Amazon Cloudtail India: Why Did It Shut Down? | Is It Good News for Retailers?
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If you have ever tried to buy or sell products on Amazon, you must have come across this brand “Cloudtail India”. It used to be the largest seller on Amazon in India but has recently ceased its operation.
This joint initiative of Amazon and Catamaran Venture was shut down on 19th May 2022 leading to the end of a seven-year-long partnership between the two well-recognized organizations.
Before announcing the end of the partnership Amazon India announced a 100% acquisition of Cloudtail India. The employees earlier working for the joint venture has been given the option to continue at Amazon or take a voluntary exit.
In this blog, we will discuss everything about Cloudtail India, how it worked and why this successful partnership was brought to an end with mutual agreement between the two parties.
If you are associated with Amazon, either as a seller or a buyer, this is important for you. If you are asking “Why”, keep reading this blog till the end.
What is Cloudtail India?
How Did Cloudtail India Work?
What Went Wrong With Cloudtail India?
Is Shutting Down of Cloudtail India Good News for Retailers?
What is Cloudtail India?
Catamaran Venture is a venture capital firm i.e. it funds the startups or other organizations that require capital. The net worth of the company is around $ 127 million. It is headed by N.r. Narayana Murthy has made investments across high-growth sectors such as technology, eCommerce, healthcare, etc.
Amazon started functioning in India in 2013. It was the time when the online market in India was least developed and Amazon had to work hard to get customers.
For this reason, in 2014, Amazon India and Catamaran Venture initiated a joint venture under the name Prione Business Services. The basic objective of this venture was to bring more small retailers and businessmen online.
This on one hand would help the retailers to expand their market and reach more customers and on the other hand, helped Amazon to earn a reputation and recognition in the country.
Prione Business Services contributed quite a lot to advancing the online market in India. It provided support systems for the retailers or merchants by helping them with issues as small as listing or describing their products on Amazon.
According to the statement, Prione enabled more than 300,000 sellers and entrepreneurs to establish their online market. Also, it helped 4 million merchants with digital payment capabilities.
However, in the same year i.e. 2014, Prione also established its very own subsidiary company in India, under the name “Cloudtail India Pvt. Ltd.” which was engaged in the B2C retail business.
Under Prione’s ownership, Cloudtail worked as an online retailer and by the end of 2020, it was selling over 30 lakh products under multiple categories such as fashion, apparel, appliances, media, consumables, etc. on Amazon.
No doubt, Cloudtail India became the largest seller on Amazon leaving its other competitors behind with a great margin.
How Did Cloudtail India Work?
At present, Amazon has over four lakh sellers and more than two crore customers registered with it.
The normal procedure for retailers to sell their products on Amazon includes registering themselves on the website. After this, the sellers list their products on the website with the price that also includes the profit share of Amazon.
Generally, this profit share lies between 5-25% depending on the product category and price. This share includes commission, fixed fees, and other similar charges.
As the seller has to earn profit by selling these products, some amount of profit share is included in the price of the product due to which the customer has to buy the product at slightly higher rates.
The price of the product further increases as the vendor also has to pay delivery charges to Amazon which start from Rs. 82/- onwards. Moreover, these sellers also have to bear the promotion charges for their product which again adds to the price of the product. Therefore, the prices at which the customer has to buy the products of these brands are quite higher in comparison to what the seller would offer without including these charges.
However, as Amazon had its own equity in Cloudtail India Pvt. Ltd. the company does not pay any commission to Amazon for listing or selling its products. There is no delivery or promotion fee included for any of the products sold by Cloudtail.
Due to this the prices of the products obviously remain quite low in comparison to its competitors. This gave Cloudtail India an edge over other retailers.
Moreover, being the parent company Amazon prioritizes the products sold by Cloudtail India by always listing them at the top of the page. This further increased the sale of products making Cloudtail India Pvt. Ltd. the biggest seller on Amazon.
Parnas Ghosh
What Went Wrong With Cloudtail India?
