In 2010, three years beforeAmazonmade its India e-commerce marketplace debut, the US giant circulated an investment proposal, code-named ‘Red’, to a few select potential local partners for a retailing venture. Theinvestment proposaloffered a minimum return on investments at a pre-determined internal rate of return (IRR), including through a contingent three years ‘put’ option on the Seattle-based company. Also, Amazon would have a call on the shares at the same price.
“The Indian partner will majority own and will control the JV and in turn the RC’s (retail company) three out of the five board members to be nominated by the Indian partner,” the document reviewed by ET showed. The documents, marked “strictly private and confidential” showed that Red was seeking an Indian partner to invest $51 million for a controlling 51% stake in the joint venture while Red would invest $49 million for the remaining 49% share. “Red will launch its marketplace platform in India in 2012 and also offer third-party merchants related services to help promote e-commerce in India,” the document reviewed by ET said. The documents further said Red will help the Indian partner to “build the product offering and assist in administrative matters”. Red was seeking an Indian partner to provide “ecommerce enabling services to Indian merchants” on the proposed marketplace. The “retail company with the mandate of providing compelling retail offering and experience on the Red India marketplace for customers,” the document said.
Subsequently, in 2014, or a year after Amazon’s marketplace becoming operational, Infosys co-founder NR Narayana Murthy and his family formed a JV with Amazon – named Taurus Business (that was later changed to Prione) — where the Indian partner held 51% stake and its “retail company” Cloudtail sold everything from shampoos to smartphones on Amazon.in. “We cannot comment on speculative sources and unsubstantiated allegations based on unverified documents, with a malicious intent to discredit Amazon,” an Amazon spokesperson said in an emailed response. “Regulations in India have changed over time, and interpreting past actions against current regulations is mischievous and misleading. We have always been and continue to be compliant with all FDI laws and press notes.”
In 2010, Amazon was scouting for a reliable Indian partner as the country’s foreign direct investment laws forbade global companies from stocking and selling their own wares on technological platforms that they could fully own and operate. In the US, Amazon operates a hybrid model – by selling its own merchandise and partially lending its marketplace for other retailers to conduct businesses. India permitted overseas companies panies’ fully-owned ecommerce marketplaces, but such ventures can only lend their platforms for other retailers to sell their products. These marketplaces are, however, barred from retailing to end consumers.
A few years after the Narayana Murthy deal, Amazon formed several similar JVs with local business houses, including Patni family of Patni Computers fame, Darshita Etel-Darshita Mobiles consortium with the Salarpuria family, and Rocket Kommerce with Ramesh Shah and family. “All sellers on our marketplace act independently, including making all inventory and pricing decisions, and bearing all risk of their own business decisions and no single seller gets preferential treatment,” the Amazon spokesperson said. Cloudtail said it was set up to accelerate the adoption of world-class technology and best practices in retail in India so that numerous consumers and vendors are benefited, and thereby India gains immensely.Cloudtail said it works with over 6,000 unique vendors, more than 11,500 brands and over 700 MSMEs to deliver a high-quality services to several millions of consumers in a year. Over the years, Cloudtail mirrored Amazon’s growth in India. At its peak, Cloudtail would fulfil about 80% of total orders on Amazon.in. That share subsequently came down with Amazon lining up more such partners to sell wares on the platform. Then, in 2018, a policy amendment for India’s ecommerce marketplaces prompted the JV to undergo major changes with Amazon paring its stake to 24% from 49% while Narayana Murthy and family’s investment vehicle Catamaran Ventures LLP hiked its stake to 76% from 51% to stay compliant with the new regulations.
The new rules under Press Note 2 also specified that any vendor accounting for more than 25% of the platform’s total sales would be deemed “controlled” by the marketplace operator, prompting Amazon to bring the share of Cloudtail business to below 25% on Amazon.in to stay compliant with the changed regulations. Cloudtail’s revenues continued to grow as India’s overall e-retailing market touch $30 billion in 2020, up from less than $3 billion some years ago. As Amazon’s annual gross merchandize value topped around $10 billion, Cloudtail’s revenues swelled to about $1.6 billion at the end of fiscal year 2020, up from $237 million five years ago. According to sources in the retail industry, even though Amazon’s share in Cloudtail’s parent company Prione has come down to 24%, it’s the US company that calls the shots in the venture and several ex-Amazon employees were occupying key posts in the company.
“Cloudtail is an independent company that makes business decisions to protect its interests. The day-today operations of Cloudtail are managed by a professional management team with diverse experience,” a Cloudtail spokesperson said in an emailed response. The spokesperson said allegations against it were baseless and incorrect. “Cloudtail takes pride in complying with the law of the land in letter and in spirit.” The Patni family, Darshita Etel and Rocket Kommerce did not respond to detailed emailed questionnaires from ET seeking comments.