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How Amazon used Cloudtail, Appario to snowball its India sales

How Amazon used Cloudtail, Appario to snowball its India sales

Amazon's strategy behind the joint ventures was to boost sales indirectly; the e-commerce giant removed the products sold by Cloudtail and Appario from the platform in 2019

With the help of Amazon, Cloudtail acquired "key relationships" with major tech firms-Apple, OnePlus, and Microsoft With the help of Amazon, Cloudtail acquired "key relationships" with major tech firms-Apple, OnePlus, and Microsoft

Amazon's leaked internal document has brought the spotlight on two particular sellers on the platform -- Cloudtail and Appario - who enjoyed over 35 percent of total sales on the platform until 2019. The leaked internal document was part of a briefing note prepared for Amazon.com Inc's former executive Jay Carney accessed by Reuters.

Among other details, the internal document reveals the US-based tech giant Amazon developed an independent seller named Cloudtail in joint venture with an entity formed by one of India's biggest tech magnates and Infosys founder NR Narayana Murthy. Cloudtail, also referred to as a 'special merchant' or 'SM' in the internal documents, has been selling goods on Amazon since its inception in August 2014.

Amazon's strategy behind the joint venture was to boost sales indirectly. "The Special Merchant (SM) was launched in August-14 and we helped SM quickly ramp up and gain scale through Q4,"  an Amazon India report, dated Feb. 23, 2015, read.

Amazon's business strategy for Cloudtail was to "Launch, stabilize, grow Special Merchant; make it profitable." The target was to ensure that Cloudtail accounted for 40 per cent of Amazon.in sales and make it into a $1+ billion business in 2015. Cloudtail's share of sales on Amazon.in was around 47% in March 2016, according to the internal document, Reuters reported.

With the help of Amazon, Cloudtail acquired "key relationships" with major tech firms-Apple, OnePlus, and Microsoft. This included exclusive deals to sell their products like smartphones.  This was a win-win situation for both Cloudtail and tech companies as tech companies got a big new sales channel whereas Cloudtail got sought-after products listed on Amazon.in.

However, India revised its e-commerce policy in 2016. The revised e-commerce rules in 2016 stated, "e-commerce entities providing [a] marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain [a] level playing field." It also capped online marketplace sales from a single seller at 25% of total sales. This forced Amazon to reduce Cloudtail's share of sales to 25% or less.

But to address the sales cap, Amazon entered into a joint venture with an entity backed by the family of Ashok Patni, a pioneer in the Indian IT outsourcing sector. The new seller launched in 2017 was named Appario and referred to as 'SM2' in an internal document. Cloudtail and Appario allegedly got "subsidized fees" and access to Amazon global retail tools. Murthy, Cloudtail said no comment to Reuters' queries, while Patni and Appario did not respond, the news agency reported.

According to the internal document, Cloudtail and Appario enjoyed 35% of Amazon's online sales before the Indian government announced new restrictions that prohibited vendors in which e-tailers such as Amazon had equity interest from selling products on the same platform. Amazon removed the products sold by Cloudtail and Appario from the platform in 2019 and reduced their equity stake in the joint venture to comply with the new rules. They reintroduced the products on Amazon after the reduction in stake.     

Meanwhile, Amazon has refuted it undertook unscrupulous measures to avoid stringent e-commerce regulations in India. The retail giant said that it has always complied with the law of the land and remains committed to supporting manufacturers and small and medium businesses in the country.

"As we have not seen the documents and Reuters has not shared their provenance with us, we cannot confirm the veracity or otherwise of the information and claims stated. The article appears to be based on unsubstantiated, incomplete, and/or factually incorrect information, likely supplied with the intention of creating sensation and discrediting Amazon," said an Amazon spokesperson.

"Amazon remains compliant with all Indian laws. In the last several years, there have been number of changes in regulations governing the marketplaces and Amazon has, on each occasion taken rapid action to ensure compliance. The story therefore seems to have outdated information and does not show any non-compliance," the spokesperson further added.

With Reuters inputs; by Mehak Agarwal

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