GlobalGyan Blog

In an earlier post, we looked at how network orchestrators like Uber, Zomato and Facebook see exponential increase in connections as they add more participants. There is clearly tremendous value in being a first mover and growing market share rapidly, even at the cost of reasonable business economics. Yet, we also see that none of the networks are really unique – every platform idea has spawned several other copy-cats. Most of the markets are still nascent and have a lot of room for growth, so everyone believes they have a chance at success. Moreover, given the asset-light model of network orchestrators, there are no real entry barriers for a me-too product.

This absence of competitive advantage is emphasized by the apparent lack of any platform loyalty by network participants. For instance, most customers of ride-sharing services have downloaded more than one app on their phones; likewise, many drivers have signed up to two or more networks. Availability and price seem to determine choice for both sides of the network. A similar situation of bargain-seeking can be seen in e-commerce and real-estate marketplaces.

As long as the role of the platform is to just aggregate and enable discovery of supply and demand (at no cost to either), there is limited stickiness. The next platform with a slightly lower price or transaction fee will churn traffic to its network. In an extreme but plausible scenario, why wouldn’t the network participants try to disintermediate the platforms? On several occasions, drivers of the ride-sharing networks pass along their business cards, asking to be contacted directly. What would stop the customer from saving a bunch of phone numbers for the promise of a lower price?

Essentially, how do these platforms add value beyond discovery and aggregation? Let us discuss two major sources of value and differentiation that appear to be working for the successful platforms.

Information

Every time a transaction occurs in the network, the platform gains valuable information that can be used to predict future demand / behavior. A taxi network that has analyzed demand / supply patterns can help its driver partners to locate themselves at specific locations that increase the chances of being hailed quickly. The network can ensure that all the drivers do not land up at the most obvious hotspots (e.g. airports) even as customers are waiting elsewhere. Not only does this help the drivers increase capacity utilization, but customers also benefit from faster access to rides. In fact, surge pricing reflects inefficiency in network planning (matching of demand to supply).

The principle would apply to any of the network businesses. E-retailers can plan inventory and logistics better, even as they offer valuable suggestions to customers on what else they might buy. A social network would be able to match people with other people, and people with advertisers much better.

Valuable insights about the network can create improved efficiency on the supply side, and customized access and experience on the demand side.

Risk Management

Any interaction or transaction carries an inherent risk of something going wrong. When it is done bilaterally, each party builds in safeguards to mitigate risk, thus creating inefficiency. If I were to book a cab, I would ask the driver to reach at least half an hour early because I am worried (based on previous experiences) that he would be late. It is inefficient for both of us – the taxi remains unproductive for that time and I might have to pay some waiting charges. Or we mitigate risks by purchasing from well-known sellers (brands) because they offer an assurance of quality. We could have bought a shirt directly, at a lower price, from the contract manufacturer who actually made the branded shirt.

The network platform, as a third-party intermediary, can take on the responsibility of efficiently mitigating our risk, partly through the information it collects and partly through its own due-diligence. By providing an estimated time of arrival (using location information of the driver and rider), the taxi app gives an assurance of availability. By collecting user feedback ratings, the network builds a self-correcting mechanism of quality. Through physical due-diligence (e.g. supplier verification), and standing guarantee to the fulfilment of the transaction, the platform mitigates risk for all parties involved.

Assurance of fulfilment, timeliness and quality by the platform can reduce transaction anxiety and increase stickiness amongst network participants   

There is an Uber of something for almost every industry now. Actually, there are many of them. What will differentiate a successful platform from yet another copy-cat is the ability to use information effectively and efficiently to derive meaningful insights and reduce transaction anxiety.

(This was first published at DNA on October 20, 2015.)

Everywhere you look, there’s an Uber for something nowadays, whether it is healthcare or heavy equipment. The tremendous excitement about companies termed as Network Orchestrators makes one wonder if a dramatic discovery has been in the world of business.

Platforms like Uber or Ola connect drivers with riders and takes a share of the transaction value. Zomato or Foursquare connect restaurants with customers through an exchange of information (menus, photos, reviews, etc.); as they add advertising or delivery transactions, the platforms make money through revenue share. Similarly, Facebook and Twitter connect people with other people or businesses through information; revenue is made through advertising or transactions.  

In essence, network orchestrators enable ‘buyers’ and ‘sellers’ to discover and transact with each other. Most of these companies are rather asset light and their intrinsic value is a function of the number of participants in the network. If you were the only person on Facebook, zero connections would be made. Two persons would create one connection, three persons three connections, and six connections would be possible with four persons. A network of “n” participants gives rise to (n²-n)/2 connections, i.e. the number of transactions is an exponential function of the number of participants. While traditional business models grow linearly when their customer numbers increase, networks grow exponentially when their participants increase.

