My latest Business Standard column:
In this series, we are discussing cold technologies which Pip Coburn has defined as those that have neutral revenue or even anti revenue attributes. Cold technologies are important in our context because even as they shrink the investment the users have to make, they help them catch-up or even leapfrog to a world that is faster, better, cheaper in terms of the digital infrastructure that we need to build out in India. In the previous two columns, we covered five such cold technologies: open-source software, software delivered as a service, voice-over-IP, Wi-Fi and network computers.
China Supply Chain
A recent cover story in the Business Week talked about The China Price. The article began: They are the three scariest words in U.S. industry. Cut your price at least 30% or lose your customers. Nearly every manufacturer is vulnerable — from furniture to networking gear. The result: A massive shift in economic power is under way. It added: Makers of apparel, footwear, electric appliances, and plastics products, which have been shutting U.S. factories for decades, know well the futility of trying to match the China price. It has been a big factor in the loss of 2.7 million manufacturing jobs since 2000.
Chinas presence looks like a colossus across the world of manufacturing. Using its low-cost labour and a large domestic market, Chinese manufacturers are achieving huge economies of scale, allowing retailers like Wal-Mart to sell microwave ovens at $28. The world textiles industry waits with bated breath to see what will happen in 2005 as global trade barriers come down. Chinas presence across global value chains has helped keep prices low. Now, increasingly, Chinese companies are seeking to compete more broadly. Recently, Chinas largest computer company was in talks with IBM to buy out its PC business. Going ahead, China seeks to compete with low wages and in high-tech.
What China has done in manufacturing, India is doing in services. Indias emergence in the software and business process outsourcing services value chain is helping companies cut their costs. A skilled and abundant workforce has been complemented by cheaper telecom costs to enable organisations create software engineering and helpdesk extensions in India. Costs are cut anywhere from 30-70% when companies outsource. Companies using India as a services base is now widespread. The quantum of work being outsourced to India is still small, leaving plenty of room for growth.
In a recent survey on outsourcing, The Economist wrote: Over the next ten years, Russia, China and particularly India will emerge as important hubs for producing services such as software engineering, insurance underwriting and market research. These services will be consumed at the other end of a fibre-optic cable in America, Japan and Europe. Just as Dell and Wal-Mart are obtaining manufactured goods from low-cost countries, companies such as Wipro, TCS and Infosys, for instance, are already providing IT services from low-cost India.
File Sharing Networks
Peer-to-peer file sharing networks promise to revolutionse content distribution. Even though Napster was forced to shut down, other P2P networks thrive. More than half the traffic on the Internet is now generated by P2P applications. What they are doing is offering distributed alternatives to the problem of disseminating not just software updates but also broadband content. This promises to spur even more rapidly the growth of multimedia content. As the Web grows beyond text and images to include audio and video, P2P networks can provide affordable alternatives to content distribution.
The Economist wrote recently about the most popular of these applications: The most active P2P system, accounting for an estimated 35% of all internet traffic according to CacheLogic, is called BitTorrent. It is an open-source software project that is free to use and enables very large files to be stored and retrieved efficiently at essentially no cost. Though it is used for pirated music, it comes into its own when distributing really large files such as movies, games and large pieces of software such as the Linux operating systemthings that would otherwise be very costly for companies or individuals to make available for download With systems such as BitTorrent, the more a file is in demand, the more available it becomes. Content automatically ends up being stored close to the users who request it, improving the performance of the system.
The Internet is also impacting the world of advertising. As search engines have become popular (once again), they have also pioneered a new model to increase the effectiveness of online advertising. The ability to measure responses and pay based on performance is providing unprecedented capabilities to advertisers in fine-tuning their message. Business Week wrote in a special report on the surge in online advertising in the US: The Net is winning over mainstream advertisers with its computational precision. It delivers hard, quantifiable results measured in clicks and sales — down to the penny. In the process, it’s turning advertising from an art into a science.
Going ahead, as the time spent online by users increases, online advertising will provide increasing competition to the traditional broadcast media. Dan Gillmor wrote in the San Jose Mercury News: Consider the new breed of advertiser in the online world. Google’s text ads, which pop up after someone searches using keywords, cost in most cases a small fraction of what it would cost to advertise in a local newspaper or broadcast outlet. In other words, Google and the other companies in this space are attracting ads from businesses — including businesses that are as small as one person in a home office — that in many cases never advertised before. The potential for this is larger than most people have recognized. In theory, the Net-based advertising market is almost unlimited — extending to any one person with any one thing to sell.
So, get ready for the world of tomorrow increasingly built around cold technologies. They will disrupt incumbents and offer opportunities to upstarts. This is the process of creative destruction that guarantees that the only constant in the world is change.