Cloudtail is on a cart of woes because Amazon doesn’t have a boat to keep it afloat in 2022
An eight-year-long marriage, some compromises, and then a divorce: This is how it went: A joint venture (JV) between Amazon and NR Narayana Murthy’s Catamaran Advisors happened in India. It was called Cloudtail India Private Limited, and it had a child called Cloudtail India Private Limited.
Things fell apart quickly between Amazon and Catamaran after being together for almost ten years. Amazon may be giving up on Cloudtail after Murthy left, regulators started putting pressure on them, and traders’ groups began yelling at them. This could be the last straw for Cloudtail.
End of the road
Cloudtail has always played a big part in Amazon’s plans for India because it is one of the biggest sellers on its site. That’s not true anymore, though. The FDI rules have been changed in recent years to say that Cloudtail, which is now wholly owned by Amazon, can’t sell its products on the company’s website.
As of the time, this article was written, Cloudtail’s products were still up for sale on the Amazon India site. According to some people who work for the company, these listings could continue until the acquisition process is done.
According to sources, Amazon will stop using Cloudtail as a store and only use Prione for other things, like advertising and consulting for small businesses.
They say Cloudtail has asked some of the merchants who used to supply their stock to move their accounts and supplies into other businesses, such as rocket commerce and cocoblu retail, part of RattanIndia Enterprises. This company has businesses in many different fields.
There’s a good chance that Amazon will shut down Cloudtail because Amazon has asked Cloudtail’s suppliers to move their business away from Cloudtail and buy from other sellers. One of Cloudtail’s suppliers, who works in the beauty and personal care category, tells ET Prime on the condition that he remain anonymous.
In January, RattanIndia Enterprises said that its subsidiary, Cocoblu Retail, had signed a deal with Amazon Seller Services, which runs Amazon’s marketplace in India. This means that Cocoblu Retail can sell things online.
Amazon hasn’t said how it would deal with Prione. Cloudtail has been getting a lot of attention in the news.
Before we get there, we need some background.
Amazon doesn’t own Cloudtail, and Amazon doesn’t own any of it. When it comes to getting new sellers on board, Prione (the company’s joint venture with Catamaran) takes care of that. It also teaches sellers about e-commerce cataloguing, packaging, warehousing, and digital advertising; this is what the company does. Cloudtail, as we said earlier, is a subsidiary, run by the same company. Cloudtail has been Prione’s main business for a long time.
It’s said that Amazon is in talks with a few private equity groups about selling a majority stake in the company Prione. One of these groups is Samara Capital. Samara Capital and Amazon have been working together for a long time. They set up Witzig Advisory Services, which they used to buy More Retail from the Aditya Birla Group in 2018.
But it’s not likely that Samara Capital will buy more than 51% of Prione.
Prione will still be a group company of Amazon, this won’t help Amazon save Cloudtail. On the other hand, according to an ex-Amazon employee, the company thought the rules didn’t apply to indirect equity. Prione wasn’t a group company because Amazon had cut its stake to just 24%.
To close Cloudtail, it will cost money.
Amazon has said that Prione was set up to help small businesses get online. Still, many in the industry think it was set up to get around India’s FDI rules, which say that e-commerce marketplace entities can’t sell directly on their platforms.
When the JV came to an end in August 2021, Amazon said that Prione had helped more than 300,000 small businesses and entrepreneurs and 4 million businesses go online.
In the same statement, Amazon India CEO, Amit Agarwal, said that the JV with Catamaran had exceeded its goals, helped 4.3 million small businesses, and helped the Indian digital economy.
When Amazon applied to the Competition Commission of India (CCI) to buy Cloudtail, it said that the company also sells products in bulk through both online and offline stores. “… even though Cloudtail makes very little money from wholesale (B2B) sales.”
If Cloudtail doesn’t make money, what will happen to it? Cloudtail has been a big part of the sales on Amazon, but it has also been a fast-growing and profitable business in its own right.
As soon as Cloudtail shuts down, Prione and Amazon will lose money.
