Fortune at the Bottom of the Pyramid

Knowledge@Wharton writes about CK Prahalad’s forthcoming book “presents 11 in-depth case stories from India, Peru, Mexico, Brazil and Venezuela. They range from salt to soap, banking to cell phones, healthcare to housing.”

At the core of Prahalads argument for targeting the worlds poorest as a potential market is the sheer size of that market an estimated 4 billion people constituting two-thirds of the worlds population. More importantly, the market will grow to an estimated 6 billion people within 40 years because the bulk of the worlds population growth is occurring among the poor.

A central point in The Fortune at the Bottom of the Pyramid is that the effort to help the poorest people can be successful across different countries and different industries ranging from health care and finance to fast-moving consumer goods and energy. The exceptions, Prahalad notes, are countries that are essentially lawless, like Somalia and the Congo, and industries that are among the most basic, particularly some of the purely extractive industries that employ many people but have little incentive or ability to empower them. Otherwise, Prahalad says, his approach can work 90% of the time.

He expects this book to resonate with a wide audience, including executives at large companies, business school professors, students, and government and development agencies. This is the first time that someone has put together a coherent point of view on why the private sector can be an integral part of development and social transformation, he says. He notes, too, that he has served on a United Nations Commission under U.N. Secretary-General Kofi Annan to examine private sector developing. The commission is scheduled to issue its report soon. Already, he says, this kind of thinking is having an impact.

when technology has been made available to them, Prahalad has found residents of the bottom of the pyramid to be readily accepting of technology. In Bangladesh, women entrepreneurs with cell phones do a brisk business renting out the phone by the minute to other villagers. Indeed, Prahalad finds in the spread of wireless devices proof of the size and viability of the market at the bottom of the pyramid. By the end of 2003, for example, China had an installed base of 250 million cell phones. The market for wireless devices in India stood at about 30 million installations and was growing at the rate of 1.5 million handsets per month.

Where connectivity exists it is resulting in major efficiencies in traditional occupations. Within three months of the installation of personal computers in some Indian villages the farmers there were making decisions about planting based on futures prices being quoted on the Chicago Board of Trade. In Kerala, India, satellite-based images of fish shoals are downloaded on village PCs and read and interpreted by women who then direct their husbands where to fish. The husbands, after a day of fishing, use their cell phones to check prices at various ports along the coast to obtain the highest bid for their catch.

To Prahalad, all these examples are evidence that there are market solutions to the problem of poverty.

Blog News Agency

Adam Curry has an idea (similar to Rahul Dave’s Blog News Network):

Dave Winer once wrote about triangulation. The process of forming an opinion about an event or story by reading a minimum of 3 different blogs reporting the news. This enables bloggers who also read blogs the unique opportunity to form an opinion based on the ‘truth’ from different viewpoints. A luxury most news companies don’t have, purely due to cost.

Imagine a world where BigPubs could purchase triangulated facts from a single source, an aggregation of weblogs. Just like a news agency.

BigPubs are already used to purchasing news from agencies. If it’s from AP for example, a newspaper doesn’t care about the depth or truth. If it’s from AP, then it’s ok. It’s a valid source and is credited as such.

All the BigPub does is copy-paste the story, select an appropriate picture (also provided by the agency) and package it to fit their format and audience.

Here’s the beauty part: Thje money flow is already aggreed to. Either by subscription or on a piece meal basis.

If information from an agency is used (words pix or video), a payment is made. The agency takes a cut off the top and passes the rest on to the reporters.

BigPubs already scour weblogs for news and often copy-paste directly from those reports. Why not make them pay for it?

Weblogs are everywhere, and it’s easy to start a new one if a story breaks in a place where there isn’t one. All you need is feet on the street. Technology takes care of the rest, including photos, audio and video.

So what’s stopping us from creating this global blog news agency? Nothing at all.

Would be interesting to try this out for the Indian elections.

64-bit Chips

The Economist writes:

With Opteron, AMD’s approach was to take an Intel-compatible 32-bit chip, and add special 64-bit extensions to it. The resulting chip is able to support more than four gigabytes of memory, and can run new, faster 64-bit software. Crucially, it can also run existing 32-bit software in the usual way. Intel’s approach, in contrast, was to start with a clean sheet and design an entirely new 64-bit chip, called Itanium. The project is in fact a joint venture with HP, which began work on the chip in 1988. Since its launch in 2001, years late, Itanium has sold slowly: a mere 100,000 chips were sold last year. Itanium systems are powerful, but they are expensive and cannot run existing 32-bit software efficiently. To get the full benefit from Itanium, software must be extensively rejigged.