However, the idea of networks is not new. They have been around for centuries. We can seem them all around us. Financial exchanges are networks that connect buyers and sellers of shares; telecom networks connect speakers with listeners; banks connect depositors and borrowers; and shopping malls connect stores with shoppers. Brokers, whether they be of real-estate, wedding, or acquisition deals, have been around for a while too. Someone jokingly said that Sage Narada from Indian mythology ran the first information network.

So, what is all the excitement about? Why is there so much hype now about network models, and more importantly, such high valuations chasing them? There are three major reasons:

First, technology – a combination of the Internet, mobility and location-tracking – is enabling unprecedented scale to the networks. A real-estate broker was constrained by her time and also the localities which she could cover; an online brokerage has no such limitations. A retail store has constraints of time, location and (physical) space; an e-commerce site has no such issues. The use of technology and automation enables each platform to potentially reach every human being who can theoretically be targeted for that product or service; consequently, value increases exponentially.

Second, networks are being discovered in industries that were not seen as “network-friendly.” For instance, the automobile business was not considered a technology business; however, Uber is playing on the emerging mindset that customers do not need cars, they need a transportation service. Most “traditional” businesses probably have network models hidden in them, the orchestrators are just creating more efficiency and customer satisfaction, thereby taking significant market share away from incumbents.

Third, many of the traditional network businesses lost sight of their core operating model somewhere along the way. Banks, for instance, became asset heavy with lots of branches, systems and people; they are no longer efficiently connecting savings and loans. Similarly, many telecom operators moved to asset based, monthly rental models from transaction led, per minute pricing. This has given an opportunity for new-age players to build more efficient networks. Lending Club, anonline marketplace for peer lending connects depositors and borrowers at a fraction of the cost of traditional banks. Internet-based telephony and messaging company, Whatsapp which rides on others’ telecom infrastructure and provides free services, has 800 million active users, more than any mobile operator in the world.

Network business models are not new; neither are they technology businesses. The most successful of them use technology to accelerate their growth, discover hidden networks in traditional industries and create highly efficient, asset-light business models. Every company can gain from network business models; they just need to know where to look.

(This was first published at DNA on October 10, 2015.)

Mobile operators complain that spectrum prices are too high in India. Of course, the government policy of releasing small chunks of scarce spectrum at irregular intervals and setting high reserve prices is faulty. But that has not prevented mobile operators from bidding huge, unviable amounts to corner that spectrum even if it has come at the cost of required investments in network expansion. Indeed, there are now demands that spectrum in 700MHz be released by the government for which there would presumably be a mad rush. Some industry insiders say that the leading operators would rather wait to invest in building networks in the more efficient 700 MHz spectrum than in 1800 and 2100 MHz. Naturally that begs the question why so much money was spent in acquiring the latter spectrum.

There can be no denying that a lot of spectrum in India remains underutilized by the defence and other government bodies. But it is also true that private mobile operators have been extremely inefficient in using the spectrum for which they have paid huge amounts. A recent audit by the Department of Telecommunications (DoT) has reportedly  shown that better optimization of the network could result in dramatic improvements in quality of service. It has also been found that operators have set aside spectrum for data capacity expansion at the expense of their voice quality. And then we have the spectacular case of spectrum inefficiency: an operator who acquired 20MHz of pan-India spectrum in 2010 for Rs 12840 crore has not launched services even five years later.

An additional issue that has prevented network roll-out, at least in some cases, is that of permissions for tower infrastructure. Recent push-back amongst municipal authorities in permitting cell-sites in dense urban locations coupled with unnecessary and unscientific scare-mongering about the impact of radiation have added to the problem. The government needs to create certain national guidelines for critical infrastructure like cell-sites and fiber networks. The ambitions of a Digital India cannot be held ransom to by local municipalities, building societies and activists.

The suggestion in the TRAI consultation paper that operators should not charge for calls that are dropped is welcome: why should customers pay for a service that they did not receive? Unfortunately, the devil would be in the detail of its implementation. Envisage a scenario of a customer of Operator A calling the customer of Operator B and the call drops in the 50^th second of a minute; how is it established which operator dropped the call? Should both operators not charge for that minute, in which case the more efficient operator would lose revenue due to the failure of the other? How do customers keep track of this? TRAI should provide clarification on the mechanisms for not charging and compensating customers for call drops.

The most important action, however, that the DoT and TRAI must take is to examine the real causes for the deterioration of voice networks in India by doing an actual technical audit of all the mobile networks. Instead of being pressured into giving out more spectrum to those who are seeking to corner it, they must ensure effective utilization of spectrum that has already been allocated. If commensurate capital expenditure in network expansion does not follow spectrum acquisition, then a question must be raised about the underlying strategic logic of such investment. Further, the TRAI must study if a few players are blocking effective competition by pricing spectrum out of reach of the others. Do customers really have competitive choice in terms of enough differences in service offerings, quality and prices between various operators? Are call-drops just a symptom of a bigger structural problem in the Indian telecom industry?

(Disclosure: I was associated very closely with the Tata group's telecom business for many years. I continue to remain engaged in advisory services (mostly, teaching/training) with the Tata group telecom companies and other mobile/tech companies.

