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Amazon has found Cloudtail’s replacement for electronics in Dawntech: Report

Aside from electronics, Cloudtail shutting down has left a void to fill in other major retail categories as well.

Bengaluru-based Dawntech Electronics will take over Cloudtail’s consumer electronics business, Economic Times reported on November 25.

In August, Amazon and Narayan Murthy-owned Catamaran Ventures decided to end their seven-year-old joint venture partnership in Prione Business Services, which owns Cloudtail – currently, the largest seller on Amazon India and the seller at the centre of many accusations levied against Amazon. The partnership will officially end next May, but it appears that Cloudtail has already begun reducing its business. Cloudtail has stopped buying more stock and is currently liquidating its existing inventory, the ET report said.

Dawtech Electronics is owned by Bengaluru-based Salarpuria-Sattva Group, one of the largest real estate developers in South India. According to ET, Dawntech is an independent seller and Amazon does not hold any stake in the company.

Both Amazon and Salarpuria-Sattva did not confirm the development to ET.

What about other segments?

Amazon is also in the process of appointing new sellers in other categories that Cloudtail operates in, the report said. A seller to replace Cloudtail in the fashion category is expected to be finalised next month, according to an executive of a top apparel brand, ET reported.

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The e-commerce giant is also yet to end its partnership with Appario Retail, which operates in various segments. Like Cloudtail, Appario Retail is a seller on Amazon in which the platform has a 24 percent stake. While Cloudtail is the most well-known seller on the platform, Appario is a close second. According to the Reuters report, while Cloudtail was referred to as “Special Merchant” or “SM” in internal documents, Appario was referred to as “SM2.” Amazon “estimated the two special merchants would together account for about half of the sales on its platform,” the report stated.

How big is Cloudtail and why is it shutting down?

Cloudtail is popular across multiple categories like smartphones, electronics, daily necessities, and fashion. A Reuters investigation revealed in February that Cloudtail and Appario account for nearly 35 percent of the sales on Amazon, and in total, 35 of Amazon’s more than 4,00,000 sellers in India accounted for two-thirds of the sales on the platform.

Cloudtail, however, has been at the centre of many accusations levied against Amazon with retailer bodies complaining that the seller makes the bulk of the sales on the platform and that it receives preferential treatment from Amazon. But both Amazon and Catamaran did not say why they decided to end their partnership. An investigation by the Competition Commission of India (CCI) into Amazon might be one of the reasons.

“The silence over the exact reason behind the disbanding of Prione from both sides – Amazon and Catamaran has left open tremendous scope for speculation. However, the decision coming on the same day as the Supreme Court giving its nod to a CCI probe into alleged anti-competitive practices of the former (and Flipkart) could not be mere coincidence.” – Nikhil Varma, Managing Partner, Miglani Varma & Co

“Amazon has repeatedly come under fire on the issue of preferred vendors and online discounting, thereby allegedly violating India’s competition laws. The allegations have only gotten worse and the rules only stricter with the introduction of Consumer Protection (E-Commerce) Rules, 2020. Amid all this, it is not surprising that the joint venture is coming to an end as both the companies will try to avoid any troubles with the CCI,” Varma added.

A brief history of Cloudtail

  • 2014: In 2014, Infosys founder Narayana Murthy’s Catamaran Ventures and Amazon entered into a 51:49 joint-venture to establish Prione Business Services. Cloudtail was set up as a wholly-owned subsidiary of Prione. India’s FDI rules do not allow marketplaces like Amazon to hold inventory and sell directly on the platform, but the rules do allow Amazon’s wholesale units to sell to sellers. This allowed Cloudtail to buy from Amazon’s wholesale unit and sell to customers on the platform, resulting in allegations that Amazon is abusing FDI rules by indirectly selling on its platform.
  • 2016: Sensing abuse of FDI rules, the Indian government in 2016, modified the rules to state that an e-commerce marketplace cannot derive more than 25 percent of its overall sales from a single vendor, which at the time, Cloudtail was allegedly doing. To sidestep this, Amazon created another company just like Cloudtail called Appario Retail. This was a 51:48 partnership between Patni group and Amazon.
  • 2018: Two years later, in 2018, the Indian government tightened the noose saying no group company of a marketplace can be a vendor on the said marketplace. Cloudtail and Appario were group companies because of Amazon’s 49 percent and 48 percent stake in them respectively. This modification essentially meant that Cloudtail and Appario could no longer sell on Amazon. After a brief period of taking down listings from the two sellers, Amazon delicately sidestepped this issue by reducing its share in Cloudtail and Appario to 24 percent each, and they were no longer classified as group companies.

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