Business, Strategy, Technology, Web

Revenues or Customers – Facebook needs to pick one!

Read an interesting article by Mahesh Murthy on Facebook and its new ways to generate revenue. You can find it in detail here, but according to me the summary is that ‘Customers used Facebook because it was a cool and free place to come together. In the process Facebook became a big company and from advertising on the sides has few billion dollars in revenue. Now to increase the revenues Facebook is trying to charge customers from their posts without understanding how dangerous it can be. People switched from Myspace to Orkut to Facebook and god knows where they might go next’.

Both Facebook and Instagram have done some big bloopers in the past few weeks. Instagram change of policy caused a major controversy and probably loss of users! Facebook charging money to promote posts is again a big blooper! I understand making money is difficult but here our a few ideas from my side for possible revenue streams!

  • Facebook Messenger vs WhatsApp: Techcrunch wrote that Facebook might be in the talks to acquire WhatsApp. Ofcourse Facebook can acquire another company but the fact remains that Facebook Messenger could have easily been more successful than WhatsApp! Facebook already had the contacts as friends list, had a mobile application and everything WhatsApp had except business development. Only Focus and Business Development were needed.
  • Dating / Matrimonial Site Integration: Whether its Match or eHarmony in the UK/US or Shaadi.com or BharatMatrimony.com in India or something else in other countries! Helping Single people meet each other has going on since centuries and now there is a way to do this and also make money! Facebook already has the ‘status’ and can easily extend this, ofcourse giving user the option to whether use this service or not and whether charge for this service or not.
  • Workplace or Competing with LinkedIn: It might not work because people like to keep personal life and professional lives separate. However I was told that one of the few things which employers first do when they get a job application is to search for applicant’s Facebook page and go through it …. so it just might work! I know applications like BranchOut have been around but a direct attempt by Facebook might be more successful.
  • Deals or Competing with GroupOn: Facebook actually closed its deals site in just 4 months! I was very much disappointed with this because I felt Facebook with all the users likes, history, location would be much better at this. Anyways a business definitely for Facebook’s Future, otherwise what is the worth of all that user information?

There are many possible revenue streams for Facebook but the common factor which leads to all of them is just one – Customers and more than 1 billion of them! Don’t alienate them …

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Can India set a scorching pace of growth
Finance

India’s Growth Potential – A macroeconomic perspective

If there is one word the world can’t get enough of – it is Growth! Growth is the amazing factor in financial equations which makes companies stocks go crazy and countries future look crazy. Ofcourse this is particularly true for India which along with China has led the world growth in the past few years.

Can India set a scorching pace of growth

Can India set a scorching pace of growth

India is such a big and massive country that dividing its growth into sectors is not an easy task. Still the Ministry of External Affairs has given us numbers for various sectors (http://indiainbusiness.nic.in/economy/economic_snapshot.htm)

India grew by 6.9% during 2011-12, which is lower compared to 8.4% growth achieved during 2010-11 but is still pretty good (Data from GoI). The chart from World Bank shows slightly different figures but the theme is still the same. Indian population is growing by 1.4% during the same period. To keep things simple I would adjust the growth down by 1.4% to account for this population growth.

Its also interesting to note from the website that “growth rates of over 8 per cent in the sectors of electricity, gas and water supply, trade , hotels , transport and communication, and financing, insurance, real estate and business services. MOSPI expects slow growth in the sectors of agriculture, forestry and fishing (2.5 per cent) , manufacturing (3.9 per cent) and construction (4.8 per cent). The growth in the mining and quarrying sector is estimated to be negative (-2.2 per cent).” And here lies the reason why the world is betting on India for the next growth wave for the world! Over 8% growth rate in the sectors where consumers are in the driving seat! Indian consumer is coming out and demanding there share from the world and that is going to have a multiplying effect on the economy.

What is needed right now?

Good policies to help manufacturing compete with the rest of the world and be able to provide the goods to the Indian consumer. India does not want to become just an importer of goods but wants to make goods for their own consumers.

Emphasis on Construction and Infrastructure: The growth rate of construction and infrastructure need to rapidly increase in India to make up for the past decades and provide way forward. This will not be easy but its success is going to determine the next few decades for India. India has an advantage here but is not realising it. Many countries in EU and China have already developed their infrastructure, driven their growth numbers by infrastructure spending and are now trying to push their consumers to use this infrastructure and consumer to lead the next cycle of growth in the economy. In India we are seeing the opposite trend where the consumer wants to consume but is hampered by the infrastructure and here lies the opportunity. As we get the infrastructure ready it will contribute to the GDP numbers but the consumption it leads to will create a multiplicative effect on GDP.

Will it happen or not? We will see in 10 years! If you have any comments then do share below.