Nearly two years ago while watching the Indian super-hero movie (Krrish 3), I couldn't help but feel sad that Bollywood movie-makers weren't thinking big enough. I had suggested that if 100-million middle class Indians spent $1 each, a movie could garner Rs 600 crore ($100 million then) -- at that time, Krrish 3 had become the second-highest grossing Indian movie with just Rs 250 crore.

This year, Baahubali crossed Rs 500 crore in India collections, the only movie to do so.  

Let's take this Rs 500 crore number. Assuming an average ticket price of Rs 100 (using a 25:75 split between multiplexes and single screen theatres), it means 50 million tickets sold. Anecdotal evidence (including my own behaviour) suggests that many people watched the movie 2-3 (or more) times. That would mean fewer than 50 million unique viewers, perhaps 30 million or so. Imagine... the most successful Indian movies have less than 3% market penetration! Even if we considered the 140 million cable/DTH (subscription TV) households as the addressable market based on affordability, we are looking at a 5% penetration.

On the other hand, in the US market, a highly successful movie like the Avengers grossed upwards of $600mn, translating into about 75 million tickets sold (at just over $8 per ticket). As such, the ticket numbers (75mn in USA vs. 50mn in India) don't look very different but given the vastly different denominators (population: 319mn vs. 1267mn), one would expect much larger numbers here. 

There are probably two major reasons why Indian movies have such low penetration:

1. Content is not universally acceptable. Even in a highly fragmented market such as cinema, it is tough to believe that the most successful product appeals to just 5% of the market. Different languages spoken in India adds to the challenge. Just 45% of the population knows Hindi, thus ruling out the most popular Bollywood movies to a majority of the market. 

2. Reach of cinemas is still very low. India has 9000 cinema screens, giving it a density of just 8 per a million population. On the other hand, the US has 117! Therefore, even if a good movie with universal appeal were to be made, access would still be a huge issue. Obviously, cable & satellite TV has much greater reach but far less monetization (on an average about Rs 50 crore per movie). Further, most Indian movies have also not been very creative or aggressive in the after-movie market of accessories, merchandising and digital content/games. 

On the first factor, Baahubali has made an interesting beginning* by releasing Hindi, Telugu, Tamil and Malayalam versions simultaneously, thus addressing over 60% of the market. Even the theme - an Indian super-hero movie on the lines of popular mythology / historical stories - probably had wider appeal. The cast included well-known stars from the southern states; if there had been a recognized Bollywood star, I guess the Hindi version would have done much better. This could hold the formula for future, large budget Indian movies: 

* Stories that can connect across cultural groups (fantasy / mythology / patriotism / kids)

* Dubbed simultaneously in all major languages (Hindi, Telugu, Tamil, Bengali, Marathi, Gujarati, Malayalam... would hit almost 75%)

* Multi-starrers with leading actors/actresses from various regions

On the second factor, it would be interesting to see if Baahubali can revive an interest (and value) of TV rights for a movie. There hasn't been much to see on the merchandising front too.

The profits from the first Baahubali should give its makers (and other producers) the confidence to push the boundaries next year. It would be exciting to see an Indian movie cross Rs 1000 crores ($150mn now) in revenues soon. There, that's the new target!

(* Other movies like Roja, Robot and Bombay were also released in multiple languages earlier. Baahubali is the only one amongst the all-time box office leaders.) 

It is fashionable nowadays to write about the first week or first month anniversaries with gadgets, as well as publicly break-up with them. So, let me join the fray! To be fair to myself, though, I had written about my expectations and first impressions of the iPad - therefore, this is not something new. 

This note is based on personal experiences and should not be seen as applying to everyone. I will try to highlight, objectively, why the Apple Watch works and where it needs improvement. For some, it will work more and for others, it won't at all. 

A few quick, initial comments:

First off, the Apple Watch (in its current avatar) requires an iPhone. That, in itself, is a limiting factor on whom it's meant for. Yes, you could be so impressed with the Watch that you ditch your Android or Blackberry and jump on to the iOS side but that's highly unlikely. (Although for those still on Blackberry phones, just jump on to something else, watch or no watch!)

Secondly, for those in India, it is probably going to be a while before the Watch is available locally. Unless you are willing to jump through hoops to get it from some other country, you have some time to make your decision.

Finally, I would say the Apple Watch (at its price - in INR equivalents) is for the enthusiasts, those early adopters that like to experiment with and experience new products. The inflection point should happen, I believe, this fall when the new Watch OS (and apps based it) become available. 

What worked for me

1.  Reduced the distraction of the iPhone

We have to admit it - most of us are addicted to the iPhone (or any other similar smartphone). Constantly checking for new messages, mails, alerts or tweets - our eyes remain glued to the phone. I have often, while working or in meetings, wanted to put the phone on silent and leave it in my bag, but there's this fear (or desire!) of that urgent call or message that might be missed. So, the phone remains handy and with that, its constant distraction. The iPhone is great because it allows you to do so much with it; that's also its weakness.