Fred Weber, technology chief at AMD, likens Itanium to Esperanto. Nobody wants to learn a new language, he says, no matter how elegant it is. Hence the appeal of AMD’s chip, which offers cheap 64-bit power without compromising the performance of existing 32-bit software. HP’s announcement that it will use Opteron chips, and Intel’s announcement of an Opteron-like Xeon chip with 64-bit extensions, therefore appear to be very bad news for Itanium, and a vindication for AMD.

Intel denies that Itanium is doomed, however, with some justification. Itanium is intended to compete with other 64-bit chips (such as those made by Sun and IBM) at the very top end of the market, says Lisa Graff of Intel. That is a totally separate market from the low-end servers powered by Xeon and Opteron chips. Around 85% of servers sold cost less than $6,000. But the 15% that cost more account for 50% of server sales by revenue. Itanium is aimed at this low-volume, high-end market. HP, for its part, says that it remains committed to Itanium in its high-end systems.

Another factor in Itanium’s favour is that its performance is expected to improve dramatically over the next few years, notes Dean McCarron of Mercury Research, a market-research firm based in Scottsdale, Arizona. By 2007, Intel expects Itanium and Xeon chips to cost about the same, but the Itanium chip will be twice as fast. In other words, Itanium will start at the high end, and will slowly move down towards the mass market. The trouble is that Intel’s previous predictions about Itanium have been wide of the mark.

Corporate Software Strategy

E-Commerce News writes that most software installations in corporates start with an ERP solution:

A good business-application portfolio touches many pieces of an organization and must be able to tap into many repositories of information. As a result, most enterprise portfolios begin with an ERP solution.

“The first thing a business starts with [is] accounting and financials,” said according to Katherine Jones, managing director for enterprise business applications at Aberdeen Group. “You need something to help you keep track of money, whether you are using an Excel spreadsheet, QuickBooks or Oracle. You don’t have a business if you do not manage money.”

As a reuslt, according to Bruce Hudson, program director for enterprise applications at Meta Group, ERP software started in financials to track and monitor such items as company ledgers, accounts payable and investment management, and in human resources to manage the company’s workforce. These two core pieces often intersect in such areas as employee payroll, where data from both departments cut across the whole business.

Later, CRM branched out from the ERP core and became a separate category of software used to manage customer data, determine pricing and promotions, and service customers in other ways. Another category, PLM, developed to describe and manage the content of whatever product or service an enterprise is offering.

“If you make telephones, each model has a list of components, build materials, specifications in the type of plastic used,” Hudson explained. “PLM software catalogs and manages this product information so that suppliers and the sales force are all working from the same list.”

Meanwhile, ERP offshoot SCM concerns itself with moving things — finding the most efficient means to bring supplies to the enterprise and, in turn, move finished products to market.

No matter how they evolve, all of these new software categories must be able to plug in to the core ERP system to obtain needed financial information. Moreover, they must be able to communicate with one another. After all, a customer-service representative using a CRM system can perform his or her job more effectively if he or she can access information about a product from the company’s PLM solution.

China’s Technology-for-Market Strategy

WSJ writes about how China extracts its price from international companies seeking access to its markets:

Chinese scientists call it “technology for market.” Instead of selling toys, textiles and television sets, China wants to compete in telecommunications, health care, power generation and a range of other advanced manufacturing sectors. So it’s pushing for crown jewels of technology from companies that want access to China’s exploding marketplace.

“That’s the trade-off they have to deal with — short-term sales for long-term competition,” says William Reinsch, president of the Washington-based National Foreign Trade Council, a lobbying group for U.S. multinationals.

No party to the deals has accused China of violating WTO rules, and the Beijing government has consistently maintained that it fully complies with its trade agreements. At the same time, the lure of mammoth Chinese markets makes multinationals hesitant to raise the issue.

[For example], to be considered in the bidding for equipment contracts totaling several billion dollars, GE and its competitors were required to form joint ventures with the state-owned Chinese power companies. GE was also required to transfer to their new partners technology and advanced manufacturing guidelines for its “9F” turbine, which GE had spent more than a half billion dollars to develop.

Manufacturing in India

Bloomberg has an excellent article by Andy Mukherjee on how India needs to look beyond its knowledge industries and focus on getting its manufacturing sector to take-off if India has to “catapult itself from poverty to prosperity”:

For those who believe India will on the strength of its “knowledge” industries, here’s a sobering statistic: three-fourths of Indian workers, or 300 million people, don’t have high-school diplomas.

India’s educated elite is too small, and its purchasing power too limited, to lift the broader economy. What can really make India prosperous is something that will boost the incomes of workers who are stuck in low-productivity occupations — farmhands and housemaids — that pay the national average of $500 a year, or less.

And that something can only be manufacturing.

