Tough Time Ahead For Cloudtail, Appario

Post amendments to the FDI rules, Amazon reduced its stake in Cloudtail(Infosys co-founder N.R. Narayana Murthy’s Catamaran Ventures) and Patni Group-owned Appario. With this Cloudtail and Appario are currently renegotiating deals with sellers. Cloudtail and Appario, the two largest sellers on Amazon.

Cloudtail, the largest seller on Amazon India, reported revenue of 7,149.21 crore in 2017-18, compared to 5,631.33 crore in the year-ago period, Appario is a subsidiary of Frontizo, which is a joint venture company in which the Patni Group holds a 51% stake and Amazon Asia Pacific Holdings holds 48%. India’s ecommerce landscape is going through a churn. The government does not allow FDI in inventory-based ecommerce to consumers.
 

Cloudtail and Appario is negotiating for 20-21% margin on audio products, up from 17% earlier, while in television, they are asking for 10-11% margin against 9% earlier, they said. However, for some brands in smartphones the sellers are ready to sell even at no margin. Now they have to bite their own bullets and now started renegotiating deals and asking for higher margins up to 18-20% from brands and distributors as they chase profitability post equity dilution by Amazon, multiple people familiar with the development said. Whereas, earlier they were charging 10% margin for a particular product.

The move comes barely months after Amazon, which was a joint venture partner in both Cloudtail and Patni Group-owned Appario, significantly reduced its stake in both the firms to small minority shares following a change in foreign direct investment (FDI) rules for ecommerce marketplaces in December.

In December, the government had amended FDI policy for ecommerce marketplaces in a bid to plug loopholes that both Amazon and rival Walmart-owned Flipkart were widely alleged to have misused. Both were accused by many of virtually running “inventory-led” marketplaces - that India forbids - by selling products through Cloudtail and Appario in Amazon’s case and RetailNet and other preferred sellers on Flipkart. The companies are doing business by leveraging the loophole of amended laws.
 

Now the challenge is on how the entire focus of Cloudtail and Appario is now on profitability and viability as compared to revenue and building market share.

Earlier there was no issue with working capital as there was free flow of money from Amazon. Now Amazon has decided not to offer any priority treatment to any seller such as concession in logistic charges and commission, the sources said.