With the Apple Watch, my phone has been on silent mode for the most of last month. When I am walking, working or in meetings, the phone is rarely in my hand or within eye-glance. When I want to, I can now focus on the task. Let me give you an example.

I would always carry my phone in my hand while walking outdoors. Perhaps to check time (I had stopped wearing a watch) or to ensure that I didn't miss an 'important' call or message. And since the phone was handy, why don't I quickly check my Twitter feed or oh, there's a notification on FB, let's see what that is.... Before I knew it, my eyes were on the phone even as I was crossing the street or navigating broken pavements. Last week, I was walking somewhere and suddenly it struck me that I hadn't looked at my phone for nearly half an hour! It was in my jeans pocket and I had forgotten that it was there. So what changed?

The Watch has this wonderful wrist tapping mechanism of alerts. I have set it to notify me (and only me) under specific circumstances. Most calls or messages can be ignored for a while; even if a message is urgent, the most likely response is Yes or No. In an exceptional situation, I can answer the call on the Watch itself or send a voice message in response if the canned options don't suffice. 

2. Made me stand up more often

Being very active (physically) doesn't come naturally to me. My work, when I am not teaching in class, requires me to mostly sit in meetings or in front of a computer. Sitting is the new smoking, they say. And all we do is sit (or sleep!). In spite of this knowledge, our lifestyles haven't changed much. It is so easy to continue the status quo.

Unless, there's a tap on the wrist and you are told that it's "Time to stand!" Fifty minutes into an hour, if you've not stood for at least a minute, the Watch prompts you to get up and move about a bit. Standing for one minute per hour can't be such a big deal, you may think. Believe me, even a month later and after being more conscious about the need to stand, I get this alert at least twice a day. The Watch also aids the iPhone's activity tracking - I am more likely to have my Watch on when moving than to have the phone in my pocket. 

While I have not seen any dramatic fitness or weight loss results during the past month, I do check daily how active I have been. Hopefully, results will show soon. Here's an interesting post by someone who used the iOS HealthKit and the Watch to lose a lot of weight!

3.Told me the time

 The Apple Watch also tells the time. With a turn of the wrist or the raise of my arm.

The question is - are the above "benefits" worth the $350 starting price. "Not being distracted by the phone" might appear to be a double-whammy: pay a huge price for the smartphone and then get this watch to reduce distraction! True. But if you are already on the smartphone distraction boat, then the Apple Watch will feel like a liberating force. Yes, you can get activity/fitness trackers for much less, but then they are what they are: bands.

The Watch is a beautiful piece of hardware - not at all geeky. The digital crown and the various straps are very cleverly designed. Yes, it could be thinner but the Apple Watch doesn't feel out of place on the wrist. 

There's a lot that needs to improve with the Apple Watch to make it attractive and value for money for a wider audience. Most of that change is software based, so it can happen without having to wait for the next hardware iteration of the device. The new OS that was demonstrated at WWDC appears to address many of the problems and also opens the Watch up for innovation by app developers. I am waiting to see some good apps that go beyond a miniature version of the iPhone app. My friend Sajith Pai has an interesting idea about leveraging the signaling prowess of the Apple Watch. Time will tell. (Oops, sorry, I couldn't resist that!)

One more thing: I believe the Apple Watch will have serious implications for watch manufacturers, maybe not so much for luxurious, hand-crafted Swiss watches but for the mid-range quartz watches that are in the $50-300 range. How so, when the Apple Watch starts at $350? 

The Apple Watch may focus on its well-crafted, premium segment but it is helping shape a new market category. It's a matter of 12-24 months before competitors and imitators create wonderful looking, good enough, Android-based smartwatches. The traditional watch will then be left with just price as a competitive variable. Try competing on price with Micromax and Xiaomi. 

(Updated: Earlier I had referred to Canvas as distinct from Micromax. Thanks Farhan for pointing it out.)

In my earlier post, I shared how Uber, Ola and other similar service providers have the potential to disrupt the local travel market. I am a regular user of their services, as are many others with whom I engage online & offline. The benefits and potential are clear, yet some concerns persist. In particular, I worry that a western market approach to growth is being adopted by Uber/Ola. Let me explain.

In general, there are two major differences between developed markets like the US and emerging markets like India: one, weaker basic infrastructure, and two, insufficient skilled manpower. Infrastructure, in the context of Ola/Uber pertains not only to physical stuff like roads, public transit facilities, good quality taxis, etc. but also to related systems like traffic management, police and credit verification, licensing. By skills, I refer to trained drivers, customer service ethics, customer education, etc. When markets open up, like they did in the past decade in India, everyone goes after the gold rush... but, many hit the tripwires of inadequate infrastructure and skills. Telecom and financial services industries are good examples; other consumer services industries face similar risks.

Keeping the above in mind, here are a few suggestions for Ola/Uber; these are in two categories, the first are immediate fixes to improve customer experience and the second are to build sustainable businesses.

