How Cloudtail got a ‘scrap’ boost
As Jeff Bezos and Narayana Murthy end their joint venture, their prolific growth benefited from more than just its sourcing
If one were to close one’s eyes today, and click the mouse on anything to shop on Amazon, chances are that one would end up buying something sold by Cloudtail, owned and controlled by Infosys founder N R Narayana Murthy, along with the world’s richest man and Amazon founder Jeff Bezos. Now they have announced that their joint venture will end by May 2022.
Cloudtail, arguably the world’s largest retailer on Amazon, has come a long way since 2011, when it was established as Sparrowhawk Trade and Marketing by a couple of individuals with a registered office in South Delhi’s Greater Kailash. Rechristened Cloudtail in 2012, Narayana Murthy’s venture is now the most dominant seller on Amazon, the world’s biggest ecommerce marketplace that commands a third of India’s online retail market.
Cloudtail’s dominance has been so formidable that it faces accusations from traders’ associations in India of unfair trade practices and of crowding out small retailers. But its journey in a short period has been nothing short of prolific.
Cloudtail claims to have onboarded over 6,000 vendors selling over 11,500 brands in virtually every corner of India. Its website states that it has provided an e-commerce platform to over 700 registered MSMES in a short period by helping them “through awareness creation, training, consulting and value-added services such as catalogue creation and the use of online tools”.
From 2011 to 2014, Cloudtail had virtually no business operations or revenues to show. Between July 2014 and May 2015, the company, which had a paid-up share capital of just ~1 lakh, saw it rising to ~500 crore. This money was injected by Prione Business Services, a company established in 2012 with its corporate office in Bengaluru, for a 99.99 per cent stake in Cloudtail. Prione is controlled by Narayana Murthy’s venture fund, Catamaran Ventures, and some Amazon subsidiaries. With this, the old directors were eased out and in came a new management, including two of Amazon’s top executives in India. This fund infusion also came barely a year before Amazon debuted its shopping website in India in 2013.
That was when things radically changed for Cloudtail. From virtually no business operations, its revenues jumped to ~1,145 crore in 201415. From being a nondescript entity, Cloudtail now had specific business objectives of “trading in goods on the e-commerce marketplace platform, scale up its business, and build sustainable and repeatable seller processes with a continuous focus on bringing quality products at affordable pricing for its customers”.
Though Indian e-commerce rules for operations of foreign retailers were still a grey zone, it wasn’t until 2016 that the Indian government brought in specific rules that sought to rein in singleseller preponderance on e-commerce platforms. By the time these rules took effect in 2016-17, Cloudtail had seen a five-fold jump in revenues to ~5,631 crore in just two years. In 2020, as a couple of complaints filed by merchant associations led to the initiation of an antitrust probe against Amazon, Cloudtail had doubled its revenues to over ~11,400 crore.
While revenues grew exponentially, green shoots of future profitability emerged only recently. Cloudtail clocked its first ever profits in 2018-19, making ~29 crore on revenues of ~8,940 crore. In 2019-20, profits doubled to around ~68 crore. But there is more to how Cloudtail built its ecosystem across India than meets the eye. The general wisdom is that Cloudtail (and other online sellers like it) directly buy goods from manufacturers and are therefore able to sell at huge discounts to online customers, as opposed to brick-and-mortar retailers, who often go through wholesale purchasers, adding to the selling price.
It’s true that Cloudtail bought its inventory directly from some of the world’s biggest companies, but it also had a way of disposing of unsold inventories and returned goods or defective products to other wholesalers. Many other retailers on e-commerce websites such as Flipkart also follow this model. Many of these wholesalers, mainly from small towns of India, paid Cloudtail crores of rupees.
Ashu (he goes by only his first name) is one of them from Haryana’s Tohana. In 2020, he paid a few lakhs of rupees to Cloudtail in advance for delivery of some goods he would sell through his wholesale outlet in Tohana. “We purchase old, returned or defective stock from Cloudtail and then sell wholesale to buyers. We can get a returned product for a fraction of the price we would have paid for a normal product from manufacturers directly. The products are delivered by Amazon. With Flipkart, I have a pickup arrangement. But Cloudtail never dispatches goods on credit. It is only after full advance payments that they even generate an invoice,” he said.
Babbar Siddique runs a “dispose” business in Thane — effectively a scrap shop. “We buy liquidated stock from Cloudtail. It usually comprises defective or expired products. Since these are mostly useless, we buy it at very cheap rates, sometimes a flat rate, irrespective of the product. I make money by dis-assembling them and disposing of them as scrap. Earnings from Cloudtail have dipped over the years as more vendors have come in. Now they have the power to choose vendors,” Siddique said.
There are many such wholesalers from Kurnool in Andhra Pradesh to Bathinda in Punjab, and even small towns of Bihar and Haryana, to whom Cloudtail sells its “bad” stock. With its growing online clout, it also reportedly managed to ink return contracts with bigger vendors and manufacturers with which it had purchase agreements. Effectively, in a short span of time, Cloudtail was able to devise a model that could protect it from the vagaries of online retail business.
Perhaps more intriguing is the role of its parent company Prione whose stated business objectives seem to complement that of Cloudtail. Prione states that it helps small and medium businesses in small towns and cities set up digital selling platforms on Amazon after evaluating their proposals. After selection, these unorganised sellers are assisted to set up a “modern high-tech office”. Sellers who bring more sellers to Amazon are given incentives — a model reminiscent of the Amway days of the 1990s.
Questions sent to Prione and Cloudtail had not elicited a response at the time of publication. Their responses shall be published when received.
The announcement to end Cloudtail had come on a day the Supreme Court ordered that big ecommerce platforms like Amazon and Flipkart would have to face investigations by India’s competition regulator for potential violation of competition laws.