The mobile world is shifting from voice to data. Voice revenues may still make up 85-90% revenues for operators today, but they are not going to grow. The new subscriber growth is slowing; the new subscribers at the bottom of the pyramid aren’t going to be talking as much; the existing 500-600 million users have maxed out how much they are going to be talking. So, the way forward is to either cut costs to increase earnings, or to drive new services which improve profitability.
In this world, the mix of high-speed networks, better devices and flexible, developer-friendly operating systems create an amazing new opportunity waiting to be exploited. In this brave new world, operators can either be dumb pipes or can create new business models where they can benefit from the growing demand and consumption of data services.
Operates have to thus look at three streams of revenue: today’s voice revenues, tomorrow’s data access revenues (for pipes), and the future’s data services revenues. A model like that of i-mode can help create more of the access revenues, but more importantly, drive huge data services revenues.
I have written in the past about the need for an i-mode in India to drive data services, create monetization opportunities for mobile VAS companies, drive up ARPUs for mobile operators and enable an innovation ecosystem that could be the model for next-gen mobile services.
I wrote this in Jan 2008:
India of 2008 in the mobile space is quite similar to Japan of 1998. And into that Japan is when NTT Docomo launched its i-mode service in February 1999. In less than 3 years, 30 million subscribers were using i-mode.
What are the similarities between 2008 India and 1998 Japan? (Here, my focus is on the saturated, urban markets.)
– Mobile is at the centre of people’s lives. For many, mobile is the only interactive device.
– Lack of PC installed base handicaps Internet growth.
– Broadband is available only in pockets.
– There are few value-generating services on the PC (fixed line) Internet.
– Services are on the mobile are still limited due to operator control.
It was in this world that NTT Docomo, Japan’s leading mobile operator with a majority share of the market, launched i-mode. The focus of i-mode was on mobile data services. Content providers got 91% of the end user price, with Docomo taking the other 9% for providing billing services. In addition, Docomo retained the full data transfer charges that were paid by subscribers. It also created the entire ecosystem – including that of handsets and key anchor service providers.
This is the revolution that India needs on the data side. Will it be one of the incumbents who does it or a newcomer?
As it turns out, the opportunity in India still exists. Let us understand this i-mode opportunity in more detail.
In Netcore, we have an external Advisory Board with whom we review business and plans every quarter. We typically do the next year’s plan review sometime in early March, so that gives time to the teams to also start planning ahead for the next year.
This year, I decided to split our plans into what I called “Core and More.” Core is the part of the business that is already happening and needs to grow to achieve the targets for the year. It is largely down to Sales and Operations to deliver on this. Then, there is a More part – which are the new ideas and initiatives that will perhaps contribute later in the year, but are important to give us the next boost for the business. Thinking along these lines helps separate the investments needed for More so that they do not impact overall EBIDTA. These can be thought of as R&D expenses.
A financial year transition is a good time to set new goals and make some changes in the company. There is a freshness and expectation of newness. But changes should have a clear purpose, else they can negatively impact momentum.
So, welcome to a financial year and wish your company all the best!
Come April and it is also the time for employee appraisals. This is a very important element of the overall HR process and very critical for business continuity and momentum. A formal appraisal process should be set up in place. Very often, memories are limited to the past 2-3 months of the year and one tends to forget what happened in the first 9 months! The appraisal process needs to cover the full year.
Salary hikes are an outcome of the appraisal process. In India, salaries tend to become public as soon as they are announced. This leads to some disgruntlement. Most people tend to feel they are underpaid not because they feel they should have got more, but because a colleague got more! There isn’t much one can do as management about these issues other than to tell staff that no changes in salaries will be done. It typically dies down in a few days, and it is back to normalcy.
It is also a good idea to do recruitments early in the year to plan for growth. There will always be some attrition in the April-May months since employees can get “double hikes” – take the hike after the appraisal, and change jobs to get an even bigger increment. Of course, frequent changes like these will adversely impact the employee’s career.
Looking ahead, one needs to also put together the plans for the next financial year. The starting point needs to be assumptions about the business. How will the market grow? How will the various product lines grow? What will happen to pricing? Assumptions are what then result in the numbers for the year, and therefore, the targets for the various groups. There needs to be a base number and a stretch number.
The next task is to put together the budgets for the year. Salaries are likely to be one of the biggest components for most companies. They will account for 50-70% of costs, depending on the stage of the company.
Overall, there are three key numbers: the topline revenues, the gross margin (topline – cost of sales), EBIDTA (gross margin – direct costs). Then, there is also capex that needs to be factored in.
Even as these numbers are made for the full year, they will then need to be broken up by quarter. One thumb rule I have found looking at our revenues over the previous years is that full year revenue tends to be about 5X that of Q1. So, getting off to a good start in Q1 is very important. That builds the momentum for the rest of the year.
Along with financial numbers, there needs to be a review on other aspects. For example, specific business metrics which determine the health of the business need to be looked at closely. Also, what has been the progress on R&D and new product development? While these may not generate immediate revenue, they are crucial to keep the organisation competitive and create future streams of revenue.
Many times, the focus is too much either only on financial numbers or on some other business metrics. What is needed as part of a review is a much more holistic assessment of the business: financial numbers, headcount change and attrition, key costs (in most cases, salaries will make up the bulk), metrics that can help track growth in key product lines, customer wins and losses, product features, R&D outcomes.
While many of these points may be discussed through the year, an annual review gives a wider perspective. A financial year’s transition is also a good time to do this – sort of like ringing out the old, and ringing in the new.
As March gives way to April and one financial year transitions to the next, there are many things that happen in a business. It is a time of some looking back and a lot of looking forward.
To start with, one needs to do a comparison with the objectives for the year set a year ago, and what was done and what was left undone. Most companies work on an annual plan – with some revisions that take place through the year if situations change, and assumptions need to be revised. Financial targets set are one very important factor that need to be measured against achieved. For young businesses, topline and other metrics matter more. For somewhat more mature businesses, EBIDTA is the number to track.
Financial targets are important because the incentives and bonuses for many in the organisation are linked to these numbers. At the end of the day, numbers are what matter most. While these numbers are tracked through the year, the year-end numbers are the ones that are cast in stone.