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Planning, Public Issues, Strategy

Passports – Why are they still in use?

passportFollowing my earlier post regarding that Indian Elections need technology revolution, my current post focuses on the issue of passports and how technology can be used to improve them. I believe there are many inefficiencies in this world and most of the human effort is going into solving other problems than the problems which are most important. Now According to Wikipedia,

A passport is a document, issued by a national government, which certifies, for the purpose of international travel, the identity and nationality of its holder. The elements of identity are name, date of birth, sex, and place of birth. Most often, nationality and citizenship are congruent.

The article on Wikipedia mentions a lot of details about passport. I think historically the most important developments mentioned in it are that

(1) King Henry V of England is credited with the first true invention of the passport as a means of helping his subjects prove who they were in foreign lands

(2) Early passports included a description of the passport holder. Attachment of photographs to passports began in the early decades of the twentieth century, when photography became widespread.

The first point establishes the need of a passport, the requirement to prove one’s identity. The second point proves the up-gradation of passports, by including a photograph passports easily became a better way to prove identity.

In the present world where science has done so much advancements, where even computers require fingerprint scan before logging in, where bloomberg access requires fingerprint scan, where databases require retina scans, and even dna samples are not time consuming ….. then why do we still have a paper based passport? A paper based passport which can be stolen, or torn, or burnt, an external paper needs to prove my identity rather than having my own self prove my identity. Any new technology including fingerprints, retina scan, dna, or many new technologies can be used as a passport. Also please note that passport standardization came in 1980 under Internatinal Civial Aviation Organization (ICVO) and I think it has been a fair amount of time and we can use another upgradation.

To think about it how many problems can be easily solved by up-grading passports. The problem of illegal immigration, spies, passports getting stolen, fake passports, terrorism and what not! I really do not see any major problem in adopting a new system but bureaucracy. We keep saying that companies should be efficient and non-bureaucratic but the most important organizations in the world still seem bureaucratic. Anyways till as a world decide to become more efficient, keep holding on to your passports, always scared of having it stolen, or burnt or destroyed, keep renewing your passport and keep getting stamps!

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Business, Finance, Planning, Public Issues

I want to pay tax like a company!

Almost every person who works always cribs about one thing, paying taxes. Taxes are a form of contribution to the government by every individual for all that the government provides (and most governments are inefficient). In my personal blog I have written a lot of posts criticising taxation practices but this article is however a little different.

The reason I say that “I want to pay tax like a company!” is because companies taxation rules are very different from individual taxation rules. The most important difference being …….

A company pays tax only on the profit while an individual pays tax on his income

So if a person earns around Rs 15 lakhs per annum he is in the highest slab of taxes and will approximately pay atleast Rs 4 lakh in taxes. Instead if a company makes Rs 15 lakhs per annum then ….

personal-income-statementAccording to the above income statement the person will a maximum of Rs 2.2 lakhs in tax (this is assuming 33% tax and notax slabs, thus the amount will really be lower). I know people will claim that we do get tax benefit as HRA (House Rent Allowance, and Education Loan Benefits) but that can’t be compared as they all have a cap and hence do not reduce the taxable income too much.

Moreover I feel there are already some examples when people are paying taxes like companies!

  • If you at Hollywood stars then you will actually realize that they do not pay a lot of taxes even when they earn a lot. The reason is because they also have a lot of expenses. So how do they manage it? A star, lets call him Mr A, will form a company A Star Limited to which he will lease his services for around $10 million. A Star Limited will earn $100 million over the year and also spend around $40 million maintaining Mr A (afterall a big house, new cars, make-up, dresses and all that). Thus A Star Limited pays tax only on $50 million and Mr A pays tax on $10 million. If Mr A did not form the company he would have needed to pay tax on $100 million. A person is paying tax as a company.
  • Most of the businesses in India atleast pay for the housing expenses of the owner. In turn the owner’s expenses become companies expenses and hence the overall taxable profit gets reduced. A person pays tax as a company again.

The reason why people cannot be taxed like Companies is probably because then people will have no incentive to save any money. In such a system every individual would want to spend all the money, leading to no tax collection for the Government at all. On the other hand companies cannot be taxed on their revenue because profit margin as a percentage of revenue is very low.

Although I understand all these factors still I feel that I would want to pay taxes like a company. Maybe the tax laws can be changed and made better, untill then I guess I will keep wishing and people will keep cribbing about tax rules!

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Business, Finance, Planning, Strategy

Antitrust Laws in the wake of Intel Fine

Reading about the recent fine of $1.45 billion imposed on Intel by the European Union on TechCrunch, various thoughts came to my mind regarding the strategy of Intel. Intel is the most successful chip manufacturer in the world and it has maintained is dominance over the years. The giant must have taken many steps in this regard to keep its competitors (read AMD) behind.