As per the law, India prohibits Foreign Direct Investment (FDI) in inventory-based models for eCommerce. This means that the companies such as Amazon and Flipkart are only allowed to work as a marketplace.
These companies are only permitted to provide platforms to other sellers or merchants or businesses to enlist their products and sell them but they cannot list their own products on the platform.
Due to this legal concern, a number of objections were being raised by other retailers and merchants selling their goods on Amazon about the close partnership between Amazon and Catamaran Venture.
In this regard, the Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry issued a Press Note on 26th December 2018.
This note clearly disallowed the participation of marketplaces in any type of seller activity even through any “Group companies”. This means that these platforms are not allowed to sell their own products on their platform as this would hamper the business of other small retailers.
Here, Group Company meant two or more enterprises that directly or indirectly exercise 26% of the voting rights in another enterprise or appoint more than 50% of the board members in their entity.
To abide by this law, Catamaran Ventures 2019 increased its stake in Cloudtail India from 51% to 76%. Thus, the stake of Amazon in the joint venture was reduced from earlier 49% to 24% later.
Therefore, as Amazon now had only a 24% share in the joint venture, and the law spoke about 26% or more share, Cloudtail India Pvt. Ltd. could still sell products to Amazon without violating any law.
Even after this, the small businessmen and other retailers or vendors on Amazon claimed that the parent company of Cloudtail India Pvt. Ltd., i.e. Prione Business Services was established with the intention to help small retailers and sellers to start their online businesses.
However, as the online market has now gained enough popularity in the country, the target has been fulfilled and the company is no longer required.
In 2019, Delhi Vyapar Mahasangh (DVM) submitted a plea with the Competition Commission of India (CCI) against Amazon and Flipkart.
In this plea, they accused these marketplaces of abusing their market dominance and preferential listing and deep discounting on products sold by selected vendors in which they control indirect stakes.
They alleged that these marketplaces were drawing indirect benefits from these brands indicating a conflict of interest. Due to this, the online market of small businesses is getting hampered as they are unable to efficiently reach their target customers.
In this regard, the Director-General of the Competition Commission of India launched an inquiry for alleged violation of Section 3 of the Competition Act, in January 2020.
To resolve this issue, Catamaran Venture and Amazon India first approached Karnataka High Court and later the honourable Supreme Court of India. However, both the courts stated that the companies should be open to such anti-trust investigations in their business practices.
In the light of this statement, as well as the changing regulatory environment and unfavourable eCommerce operating guidelines, both the companies announced the end of their seven-year-long partnership.
Hence, Cloudtail India was finally shut down.
Pratyusha Srivastava
Is Shutting Down of Cloudtail India Good News for Retailers?
Honestly speaking, Yes. This decision will provide small businesses and other online retailers and vendors a level playing field. Strict regulatory rules were required in this field for a long time which have now been implemented.
This will also reduce the monopoly of these marketplaces to endorse a few specific brands that bring more indirect profit to them.
Overall, the small sellers will be benefitted who will now be able to sell their products in a healthy competitive environment.
Conclusion
With the partnership between Amazon and Catamaran Venture coming to an end, this is certainly an issue of concern for Amazon as it has invested around $ 1 billion in India.
Also, the customers might have to buy the products at slightly higher prices as the subsidiary brand is no longer available to provide the products at the least rates.
However, this will provide equal rights and symmetry to the small businessmen, sellers, vendors, etc. who will now have better opportunities to expand their online market.
FAQs
Is Cloudtail India owned by Amazon?
No, Cloudtail India was a joint venture with Catamaran Ventures but Amazon has purchased a 76% stake in the company and now Cloudtail is a wholly-owned subsidiary of Amazon.
Is Cloudtail India shutting down?
Yes, Cloudtail India will shut down its operations on May 1.
Who is the owner of Cloudtail India?
Prione Business Services Private Limited was the owner of Cloudtail India.
Why did Cloudtail India shut down?
As per e-commerce regulations, online marketplaces cannot own any direct stake in seller entities which is the reason Cloudtail India has to shut down its operations.
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