The real eCommerce revolution

Indian ecommerce

Had an interesting conversation with an investor friend yesterday, who is really active in the start-up/seed stage. We were talking about the many niche plays that are coming up with the well funded steep growth we are witnessing in the ecommerce industry.

While there is no doubt, that Indians have started buying/shopping/ordering online and in a big way, what can also not be debated is the uniqueness of the Indian model, which throws up its own set of challenges. Lets look at a few of them:

  • Almost 70% of our ecommerce transactions areCash-on-Delivery (COD)
  • Many big portals have seen return-rates upwards of 30%
  • Current ecommerce growth is happening predominantly from tier 2 and tier 3 towns

What all of this translates into, is some serious logistics issues namely, collecting payments from COD customers, inbound logistics for returned goods and finally having an efficient distribution network, which is spread out really far and wide.

A few interesting plays are being introduced in the Indian economy

  • Players like Chhotu.in who are focusing only on ecommerce logistics including cash collection. This company has a simple pitch that it will help reduce the return rates and also ensure higher efficiency on the COD segment.
  • Niche players who are focusing only on the cash management for COD piece. One such player is riding on the positioning that it will enable ecommerce players to get sales proceeds into their accounts within x days. A payment guarantee that allows the ecommerce player to do what it does best- focus on demand generation and driving transactions.

If these challenges are very unique to our economy, it could mean the difference between the success of a local experienced player vs the success of a global ecommerce giant like Amazon.com.

 

ABCDJ – what now

Indian-Mobile-Value-Added-ServicesIn India, the Telecom Value-Added-Services (VAS) was referred to as the business of ABCDJ – Astro, Bollywood, Cricket, Devotion and Jokes. This was the volume and revenue driver for almost all mobile operators beyond the voice and text revenues and it sure was a significant one (if we include the ringtones and call-back tunes within Bollywood or Devotion category).

With the TRAI’s new SMS guidelines, the VAS players cannot send SMS based content to users who are on NDNC. There are talks of partial NDNCs but the fact remains that this business has been hit in a big way. The VAS players had been using SMS both as a channel for marketing and for delivering content too. The ones who have been hit the worst are the ones where the content is the text.

So what now? I think one of these may happen

  1. Telcos/VAS players will build a case & convince TRAI. Given the fact that Telco’s almost enjoyed a significant portion of the VAS revenues, this is surely already happening. The VAS players would need to show that the content is being delivered only to subscribed customers and the customers have an easy way to opt out it. (Airtel had started a on/off service for all products, now all might have to adopt it). There would surely be a lot of genuine customers who need a regular dose of ABCDJ delivered on their handset.What the VAS players might not get, is the use of SMS as an advertising channel to sell their services. If this happens, the cost of customer acquisition will go up, and hence the profitability metrics would be negatively impacted.
  2. Non-SMS channels for delivery. SMS was the ideal channel for content delivery as it allowed the VAS player to just focus on acquisition and content. Delivery was a no-brainer. There was no classification needed basis handset type etc to see if the content was delivered or not. With SMS gone, the players would want to explore GPRS based rich media delivery of content. Here the customer’s handset type will decide whether the specific user should be targeted with this content or not. Maybe now Telco’s will start focusing on selling smart phones either bundled or as part of a special deal. Any smart phone sold by Vodafone, gives them a customer to whom rich-media VAS can be sold. Maybe now the likes of CellTick will have a second lease of life in the Indian market.
  3. More active role by Telco in selling VAS. Till now, the role played by Telco in selling VAS content was restricted to sharing data with the players, and opening up a pipe for them to deliver. Now the Telco will remain the most important touch-point, and if they want the VAS revenues to grow, they would need to “sell” it now. Telcos might invest in a VAS emarketplace of sorts so that pulling the content is much easier.

Time will tell, what finally happens, but my guess is, that it surely is a critical discussion point at most Telco board rooms.