Quoting from Wikipedia the competitive law or antitrust law has 3 main elements

  • prohibiting agreements or practices that restrict free trading and competition between business entities. This includes in particular the repression of cartels.
  • banning abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal, and many others.
  • supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licences or access to facilities to enable other businesses to continue competing.

It has been claimed that Intel paid computer manufacturers  like Acer, Dell, HP, Lenovo and various retailers to postpone, cancel or downright avoid using AMD. By doing so it ofcourse broke the first prohibited practice on the list. Moreover it caused a lot of damage to AMD. I can’t imagine how AMD has managed to survive through such a hostile environment where no one is willing to buy your product, or with companies buying and then cancelling their orders later. AMD must be given due credit for it.

According to TechCrunch, the worldover commission for x86 CPU chip is worth Euro 22 billion per year, and worth Euro 6.6 billion per year in Europe itself. Intel controls 80% of this which means they make Euro 5.28 billion per year by selling x86 CPU chips in European Union. I believe a lot of credit must go to Intel chip technology for this but a sizable credit should also go to the strategy of manhandling their rivals like AMD. Lets give 30% credit to the prohibitive strategies and this gives us Euro 1.58 billion per year owing to the “wrong” policies of Intel that harm the industry and break the antitrust laws.

Lets try to analyze! According to the courts, Intel has been breaking the antitrust laws since many many years and has maintained an unlawful monopoly over the CPU chip market. Through this they have made billions and AMD has lost billions (Intel made Euro 1.58 billion per year according to above estimates). For breaking the rules the court have fined Intel Euro 1 billion! Yes, you read it correctly, Euro 1 billion of fine on Intel. But that means Intel will still make a profit after paying the fine even this year. So following wrong strategies and breaking competitive and antitrust laws seems profitable according to this. May be I have got it wrong but if the courts are sure than what Intel is doing is wrong then they definitely need to re-analyze the situation.

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Planning, Public Issues, Strategy

Elections need technology revolution

I voted yesterday and it was a great feeling. It actually felt like probably the only moment when the politicians are at your mercy rather than vice-versa (now I also know how do professors feel while checking student papers). Armed with my voter ID card and a slip which stated some details, I went to the polling booth. It was quite hot and there was no queue. In almost no time I was able to find my name in the voters list and was able to cast my vote. Pressing the button I felt great! I am a part of the election revolution!

But the story is quite different in the rest of the country. In Phase 4 the voter turnout was just 57% and still it was considered good because at other places it was much lower. If this is not enough read this post on Jyoti’s blog where inspite of having a Voter ID card they were unable to vote. To me the situation seems quite horrific when people who want to vote are unable to vote. In India people are constantly moving homes because of job switches and cities like Bangalore / Mumbai / Delhi are full of such people. These people are mostly unable to vote as they are not in their home constituency during elections! To add to this a good number of people who want to vote every elections are denied this privilege because of some error in issuing voter ID card or the voter list at the polling booth.

It seems strange to me that a country with some of the world’s best IT companies, with one of the first fully electronic stock exchanges, with an ever growing mobile phone userbase, and tech savvy generation is still managing the most important public issue with such a dismal strategy. A government elected by less than 50% of voters can’t really be considered worthy.

What I am trying to propose is not very different from the current system. It just requires a computer and an internet connection at every polling booth (which can be a little difficult but I am sure the election commission can spend atleast this much to ensure a fairer elections). Every Voter ID card already has a unique number identified with it or associate one if need be. The person should be able to go to any voting booth in the country, show his/her voting card (or maybe just give the voter registration number) and be able to vote.

Through this strategy people will atleast be able to vote! Even those citizens who are currently not in their hometown will be able to take part in the election process. The ink stain on the finger should prevent multiple voting and the IT system should also prevent such errors. Overall designing and implementing such a system should not be very tough for an organization like Infosys, TCS, Wipro which manage billions of dollars for banking companies through all their transactions. Hoping to see a much better voting system implemented in the next 5 years.

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Business, Finance, Marketing, Planning, Strategy, Web

Tata Nano – Shining Star of Tata Motors

tata_nano_14Tata Nano, the revolutionary car by Tata Motors, recently completed its first set of bookings for the first 100,000 nanos to roll out from the factories. The report from Economic Times about this booking is full of interesting points.

Tata Motors played a mastermove by issuing forms for Nano bookings. Moreover these forms were not given out through normal dealer channels, rather they were issued through all Tata Company outlets leading to savings in distrubution.