Customer Experience Fixes

1. Fix your location tracking

A typical use case... I'm in a meeting and about 10-15 minutes before it ends, I go to the Ola app and order a cab. Since the app works quite well, it's a matter of a few seconds and I get it done without much distraction. However, in a couple of minutes, the driver calls because he wants to know where exactly I am and/or where I want to go. Obviously the phone is on silent and I have no way of answering the call. He calls a few times and often, does not move from his current location till I have called back and confirmed the pick-up. 

Even if I were not in a meeting, I may not want to have that conversation... the reason I am using a mobile app is because it is easy and super quick. Why would you spoil that with the follow-up call? The driver should reach the pick-up point based on the GPS / location from the app. Many drivers have complained to me that they don't get a clear location or a route map on the app. Similarly, the driver tracking on the customer app is often delayed or inaccurate... in my experience, Uber has the best, real-time tracking, Ola is accurate but not real-time and Meru has the worst location tracking.

This tweet from Bhatnaturally summarizes the problem:

Hi @Olacabs in your 'reason for cancellation' option in the app, please add 'Driver clueless about pick up location despite GPS' as option

— bhatnaturally  (@bhatnaturally) January 15, 2015

2. Penalize errant drivers

The other day, a cab showed up as being 5 minutes away - it was less than a kilometer from my place. I ordered it and went down immediately since I was in a hurry. Ten minutes later, there was no sign of him, so I called his mobile. He answered disinterestedly and said that he was in the queue to fill CNG, so it would take him 15-20 minutes to reach. I asked him why he was showing up online if he was not able to respond to a request... he kind of murmured that that's how it was, and asked me to cancel the booking! 

In order to increase the availability of the cabs, the service providers (Ola/Uber) give them a bonus for being online for a certain time daily or weekly... I believe Uber's incentive kicks in at 12 hours per day. Therefore, many of the drivers keep their apps turned on even when they are unavailable to respond to a request. They are willing to take the chance of turning away a customer in order to add to punch in more hours. Also, some drivers refuse to show up when they realize that the destination is not very attractive to them.

Such behavior by drivers defeats the core value proposition of convenience and availability. Not all service providers capture this information (e.g. reason for canceling a confirmed booking); even those that capture it, are they taking prompt action? If a driver refuses a ride - without a legitimate reason, he should perhaps be blacklisted for the day (or more)... 

Don't let your core value proposition be diluted.

3. Set an example on the roads

Sometime ago, I was in one of the cabs going to the airport at night. The driver's mobile phone rang and he looked at the screen to check who was calling. Just at that moment, the car ahead of him braked suddenly because an auto came in its way. Since my driver's eyes had moved away from the road, his reaction was a second late and the cab hit the car in front of it. Luckily, there wasn't much damage and we moved on, but there is no doubt that accidents are waiting to happen on the road if you lose focus.

While there has been much discussion on improving security / transparency through better verification of drivers, an equally important expectation from Ola/Uber is that they would follow safe traffic practices. No mobile phone while driving, following speed limits, obeying traffic lights, using a seat belt, using turn indicators while shifting lanes / turning... these have to become standard driving practice. If Ola/Uber cannot have better driving practices than the regular taxis, autos and buses, then what's the point?

Make safe driving a standard practice. Specifically seek customer feedback about it.

Building the Business

This is where Uber / Ola will have to customize their business model for Indian (and other similar markets) context. Yes, they are aggregators / marketing agents that are connecting drivers and commuters... but that is not sufficient. They need to consider investing significant resources towards capability development, even if it means moving (slightly) away from an asset-light model. All the private equity funding need not go in discounting fares / price wars... there is no brand creation due to lower prices. I have three different apps that I check every time I need a vehicle - price is no longer the choice factor; it is availability. And if there are two different cabs available at similar times, I choose the operator whose vehicles are cleaner, drivers appear to better behaved and GPS works better. If you want the customer to consistently choose you over the others (i.e. create competitive advantage), price is not going be the primary factor. Here are a few things that could help build a brand:

1. Invest in driver training

Over the last few months I have encountered at least a hundred different drivers in Mumbai and spoken with many of them. Apart from an  induction program that many of them had attended, there was no other training mentioned. Wouldn't the drivers be able to better represent your brand if they were trained in customer service, communication, driving skills, routes & places of interest, etc.? Take the latter item, for instance. Quite a few of the drivers (in Mumbai) that I met have migrated here because of the increasing demand - their knowledge of many suburbs and roads is quite weak. As a passenger, I shouldn't be expected to guide the driver to my destination. A few times when I got distracted on the phone, I would find that we were on the wrong road or flyover... 

Customer engagement or experience in this business has three major touch points - the booking app (automated), driver and billing (automated). The only possible opportunity for differentiation is in the human, driver interface. 

