Amazon preparing army of preferred vendors on the lines of Cloudtail, Appario

There was no immediate clarity on what these riders were.

Conventionally marketplaces demand exclusive tie-ups with the vendors in lieu of the preferred vendor status. However this isn't possible now given that Press Note 2 bars marketplaces from mandating any seller to sell a product exclusively on its platform.

But according to legal experts, while the regulation bars marketplaces from pressurising sellers for exclusive partnerships, there's no mandate specified on what sellers should or can do. Because of this, a seller is free to exclusively sell its products on a marketplace.

The second way to go about this could be if these sellers were also associated with smaller marketplaces but a majority of their business was still driven by the larger marketplace.

This arrangement on the other hand will come for huge benefit to the sellers. Besides reduced commissions, these sellers could also enjoy better positioning of their products on the app or the website — a factor that heavily influences the business a seller will generate.

"Such a move will mix up the alpha sellers and non-alpha sellers. There are multiple mid-sized sellers who Amazon can pull closer to their net to sell through them," said an industry expert requesting anonymity.

Currently the commission charged by a marketplace ranges massively from one product category to another.

However according to the data shared by the All India Vendors Association (AIOVA) there is still a large difference in what Amazon charges Cloudtail and Apparaio against the other sellers.

While Cloudtail and Appario are charged a two to three percent commission on their net sales, a regular vendor ends up paying 10-60 percent on its gross sale for similar services.

These services would include referral, shipping, payment collection, fixed fee, fulfillment by Amazon fee and return charges etc.

Commenting on the issue of preferred vendors model, the All India Online Vendors Association (AIOVA) said,"If there is a level playing field on the platform where all sellers are treated equally and charged with same fees and policy effects, all sellers are welcome. In the case of Cloudtail, its growth has been fuelled by the huge difference in the fees that Amazon charges from them compared to normal sellers. We just want a level playing field."

The program which is being discussed currently will be open for select group of sellers in the initial days.

The development happens at a time when Amazon briefly offloaded the two sellers, Cloudtail and Appario from its platform immediately after the revised foreign direct investment (FDI) guidelines for the e-commerce companies kicked in on February 1.

Cloudtail is back on the platform after a rejig in its structuring.

According to a report in Economic Times, Narayana Murthy’s Catamaran Ventures raised its stake in Cloudtail’s parent company Prione Business Services. The report quoted sources saying that the move reduces Amazon Asia’s stake in Cloudtail to 24 percent from the earlier 49 percent, with Catamaran Ventures’ stake rising to 76 percent from 51 percent earlier.

Following this, Cloudtail ceases to be an Amazon group company and is complaint with the rules. The revised FDI guidelines, bars marketplaces from having an equity participation, either on its own or through any of its group companies in any of the sellers that sell on their platform.

As per the 2013 RBI notification on foreign direct investment (FDI), two or more companies would be group companies if one is in a position to exercise more than 26 percent of voting rights in the other company. In Cloudtail's case, following the rejig, Amazon would be only exercising upto 24 percent of the voting rights and not 26 percent, ensuring its compliance in accordance with the definition of group companies.

Amazon declined to comment on the story.