“The services sector, and in particular the knowledge-based industries, is unlikely to provide opportunities to the poorly educated sections of our society,” say Sanjay Jain and Uday Bhansali of the consulting firm Accenture India in a study titled “Making Indian Manufacturing Globally Competitive.”

Create more factory jobs, and India’s economic growth rate can easily accelerate to 10 percent a year, making it the fastest- growing major economy in the world, the authors argue.

It’s easier said, than done. There are many factors — high cost of credit, inflexible labor laws, expensive and unreliable electricity supply, and inefficient ports — that hamper Indian industry’s global competitiveness; although, by far the biggest problem with Indian manufacturing is its insularity.

Thanks to the blinkeredness left over from Soviet-style socialism of 1960s and 1970s, the Indian industry treats the local population, a large part of which earns subsistence wages, as the main source of demand for factory-made goods. Manufacturers go on producing large volumes of low-quality, low-margin products to turn a profit. Much of what they make, can’t be exported.

Where does one begin to break the vicious cycle? The surefire way is to “force” Indian manufacturers to tap global demand, so they’re able to expand operations, and create more and better-paying factory jobs. As more workers find employment in manufacturing industries, they’ll have the spending power to demand better goods and services.

In a chaotic democracy like India, how does one draw out local manufacturers and make them go global? The easiest way is to open more of the domestic consumer-goods market to overseas investors. Competitive pressures, thus unleashed, would ripple through the supply chain and force even small manufacturers to look beyond the local market.

The biggest assistance the Indian government can give local manufacturers is to open the floodgates of competition wider by slashing import tariffs…More than anything else, such a step would be in India’s own interest. Let the U.S. worry about saving white-collar jobs, creating more blue-collar jobs should be India’s immediate priority.

I will discuss this in more detail as part of my ongoing Tech Talk series “As India Develops.”

Reducing Friction in Knowledge Work

Jim McGee writes:

Unlike physical processes or information factory processes, knowledge work processes aren’t readily susceptible to conventional reengineering/industrial engineering approaches. You can’t impose industrial structure and control on these processes without destroying the fluidity and adaptability that characterizes them as knowledge work processes.

That raises the question of what can you do to make those processes more effective and possibly more efficient. I have a series of concepts I use as heuristics to make a knowledge work process better. I find them helpful for my own thinking. I’d be curious to hear whether others find these helpful as well as what else they find useful when attacking knowledge work.

I look at four things when I look at a knowledge work process; friction, visibility, indirection, and granularity. Today, I want to focus on friction; we’ll come back to the others in later posts.

In conventional process design work, you look for bottlenecks; places where work backs up. Break the bottleneck and move on to the next one. I think of friction as the things that create bottlenecks or slow knowledge work down. It’s a bit more subtle than just focusing on obvious bottlenecks.

Let’s start with some examples of some friction reducers I currently take advantage of in my own work.

My preference for using RSS aggregators can be viewed as one example of attacking friction in knowledge work…I can monitor an order of magnitude more material than I can by trying to manage and visit sites via a blogroll.

I’ve been a long time proponent of ActiveWords because of its ability to attack knowledge work friction in so many ways. Not having to remember a web address or not having to type out words and phrases I use frequently smooths my day.

Software isn’t the only way to attack friction in knowledge work (as often as not software solutions add friction). Good ideas by themselves can help. David Allen’s Getting Things Done approach is full of ideas that attack friction. One of his ideas I like best is the notion of to do lists that are organized around the context of where they can be used.

Thinking in terms of friction can be helpful because it lets you identify opportunities for improvement without having to redesign or replace entire processes. I don’t need to rethink my entire information scanning process to get benefit out of using RSS and news aggregators.

Local Search and Advertising

SearchEngineWatch has an article by Greg Sterling about the US market:

Despite the fact that the quality of local search results is still very mixed, local search is clearly gaining traction with users.

The other side of local search, of course, is geo-targeted advertising. And the biggest potential market is small business. The U.S. has roughly 10 million small businesses, the majority of which have fewer than nine employees and conduct most of their business within 50 miles of their physical locations.

To achieve any sizeable revenues from the local market, paid search needs to gain small business advertiser adoption. But how much of the small business market will pay-per-click (PPC) be able to penetrate? There are some very practical challenges, which include:

  • The complexity and time involved in keyword bid-campaign management
  • Limited ad inventory and competition between national and small business advertisers for that inventory
  • The absence of local sales channels to “push” PPC to small business advertisers
  • The lack of websites among as much as 70% of small businesses

    These are not insurmountable by any means, though they should not be minimized. It’s also important to point out that many small businesses are currently users of paid search advertising. But for the great majority of small business, there may be considerable ignorance and even skepticism about PPC.

