Bus. Std: The Mobile Phone Revolution’s Lessons

My latest column in Business Standard:

A few years ago, the installed base of mobile phones and computers in India were about the same. Now, even as mobile phones march on to a figure of 50 million, the total number of computers in India nudges 12 million. Mobile phones are growing by about 2 million a month, while computers need about 6 months to touch the same figure. So, what caused this divergence in growth? Will computing take-off in India? Are there learnings for the computing industry from the cellphone world?

Let us start by looking at the utility of the two devices. After all, the decisions to buy (or not buy) are made by consumers. Cellphones in India filled a latent need of person-to-person voice communications. More than mobility, it gave people a phone which they sorely lacked thanks to outdated and incumbent-protecting telecom policies over the past decades. Communications is a basic need of people. And for long, this was stifled some of us remember the long waiting periods for a phone connection. Into this environment came the mobile operators. With a willingness to make investments and using cutting-edge technologies, they were aided by a global telecom recession which made equipment available at much lower prices. All of this resulted in great value for money for consumers as prices fell to a couple of rupees a minute and cheap handsets from Chinese and Korean makers flooded the market, forcing others to compete on affordability. This created a positive feedback loop wherein it is the masses who have adopted mobile phones and continue to drive growth. Reliance Infocomm’s entry acted as the dynamo for even greater affordability by lowering further the price barrier for the consumer.

Contrast this with the computer industry. Even though the device has general-purpose applicability in many scenarios, Indian consumers are caught between non-consumption of the hardware and piracy of software. A computer still costs about Rs 15-20,000 for the hardware, with basic software adding another Rs 20-25,000 to the cost. Besides affordability, the other challenge with computers is manageability. Viruses, Spam and Spyware have made life difficult for end-users. Put it all together and the net result is that the consumption of computing is a fraction of that of mobile telephony.

I would like to believe that we are today with computing where we were with mobile phones five years ago. There is a large potential market, but a few things need to be done to jumpstart consumption. Just like cellphones, computers too have the potential to grow by a factor of 10 in the next five years. What is needed to make this happen?

There are two key ideas from cellphones that computers need to adopt. The first is the creation of a zero-management user device, and the second is that of a subscription-based utility-like payment model. The underlying enabler for both will in fact be the broadband industry that is coming alive in India.

Total cost of ownership of computers can run into Rs 1,500-2,000 a month if one counts the cost of hardware, software and support. One way to bring down the hardware cost dramatically is to simplify the device. Think about the ease of using cellphones. That same simplicity needs to come to computers. The access devices can be thought of us thin clients or network computers, with processing and storage happening on the server. What does this is eliminate all support costs at the user end and also makes possible the delivery of applications and content without worry of piracy by the owners of the rights.

The subscription model is what the telecom industry is very good at. Investments in infrastructure are made upfront, and users are asked to pay a small monthly fee for basic services, with additional payments for value-added services. The pre-paid model has done very well in extending mobile phone usage to a mass market, even as the front-loaded computing industry model has limited it to the upper classes. Imagine if computing were also available like a utility. This can reduce the entry barrier and create a positive feedback that can then get software developers and content providers creating solutions for an ever-growing user base.

To bring the solution to fruition will require the creation of wireless broadband networks. In India, the last mile connectivity to homes and businesses has been a challenge. As of now, the two options are the copper line laid by the telephone company and the cable connection which carries television. In the first case, the incumbents (BSNL and MTNL) control most of the wired telephone lines across India and so far their broadband rollouts have been slow. The decision by the government to not unbundle the local loop has eliminated prospects of competition on this front. In the second case, the quality of cable along with the investments needed for upgrades have limited cable to carrying one-way content.

What India needs is a leapfrog to next-generation networks that can deliver broadband over the air to users creating a high-speed ubiquitous and pervasive data network. This can then enable deployment of network computers like cellphones connected to a centralised grid of servers which provide the compelling services that users need and are willing to pay for. In fact, given the digitisation that is happening in both voice and television, the network computer could in future be the converged device capable of providing a hybrid set of services to users.

To create a base of 100 million computing devices across India, there is, therefore, a need for thinking disruptively. The current model in the world of computing has gotten us so far, but will not take us further to make the vision of a connected computer accessible to every home, family and employee and build the digital DNA of India. We need to look at the other successful industry that has transformed communications in India in the past five years. Welcome to the world of commPuting.

Don Valentine Interview

News.com has an interview with “the grandfather of Silicon Valley venture capital” – Don Valentine, who founded Sequoia Capital in 1972. Some excerpts:

I think the first phase of the Internet is established. We think of it here as the Internet, phase two.

To us, [phase two is] merely the reality phase of something that happens that’s overhyped, like nanotech. Now we’re really into solid applications, problem solving and business. Look at how much advertising is moving to the Web portals. It’s a reconstitution of the way Madison Avenue is thinking about where to place ads.

The biggest thing that is making the Internet and all those things more interesting is broadband. It makes the Internet an even more powerful platform in which to buy and sell things–as a media platform and a market. To me it’s an issue of patience. (Cisco CEO) John Chambers was talking recently about broadband and indicated that the U.S. is 15th in the world at implementing it.

If you look at the personal-computing industry, only a fraction of the world has participated in this arena. I think it’s a huge, huge unit market. Companies like Dell, Microsoft and Intel–they’re the primary members of that environment. It’s an unfortunate situation that only Intel and Microsoft really make money. The rest, with Dell as an exception, don’t make any money. I think the challenge for Intel and Microsoft is to find some other platform in which to grow, other than the personal computer.

