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Outlook for 2008 (Part I)

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I won’t try and predict what is to come this year. I have always sucked at making predictions and I think it is a silly business anyway. So I’ll write about things I’d like to see in the year 2008.

First, a bit of background. It is no great secret that the US economy is progressively slowing down to a level where it is no longer possible to get a whopping rate of returns on most forms of investments. What this means is that there is money to be invested in the country, but there are no decent investment destinations where it can be plonked into.

This pile of cash sitting in the hands of VCs, hedge funds and investment bankers need to be invested somewhere for it to bring in the returns that justify their existence (and huge commissions). So it is likely that eventually a fair chunk of this will end up in China, India and other emerging markets.

Now, everyone loves the China story, but China has a major weakness that is not there with India. The Chinese economy is propped up largely by exports. Exports to the US, to be more specific. Any slowdown in the US economy eventually spills over to China, cutting down their own prospects for 2008 and the years to follow after that. This is the reason why you see interesting things like a Chinese bailout of an American institution, which would have been unimaginable a couple of years ago.

India, compared to that, has a degree of exposure which is considerably lower than China to the American (mis)fortunes? This is where we have actually benefited from not having a whopping trade surplus like what China has with the US. The coming couple of years will be entirely about companies who have limited or dynamically fixable exposure to the US markets doing well compared to companies that are dependent on the US economy for their daily bread and butter.

Most of India’s exports are service-oriented: basically software and a bunch of other trades like garments. Software will primarily take a hit on margins on existing contracts due to the exchange rate equation and an even bigger hit on margins on newer contracts. They still can afford, though, to look at ways to make through a couple of years of this slowdown. The garment trade, though, has been decimated by the downturn and the weak dollar, with many players raking up crores in losses just over a couple of months. Then again, of the entire garment segment, India still does not account for much.

Which brings us to the important point: India’s economic activity is largely internal. We can’t seem to produce enough of stuff for ourselves and with time all this economic activity is bringing an increasing number of new participants to the middle class segment that did not exist before. Of course, the trickle down is not happening fast enough, but if you consider how huge and how varied our nation is, this would come as no surprise.

But, essentially, we have a market that is looking good to grow well for the next decade (or even further), a vibrant democracy and a strong enough country that has been able to withstand and easily overcome terrorist attacks. Of course, there is much wrong with the country too at the same time, but that won’t disappear overnight. Such changes take time and we won’t see spittle-free walls or even marginally better politicians for a long time. But what we do need to appreciate is that it is improbable that even with any party coming into power, the development and economic agenda will be changed much. We will see sops and instances where politicians will play to their favourite gallery, but the larger economic agenda will keep going.

Now to the list:

Innovation: India will be one of the hottest destinations for investment in 2008, which will again be only the start of something much bigger. That said, investable properties in India are far and few, especially in the digital sphere. VCs and other players in the innovation ecosystem will need to find newer ways of finding companies and products that are worth investing into.

A lot of our products these days come from the copy-paste school of doing products. “It worked there in the west, so it must work here!” as a product peg needs to disappear. Use cases have to be considered as a must-have, alongside projections that are valid and current usage levels which is not inflated. It would be nice to see a bit of honesty within the system, just to begin with.

We have holes in our entrepreneurial system that have to be plugged. Instances like this won’t happen if the VCs step more into a mentoring role and help them along. I know the norm is that VCs like to limit their meddling in the company to the board meetings, but at least short term funding in this heavily commoditized times is not a major issue for people, VCs have to change the way they approach the business and their portfolios. If they play it right, there is a considerable amount of leverage they can exercise in terms of scale and in a scenario where the cost of replicating is product is peanuts, compared to the cost of finding a differentiator, that could be a killer point which makes all the difference to their portfolio.

You can make a decent killing in any segment by being lucky, being there first or by being plain smart a few times. Longer term profits and sustainable product lines, though, are derived from one thing: innovation. The kind of money that will flow into India will need a thought process and a product development stream that is better than what we have now.

This, mind you, is a long term change. It is something that will take years to precipitate. It is a habit that is acquired, one that needs to be forced upon ourselves before it becomes a force of habit. I think that soon enough we will be forced along that path because the volume of investment will demand that kind of effort. 2008 could be the year when we see the start of that process.