  • How RSS can Succeed

    Roland Tanglao points to a commentary by Stephen Downes which captures the essence of RSS:

    The only way to aproach content location on the internet is to treat it as a self-organizing network. What this means is that inherent in the structure of the internet there are distinct layers of filtering mechanisms, each consisting of a “gather filter forward” mechanism. In some cases, the mechanism is fulfilled by a human agent, as in the case of blogs. In others, it is fulfilled by automatic mechanisms, such as Edu_RSS. And it is likely that Robin Good’s newsmasters will in their own way also play the same role.

    What’s important here is that each node of each layer need not worry about the rest, and need not be focused on the goal of the system. The agent seeks what is available, the way a retinal cell gathers light, and passes on what is relevant, the way a neuron passes on a signal. The filtering occurs not in the individual node, but through the independent actions of the aggregation of nodes.

    The reason why this system works, while other approaches do not, is that there is no reasonable mechanism which can apply the vast requirements of filtering on a single resource. If we use metadata, the indexing soon outweighs the content. If we use search engines, each resource must be subject to extensive analysis to determine context (or, we do without context, which results in a search for ‘calf’ linking to sites on agriculture an anatomy).

    The layered mechanism works because at no point is the entire weight of the filtering process concentrated in a single individual or a single resource. Decisions about selection and classification are made on a case by case basis using very coarse, and unregulated, mechanisms. It means that individual agents can work without the need for central control, with the only requirement for a functional system being an open set of connections between the agents.

    RSS is, today, the transport mechanism of choice. There is nothing magical about RSS, except for the fact that it just is an autonomous agent system providing a high degree of connectivity. As tye system matures, additional encoding systems, such as FOAF, say, or ODRL, will play their own important roles, offering different kinds of connections within the same network. The decisions make will become richer, without a corresponding increase in the complexity of the system.

    So, RSS could succeed. It will probably succeed. But it is important to keep our focus on what it does well: it allows an individual to scan, filter, and pass forward. That’s all it ever has to do. The network will do the rest.

    Enterprise Instant Messaging

    InfoWorld tests four solutions: Lotus Instant Messaging and Web Conferencing 3.1, Microsoft Live Communications Server 2003, Novell GroupWise Messenger 1.0, and Jabber XCP (Extensible Communications Platform) 2.7. The conclusion: “Lotus IM works well with Notes and Web browsers, and provides smooth transitions from chat to app sharing to whiteboarding. Microsoft truly offers a rich experience, but much of the wealth depends on an all-out adoption of Microsoft products and architectures from top to bottom. Jabber is the king of flexibility and provides an extensible platform, which programmers can use as the basis for almost any sort of message-based enterprise application imaginable. Novells messenger ties nicely into GroupWise, but unless the circumstances require deploying right now, customers who are leaning towards GroupWise Messenger should probably wait for the major upgrade thats right around the corner.”

    Friedman on Outsourcing

    Thomas Friedman is one of the most intelligent and sensible writers. He is travelling in India, and provides a view which should silence the anti-outsourcing lobby in the US:

    when I came to the 24/7 Customer call center in Bangalore to observe hundreds of Indian young people doing service jobs via long distance answering the phones for U.S. firms, providing technical support for U.S. computer giants or selling credit cards for global banks I was prepared to denounce the whole thing. “How can it be good for America to have all these Indians doing our white-collar jobs?” I asked 24/7’s founder, S. Nagarajan.

    Well, he answered patiently, “look around this office.” All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans.

    JadooWorks, [an Indian animation company,] has decided to produce its own animated epic about the childhood of Krishna. To write the script, though, it wanted the best storyteller it could find and outsourced the project to an Emmy Award-winning U.S. animation writer, Jeffrey Scott for an Indian epic!

    “We are also doing all the voices with American actors in Los Angeles,” says Ashish Kulkarni, C.O.O. of JadooWorks. And the music is being written in London. JadooWorks also creates computer games for the global market but outsources all the design concepts to U.S. and British game designers. All the computers and animation software at JadooWorks have also been imported from America (H.P. and I.B.M.) or Canada, and half the staff walk around in American-branded clothing.

    “It’s unfair that you want all your products marketed globally,” argues Mr. Kulkarni, “but you don’t want any jobs to go.”

    He’s right. Which is why we must design the right public policies to keep America competitive in an increasingly networked world, where every company Indian or American will seek to assemble the best skills from around the globe. And we must cushion those Americans hurt by the outsourcing of their jobs. But let’s not be stupid and just start throwing up protectionist walls, in reaction to what seems to be happening on the surface. Because beneath the surface, what’s going around is also coming around. Even an Indian cartoon company isn’t just taking American jobs, it’s also making them.