2. Complement the fleet

I get a sense that the Ola/Uber encourage a wide distribution of the cabs across major locations to ensure availability; however, at the end of the day, the vehicle owner/driver will try be located at obvious demand points. Hotelling's law would suggest that there would be a concentration of cabs in some locations during peak hours and none at other locations. Imagine the customer at this other location unable to find a cab for 15 or 20 minutes - that's not the experience you want to provide. At the same time, you cannot force the drivers to go to these other locations where they may nor may not find any customer. 

Therefore, an option for Ola/Uber could be to invest in their own complementary fleet of vehicles to fill the network gaps. Of course, they have to be careful not to cannibalize business from their partners, and use their vehicles as queue busters. In addition, these vehicles could be used for training and demonstration purposes. Another idea could be to have these as high-end vehicles that are occasionally sent to frequent customers as "free upgrades" (similar to the Uber India launch strategy of using Audis and Mercs). Once the network is stable, these vehicles can be moved to other upcoming locations.

3. Think about your enablers

The other day, I was in an Ola cab and at the destination, the driver tried to end the trip. The mobile signal was probably poor, and it took a couple of minutes for the trip summary to show up (zero bill because I had enough money in the pre-paid wallet). While two minutes may not be much, it is surely an irritant if you are running late or the cab is awkwardly parked on the road. [The Uber model of compulsorily using a wallet avoids this issue.] Similarly, another driver complained - at the end of the journey - that the mobile phone or network had failed en-route and therefore, he needed to estimate the fare using Google Maps route distance.

If you want to build a sustainable business, you have to think far beyond the contours of your current business scope. What could derail you? For instance, good quality mobile data networks are critical to Uber/Ola, as they are to several other new businesses. Without a data network, the measurement, billing and payment aspect of the drive would fall apart. Without good quality / efficient cars and roads, your cost structure could take a hit. I am not suggesting that Uber/Ola should become mobile operators or auto manufacturers, but they should surely work towards building alliances & capabilities to ensure that the supporting eco-system remains vibrant and competitive. 

I am confident that many of the teething issues that Ola/Uber/Meru face would soon be overcome... local transport / conveyance in the second half of this decade will be far superior to what we have ever experienced.

Do you have any other suggestions... please feel free to share them in your comments below.

During the last three months, I have almost stopped driving for intra-city (Mumbai) travel. In particular, I don't take my car out when I am alone and traveling for work-related meetings. Being driven helps me gain that extra 30-60 minutes to prepare for a meeting or to respond to missed calls / emails after a meeting. It also helps that I can save 10-15 minutes in not having to look for some place to park. And I have email invoices that I can use for expense reimbursement or management without having to keep tab.

Yes, I have discovered the benefits of Uber and OlaCabs. 

Not only do I have a chauffeured vehicle when I need it but I often spend less than if I used my own car. With the frequent discounts and offers (thanks to private equity funding!), I can get a car on demand at about Rs 15 per kilometre... my own car costs me Rs 12 to 15 / km for fuel, it would be much more. Things can't be better!

There is obviously some sort of a break-even point here, of owning a car and hiring a driver vs. using services like Ola/Uber. Consider a typical use case: drive 25km daily to office and back, plus 20km every weekend for shopping / entertainment... that's 630km per month. Fuel cost for a mid-size car would be Rs 5-7 per km but a driver's salary at Rs 6000-8000 adds Rs 9-12 per km. Therefore, the marginal cost of using a vehicle would be at least Rs 15 per km. So, even if you own a car, and you want to be driven, unless you use it for 700-1000km every month, it would make sense to use a Uber/Ola like service.

I have not done the supply-side economics yet... from my conversations with the car drivers, it appears that they (the vehicle owners) are making good money. In fact, many of them are buying new cars so that they can add to their Ola/Uber fleet. But I have a sense that they are currently being subsidized by the service providers (trip bonus, being online for 12 hours bonus, etc.) I wonder if this is sustainable. 

Some more thoughts on the disruption that we are observing in the transportation / automobile industry (note, I am not referring to a "taxi service" market here).

Behaviour Shift

The value of Uber or Ola is not just that they are taking share away from traditional metered taxis but also expanding the market. They are essentially getting more people to use a "taxi service". If you had a car, you were earlier not a likely customer for the taxi market. But as I (anecdotally) demonstrated above - and I hear many of my colleagues/friends reinforce the point - non-users are being brought into the "taxi market". The initial discounts helped - for a while I was using Ola & Uber at prices lower than the regular yellow cabs. Now, prices have gone up, yet I am so used to the convenience that I am willing to pay even Rs 20 per km for the service. 

Also, while auto manufacturers need not worry as yet about lost sales, I would wager that, in metro markets which are also seeing improvement in public transit facilities, some impact would be felt soon.

They two key drivers (pun unintended) for the growth of Ola/Uber are:

1. Convenience - The ease of service discovery, purchase and consumption is a clear draw. The mobile apps are extremely easy to use and the payment mechanisms (using a pre-paid wallet) are highly convenient. Being able to track your driver and ride makes the process transparent. The invoices sent to your email are detailed and efficient. 