Mobile: We need to get over our fascination for SMS and the slew of value added services as the conduit through which the amazing growth is going to come. Of course, the market is constantly expanding, but with the dismal average revenue per user, the margins are not exactly mouth watering. This, in turn, will affect the telcos’ ability to move into the relatively unexplored rural markets. What they need for 2008 is a new product. They need to push out the first sub INR 5000 mobile internet access device out into the market.

As my friends know only too well, such a device is one of my pet themes and this is how it works. A Nokia E50 phone costs around INR 8500 in the market these days. This is a phone that does EDGE, has the lovely Series 60 browser that works on pretty much every website that I use on a regular basis and is rugged enough to survive India. Slap on to it the unlimited GPRS deal from Airtel (INR 500 per month) and you get a mobile internet device that has an initial cost of INR 9000 and a recurring cost of INR 500 per month.

Now, if a telco were to order this handset in bulk from Nokia, it would get them a significant discount and if they subsidize the cost further themselves, it could even be brought down to INR 5000 to start off with. You could also make it even easier by spreading out the start up cost in terms of installments (INR 50, 100 or any other amount), that could be added on to your monthly bill to beef up adoption.

It should ideally be a win-win deal for Nokia, since there is no additional development to be done on the device and they will get to move such vast numbers that the volume itself should bring in decent margins. Or, we could take the harder route, re-engineer the device, strip it down and change the orientation to bring more width than length to the screen and give it a full QWERTY keyboard.

The bottom line is that a pervasive internet experience is the thing that will save the telco soul. This will also allow them to price services and content that are not limited by what SMS and IVR currently limits you to. And if you consider how restrictive and artificial the interactivity are on those services, offering the internet experience on your handheld device can only be a winner, whichever angle you want to look at it.

And, before I forget it, did I say that it breaks the entire penetration issue?

I think this is a long enough post for now. I will post the second part a day or so later.

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Written by shyam

January 9, 2008 at 8:23 pm

Will spirituality save the telco soul?

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Seems like the slowdown in revenue for mobile operators from existing services is not just an India-specific problem. Jupiter Research has recently done a correction for its forecast for Western Europe to 910M euros in 2011 as far as ringtones go.

It has been a known fact (keep hearing that at the various conferences and industry meets) for a while that the average revenue per user in terms of calls had been on the decline for a long time and services like SMS, ringtones and other downloads were meant to keep it booming for a long time to come.

And that is the reason why Vodafone is hitting the consumers hard with their new and lovely advertisements for services that stay within the network. All the things they are pushing at you — astrology, news alerts, Art of Living updates — are nothing new, they have been around for a while, but the way they have recast it says a story in itself.

Each of the new Vodafone service is priced at INR 30 per month to the subscriber. The costs that the company incurs in getting the service online is acquiring the content to support it, the management of the same content and the billing parts of it.

Content acquisition costs are normally never tied to the subscriber base, unless they happen to be be a ringtone or a download. Which would mean that their margins would go up with every new subscriber they add on for a service. The other cost point for them would be the billing and content management services, which I don’t think (okay, sue me for the blanket guessing here) is again based on volumes, leaving the service provider with decent margins all over again.

That leaves us with distribution, which is one factor that costs pretty much nothing to the company. Most of the services (maybe, even all of them?) are SMS based. These services are available only to the service provider’s subscribers, meaning that the traffic stays well within the service provider’s network, leaving all the interconnect and revenue sharing problems out of the window and a larger chunk of the revenue for the company to keep for itself.

That leaves us with an interesting set of projections. Even 20% of Vodafone’s subscribers singing up for at least one such service would earn the company truckloads of money. Current estimates are that by the end of 2007 Vodafone would have around 38 million subscribers in its network. Take 20% of that and multiply it by 30 and you’ll get the point that I am getting at.

Going forward, a smaller percentage of that 20% will probably subscribe to multiples of these services, kicking up the revenue per user even higher. And all of this is happening at near-zero or minimal cost to Vodafone. So, next time you wonder why Vodafone is going bonkers pummeling you with all the nifty ads that should be costing them a pretty penny, remember that some sucker somewhere is actually signing up for that service and giving plenty of reasons for Mr Sarin to smile about.

