The Digital Competition Bill (DCB) is set to have a signifiant impact on the relationship between MSMEs and large digital platforms. By targeting the anti-competitive practices of Systemically Significant Digital Enterprises (SSDEs), the DCB aims to dismantle barriers that have historically favored large platforms, allowing them to control market dynamics through exclusive tie-ups and preferential treatment. This legislation promises to create a more level playing field for MSMEs, enabling them to compete fairly without the constraints imposed by dominant digital giants. While the initial disruption may lead to short-term financial strain for some MSMEs, the long-term outlook suggests increased market stability, greater innovation, and reduced dependency on large platforms for growth. Sandeep Agrawal, director and founder of Teamlease Regtech, in an interview with Tech Achieve Media said that this transformative shift will ultimately foster a more competitive and equitable digital market ecosystem.
TAM: According to experts, the draft Digital Competition Bill (DCB), focusing on curtailing the data and bundling practices of Systemically Significant Digital Enterprises (SSDEs), threatens to disrupt this symbiotic relationship between MSMEs and large digital platforms. Do you agree with the statement? Do you believe the DCB could lead to increased financial strain on MSMEs? Why or why not?
Sandeep Agrawal: The DCB is being introduced to curb the anti-competitive practices that have permeated the digital enterprise space in India. The symbiotic relationship fostered between MSMEs and large digital platforms is a result of these practices. Restricting users from accessing third-party applications while forcing users to go for bundled services that are provided in the form of exclusive tie-ups has created a barrier to competition within the market. MSMEs are forced to sign exclusive service agreements with large platforms. As these platforms control search ranking and promote favourable treatments to their partner vendors, there is an increase in market concentration.
DCB is going to create a level playing field for MSMEs to compete without being suppressed by large digital platforms. While the new bill will disrupt the current dynamic and affect the financial position of a portion of MSMEs, it will also open up opportunities and lift market barriers to all enterprises. The short-term financial strain will be traded for long-term growth and market stability. The disruption will force MSMEs to invest in infrastructure and capacity to match the services they enjoy due to their collaboration. It will also affect their access to low-cost customer acquisition and marketing channels. As such, they will face additional costs in maintaining sales channels, acquiring customers, and ramping up marketing activities. However, MSMEs will be liberated from dependence on large platforms for business growth in the long run.
TAM: How do you foresee the Digital Competition Bill impacting the current collaboration between MSMEs and large digital platforms? Can you provide examples of how current collaborations have benefited MSMEs and large corporations alike?
Sandeep Agrawal: Under the present collaboration model between MSMEs and large digital platforms, platforms have a significant advantage and are able to dictate the terms of collaboration and partnerships. Platforms wield an increased negotiating power, putting MSMEs at a disadvantage. As discussed in the answer to the first question, DCB will create a level playing field with statutory limitations on large platforms’ operations. The ex-ante nature of the law will:
- Ensure platform neutrality
- Prohibit large players from using predatory pricing to drive out small businesses
- Prohibit preferential treatment of sponsored products
- Ensure search rankings are not influenced, which compromises product/service visibility
- Prohibit large platforms from indulging in exclusionary behaviour that stops consumers from switching to third-party service providers
Current collaboration models have created immense value and allowed MSMEs to grow. For instance, Amazon and Flipkart have enabled MSMEs to reach a wider audience. Their fulfilment services, marketing tools, and customer service have allowed enterprises to scale up without having to make significant capital investments. On the other hand, these platforms have been able to expand their product offerings, attracting a broader customer base. This has increased sales, revenues and market share for large platforms.
Similarly, Facebook and Google have allowed entrepreneurs to reach their target audience, ensure higher visibility through search result rankings, and extract high returns on their marketing expenditures. In return, these platforms generate ad revenue, enhance user engagement and improve user experience, driving even more user traffic.
TAM: What role do you think large digital platforms have played in fostering innovation within the startup ecosystem? Could the restrictions imposed by the DCB stifle the innovation typically brought about by such collaborations?