    TECH TALK: As India Develops: A Tutorial on Development (Part 2)

    Atanu writes that credit constraint is the most important constraint that keeps an economy from developing:

    Economics concerns itself with one fundamental problem, that of allocating scarce resources efficiently and optimally. The most succinct definition of the economic problem is therefore a constrained maximization problem. Constraints are all over the place. Physical resources are limited. It is interesting to ask if there is one single physical resource which if not constrained would release all other constraints. There are some basic limited resources such as land, labor, energy, water, etc. Of these, energy is that resource which if it were unconstrained, all the other basic resources constraints will be released.

    If you had sufficient energy, you could transform whatever you had into whatever you wanted and recycle old stuff into new stuff. For instance, water. Using energy, clean the water; use the water; and then clean and reuse the water. You can use energy to desalinate sea water (lots of that around) and grow food hydroponically (don’t need too much land). You need basic minerals and metals? Use energy to get it by the millions of tons from the sea. Bottom line: if you had unlimited energy, you don’t have any real scarcity.

    Consider the problem of economic development. There are constraints that bind an economy and keep it from developing. I asked myself if there is one fundamental constraint that if released, will free an underdeveloped economy. The answer I arrive at is yes, it is the credit constraint.

    Atanu suggests that to get out of the low-level equilibrium trap of high population growth and low educational attainment, India needs to provide access to credit for its poor people, along with female empowerment, universal literacy at the minimum, and reduced population growth rates. He elaborates on the credit constraint issue: The single most important and binding constraint in this situation is the credit constraint. Given access to credit, a poor household would be able to invest in factors that systematically reduce the need for having a large number of children and also educate the children that they have adequately. If a household could pay for health care, for instance, childhood mortality rates would be low and hence the need to over-insure against childhood death would be mitigated. Having access to credit would also allow families to invest in education and the returns on education could be higher than the cost of education. Higher educational attainment would imply higher household incomes and thus lower incentives to have more children in the next generation. Higher household incomes would on the aggregate translate to greater availability of social security and thus a lower need for children for old-age insurance.

    Atanu writes that we cannot ignore the rural populace: India is a two-sector economy: the urban educated sector and the rural uneducated sector. The latter forms the base of the huge pyramid and toils away at a subsistence existence. The urban sector is seeing a boom what with BPO and ITES and all sorts of stuff. Policy makers, politicians, journalists, management gurus, TV reporters, and everyone and his brother are totally wrapped up in this incredible phenomenon. India, they all scream, has arrived. Having convinced themselves of that, they focus entirely on that part of the urban sector that is involved in the boom. This leads to a shocking neglect of the larger rural sector. Then when the boom runs out of steam, the country is worse off than what it would have been without the boom at all.

    On the need for education, Atanu writes: The urbanization of India is not taking place because the rural population does not have access to education. Thus when forced to move, they migrate to urban India to be employed at menial jobs and live in mega slums. This has got to change if India is to develop. No amount of BPO and ITES is going to cut it: the only hope is to educate the rural population and do so efficiently and with no loss of time. IT has the potential to do just that: bring education to the hundreds of millions in rural India.

    Next Week: As India Develops (continued)

    Continue reading

    Adam Bosworth Interview

    Phil Wainewright distills out the important points from an interview with Adam Bosworth :

    On widening the market for J2EE tools Bosworth says: “I would argue that there were really only about 500,000 people who could effectively use J2EE before Workshop … And I believe we truly have made it possible for the corporate developer, the applications developer to play in that and that means there’s more like 5 million people.” He then goes on to say that’s probably half the total number of programmers in the world, which he notes is an order of magnitude less than “about 100 million people who I think can use complex abstract tools meaning build really complex spreadsheets, do Visio, use Access at all.” BEA is not targeting them, he says. So BEA is taking the opposite approach from Charles Simonyi’s Intentional Software, which I described in my last posting, Not as intended. BEA aims to make complex programming more accessible to the 10 million, whereas Intentional aims to automate it so that the 100 million can take advantage of it without having to learn program.

    On the browser vs Windows he points out how easy people find it to use the browser “because it’s so self-evident what to do.” Not only is it harder to learn all the widgets in Windows, it’s also harder to maintain. “Software’s gotten better at being adaptive and self-modifying, but that cuts both ways,” he says. “I’m sick of applying my upgrades on Windows every night. And it makes me nervous that the software on my PC is constantly changing.” In his mind, the case against a traditional Windows-style thick client is settled; no one wants it: “I think in general we still want to say an app is just something you point to with a URL.” But that in turn, he goes on to say, means we want more from our browsers, including support for disconnected working.

    Vision for Blogging Tools

    Ahead of BloggerCon, Dave Winer asks: “What’s next in writing tools for weblogs? If you could influence people who are making the tools, what feature or features would you want? Think as big as you like, or as detailed as you like. What bug is most in your way. Ramble, please. Is there one thing you’d kill for? Or perhaps you’re satisfied with the tools as they are. I hope your comments are on the record so I can assemble a quote sheet as the beginning of a conversation that I hope will yield better tools for all of us.”