Written by shyam

January 4, 2008 at 8:08 pm

Posted in advertising, India, Mobile

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Importance of emerging markets in technology

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I can’t resist posting this one, but you have to read this piece in Ars Technica on how hand held device manufacturers and the chip manufacturers who manufacture the processors for the devices are being forced to look at newer markets:

The vast bulk of the history of computing up until the present day has been about moving semiconductors from the server room to the business desktop, then from the business desktop to the first class cabin, and then from first class into coach. At this point, everyone who can afford a cheap plane ticket or a pair of Nikes is already wired to the gills with transistors, and the major bottlenecks in getting those folks to buy even more of them are mostly out of Intel’s control (i.e., screen size/quality, battery life, connectivity, usability).

To see real growth in the coming decades, Intel, AMD, and the rest of the semi industry must focus on markets where an iPhone would cost a month’s income, and then on markets where it would cost a year’s income.

This is a drum I’ve been beating for a long time that someone has to blink first and introduce a device that is a bare bones internet access device, at a price point of INR 4000 – 6000 (a Nokia E50 that supports EDGE currently costs INR 9000) and take about INR 2000 per unit of that as cost for a couple of years to kill the penetration issue and unleash internet access on the masses, like how it happened with mobile phones.

A fairly usable unlimited data plan on Airtel these days (Mobile Office) costs INR 500 per month. A proper device (the right form factor much in the lines of PSP and a full QWERTY keyboard) along these lines can set the market on fire and give the ever-hungry telcos a whole new breed of consumers and the silicon guys a new market to power using their new chips.

What is even better is that EDGE works pretty much around the country, essentially meaning that you get decent access to the internet pretty much from a whole host of places where it is just not available due to various reasons (Airtel refuses to provide me with a DSL link till they can find some more people from the same area).

The critical factor in all of this is getting someone to blink. Such a device would not find much uptake without the telcos actively pushing it. But, for all of this to happen, someone has to go out of the way and place themselves in the risky position of being the first ones to open up a new market.

I guess we are still a bit away from any of the players getting that desperate, but I guess the time is not too far off before something like that will happen.

Written by shyam

December 22, 2007 at 9:20 pm

On learning the Curve

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On a fateful day last month, I gave into temptation (and driven, in part, by frustration) and got myself a Blackberry Curve. Thus, I am now sans a soul and am now getting more and more comfortable with commandeering my ride on the information highway with the famed dual-thumbed approach.

Incidentally, I have not activated either the Blackberry Internet Service (BIS) or the office Blackberry Enterprise Server on it yet. I am using it for now purely as a full QWERTY keypad phone and using the Opera Mini Beta 4 of surf the interweb. The verdict for now is that I love the phone.

I did regret buying the phone earlier, when I could not find any decent way to get it to use the EDGE connection that I have on Airtel. At that time, for reasons that were very convoluted, it was impossible for me to get online with the phone and I even considered selling it off. Then, one day, I found the Opera Mini 4 beta and found ways to easily replicate almost all of what I used to do on my trusty E50.

I will post a longer review of the phone later, but the shorter version reads something like this: Things I love about it: The interface is snappy, fast and very intuitive. Same goes for the message threading.

Things that I hate about it: It badly needs a browser that is better than the piece of shit that it ships with. Opera, if they have even half a brain, will release Opera Mobile for it. I can see almost every executive who has one lining up to pay good money for it and it is kind of sad that Opera has not done that.

That said, Opera Mini makes my day on the device. And strangely, I’ve found the EDGE connection to be much faster while using the Curve as a tethered modem than the E50, but it does have a bad habit of getting stuck (only with the packets, not the apps) every now and then.

BTW, if you were wondering why the Blackberry Facebook application does not work on your phone, it is because you need an EDGE connection, other than BIS on your Blackberry to get it to run. Strange, but true.

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Written by shyam

November 7, 2007 at 5:08 pm

Google’s Opera Mini killer

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Peter Cranstone, while pondering how the Google phone will deliver ads to its users, says that Google will have to do something similar to what Opera does with Opera Mini — transcoding web pages — for the Google phone. He adds that once Google gets around to doing this it will beat the crap out of Opera Mini, which probably won’t find much agreement with Russell Beattie, who argues that someone should buy Opera just for the traffic that is now routed through Opera Mini.

