In today's Finshots we see the rise and fall of Cloudtail - as a seller
If you’ve been a frequent shopper on Amazon, chances are that you’ve probably heard of the name Cloudtail. In fact, as sellers, they were so pervasive that at one point they sold 4 out of every 10 products on Amazon India!
But who is Cloudtail and how did the company come to be?
You see, when Amazon (backed by foreign investors) first came to India, the Government’s priority was to protect small traders. So they prohibited foreign investment in retail businesses selling goods directly to consumers. However, the government did allow foreign investments in businesses which sold to other businesses. And that’s where Amazon found a loophole.
They said — “No worries, we will act as a pure marketplace. All we are going to do is provide a digital platform for sellers and customers to have access to each other. We won’t engage in the actual selling”
But they were sneaky. They set up separate companies to do all the selling for them while running the show behind the scenes.
Amazon for instance created Prione Business Services Ltd — a joint venture with Narayana Murthy’s Catamaran Ventures. The company in turn launched Cloudtail. And Cloudtail acted as a proxy for Amazon selling products on its platform.
When the Government caught on to this little trick, it tried to make their lives more complicated. The government instituted a new policy — marketplaces were no longer allowed to meddle with prices or own the goods being sold on the platform. Moreover, the government barred the online marketplace from having a single seller constitute more than a quarter (25%) of the platform’s total sales. This, the government thought would end the problem once and for all.
However, the companies found another loophole.
They diluted their stake to a point where they were no longer considered owners. Amazon for instance pared its stake in Cloudtail from 49% to 24%. And they also made sure Cloudtail alone did not aid over 25% of all sales on the platform.
But the government didn’t let up. The Competition Commission of India — an entity responsible for levelling the playing field began an investigation into Amazon to determine if it prioritized certain sellers over others.
And rumour has it that when Jeff Bezos, the former CEO of Amazon, visited India, he was snubbed by India’s top political brass. The Union Minister of Commerce Piyush Goyal even launched a scathing attack against the likes of Amazon when he said: “Big companies wield a lot of power owing to large amounts of money with them, they are trying their best to maintain their free will in the e-commerce market. To hurt our small business and traders. And after a while, it causes harm to our consumers in the long term.”
Anyway, the final straw came in 2021, all thanks to an explosive investigation by journalists at Reuters. The media house accessed some of Amazon’s internal documents and highlighted bits that showed the company had indeed extended preferential treatment to a small group of sellers on its platforms. This included Cloudtail by the way.
And by then both Amazon and Catamaran Ventures had decided not to renew their partnership beyond May 2022. Instead, Amazon bought out Catamaran Ventures for an undisclosed amount and converted Cloudtail into a wholly-owned subsidiary. The company is no longer going to be selling merchandise on Amazon and its employees have been offered a choice to either stay on the company’s payroll or go their own separate ways.
That means there’s one final question — What happens to Cloudtail?
Well, clearly they can’t sell directly on Amazon anymore since that would be a direct violation of India’s FDI guidelines. What they could do however is lend their expertise to other sellers for a fee. And as more sellers try and capture the nascent Indian market, this could present itself as a huge opportunity. They could also manage Amazon’s private label — brands owned by the company. However, it remains to be seen whether that is something Amazon would want to do.
In any case, this seems to be the end of the road for Cloudtail (the seller) and we will just have to wait and see how they will emerge in a new avatar.