    Already, there are 114 comments on the site! There’s also an interesting discussion underway on Robert Scoble’s post.

    Tom Peters on Outsourcing

    Tom Peters has “16 Hard Truths”. Among them:

    1. “Off-shoring” will continue; the tide cannot be reversed.

    2. Service jobs are a bigger issue than manufacturing jobs, by an order of magnitude.

    3. The automation of business processes is as big a phenomenon in job shrinkage as off-shoring.

    7. The wholesale, increasingly upscale entry of 2.5 billion people (China, India) into the global economy at an accelerating rate is virtually unfathomable. Unfathomable = Unpredictable, exceptional challenges, amazing opportunities.

    11. Job creation is entrepreneurially led, especially by the small fraction of “start-ups” that become growth companies (Microsoft, Amgen, FedEx et al.); hence entrepreneurial incentives including low capital-gains taxes and high R&D supports are a top priority.

    12. Primary and secondary education must be reformed, in particular to underscore creativity and innovation — the mainstays of high-value added products and services. Children should be nurtured on risk-taking, with a low expectation of corporate cosseting.

    16. All economic progression is a matter of moving up the “value-added chain.” (This is not “management speak”: Think farm to factory to R&D lab.) The good news: Technology change is so vigorous for the foreseeable future that those who can “seize the moment” have lots of room to play.

    Adds John Robb: “[Tom’s] conclusion: we need to train many, many more creative, risk-taking entrepreneurs. That will require a massive shift in how we educate our youth. The only reliable indicator of whether you will be an entrepreneur: you are the son or daughter of an entrepreneur. If that skillset can’t be transferred more generally, most people will be left behind.”

    Wired Google Guide

    Wired has a collection of articles on Google. “Today Google’s a library, an almanac, a settler of bets. It’s a parlor game, a dating service, a shopping mall. It’s a Microsoft rival. It’s a verb. At more than 200 million requests a day, it is, by far, the world’s biggest search engine. And now, on the eve of a very public stock offering, it’s cast as savior, a harbinger of rebirth in the Valley. How can it be so many things? It’s Goooooooooogle.”
    One of the sections deals with Google’s primary revenue source – advertising:

    At the heart of the new Google is AdWords, a self-service ad server that uses relevance-ranking algorithms similar to the ones that make the search engine so effective. Advertisers tell Google how much they want to spend, then “buy” pertinent keywords. When users type in a matching term, the ad appears near the search results under the heading “Sponsored Links.” Each time a user clicks on the ad, Google subtracts the cost-per-click from the advertiser’s account. When the account’s daily budget is met, Google stops displaying the ad.

    So far the system has proven easy to use and remarkably effective. Roughly 15 percent of ads displayed adjacent to Google searches (at the company’s own Web site and on Google-powered sites like Yahoo! and AOL) result in clickthroughs – more than 10 times the click rate of the average banner ad. These clickthroughs are the golden leads of online commerce. One Dow Chemical business group reported 25 percent of its traffic comes through Google. Designer Hospital Gowns, a health care industry Web site, boosted sales 20 percent in six months.

    AdWords has worked so well that last year Google began offering the system to other sites as a way for them to provide targeted ads. The new service, AdSense, places ads on Web sites of all stripes, from ABC.com and The New York Times on the Web to quirky blogs like Bananathing!

    Pinpoint targeting has always been the goal for advertising, but has been unattainable for a couple of reasons. First, content providers have rarely been able to deliver to marketers enough well-described and narrowly focused consumers. Second, even when marketers get the perfect audience, they rarely have targeted ads; it costs too much to make multiple variations for micro-audiences. AdSense strips away these barriers.

    Using Google’s relevance-scoring algorithms, AdSense determines ad placement by analyzing the content of Web pages. The system delivers advertisers to the right niche publishers – and vice versa – automatically. What’s more, it allows those advertisers to customize their ads for free. And because Google has a vast inventory to choose from, there’s almost always a well-targeted ad to serve. No human has to intuit what’s going to work for what audience; the stats pick the best match.

    Web Advertising Comeback

    WSJ writes:

    Web ads, not long ago a wasteland of over-hyped expectations, are making a comeback. After rushing to advertise online in the 1990s, many companies wound up disappointed and dropped Internet ads altogether. Today, some are coming back, lured by an improving economy, lower rates and better technologies for tracking potential customers.

    Online ad spending climbed 20% last year to $7.2 billion. Yahoo Inc.’s ad revenue surged 84% last year. Analysts estimate revenues were up threefold at the closely held search titan Google, which doesn’t disclose results. Forrester Research Inc., a market-research firm, estimates Web-ad spending will grow as much as 23% in 2004.

