My New Coordinates – Moving to Mumbai, India

After about 11 great years in the US, I’m moving back to Mumbai, India for a couple years. I’m taking on yet another exciting gig with WSJ. I’ll be joining the Dow Jones team in India, and I’ll be responsible for developing and managing The Wall Street Journal Digital consumer business in India. Check out http://india.wsj.com when you get a chance, and keep an eye out for new products in the coming months.

To all my friends in the US – it’s been a real pleasure getting to know you and to work with you over the years. Let’s definitely keep in touch, and I hope your work/vacation plans bring you to India at some point within the next couple years. Definitely look me up if you’re in India, it’d be great to meet up. My last day in the US is Aug 6th 2009.

I’m really excited about my move, and look forward to new beginnings and making some new friends in India. I’m sure I’ll get to apply some of my learnings from the US, and most probably unlearn a few things I’ve learnt here and do things a bit differently in India. Drop me a note if you have suggestions, have any advice to offer, or just want to get together for a drink.

India 1.0 + India 2.0 = One Big Indian Market

I’ve been in India for little over a week now. And every time I talk to people doing business in India, there’s a recurring theme with a underlying message. India, with a population of over 1.1 billion people, is not one big homogeneous market. There’s a small high-end segment that’s typically less than 10% of the potential market. Beyond that, it’s a highly fragmented market segmented by various attributes, among other things culture and language (about 20 official languages and hundreds of dialects).

Some stats that I have gathered from talking to people. These numbers are approximate, so take it with a grain of salt. If they’re inaccurate by a wide margin, drop me a note or leave a comment.

• A little under 10% Indians are comfortable English.
• The PC penetration is about 2-3%, so there are only about 25-30M installed PCs in India. About half, a little over 15M, have internet connection.
• Less than 15% of Indians own a credit card. Indians, currently, spend just 1% of their total purchases through credit cards.
• About 300M mobile phone users in India, of which only about 10% have GPRS enabled (mobile web enabled) phones. Of the approx 30M web-enabled mobile phone users, only about 10-15M actually browse the web from their mobile devices.
• Of the 300M mobile subscribers, only 10% are post-paid and have a monthly recurring subscription. The bulk 90% are pre-paid, they pay for wireless talk minutes upfront and pay as they go.
• However, 35% of revenues for mobile operators comes from the 10% post-paid subscribers, and the remaining 65% from the 90% pre-paid subscribers.
• Typically only 10% of revenues for mobile operators comes from VAS (value added services) that includes SMS. The bulk 90% of revenues comes from basic voice services. The mobile operators are running out of bandwidth to support the 300M mobile users, so a bulk of the soon-to-be-available 3G spectrum will go towards supporting voice for existing and new mobile users.

People I have talked to, frequently refer to this divide in the Indian market as the Tier 1 India and Tier 2 & 3 India. Someone I talked to recently, referred to it as India 1.0 and India 2.0. India 1.0 and 2.0 just sounds better from the company’s perspective -

• India 1.0 is the company’s India entry strategy, targeting the high-end market that probably already has brand awareness and willingness to pay. These users are a natural fit with the company’s existing brand and product, and hence relatively easy to acquire. But that’s just a fraction (10% or less) of the addressable market.
• India 2.0 is the company’s growth/expansion strategy in India, going after a market that’s hard to crack. The India 2.0 strategy targets the fragmented 90% Indian market, and this requires product and market innovation and willingness to adapt.

Entrepreneur.com has a good article on big-name brands sharing their experiences of going after the Indian market:

“Our learnings were clear: ‘Ask not what percentage of an existing market your brand can achieve. Ask how large a market your brand can create by putting resources behind creating a category,’”

The Changing News Business Model

Interesting move by the Seattle Post-Intelligencer in abandoning the print edition and switching to an online-only publication. The news business has a fixed overhead, there are a number of full-time reporters. So even though the marginal cost in online distribution is zero to extremely low, there’s a very high fixed cost in creating new content. Therefore, what’s interesting in P-I’s announcement is not just the change in the medium of publishing and distribution, but also the structural changes to the news desk and strategic changes in news coverage.

The P-I’s new model hinges on slashing its work force, scaling back its news coverage. The P-I will revamp the familiar model of a big-city daily as a catch-all of local and national news and features. Instead, it will cover local events and publish blogs and columns from staff, readers and prominent local citizens.

Since the online news business model is predominantly ad supported, driving traffic to the site is primary. Broadly speaking, there is 2 kinds of traffic to a news site online.

1. Front-door traffic – readers coming directly to your site. The front-door traffic is typically high for a site with loyal readers that value the content and the brand.
2. Side-door traffic – readers being referred to your site. They could be referred by friends (email, IM), your network (Facebook, Twitter), news portals and aggregators, blogs linking to your story, RSS readers and web search. Depending on the news site, the sidedoor traffic could be anywhere from 30% to 70%.

There is so much content available on the web, it’s impossible for one news source to be the catch-all for every news topic. The P-I is not a national publication, so it is hard for it to be the authority on national news.