Organized retail in residential areas

The frequent (and usually negative-themed) coverage of the fortunes of most organised retailers has left most wondering as to what really went wrong for most retailers.
While I am sure most consultants are making money coz the answers are still unknown, I think the concept of retail outlets in residential areas needs a special focus.

Organized retailWhy?

Coz I am just witnessing the closure of a More store in our neighbourhood and there are multiple reasons that come to my mind
– Will the customer walk or drive down to the store? In this locality, its the latter & the store has almost no parking space.
– Is it open late into the night? No. Are the customers looking for some store at that hour- a few almost every night
– Is it better than the regular guy you have been buying groceries from? Not really coz his store is not a big one with lot of aisle space. Also the regular kirana guy is so trustworthy we just drop in the list & he sends the stuff (best masalas if you ask most housewives).
– Does the manager know the locals in the neighbourhood. No. A big negative as he cannot build a relationship beyond the polite greetings.

So if you expect the customer to get out of the house, get into a car & spend next 20 mins buying groceries you better provide her with an experience that feels like time-well-spent.
In the absence of all this, the store IMHO, had to make do with only the last minute emergency kind of purchases. The No-ketchup-for-the-snacks purchases.

Finding the techie Rancho !

Since 3 Idiots seems to be the most talked about thing these days, heres a post to reach out to those young smart thinking techies out there.

For one of my ventures, I have been looking for someone who is good at Ruby-on-Rails and PHP. Went through the usual route of spreading the word around in the network & speaking to some consultants, checking & putting posts on online forums etc- all to no avail.
Though RoR & PHP are touted as one of the most powerful web technologies, most colleges dont teach that. It seems the curriculum touches the theory aspects & when it comes to actual programming its restricted to the classic C & C++ types- apart from Java.
Add to this that NIIT has just started a PHP course less than a month back & they do not have any courses on RoR.

Given all this, its only the enterprising & self-driven kids, who while in college ask around as to what technology platform is currently hot & take it upon themselves to learn & master those.

Unfortunately, the only smart enterprising techie kid i know is now in a comfortable job . He laughed at my despair & asked me to write – about my pain in finding young techies.

So here I am, sharing my pain . But I am reminded of what I heard from someone last month- that the employability of Indian graduates is very low. Highlighted in a 2005 McKinsey study, a lot has been discussed since then to improve the situation. But on the ground, what are we doing? Who is telling the Engg colleges and training institutes where the bulk of the business orders are, where is the technology moving. And this is the condition, in THE one industry where we have significant presence in the global arena.

Also, apart from the academic focus towards realistic & deployable technologies (see I dont say employable) we need a more evolved marketplace for doing the handshakes. The current Naukri’s & Monsters of the world have become too big and finding the right person through them (for most entry level positions) is very very painful.

I am thinking of going to the local Engg colleges and spending some time interviewing & finding the best minds… who can then quickly learn RoR or whatever new tech area we want to enter into.

So wish us luck, while we search for our Phunsukh Rancho.

Has the BlackBerry revolution begun?

Last couple of weeks, I have been amazed at the number of users who have been flashing their BlackBerries. All my friends have one – whether they are salaried or self employed – and I do understand their need to be connected on emails.
But the surprise came when I met college students using BlackBerry Bold & customer care staff upgrading from a monochrome Motorola to a BB. It seems now you can never be too far from a BB !

Blackberry

So what really is causing this?

  • Is there a genuine need for a bigger base of users these days to be connected on emails?
  •  Is it that the Facebook/YM/twitter/Orkut apps run faster on BB & these users need to be connected with their “gang” on the social network
  • Blackberry messenger adds up a peer pressure of sorts on those who are not on it.
  • Or is it just that we have now learnt to spend more on our telecom bills. Also the handset being one of the most flashed objects you possess, the need to have a fancier gadget is more pronounced.
  • The lifecycle of a handset has reduced & people need to change (& simultaneously upgrade) to a better phone & experience. I remember seeing lot of college kids carrying those touch screen ASUS phones about 1.5-2 yrs back. They must now feel the need to upgrade & probably BB handsets at 11000Rs (and Rs 200 per month) sounds like a good option to them

What also is confusing is why these users are not experimenting with Nokia Push Email. I have seen a lot of users with the ESeries phones, but most of them do NOT have their emails configured on the phone.