    Many advertisers have figured out how to use techniques that only the Web can offer — including ways that let them capture names and data of consumers, measure results of Internet-ad campaigns and track the paths of consumers from the ads they view to the date and place of purchase.

    The article has an extensive case study on Mitsubishi.

    TECH TALK: As India Develops: A Tutorial on Development

    The India of today is still largely agriculture-driven, in that a majority of its people are dependent on agriculture. How can India develop? We need to understand the process of development, and in the case of India, also rural India and poverty. These are complex topics the stuff that economists thrive on. But an understanding of the basics of development and the realities of India are important if we are going to understand the opportunities that will be created as India develops, and the role we can play in Indias development.

    I present here a brief tutorial on development. Our guide is Atanu Dey. Besides being the driver for Deeshaa (in which I am also a participant), Atanu has a background in technology and development economics. More importantly, his latticework of mental models makes understanding of even the most complex topics easy. Atanu and I found each other via the Internet, through Reuben. Over the past six months, Atanu has been in India working to put together a venture to help transform rural India.

    I have sourced Atanus writings from his weblog on Development.

    Atanu takes us through the process of development: Before the Information Age was the Industrial Age. Policy was then focused on ways to make the transition from an agricultural to an industrial economy. Among the various models (such as export-led growth, import-substitution industrialization, and others) there was one that was called ‘agricultural demand led industrialization’, or ADLI, which was pioneered by Irma Adelman. ADLI recognized that cost-reducing technological change increased agricultural productivity and thus increased rural incomes. Increased rural incomes provided a demand boost for manufactured goods both for consumption as well as for use in agricultural production. The increased demand for domestically manufactured goods raised wages which in turn were spent on the consumption of agricultural output. On the labor side of the market, as agricultural productivity increased, labor shifted from the agricultural sector to the manufacturing sector. Thus the industrialization of the population was achieved at pace with the labor transition and was based on increased agricultural productivity attained through the use of appropriate technology.

    Irma Adelmans views on development are elaborated in a paper entitled Development History and its Implications for Development Theory: An Editorial, co-authored with Cynthia Taft Morris.

    Atanu elaborates on the link between agriculture and development in the Indian context:

    What does “moving away from an agricultural economy” mean? If by ‘agricultural economy’ one means an economy that is mainly agricultural, then clearly India’s being an agricultural economy is problematic. The reason is that India is a very large country population wise, compared to a country such as New Zealand. NZ can be an agricultural country and yet be developed because its production and consequent exports are sufficient to earn it a decent national income. India cannot be a developed nation and continue to be agricultural because it can never earn enough from agricultural exports to make a decent living. To illustrate this point, let’s do some arithmetic.

    Let us assume that for a country to be developed, its per capita income must be $10,000 per year. Currently, India’s per capita annual income is about 5% of that, or about a 20th of the income required to be a developed nation. Our agricultural production accounts for about a quarter of our GDP. So for agriculture alone to raise India’s GDP to that of a developed country level, Indian agricultural production will have to increase 80 fold at least. Now of this 80 fold increase, we can only consume perhaps twice as much food as we currently produce and consume. So the rest of the humongous output will have to be exported. If one tries to export even a 10th of that amount, the world prices will crash close enough to zero that it will not be worth even picking the produce from the fields.

    This is not the case with NZ because a couple of million people have to export only so much to get a decent income. Their exports do not affect their terms of trade so adversely that they become impoverished. A 1000 million people who wish to depend solely on their agricultural incomes to become developed cannot ever hope to do so because there is a limit to how much food humans can consume.

    For India to develop, there is no way other than moving away from agriculture. By that I don’t mean that we give up agriculture or reduce our production. I only mean that instead of 66 percent of our labor force being in agriculture, we have to steadily reduce that to something like 10 or 20 percent at most in the medium term and to single digit percentages in the long term. When labor does make that transition, then the released labor has to be absorbed in manufacturing and services sectors. This is a natural progression, come to think of it.

    Natural because first we need food. Then we need non-food stuff such as clothes and shelter and vehicles and roads and books and computers and shoes and ships and sealing wax etc. All that stuff has to be manufactured. Once we have food and manufactured stuff, we need services such as education and dentistry and dancing and musicals and movies and psychiatry and what nots. This entire edifice is built upon the agricultural sector because without it producing food, no manufacturing nor services would occur. Of course, if we got super good in manufacturing, we could export that and buy food. Or if we got super good in services (BPO or what have you), we could export that and buy food and manufactures. The trouble is that India has a very huge population. And therefore if we ever specialize (that is do only one thing), then we would be forced to produce in such great quantities to export the stuff that the world price of that (food, manufactures, services) will crash and we will not be able to survive.