Thanks to portals, aggregators and social networks, every story on the web is then just a click away. So if a majority of your readers come through the sidedoor, then it is critical that your stories be “link-worthy”. If it doesn’t get much link-love, readers won’t be able to easily find the story. But even if you’re the news site of authority on a certain topic, its hard to have every story be the ‘best of ‘ and get others to link to it.

The P-I will resemble a local Huffington Post more than a traditional newspaper, with a news staff of about 20 people rather than the 165 it had, and a site with mostly commentary, advice and links to other news sites, along with some original reporting.

This is the new catch-all model. Identifying a niche and focusing resources on it, and rather than create every bit of content from scratch link to other good stories out there. Become the aggregator and curator of good content in addition to producing original content, and increase your organic readership and front-door traffic.

The Techmeme leader board is a snapshot of various tech news sources competing for link backs on the Techmeme front page. The leader board is a mix of big publications with hundreds of reporters, and some popular tech blogs with only a handful of writers. When it comes to competing for side-door traffic, it’s a level playing field.The most interesting and link-worthy stories make it to the top.

References: WSJ.com and NYTimes.com

Mohammad Yunus: Building Social Businesses To Eliminate Poverty

Mohammad Yunus was in NYU last week to speak to b-school students about social businesses. Yunus, who started the microfinancing company Grameen Bank, has extended Grameen to various other ventures. Yunus doesn’t own a single share in all the Grameen companies he has helped create. He said he did it because he saw a problem and wanted to solve it.

• Yunus started Grameen Bank in the late 70s, a bank fully owned by borrowers. The first loan was for $27. Today, Grameen Bank is lending about $100 million per month.The lenders are 97 pct female. Grameen microfinance banking reaches about 80% of Bangladesh’s poor. Grameen Bank has now expanded to school and college tuitions, it has awarded about 34,000 scholarships.
• They noticed a lot of Bangladeshis were suffering from night blindness in the late 70s. The problem was lack of Vitamin A in their diets. They had 2 options – eat more vegetables or consume vitamin tablets. So Grameen got into vegetable farming, and quickly became the biggest seed company. Night blindness diappeareed from Bangladesh.
• For a country that had little phone penetration, Grameen Phone was started with the vision of putting phone in the hands of poor illiterate women. Fortunately there are only 10 numbers to learn, said Yunus jokingly. Grameen Phone employs about 3,000 women and has captured 55% of mobile market share. It is largest mobile phone company in Bangladesh.
• Only 30% of Bangladeshis have access to electricity. So Grameen created Grameen Shakti, a solar energy company. Grameen Shakti has since sold over 200,000 solar units. Their goal is to sell 1 million solar systems. Grameen Shakti has about 8,000 employees, of which 4,000 are ‘engineers’. They are not really engineers by education, but dropouts who have been technically trained to assemble and maintain solar systems. He said, by calling them ‘engineers’, both employees and customers feel good about the title. Solar panel costs very high, about $3.5 per watt. If it comes down to $2 per watt (cheaper than kerosone), every home in Bangladesh can be powered by solar.

Mohammad Yunus at NYU signing books

Yunus believes there’s a flaw with the for-profit model where profit maximization and increasing shareholder value is the primary motive, it assumes that humans are money-making robots. However, human beings are not single dimensinal. Selflessness and happniness derived from making other people happy is the ultimate goal for some, hence social businesses. NGOs and non-profits take money from donors and spend it, hence not self-sustainable. On the other hand, social businesses have a cash flow. While the businesses themselves can be profitable, the shareholders only recover costs. They don’t make a profit or earn dividends. Earnings are retained in the business or used to extend the business or enter new markets.

Yunus partnered with Danone (Grameen Danone) to produce yogurt in Bangladesh. The yogurt has additional essential nutrients and is targeted towards Bangladeshi children. By de-emphasizing packaging and cutting marketing costs, the company can sell good quality yogurts for cheap. To take it to the next level, Yunus insisted Danone come up with containers that were bio-degradable and edible. His argument – after all, poor people were paying for the container!

Bangladesh has a serious water problem, drinking water there has high arsenic content. Grameen partnered with Veolia, world’s leader in water services, to bring water to masses at very affordable prices, enough to recover costs.

Yunus piece of advice – take your profit maximizing glasses for a day, and switch to social business glasses. The world looks very different!

Masala Dosa On Wheels [Banana Leaf In Newport]

It was only a few months back, that I was chatting with my friend Sri about the competitive advantage of Raaz, the only Indian restaurant in Newport/Pavonia, NJ — big market (hundreds of Indians live in the area), good foot traffic (lots of office and residential buildings) and light competition (only Indian restaurant, and a handful of other restaurants within walking distance). Well, that has changed very quickly (sort of).

There’s a new Indian take-out place in the area. it’s called the “Banana Leaf”, and its run by 3 brothers originally from Tamil Nadu, India. It’s basically a converted van, looks likey an ice cream van except it has a stove and a dosa pan. While this is not the first mobile van in the area that sells Indian food, there’s another one called “Taste of India”, the Banana Leaf has quickly become popular. There were only a handful of people the first couple days, but more recently people have been queuing outside the van waiting for 15-20 mins for their food order. Banana Leaf sells variety of dosas, rolls and curries, and they’re parked in Newport by the PATH station every evening from 6PM to 10PM.