INR 5,631 crore in FY17 to INR 16,639 crore in FY21: Cloudtail’s revenue has grown a lot over the years, primarily because it sells goods on Amazon’s marketplace. It was a big year for Cloudtail’s payment, and it grew by 45.79 per cent over the previous year. Its bottom line has also grown, with the company making a net profit of INR182 crore in FY21, a 2.6x year-over-year increase.
Cloudtail, on the other hand, paid Amazon about INR2,000 crore in platform fees in FY21, which is more than double the INR980 crore Cloudtail paid in the same period last year. Cloudtail paid more than double that amount, and this sum has grown a lot over time.
People don’t know how much Amazon will pay Catamaran to buy out its stake in Prione, but they know how much Amazon will pay. Catamaran Advisors serves as a trustee for the Hober Mallow Trust and may not get all of the money it gets from this deal. ET Prime had written about the complicated corporate structure of Cloudtail and other Amazon businesses last year, and now we know more about it.
Why did Narayana Murthy call it quits just two years after Catamaran raised its stake in Prione to 76%?
A regulatory mess
A company called Cloudtail has been at the heart of Amazon’s recent problems with the government (apart from the Future Retail tangle, of course).
Both Amazon and Flipkart announced that they ended their partnership in August of last year. This was the same day that the Supreme Court ruled against their petitions to stop a probe by the competition watchdog into alleged anti-competitive practices by the two companies.
CCI is now looking into claims that Amazon and its Walmart-backed rival are giving preferential treatment, providing deep discounts, and other anti-competitive practices.
When the Delhi Vyapar Mahasangh, which represents traders in the city, first filed a complaint with the CCI, it said that Amazon has preferred sellers in Cloudtail and that the same people also run the two companies. The group said that most of the sales on Amazon happen through a few sellers, like Cloudtail and not many other people. Appario is another seller part of a joint venture between Amazon and the Patni Group, called Frontizo Business. Appario is a subsidiary of Frontizo Business.
It’s been a problem for third-party sellers for a long time. They say Cloudtail gets special treatment on the platform, and Amazon charges Cloudtail a much lower platform fee than other sellers.
A rise in the platform fee seems to signify that Amazon has been slowly raising the price, and the figure has risen in subsequent years.
In November 2021, the top people at Amazon also got a shock when the Enforcement Directorate sent them a letter (ED). While ED was focused on the Future Retail deal, sources tell ET Prime that there were also questions about Cloudtail and its setup.
The notice from the ED may have sped up Murthy’s exit process.
Cloudtail’s legal problems and accusations that it isn’t adhering to India’s FDI laws have drawn the world’s media’s attention, and the Guardian in the UK is one of the best known.
The newspaper was interested in Murthy’s relationship with the British chancellor, Rishi Sunak. The founder of Infosys may not want to be seen as a part of anything that could hurt his son-in-political law’s chances. On December 24, 2021, Murthy announced that he would sell the Catamaran’s entire stake to Amazon, even though the contract was set to expire in May 2022.
The bottom line is:
The Confederation of All India Traders (CAIT) has always been a problem for Amazon. CAIT has also filed a complaint against the deal, which Amazon has always fought. Amazon would have a 100% stake in Cloudtail after CAIT told CCI that would have an “appreciable negative effect on competition,” CAIT said.
That’s why CAIT president, Praveen Khandelwal, wants to fight the deal again now that the CCI has given its blessing. People from CAIT’s legal department are looking into the matter right now, and CAIT will try to fight it, Khandelwal tells the Daily News.
“It looks like the CCI is under a lot of pressure and hasn’t looked at important evidence, FDI rules, and other laws and policies.” So, of course, CCI has to look at things from a competition point of view. When an entity doesn’t follow the law or rules, it won’t be able to compete in the market, he says:
Cloudtail has always had to deal with strong winds, but the Amazon-Catamaran team has been able to weather them so far. E-commerce company Prione and Cloudtail were married for a long time, but now they are on their own. They have to decide what will happen to them.