What both gentlemen are probably not aware of is that Google already has a transcoder that converts pages into mobile-formatted on the fly. Now, rather strangely, the interface is not available anywhere as a start page as far as I know. Google does serve you a mobile-specific Google.com page depending on your User Agent, but the links that are delivered in the results page do not use the transcoder.

The only place where you can see it is if you use the mobile version of the Google Reader. In the entry-level screen on Google Reader, there is a link that says “see original,” which can also be accessed by pressing ‘0’ on your mobile phone. To access any normal page on your desktop browser via this transcoder, all you have to do is to append the URL you want to browse to the following URL: http://www.google.com/gwt/n?u=. For example this blog can be accessed this way: http://www.google.com/gwt/n?u=https://fatalerror.wordpress.com.

Currently, the transcoder supports most standard HTML, including forms, which means that you get to access things like email on the go even on a very low-fi handset, and also that Google gets another bit of your personal information (did I hear the privacy paranoid let out a collective gasp there?) for it to index and profile. The good part of the story is that it refuses to transcode secure URLs, which I remember was not the case with Opera Mini.

Now, here I also have to admit here that Opera Mini does a stellar job, but it also has a problem that you need to have J2ME support to be able to use it. Besides, the Google transcoder seems to be considerably faster while transcoding and rendering pages. For all you know, Google maybe licensing Opera’s technology to do this (imagine: Opera Mini kills Opera Mini. What a headline!), but from what I remember Opera is running a mightily hacked up version of the Opera browser as middleware to make Opera Mini possible, while Google’s approach seems to be in line with the more standard HTML Tidy/HTML Cleaner/HTML Parser/Tagsoup approach to de-mucking web pages, albeit a monstrously hacked version of it.

Written by shyam

August 31, 2007 at 5:47 am

Jajah to spread wings in India?

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At least that’s what a report in The Hindu Business Line claims. Strangely, the body of the story does not say much, other than what is already known: the T-Online Venture Fund infusion and Intel Capital’s involvement in Jajah. In fact, the story in itself reads like a rehashed PR pitch and it is kind of crappy that you can lead with a grand headline (which is kosher is you are a blogger though!) and not follow it up in the body.

Any kind of telephony over IP is a major minefield in India and it will be chased down tooth-and-nail by both the regulators and the existing regular telephony players. The legal side of matters is also quite confusing in this regard. But this should be an interesting one to watch, since various parties have for long been trying to get even voice chat in popular instant messaging platforms shut down. The Jajah website does identify users by the originating country’s IP address and for now for unregistered users the service is available only in the landline-to-landline combo.

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Written by shyam

May 30, 2007 at 9:33 pm

Posted in India, Mobile

Is it whisper, is it a whimper? No, it is AOL.in!

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The recently-launched AOL India has to be one of the greatest letdowns in terms of new online launches in India. The production quality is so mediocre that it looks like someone took the US version of the portal and made a cheap Indianised version of it — more like a fake Tommy or a D&G. It kind of, sort of looks the same, but that’s where the similarity ends. It looks like in their rush to release the product, AOL has made the error of bringing out a half-baked product, which is almost an insult to the users.

From the early announcements and noises coming from their Bangalore office, the product was to have a lot of videos, especially its Cartoon Network content, aimed at locking in the future market of today’s kids, and leveraging it to work around the problem of otherwise not having compelling-enough content. There IS video and multimedia on the site, but it is so subdued and run-of-the-mill that it is not even worth commenting on it.

The webmail is nothing but AOL’s international email with a bit of Indian branding and I can only assume that the case won’t be very different with the messenger either. Search is hooked up to Google, an extension of the deal that AOL already has with the search giant, so there’s nothing special there either. They do have a short code ‘51515’ and the content and services are powered by Onmobile India.

I was left looking and searching that there should be something more. But that is it, nothing more on the portal, nada, zilch. It is a very simple word — disappointing.

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Written by shyam

April 26, 2007 at 8:44 am

Posted in India, Mobile, Take-two