    The bottom line is this: A large economy has to be largely self-sufficient. It has to produce food, manufactures, and services domestically and it has to consume most of what it produces domestically as well. Only small economies can afford to specialize and survive through trade.

    Tomorrow: A Tutorial on Development (continued)

    Continue reading

    Bus. Std: Tech’s Disrupting Power

    My latest column in Business Standard:

    The recent bid by Comcast, the largest cable company in the US, for Disney, one of the worlds foremost entertainment companies, highlights how technology is disrupting industries. Through Disney, Comcast is seeking ownership of content for its fat pipes. The driving force in media and other industries is digitisation of text, audio and video, and the availability of a high-speed internet for distribution.

    Rapidly increasing computing horse power, smart software and broadband networks have accelerated the process of digitisation by providing users and organisations the ability to manipulate content and transmit it cheaply and quickly anywhere across the world.

    The impact of digitisation is not limited to media and entertainment. The telecom world is also being shaken up as voice-over-internet protocol (VoIP) services cut the cost of making phone calls and eat into the revenue of telcos. In fact, the US Federal Communications Commission is preparing rules that would allow delivery of the internet through power lines and make online phone calls cheaper. In some countries, WiFi networks are already providing an alternative to the cellular networks in providing ubiquitous internet access.

    Digitisation puts power in the hands of the users. Napster forced the music industry to rethink its pricing and distribution policies, with the result that now many online music stores offer songs for as little as 99 cents (Rs 45). Apples iPod is one among a whole new generation of small, portable devices with the capability of storing and playing thousands of songs.

    The creators of Kaaza, a decentralised file-sharing software which has become the most downloaded program and is now on over 300 million computers worldwide, recently launched Skype, a peer-to-peer VoIP service. Skype allows computer-to-computer phone calls over the internet for free without the need for any centralised switching system. As Fortune magazine put it, it is disruptive for even the emerging IP telephony service providers: It costs the top provider of paid Internet telephony (Vonage) US$ 400 to add a customer. It costs Skype US$ 0.001.

    Personal Video Recorders (PVRs) like TiVo in the US are allowing users to timeshift content. The TiVo allows TV programs to be recorded on a computer hard disk at home, for viewing at the users convenience. TiVo users can skips ads (or replay the ones they like). Imagine the potential for PVRs in a TV-crazy country like India no longer does one have to worry about being home at a specific time to watch ones favourite soap operas.

    Highspeed networks are also proving disruptive to the traditional software industry model of selling software for a high one-time price (with incremental payments for periodic upgrades). Now, a new generation of application service providers (ASPs) like SalesForce.com offers software on a rental basis for a small monthly fee via the internet. Updates are instantaneously available to all users. The same concept is being applied to online multi-player video games and is driving internet usage (and profits) in countries like South Korea and China.

    So far, digitisation has had only a limited impact in India. But this is about to change. Two key factors offer India an opportunity to leapfrog into the digital world: affordable products and broadband networks. India will benefit from the incessant drive by technology providers to keep lowering the prices of their products. We have seen it with TVs and cellphones, and are now seeing it with DVD players and computers.

    This will be complemented by the availability of always-on, high-speed network connections which are becoming available in pockets across the country. From telcos to cellcos, from cable companies to energy providers, everyone wants to build the digital bridges.

    As the digital infrastructure gets built, a process of creative destruction and reconstruction will take place. It will be possible to deliver music, movies, software and games electronically from centralised computers, thus combating piracy which has been the bane of the various industries for long. Video-on-demand can open up new opportunities not just for the entertainment companies, but also for training and education. The combination of 802.11-based wireless networks and VoIP have the potential to offer flat-rate telecom access.

    Consider one of the areas which digitisation can have a positive impact education. In India, there are great disparities in the quality of education imparted across institutions in urban, semi-urban and rural India. India needs quick and scalable solutions to deliver quality education to hundreds of millions of children and youth to prepare them for the world of tomorrow. The availability of low-cost computers and high-speed networks can completely transform education through its value chain from content creation, translation, delivery and facilitating teacher-student interaction.

    The force of digitisation is here. It brings change and opportunity. Old and new economy entrepreneurs and managers need to understand and embrace it, and see how it can be integrated into their way of doing business and life. Because their customers already are.

    Technologies to Drive Demand

    AlwaysOn Network writes: “According to research outfit Precursor, tech growth won’t be driven by breakout technologies and product cycles as it had been in prior years. But the research outfit recently highlighted emerging technologies to watch for and the companies that may benefit.” Among the technologies are: 10 Gigabit Ethernet, VoIP, Wireless Broadband, Web Services, RFID, Open- source software, IP storage, Systems that control voice across both circuit and package networks, and business-process-management applications.