Sandeep Agrawal: Large digital platforms bring much-needed resources, support, and opportunities to the startup ecosystem. From access to advanced technologies, such as cloud computing and software development kits (SDKs), marketplaces and distribution channels, and investment to mentorship and industry expertise, these platforms have given stable environments and foundations for these startups to grow quickly. Whether through app stores or e-commerce platforms, these large digital companies have placed themselves at the bedrock of innovation in their respective sectors.
The direct impact of restrictions under DCB will affect the technical and financial support available to these partner startups and MSMEs. There will be a significant reduction in opportunities for collaboration for entrepreneurs. Furthermore, the interconnected nature of the startup ecosystem relies on continuous interaction and support among various stakeholders. Disruptions to this network can slow down the overall pace of innovation. It will also affect the ability of MSMEs to reach global markets and leverage the distribution channels for large platforms.
TAM: How have open innovation platforms and accelerator programs facilitated by large digital platforms contributed to the growth of startups and small enterprises? What might be the long-term implications for innovation if such collaborative opportunities are reduced by the DCB?
Sandeep Agrawal: These initiatives have enabled MSMEs and startups to access resources, mentorship, and market opportunities. Large platforms often give their collaborators and partners access to cutting-edge technologies, cloud services, and development tools at reduced or no cost. Accelerators provide seed funding to startups to help them develop their market offerings. In addition, they also provide guidance from industry experts and help them streamline operations and business models. This support is crucial for enterprises to scale their operations and develop and implement market strategies.
Furthermore, collaborating with large platforms gives entrepreneurs quick and easy access to a large customer base, allowing them to market-fit and advertise their offerings much faster. Startups also benefit from being associated with reputed digital platforms that attract customers, partners, and funding.
Long-term implications of eliminating such collaborations may lead to reduced growth rates for MSMEs, with innovation slowing down. Entrepreneurs can also face difficulties in raising capital due to limited reach. There is also the possibility of artificial isolation of MSMEs, with enterprises missing out on industry expertise and insights that can help innovation.
TAM: How do you think the DCB will reshape the digital market ecosystem, particularly concerning the balance of power between large digital platforms and smaller enterprises? Could there be any unintended consequences of the DCB that might harm MSMEs more than benefit them?
Sandeep Agrawal: The DCB will lead to the rebalancing of scales between digital platforms and MSMEs. As discussed in questions 1 and 2, large platforms enjoy an advantageous position over MSMEs. Terms suggested by the platform dictates any negotiations and agreements between the two parties. The DCB will remove preferential treatment, prohibit platforms from indulging in anti-competitive practices, and create a level playing field. The resultant ecosystem will see platforms reduced to their core role of being digital platforms that must treat all enterprises equally.
It is difficult to gauge what unintended consequences can be for the DCB as the bill is yet to be finalised, with discussions being held for changes in the draft. Early analysis has identified increased financial costs and loss of revenue for MSMEs in the initial period. However, in the long run, the bill is expected to create a competitive market for entrepreneurs uninfluenced by large digital platforms.
TAM: What amendments or considerations would you recommend for the DCB to ensure it supports MSMEs without stifling beneficial collaborations?
Sandeep Agrawal: In a yet-to-mature market like India, the DCB can increase the complexity of compliance. It can also affect the cost and ease of doing business, reducing the attractiveness of the various sectors for investors. Furthermore, the unbundling in digital markets can cause significant losses to MSMEs as it reduces user convenience, increases total cost, and affects user experience.
The Digital Public Infrastructure (DPI) developed by India has already proven that digital markets can be competitive without using ex-ante laws. The operationalisation of ONDC serves as a reminder that innovations can also create a level playing field for MSMEs. As such, it will be crucial that the new bill does not stifle innovation and collaboration that fosters market disruption.
TAM: What is the future outlook for MSMEs in a regulatory environment shaped by the DCB?
Sandeep Agrawal: The regulatory environment shaped by DCB will create additional responsibilities and obligations for large digital platforms. However, MSMEs will have little to no changes to their regulatory requirements. The DCB affects Systemically Significant Digital Enterprises (SSDEs) and Associate Digital Enterprises (ADEs). It recognises the rights of business/ end-users. As such, MSMEs can gain the ability to report grievances and go for dispute resolution if the large platforms engage in anti-competitive practices.