2. Availability - The tip-off point for the new taxi services is their ready availability. A lot of local travel (except perhaps airport drops) is unplanned and subject to the vagaries of moving schedules. Earlier, the service providers required you to book a taxi at least an hour in advance and that restricted their appeal. Uber entered the Indian market with immediate availability and its competitors have followed suit. As the popularity of these services grows, more drivers are signing up, consequently, availability improves and therefore, more customers feel encouraged to use the service. There is a clear network effect at play here. 

There is another important factor at play here which relates to the business model of network aggregation. Uber/Ola are intermediaries that are enabling vehicle owners/drivers and commuters to discover and transact with each other. Their asset-light model has the ability to scale very fast (riding on others' capital investments); their focus remains on innovation and marketing.

Ben Thompson has this wonderful post at Stratecherry where he explains density and network effect as liquidity of the car service... he also uses this to describe why it might be a winner take all market. I am not sure if the Indian cities have reached that stage of maturity -- as long as there is scope for significant growth, I can see the opportunity for at least 2-3 players. My dipstick analysis reveals that most drivers are today exclusively working for a provider, except in the Prime (SUV/Innova) category where I have found a few drivers two-timing. Further, given the lack of existing (quality) infrastructure, Uber and others would need to (directly or indirectly) invest in adding more vehicles and drivers on the streets, thus preventing the creation of a virtual monopoly.

(By the way, these three factors -- Ease of Use, Density and Network Aggregation -- are applicable to many other industries. Financial services sector could surely learn a thing or two from them... given that the banking business is nothing but intermediating between savers / investors and borrowers / investees. The recent success of Lending Club provides an indication of the possible unraveling of the traditional banking models. It would be worthwhile thinking about other blue oceans that can be created by adopting these three factors.)

Even as Ola, Uber, Taxiforsure and others bring in huge investments in this space, they have a long way to go. They must not repeat the mistakes that many others have made in India before... chasing growth without creating infrastructure and skill foundations. In the follow-up post, I will share a few suggestions for Ola/Uber to improve customer experience and to build sustainable businesses.

It's one of the biggest technology deals of recent times and there's some worry if we are seeing a repeat of the late 90s dot-com bust. (Remember, many of the 20-something old entrepreneurs were at school then and probably don't have any recollections of that euphoria and bust.)

First, about the valuation. We all know there's really no foolproof, scientific method to value many businesses, particularly in the hi-tech / nextgen space. Like art, it is often in the eye of the beholder. The best way to evaluate a valuation is to to see the most critical assumptions that one has to believe in. Let us peel it down...

Facebook has a Enterprise Value to Revenue ratio of nearly 20. In case of Google, which is obviously more mature than FB, the ratio is about 6. So, to justify the Whatsapp (WA) valuation, first of all we would need to believe that it could generate revenues of $1 - 3 Billion. Is that possible?

WA has 450mn active users and is likely to add a few hundred million new users annually. Is it reasonable to believe that it could touch 1bn users in a couple of years? Smartphone numbers are estimated to be 1.75Bn in 2014, perhaps 3bn by 2017. Can WA achieve 30% penetration? Likely. Remember, already Facebook has nearly a billion mobile users.

So, with a billion user base, WA would have to generate $1-3 per user per annum. Is that inconceivable? No, that's just about Rs 10 per month: all those forwarded jokes are worth that much, right?

Strategically, buying WA makes a lot of sense for FB. As Rene Ritchie points out, Facebook's primary business is to catch our attention (and subsequently monetize it). It was clear that people were spending a lot of time on Whatsapp; most private and small group conversations had moved there and probably FB Messenger was not having the desired impact. WA was multi-platform and easy to use (no login; no "adding"). FB cannot let people's attention wander away from any of its products; so it bought out a competitor.

Then what could go wrong?

For starters, the valuation multiples we started with could be too optimistic. Compared to other, "traditional" technology companies (Apple, IBM, Microsoft, AT&T -- their EV to Revenue ratio is 2 to 3 times), FB appears overvalued, probably Google too. So, if you took a 2X multiple, WA would have to generate $9 per user per annum, which is obviously tougher than $1-3.

The bigger issue is about the monetization strategy. Will a billion people pay a buck every year to keep Whatsapp or will they move to the next free messaging app? What caused it grow exponentially (no login, no "adding") could also be its weakness - mobile number based connections can be replicated on any other app almost as easily. Whatsapp groups will need to be recreated by the admins and profiles will need to be updated but don't underestimate the effort people are willing to put in to save a buck! As several hundred millions come up for their first payment shortly, WA will need to justify why it is better than many other multi-platform, free messaging apps (including BBM which still has many dedicated fans). And of course, the fear of advertising always lurks around the corner.

Overall, I believe it is a good, strategic move by Facebook. By paying only $4Bn (20%) in cash, and the rest through stock, FB has used its highly valued stock to make this risky move. Not only have they purchased a potential billion-dollar revenue product, they have also gained control over a major competitor that somebody else could have acquired. 

