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Will the e-commerce rules apply to YouTube following Simsim acquisition?

Source: Google India Blog

Under the new rules proposed by the government, marketplace e-commerce entities cannot sell goods on their platform, flash sales are banned, and foreign products have to display country of origin. 

YouTube is all set to acquire Indian video shopping app Simsim, Google said in a blog post published on July 20.

“As more and more shopping happens online, video has an important role in helping viewers discover new products and find expert advice they trust. Every day, people come to YouTube to compare products, watch reviews and find recommendations from their favorite creators. Today, we are taking another step to help viewers discover and buy products from local businesses” – Google blog post

Why this matters? While it makes sense for YouTube to acquire Simsim from a business point of view, YouTube should be cognisant of the proposed amendments to the E-Commerce Rules, which will apply to YouTube if it enables shopping on its platform.

What are YouTube’s plans with Simsim?

What is Simsim? Simsim is a platform where creators post video reviews about products from local businesses, and customers can buy those products directly through the app.

YouTube’s immediate plan: “There will be no immediate changes to Simsim, the app will continue operating independently while we work on ways to showcase Simsim offers to YouTube viewers,” the blog post stated.

What might YouTube do in the future? In the future, we might expect Simsim to play a key role in enabling video shopping directly on YouTube similar to how shopping on Instagram is done through posts.

Applicability of E-Commerce Rules on Simsim

Will YouTube be covered under the rules? YouTube will not fall under the E-Commerce Rules if Simsim offers are merely shown to viewers as advertisements and viewers are taken to the Simsim app to carry out the purchase, but if YouTube allows customers to buy directly on its platform and sellers to sell directly through its platform, it will be considered an e-commerce entity just like Amazon and Flipkart, and the E-Commerce Rules will apply. Notably, YouTube will have to adhere to both, the Information Technology Rules 2021 (because it is a social media platform) and the E-Commerce Rules 2020, in the latter case.

What type of e-commerce entity will YouTube be? As per Indian law, there are two kinds of e-commerce entities: marketplace-based and inventory-based. Inventory-based e-commerce entities can own inventory and sell directly to customers, but marketplace e-commerce entities are only allowed to provide a platform for third-party sellers. The Indian government’s Foreign Direct Investment (FDI) policy outlines that e-commerce companies with FDI like Amazon and Walmart-owned Flipkart can only operate as marketplaces. Since YouTube receives FDI, it can only operate as a marketplace e-commerce entity. 

Proposed amendments to E-Commerce Rules and impact on YouTube: The Indian government on June 21 proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth. If YouTube becomes an e-commerce entity, it will fall under the purview of these rules. Some notable proposed changes and their impact on YouTube include:

  • Related parties and associated enterprises cannot be sellers and cannot receive an unfair advantage
    • Since Simsim does not hold its own inventory and merely enables other businesses to sell through its platform, it is not a seller and thus will not have to adhere to this rule. But this also means YouTube or Google-related companies cannot be sellers on the platform.
  • Marketplace e-commerce platforms cannot sell to sellers on platforms
    • This rule prevents YouTube from selling goods to sellers on its platform or to sellers on Simsim.
  • Marketplace e-commerce platforms cannot advertise a body of sellers
    • In its blog post, YouTube says it will “work on ways to showcase Simsim offers to YouTube viewers.” This will be problematic if the sale happens directly on the YouTube platform because this will involve advertising a body of sellers for the purpose of subsidising a sale.
  • Platform brand name cannot be used to promote products
    • Sellers on YouTube/Simsim cannot use the YouTube name to promote products.
  • Cannot use sales information to improve the sale of own products
    • YouTube/Simsim cannot use the sales information they obtain to improve the sale of their own products.
  • New labeling and display criteria for imported goods
    • YouTube/Simsim will have to display country of origin, provide a filter mechanism, and suggest alternatives to foreign products.
  • No manipulating of search results
    •  YouTube is not allowed to mislead users by manipulating search results or search indexes to give preference to Simsim sellers
  • Flash sales are not allowed
    • YouTube is not allowed to run flash sales on its site
  • Appointment of a chief compliance officer, nodal contact person, resident grievance officer
    • As a social media intermediary, YouTube already has to appoint these roles as per the Information Technology Rules 2021. The same will probably satisfy the E-Commerce Rules as well.

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