Last week, the Indian government stuck to its e-commerce FDI ruling and set off intense speculation about Reliance's potential entry into e-commerce.

The changes were announced to be rolled out on February 1, and the government followed through. While Amazon and Flipkart "lobbied" hard (I speculate they didn't), the companies had to take 50% of the products off their websites. The key change was that marketplaces could not have related parties as sellers, along with other compliances related to discounts. 

Amazon and Walmart would end up getting pummelled in the stock market.

Losing $50 Billion in combined market cap, with Amazon accounting for $45Bn, the impact of the rules were immediate. It is thus clear that India is a significant market for both the American retail giants. Amazon has invested $5Bn in India, and continues to. Walmart bought Flipkart, which I postulated a few months ago is turning out to be a bad deal.

Morgan Stanley followed up by saying Walmart may exit India, if the rules didn't change. I speculate that this is less truth, and more a lobbying move that Walmart has set into motion because it is serious about India (and has spent serious money). The US government yesterday announced it would mull removing the zero tariff for Indian exports. 

That this would happen was expected, because the government's move is more political and less economic.

When the present government came into power with a full majority, the Prime Minister warned local businessmen that global competition was inevitable. This would have been a bitter pill to swallow, but with its majority it would be a pill that could be given. 4 years later, with a looming election, assembly losses and hits to small businesses, the government has likely moved to appease small businesses and one large business house.

That large business house, of course, is Reliance. 

As a believer in the benefits of free markets, I don't think the government regulations are beneficial to the Indian consumer or the economy. What I have always been impressed with, is Reliance and its Chairman Mr. Ambani's continual ability to influence governmental decision making. The conglomerate has demonstrated its ability to engage in regulatory arbitrage, or capitalizing on regulatory loopholes.

Nowhere was this seen better than Reliance's Jio blitzkrieg.

The company took advantage of regulatory loopholes to advance its telecom position (e.g. long promotional periods). According to Airtel's Chairman Sunil Mittal, Reliance Jio wiped off "$50 Bn" off telecom companies. This sounds quite familiar to the $50Bn lost by the American retail giants last week. Why would Reliance be doing the same for Indian e-commerce?

Can't win the game? Change the rules, of course.

Speaking at the Vibrant Gujarat Summit, Mr. Ambani announced that Reliance would foray into e-commerce in a big way. The timing was two weeks before the February 1 deadline, which would not apply to Reliance. It was followed up with an announcement of a $1.4Bn investment in West Bengal, with "e-commerce being a part percentage".

Commentators have speculated of an "impending bout between Bezos/Ambani", "Bezos' newest challenger in Asia is Ambani", "Reliance to disrupt Amazon and Flipkart". It clearly appears to commentators that Reliance is the dark horse in e-commerce, challenging the Flipkart-Amazon duopoly. 

The fact that telecom and e-commerce are both winner takes all markets, due to network effects, is an even more compelling reason to draw parallels with Reliance's Jio disruption.

But let's dig deep into what Reliance is really doing. The company plans to leverage both Jio and Reliance retail to setup an "e-commerce venture". Reliance will provide systems to many small retailers to come "online". It will use e-commerce kiosks with Jio stores for customers "to purchase products" and be online. 

What strategically seems like a powerful marriage between the massive online customer base of Jio and Reliance Retail's offline presence, it is actually just more of the same. 

E-commerce is not just an app with access to physical stores, it is a strong customer purchasing experience integrated with powerful logistics. Bringing people online is not e-commerce, as Reliance actually describes what it will do. The company's statements are tentative and exploratory. History says that Reliance has not disrupted e-commerce when it tried to do exactly this with Reliance Digital.

Comparing Google trends for Amazon, Flipkart and Reliance Digital shows why Reliance is likely to remain an afterthought in e-commerce.

User experience and logistics are a significant moat that both Amazon and Flipkart have created in the Indian market. These are both competencies that Reliance lacks, and will have to add, to even begin challenging. This is very different from the Jio story, where Reliance invested 150K Cr ($20Bn) and built telecom competency before blitzing the market with both know-how, infrastructure and capital. Amazon has already started seeing products return on the platform, and it won't be long before business resumes as usual. 

Reliance is more likely to be a silent bystander, than a dark horse, in India's e-commerce wars