Six Degrees World of Inventors

HBS Working Knowledge has an interview with HBS associate professor Lee Fleming whose work “looks specifically at how ideas and innovation flow across company boundaries through small (and getting smaller) communities and collaborations of inventors.” Excerpts:

In layman’s terms, the best way to think about a small-world network is that there are local clusters, much like caves. Within these caves you have a small clan of people tightly connected together, with strong relationships between each other. But a couple of members in each caveif you have a collection of caves within reach of each otherknow other members of other caves, and it’s this combination of a tight, local clustering with an occasional weak, distant tie to other clusters, that is the essence of a small world. Some argue that clustering is good for innovation, but since clusters get stale, you also need the non-redundant information that flows in from outside the local cluster. Hence, the advantage of small worlds is that they combine tight local clustering with distant ties.

Our work and more recent work on knowledge diffusion demonstrates that knowledge flows along collaborative relationships, even years after they were formed. For managers the critical message here is, the world of inventors is getting “smaller” in the sense that inventors are more connected to their colleagues in outside firms, and that knowledge is diffusing in both directions. So with regard to agglomeration and connection, the world of inventors is indeed shrinking and becoming a “smaller world.”

Entrepreneurial Mistakes

Torsten Jacobi points to Mark Henricks’s list. Among them:

Mistake 1: Failing to spend enough time researching the business idea to see if it’s viable.
“This is really the most important mistake of all. They say 9 [out] of 10 entrepreneurs fail because they’re undercapitalized or have the wrong people. I say 9 [out] of 10 people fail because their original concept is not viable. They want to be in business so much that they often don’t do the work they need to do ahead of time, so everything they do is doomed. They can be very talented, do everything else right, and fail because they have ideas that are flawed.”

Mistake 2: Miscalculating market size, timing, ease of entry and potential market share.
“Most new entrepreneurs get very excited over an idea and don’t look for the truth about how many people will want to buy it. They put together financial projections as part of a presentation to pump up their investors. They say, ‘The market size is 50 million people that could use this product, and if I could only sell to 2 percent of them, I’d be selling a million pieces.’ But 2 percent of a market is a lot. Most products sell way less than 1 percent.”

Mobile Gaming

Dana Blankenhorn writes that “the big trend in cellular or mobile telephony for 2005 will be…gaming.” More specifically, online gaming.

The point is that in modern online games the game itself takes place in an online realm, for which you pay by the hour. The download of the game itself is trivial. Many game makers offer free downloads. It’s the old razor blade analogy (or the computer printer analogy) — give away the razor and sell the blades (or the toner).

Why will this happen so quickly?

  • The lag-time between Internet trends and mobile trends is going down as 3G networks and better phones make the two more similar.
  • Carriers profit twice from online games, once when the game is downloaded, but second (continually) as the game is played. Mobile telephony is still metered, so unlike an ISP they always get a cut.
  • Carriers can create entirely new, predictable revenue streams by selling “packages” of game minutes. Since these minutes are more certain to be used than talk minutes, and since they will come on broadband networks, they will cost more.

  • TECH TALK: Tomorrow’s World: New India Glimpses

    India is witnessing amazing change. While life on a day-to-day basis still has its challenges (poor road infrastructure, erratic power, limited bandwidth, growing urban-rural divide, quality and availability of education, a population that is still growing more rapidly than available resources), there is a lot that is happening to augur well for the future.

    Cellphones: Recently, the number of cellphones in India passed the number of landlines. This is not just a statistical milestone. It signifies the choice that Indians are making. By leapfrogging to a wirefree world, communications in India is being transformed, and so is life. Hoardings in Mumbai announce the availability of TV via EDGE networks and railway reservations via the handset. About 2 million new users a month are being added to the current base of about 45 million cellphone users. India has one of the lowest tariffs in the world for mobile telephony. Text messaging has become a way of interaction for many. Value-added services like ringtones and gaming are growing. State-of-the-art networks and feature-rich handsets across India are beckoning the next set of users. Cellphone companies are profitable at average monthly revenues of Rs 400 ($9) per user.

    Cable TV: A hundred channels for all of Rs 250 ($5.50) thats what about 55 million households pay to enjoy their television. And there is no dearth of new channels launching every month. I still remember the launch of Zee TV, Indias first private channel it happened just over a decade ago. A mlange of cable companies are now tying up with Internet Service Providers to offer broadband (more like, always-on narrowband) Internet to homes.

    Wireless Data: Reliance Infocomms CDMA-based wireless data networks covers more than a thousand towns and cities across India. Lottery terminals, ATMs and even credit card authorization terminals are using it to connect to centralised servers. Providing speeds of 30-60 Kbps (versus a theoretical maximum of 115 Kbps), these data networks are also providing laptop users the ability to connect to the Internet in under five seconds for 40 paise a minute (less than a penny) from almost anywhere in urban and semi-urban India.

    Cybercafes: Even as the cost of ownership of a computer remains high, thousands of cybercafes function as Tech 7-11s in neighbourhoods. Sifys 2,000 iWays offer not just Internet access, but also Internet telephony and video conferencing.

    Internet Telephony: I still remember the time a few years ago when phone calls to the US cost nearly Rs 100 a minute. The other day, one of the VoIP company sales representatives came calling offering calls for less than Rs 2 a minute. Smart Indians are also buying by Vonage boxes in the US and getting them to India to make calls to the US for a flat rate of $30 (Rs 1,350) a month. Geography indeed has no barriers!

    eCommerce: For all who think we have been left behind in the b2c revolution, think again. Indian Railways and Deccan Airways have proven that Indians will pay for transactions over the Internet. The Indian Railways website address one of the major pain points in the life of many booking train tickets and checking the reservation status of waitlisted tickets. Deccan Airways, one of the new low-cost carriers, does bookings of Rs 1.5 crore ($330,000) daily over the Internet.

    Tomorrow: New India Glimpses (continued)

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