I feel its a mix of all these & probably much more….but my take is that the BlackBerry will soon shoot up in its market share in the urban middle class consumers. There are far too many coincidences to just ignore this.

Mobile Advertising & the Indian market

Advertising on the small screen aka the mobile handset has been a hot area for quite some time. We have seen multiple models come – some to stay & many more to just fizzle out after their two moments of glory.

The excitement is well founded, its a screen that probably gets the maximum impressions and has the highest reach.

Mobile AdvertisingWhat makes it even more interesting is the numerous models all of which seem to have found their individual niches. Some of the more prominent ones that I found are listed below:

1. Google’s forte- Advertising on mobile search. This model just replicates the adwords to a mobile context. To get the advertising $ the pitch is that the consumer is actively looking for that specific product/service (as highlighted by the searched keyword). Moreover the consumer can not only browse to the advertisers webpage, but could immediately call or SMS an advertised number

2. Banners on WAP sites- This is akin to the online adnetworks with a twist that the banners & the sites being referred to are now optimised for viewing on the mobile screen. AdMob was the largest player  in this segment & GOOG justified its acquisition of AdMob with a detailed note.

3. Ads within Applications: Here again AdMob is supposed to be a big player, but the biggest player of them all is the iPhone. iPhone not only has the biggest app library but has shown other handset manufacturers how to make this a dominant revenue line.

The above models currently have a low adoption in India due to low % of handsets with GPRS connectivity and low penetration of mobile apps. What has worked in the country is good ol SMS. Here again there are multiple models

4. SMS/MMS ads sent to users. This promises scale to the advertiser and pure pain to the consumer. Coz everytime the new ad reacher her, her phone would ring/buzz. Moreover most of the advertisers are not the bigger brands offering great deals.

5. Ads in half of the SMS text- This is typically clubbed with alerts (to cross subsidise) or with free online SMS offered(e.g. Way2SMS) to consumers. Advertisers have issues with both the options. In the first the consumer is more concerned with the alert content rather than the ad e.g. if I get an alert from HDFC Bank about the balance in my current account I am probably not too keen on the Life Insurance being pitched to me at that point of time. In the 2nd option, most advertisers will NOT want to spend money on getting consumers who are sending free SMS online (or so I am told !)

SMS Gupshup which is touted to be the biggest mobile ad network in India, provides multiple channels that a customer can subscribe to. Here the main lever to get the consumer is the content & they use the ads in a contextual fashion (since the content & advertising logic both sit on their servers, its easy to match).

Vodafone (in its previous avtar as Hutch) had experimented with an operator owned full screen broadcasting model. Their technology provider Celltick was capable of targeting consumers basis the cell tower & showing rich media ads through their proprietary broadcasting technology.

Which model will finally become a dominant one in the Indian market?

Will Indian market also get polarised in terms of handset, in which case the handset provider will control this segment?How can Nokia drive more of its clients to its Ovi Store?

Can the operator control the ad ecosystem? They seem to be in the most advantageous position as they control the maximum touchpoints with the consumer.

Will 3rd party operators control the market? Can they build a model which is neat, scaleable & engages the customer in an exciting way?

Mobile operators & financial Services

The telecom operators in our country have a really enviable position. They are probably the only ones who have in such a short span created a consumer base that cuts across almost all economic and geographic boundaries. Their elder cousins from the FMCG sector are still way behind in capturing the imagination of the rural consumers.

While it is debatable whether there is a genuine need for high mobile penetration in the rural markets, what we have to accept is that mobile industry can today provide a scaleable distribution platform- something that can be leveraged for very many things.

Mobile operators

One of the most obvious (or so we would want to believe) is the financial services. Telecom co’s have been lobbying with the Finance Ministry to allow the Telcos to operate as NBFCs (or some similar avatar). They have used the argument that the government’s stated objective of financial inclusion can be best achieved through the mobile platform. One cannot ignore the sheer numbers that the Airtel, TATA indicom & Reliance report month on month to TRAI.