Tata Nano received Rs 2,500 crores through over 2.03 lakh bookings. This cash is extremely essential for Tata Motors and gives it liquidity without any burden. Tata Motors is offering around 8.5 – 8.75% interest to people who do not get the car in the first lot. The immediate result is that Tata Motors get around Rs 1,000-1,500 crores of financing from the people of India as just 8.5% interest per annum. Any loan from any other institution would have cost Tata Motors a lot more than this.

Moreover by providing easy financing through all major leading banks Tata Motors was able to get a great response. People could easily pay around Rs 3,000 and book a nano. The results depict this in a big way with over 70% of bookings being financed and rest through cash. Thus the financing option great enhanced the number of applications and helped the cause. Another suprising factor is that about 4,000 bookings were made online. This just goes to show that India still has a long way to go in the online revolution.

The top level of Tata Nano (Lx version) with a booking price of Rs 1.4 lakhs got the highest number of bookings with 50% of total bookings. The base version got just 20% of the bookings and the medium version got 30% bookings. This indicates that although Tata Nano was initially aimed at Rs 1 lakh car but people prefer the luxury version with better amenities.

Ofcourse this is just the first round of bookings for Tata Nano. Lets see how the next rounds happen and how Tata Nano fares in markets outside India. It will be interesting to see if the secondary market for Tata Nano starts once the allotment begins. If people will want to sell their Tata Nano at a premium and will people be willing to pay a premium for it.

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Business, Finance, Planning, Strategy

DLF – Trying to survive the real estate bust

DLF along with Unitech should be given credit to make NCR what it is today. The vast city of Gurgaon has been built by DLF and Unitech by building skyscrapers, malls and everything else that follows. In turn these companies also grew and their promoters started coming in the list of richest people in India and the World.

However today that seems like a distant history. In 2008 Mr K P Singh featured at #8 in the Forbes ‘World’s Billionaire’s List’ with a networth of $30 billion. This year in 2009 Mr Singh is at #98 in the same list with a networth of $5 billion. In one year a networth reduction of 71% is unimaginable but then 2008 was a year full of unimaginable things. During recession perspectives change quickly and those who do not prepare for bad times can particularly have a bad time. DLF is one of the companies which did not really expect things to turn around and did not prepare for it well. Thus when the Indian Real Estate hype went bust DLF was caught in a big mess.

Lets try to catch a glimpse of what happened to DLF and why is it really in trouble. DLF through its cash bought land (properties) in various parts of the country. DLF expected to build some proerties, sell them without much trouble, and through this get the cash to service its debt and further construction. A story in Wall Street Journal also points out the relationship between DLF and DAL (DLF Assets). Quoting from WSJ

DLF Assets, or DAL, buys commercial property from publicly traded DLF and earns its income leasing that out. The company is owned by DLF’s founders and primary shareholders, the Singh family, and hedge fund D.E. Shaw. And it is having trouble paying for properties it bought in the past year thanks to a plunge in rentals from offices and shopping malls. The bill due DLF stood at about $1 billion at the end of December. DLF said Thursday only that $160 million has been repaid in the first three months of the year. This is money the real-estate developer could use to finish projects and service its own $3 billion mountain of debt; that was the sum as of the end of December, at which time DLF had only $139 million in cash.

So the problem comes down to the fact that DLF does not have cash, thus (1) it can’t service its $3 billion debt and (2) cannot even complete more constructions. DLF also faces the problem of having a debtor like DAL who are unable to make their payment. $1 billion from DAL could really help DLF at this moment but instead they are thinking of acquiring DAL under DLF itself. DAL has the problem of not being able to earn enough rent on the properties it owns. This was bound to happen with rents in India touching global standards while earnings didn’t.

DLF is finding the way out of this problem by selling some of the properties which did not fit in its immediate plans (in the next 3-5 years) and raise Rs 5,500 crores (roughly $1 billion which DAL owes to DLF). DLF plans to use this money for “liquidity preservation and deleveraging” (read complete construction and service debt) according to this story in Economic Times. It seems that DLF promoters do not want any outside interference and hence are not going the Unitech way. Unitech also faced similar trouble like DLF but instead of selling properties (which can lead to a loss to the company), they chose to reduce the promoter holdings and get external funding. Unitech’s promoter’s holding reduced from 64% to 51% and they secured $325 million of funding (information from this article). Maybe Mr Singh feels the loss from selling properties is less than the loss at selling stake at current valuations.

The moral of the story comes down to simple principles, save cash for rainy days. Both DLF and Unitech were bullish on their projects, and they should have been because of the past 10 years in the country. But saving a little cash for the rainy day could have helped them go through this recessionary storm in a much better manner.

Update: On 8th May, 2009 DLF announces that founders will raise upto $608 million going the Unitech way. This article was written on 5th May, 2009. Not that any of them would have read this article but just confirming our views.

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