Today's Swaminomics highlights the loss of India's competitiveness as a nation: 

GDP growth has halved to 4.5%. India has become uncompetitive in several ways. Worse, the Indian political class has stopped even trying to compete globally. It focuses on subsidies, reservations and special measures for sundry vote banks, regardless of the implications for competitiveness.

Why is this so important? Because, there are multiple options for resources (capital and labour) to be invested. Whether it is foreign investment or Indian money, if it becomes too difficult or unattractive to operate in India, poof, many other countries are waiting for that money. Similarly, the best talent will move in and out of markets. Just five years ago, I was hoping (confidently) that 30 Indian companies would be able to fulfill late Dr. Prahlad's vision of becoming part of the Fortune 100 by 2022. I wrote:

India will be the third largest economy by 2022 and will contribute nearly a billion people to the world's workforce. The market should provide adequate scale to create globally leading business models.

An additional challenge for India is to consolidate what are typically highly fragmented and unorganised markets. Leadership in the home market is essential to achieve the scale that the Indian market can provide.

Several markets, including the US and the UK, are facing an economic slowdown. Consequently, several multinational companies are seeking to get into India and other emerging markets, making these markets more competitive. We have to defend the home turf not by creating entry barriers, but by directly competing with global players.

We have already lost a third of the fifteen years, and only one company (IOC, Govt. PSU) has managed to enter the Fortune 100 (2013) and Reliance Industries is close-by at #107. Looking ahead, it appears difficult that another 28 Indian companies will be able to make that shift. As Mr. Aiyar concludes,

Neither the courts, NGOs nor the politicians seem to care. A profusion of new rules and regulations are constantly churned out without any cost-benefit exercise to judge the impact on competitiveness. The latest Doing Business 2013 report of the World Bank says India has slipped from 131st to 134th position in ease of doing business. It stands 177th in ease of starting a business, 183rd in getting a construction permit; and 186th in enforcing contracts. Yet this damning expose of our uncompetitiveness produces no political will to change. We have a deep structural problem that is not even recognized, let alone redressed. Will India have to go bust again to concentrate the minds of politicians?

Almost all the reviews of Krrish 3 that I read before watching the movie warned me against going anywhere close to it. But when has logic ever prevailed, particularly when it comes to kids. And I must admit, I had enjoyed the first two installments of this trilogy.

Since then I have been wondering if Krrish 3 (K3 henceforth; I cannot get myself to type that double-r again!) was a good movie or not. Most kids seem to enjoy it a lot and hardly anybody walked out of the theatre during the movie. It is now reported that K3 has crossed Rs 250 crore revenues in the two weeks since release, making it one of the most successful Bollywood movies ever.

This is not a review of the movie, although I must point out what I found most jarring. There is no conflict between the two personas of the super-hero. Only the mask and black raincoat separate Krishna and Krrish; in fact, you see Krishna dancing and singing around a statue of himself. Contrast that with other super-heros like Spiderman, Batman or Iron Man... they are all reluctant "heroes" often unable to reconcile between their 'split' personalities. Not just them, eventheir loved ones go through similar struggles. This, I believe, creates palpable tension in their stories, often stronger than their conflict with the villain. 

On the other hand, in Krrish's favor, his story is an emerging one. He does not have years of comic stories, back-stories, make-overs or reboots available. He is a super-hero created for movies (nay, Hrithik Roshan), one movie at a time. Maybe Marvel or better still, India Book House could adopt Krrish and make a real comic super-hero series out of him. 

Anyway... the other issue that caught my attention was the relatively small scale of Bollywood movies. A 250 crore collection has made K3 the 2nd most successful in the industry. The Avengers (similar genre, Hollywood's 3rd highest grosser ever) had a budget 5X of K3 and earnings were 37 times more! In India itself, The Avengers earned Rs 65 crore. As pointed out in this article, the pertinent question is why Indian film-makers have no apparent desire to tap the much larger movie markets overseas.

In many industries, Indian companies have globalized, even when the Indian market was big enough (& growing), so that they might become globally competitive. Recognizing that products and brands from overseas have access to Indian markets, we needed to be able to compete with them in our home turf. And of course, many industries enjoy economies of scale and increasing the addressable market is a means to improving margins. Very high fixed cost businesses like movies clearly lend themselves to 'market expansion'.

Of course, as with any cross-border expansion, you cannot just transport products across markets. With movies, it is indeed tough to "customize" the product for each culture / language that one targets; at most you can dub the movie and maybe, edit it slightly differently. At the same time, the success of Hollywood movies like The Avengers or The Avatar has shown that good quality entertainment and story-telling is universally accepted. 

So are Indian film-makers shortsighted, focusing on the 100-200 crore collections whereas much larger opportunities lie elsewhere. Will the increasing corporatisation of Bollywood lead to larger scale movies being made in India, by Indians for global movie markets? In fact, a Bollywood movie with pan-India appeal that can earn $1 from each of the so-called 100mn middle class Indias has a Rs 600 crore potential!