It’s an ingenious idea – low investment, very low fixed cost, mobile (not constrained by location). I’m not quite sure if they have to pay taxes or a parking fee. They don’t have a fixed parking spot, so my guess would be they don’t pay anything. I’m still waiting for a slow day so I can talk to the Banana Leaf owners and find out more. Know more about the owners and/or the mobile van business? Feel free to share in the comments section.

Forsche: Taxi Service In Mumbai for Women By Women

I watched this short piece on Current TV a while ago. While I was intrigued by it, I wasn’t blown away with the business model. First, it’s hard to scale and secondly, there are no barriers to entry. If this takes off, there will definitely be new entrants. But looks like Forsche has had a great run – they raised Rs 14 lacs to fund the venture, and with 18 taxis, has managed to break even in less than six months

CUSTOMER NEED (high) – There’s definitely a need, as the working women population keeps growing and as safety on the road becomes a concern for women of all ages.

WILLINGNESS TO PAY (medium/high) – Forsche charges Rs 200 per hour, according to this Hindu article. Our services are 20 per cent higher than other taxis, claims the founder of Forsche, Revathi Roy.

ATTRACTIVE MARGINS (medium/high) – While this is a CAPEX intensive venture, upfront investment to purchase the cabs, the ongoing fixed cost is not very high. Each driver takes home Rs.9,500 per month. As a 24 hrs operation and assuming each driver works a 12 hr shift, Forshe should breakeven on the salary expenses within the first week of each month. I’m guessing the second biggest expense would be gas/petrol

But something hit me recently about Forsche – this is not just a novel cab service concept. Imagine the thousands of female passengers that get on and off the Forsche cabs everyday, and right there you’ve a very niche, targeted demographic. They can be directly targeted with samples/products in the taxi, and through magazines and TV screens. Forsche has managed to create a new vertical for direct marketing to an affluent, female demographic and a secondary revenue stream (in the form of advertising) for the venture!

India: A Services Based Economy

More Kiran Karnik, who as I mentioned in my previous post, was the closing keynote speaker at the Indian Business Conference 2008.

As the former President of Nasscom, Karnik focussed on IT and its benefit to society and also on India’s attempt at shifting from a service based economy toward manufacturing.

India’s GDP: 22% agriculture, 54% services

IT-BPO exports = 40 billion dollars = 5.5% of GDP

Distribution of exports by region: Bangalore 36%, Delhi/Noida/Gurgaon 17%, Mumbai/Pune 15%
How is IT benefiting the Indian society?
* Gender Equality: Young women earning at par with male counterparts.
* Good work ethic: Long working hours in a professional work environment.
* Application towards public service and social causes: NGO emergency services, online payment of bills, online rail reservation, etc.
Total organized labor force in India = 15M; IT accounts for nearly 2M direct jobs, and 7-8M indirect jobs (support/household services).

As a services-based economy, India is losing out on its two competitive advantages:
* Rupee getting stronger against the dollar.
* Wage inflation – salaries rising 15-20% every year.

Problems with the education system in India:
* Individualized – no group projects or class discussions; the only team work is when students decide to collaborate during exams (cheat)!
* Poor talent pool – Only 25% grads are suitable for direct employment, the remaining 75% varying degrees of training.

Photo courtesy: NYTimes.com from a recent article about debt collection services moving to India.

Insurance Against Ticketless Travel In Mumbai Trains

Kiran Karnik, former President of Nasscom, was the closing keynote speaker at the Indian Business Conference 2008. Karnik said, Innovation will the key to India’s future. And good innovation doesn’t just mean product innovation (new products coming out of India), but could also include process innovation. For e.g.

For anyone that has traveled in a crowded (understatement) local train in Mumbai, where there’s hardly any breathing space, what are the chances that a TC (ticket checker) walking into the train and checking for tickets. Not to mention, the serpentine queues at the ticket window in case you’re not a regular monthly pass holder. So an Indian entrepreneur came up with the ingenious idea of providing insurance for getting caught traveling without ticket. You pay 500 rupees to get insurance, and if you do get caught traveling without a ticket, you pay the 250 rupees fine to the TC and then turn in your receipt for a full refund.

You can run the numbers to figure out the value proposition for the traveler and whether this is a profitable venture. But on the surface it sounds like an unethical business practice – the venture is encouraging people to travel without ticket. Well, here’s the twist – if you’ve ever been caught by a TC, you probably also know that there’s a pretty good chance you can bribe your way out of it without having to pay the full penalty. Hence, the Indian Railways doesn’t see a dime. However, this venture insists you pay the fine in order to get a receipt. Therefore, it discourages you from bribing the TC. Less corruption!

This story was originally published on this blog and was later even picked by Freakonomics.

Photo courtesy: WSJ.com. View the complete slideshow here.