The RBI on the other hand has to play the devil’s advocate & so far it has done  a very convincing act, worthy of an academy nomination 🙂 RBI issued its guidelines on August 14th 2009 allowing “other persons” to issue mobile based semi-closed system based pre-paid instruments:

The mobile phone based semi-closed payment instruments issued by other persons shall also comply with the following conditions:-
i) The maximum value of such instruments shall not exceed Rs 5000/-.
ii) The purchase/reloading of these instruments against the value of airtime/talktime shall not be permitted.
iii) This facility shall be enabled only to facilitate purchase of goods and services. Person-to-person transfer of value shall not be permitted.

The mobile phone based semi-closed payment instruments issued by other persons shall also comply with the following conditions:-

i) The maximum value of such instruments shall not exceed Rs 5000/-.

ii) The purchase/reloading of these instruments against the value of airtime/talktime shall not be permitted.

iii) This facility shall be enabled only to facilitate purchase of goods and services. Person-to-person transfer of value shall not be permitted.

Most of us were tempted to assume that the next gradual step would be complete mobile wallets- something that gives a really exciting opportunity to Telecom operators to move into the Financial domain. But just last week RBI came out with its clear instructions that mwallets is an option which it is NOT comfortable with- more from a KYC & regulatory perspective.

Will be interesting to see how this payments space pans out. From what I hear, TATA Indicom is already doing semi-closed pilots with the Rs 5000/- limit by being the merchant on both ends of transactions i.e. the TATA Indicom user walks into a kiosk – pays Rs 5000/- cash & gets his virtual prepaid loaded with that same amount (no news on the transaction or other fees). The same can then be redeemed for transactions where TATA Indicom would play the merchant role again (e.g. a shopkeeper with whom they have a tie-up)

New challenges in retail banking

I was having a conversation on CIBIL and how it has changed the lending process at most institutions in India when someone asked me this – ” A large segment of the population has become CIBIL -ve due to various reasons incl the slowdown. Will these guys ever get credit in future once the economy revives?”

The question is interesting coz when the banks want to grow their loan books again, they would have to become less credit-risk averse or increase their reach.

a)Assuming that the distribution cannot ramp up fast enough (due to branch license issues etc)it would mean more aggression in looking at borderline cases (in terms of credit profile). Banks would have to find innovative ways to lower the credit cut off. Am told its already started happening — reduction in the CIBIL cut-off for cards sourcing and some are looking at a lower CIBIL score (if the track history on own products is fine).

But the risk attached to this approach is pretty obvious. You are looking down another cycle soon with probably a bigger exposure this time.

b)what will be more exciting is how banks other lending institutions innovate on their distribution channels. Now we all know that the fast ramp up in loan books happened thru the DSA channel- which amongst other things was costlier but easy scaleable. The cost element meant that this channel was suited for only cases with significant ticket size, so that the DSA covered his costs and made exciting enough profits.

As I look at it, the next wave of credit growth will come from channel innovation– Looking at identifying, building and scaling channels which will make sourcing profitable- even for smaller ticket sizes.

Once this happens, the whole dynamics of lending side profitability will change.
Coz account management (of already sourced customers) is mostly automated and hence costs do not vary with ticket size – infact the more accounts the cheaper it is to manage them due to cost amortizaton. Its sourcing which has significant variable costs and needs to be efficient to handle not only small tickets but find CIBIL OK profiles upfront.

Agree? or you think it would be back to DSA days with larger marketing spends across channels?

Rural telecom users price insensitive?

Read an interesting report in the ET today, based on some survey conducted by Credit Suisse. They survey found that the rural consumers are more quality consicous and less price sensitive. Hardly any of the polled users had switched operators basis call-rates.

Mobile operatorsThis is very interesting coz most of us (self included) had believed that this is a market where ARPUs would be low and constant reacquiring would mean that the telco’s hardly make any money.

