industry.” Highlighting a venture capitalist’s perspective, he added that return on capital are expected to be highest when SMEs thrive in online space and therefore attracting investment by the venture on online markets.

Co-Founder of SeedFund and CEO of Pinstorm, Mahesh Murthy, emphasised that each technology champion has a tendency to exploit the market until a new and disruptive technology arrives in the market place. However, he added that markets are to be trusted. Murthy further added that, looking at the business history, “One day a nimbler animal will outdo a dinosaur and will break the monopoly of the dominant player”. Murthy also hoped that there is still enough room for newer businesses to come in and create new paradigms in online market.

Vijay Singh, Managing Director & CEO of IT startup AaramShop presented an entrepreneur’s perspective. He touched upon the idea of ad effectiveness and said that “I do get returns on Google. I don’t have an option but to go to Google or Facebook. Google has created an ecosystem which helps online businesses, though in the long run you do become a prisoner of Google’s monopoly.” He added that if there is a strong alternative to Google, then “Google will change when consumers start moving away from Google! ”

Navneet Sharma, Director of CUTS Institute for Regulation & Competition moderated the event.

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