Also the report says that the rural consumers would constitute almost 40% of the total users by 2012.These two findings have some serious ramifications:

– Infrastructure needs to be first priority when moving into a new market. Typically we had seen that most telco’s went to these markets with a promise of “cheaper” service

– The first mover will have advantage over others, everything else being same. This is evident from the lower switch rate seen in rural consumers.

– The marketing spends promos highlighting reduced rates etc will now have to be substituted with better distribution/session-experience.

But the most interesting this is that the rural consumers remain price sensitive inspite of having a clear priority for better service. This would make them a tough market for telco’s- providing high quality services at competitive price where ARPUs are anyways lower 🙂

Organic farming – tough road ahead

I went on a trip to Sikkim, with a pal who works for organic farming certification in that state. And while I was doing my sightseeing, managed to enquire a bit about how organic farming is structured and marketed in the country.

Quite an interesting case study it is.

Organic farming

Organic farming involves complete dependency on natural products during the agricultural cycle, which means organic seeds, no fertilisers, no pesticides, no weedicides- all these chemicals replaced by organic/natural stuff. It is claimed that organic farming restores the “natural” composition of the soil and keeps it productive for a sustained period- unlike fertilizers which will give higher productivity in the short term but spoil the soil so that eventually it would be unfit for agriculture.

While I have no doubts on the benefits of organic farming (better health, soil conservation etc) I developed some really serious doubts about its adoption in a country like ours. Here’s why:

– The financial motivation to the farmer is not very strong. This is primarily because the end consumer demand for organic products is low, which means there is not a big enough market for the farmers to go to where they might get a handsome premium.

–  Organic farming is a slow process as in takes almost 2 years for the soil to come back to its same productive levels that you would have seen with moderate use of chemicals and its only in the 3/4th year that you see substantial incremental benefits of refraining from using chemicals. Most Indian farmers would not have enough security to afford a cut in production/revenues for 2-3 years. And I guess thats why some of the govt entities are trying out ways to subsidise this.

– The true  local effects of organic farming can be seen only if its a community level initiative. One of the ways Organic farming is “sold” to farmers is by telling them that the chemicals are not only spoiling the soil but also contaminating the ground water that your children and family consume. Now even if I have some financial security to take in a cut in production- how will the ground water be un polluted if the farmer next door doesnt adopt Organic farming techniques. So i guess in a way its like starting a revolution- creating an awareness in villages so that people start using it simulatenously.

–  Complex implementation process. Now comes the tricky adoption bit. It seems for your farm’s produce to sell under organic umbrella, you need a certification. Sounds acceptable. But in order to get the certification one needs to practise it for 6 years and maintain a log-book which carries all the relevant details of what has been added to the farm on which date in what quantities. This overhead means that the farms cannot be too widespread or remote. Logic is thus- the co. which will deploy a dedicated resource to maintain this field book would be able to recover costs only if the resource is shared between enough number of plots. So organic farming will flourish only in big enough villages till some tech smarts are implemented.

–  Access to markets . From what I understand perishables are most in demand when it comes to organic produce BUT given the complex logistics its tough to guarantee profitability unless the farm is close to the market itself. In most cases where it isnt, its the staple crops like pulses, grains etc that are cultivated the organic way- where in the inherent demand is not too high..

The way I would have attacked this is:

–  Extensive lobbying  with state governments for subsidies where demand for organic products already exists. I would assume metros and centres with cosmopolitan lifestyles.

– Start  doing branded stuff/span in small niche areas and use technology in demand estimation. That way atleast the spoilage losses would be minimised and one would be able to mature the logistics as the demand picks up.

– Since awareness for organic products its benefits is low- create a forum of stakeholders who collectively manage PR around this. Look at high profile evangelists who can easily make this an in thing 🙂

– Make  certification move towards self-assesment/span with regular checks. This would bring the cost of certification down.

–  Build data models/span which can plug in local factors to come up with estimates of harvest for each plot under organic farming- aggregate the same and find buyers well before the stock moves out of the fields.