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,’”

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!

India Post: Innovation In An 150-yr Old Organization

I don’t watch TV regularly, but a show called Startup Junkies caught my attention as I was channel surfing. Start-up Junkies takes you behind the scenes of a growing start-up company, Earth Class Mail, as it attempts to raise funding, build a team, develop a prototype and find new customers and partners.

In a nutshell, Earth Class Mail scans your snail mail and brings it online. For a subscription fee, you can now scan and shred your snail mail online. TechCrunch covered the company a while back, the comments to the post are very interesting. The pitch by Ron (skip to 13:50 mins of the video – sorry MojoHD doesn’t provide an embed option), CEO of Earth Class Mail, to India Post was entertaining. It is hard to tell whether the India Post officials really “drank the koolaid” or just being polite.

It’s hard to see any value proposition for India Post and the average Indian, for various reasons – including lack of internet penetration outside the cities (5.3% in all of India). Not to mention, India Post is facing increased competition from private courier services and is getting creative to boost revenues and keep its staff busy. In the past, they’ve even experimented with retailing and services, including delivering milk. I went to the India Post website and they do have an ePost feature. It’s email-to-snail mail or vice versa service, and that makes a lot of sense, again considering the low internet penetration.

If you’re currently living in India, would love to hear stories of encounters with India Post services and your experience using ePost.

Practical Lesson In Financial Accounting

If you are a small business under 10M in sales revenue, you have the option of either using cash-based or accrual-based accounting. And if you’re in a business that has a high percent of Account Receivables, you’re better off using cash-based accounting. Why? Because you’re paying taxes upfront on income you won’t be receiving for another 90-120 days (depending on the payment terms you’re offering your customer).

My friend Vijyendra is a wholesale importer of stones from India. It is a very high-margin, but slow-growth business. He has been in business for about 3 years and is currently importing 1 container a month, half of which is pre-ordered stones. When he puts an order in for a container, he has pay his supplier within 30 days. However, he doesn’t get paid from his retailer till the stone has been etched and shipped to the end customer (90-120 days). To make matters worse, December is the busiest month (yes, among other good stuff people also buy and upgrade tombstones when they get their annual bonuses). So when it is time to close the books, he is showing zero payables and 25% receivables. Not good if your books are Accrual-based!

Web2.0 in the enterprise

Web 2.0 is all about the transition from individual productivity (user running MS office locally) to group productivity (collective document generation & editing – forums & wikis).

Enterprise Web 2.0 benefits:

• Less email costs (increased use of blogs, wikis)
• Search benefits (document collection and archive)
• Easier updates/patches (central update as opposed to mass desktop updates)
• More transparency (this should in fact be first on the list of benefits).

When organizations don’t provide employees the necessary tools, they go out to get them thus violating company policy. A good example is employees using Yahoo mail and Gmail for storing and forwarding big company confidential documents since corporations have a 100MB mailbox limit.

P.S. Google Docs is the currently the second biggest money maker for Google after Adsense. Maybe that’ll change soon with the introduction of ads in Youtube.

Death of the Newspaper?

Livmint has published two articles that have contradictory headlines – first about readers, advertisers and analysts abandoning newspapers and second about the increase in newspaper circulation.

The panelists and participants at the Web 2.0 Expo had no doubts in their mind – the Internet was killing the newspaper, and the newspaper readers are a dying breed.

Some of my takeaways from the conference:

How Web 2.0 is owchanging traditional media?

• New Publishing – focus on aggregation & curation of content of a niche audience
• Reduced acquisition cost for content generators & editors.
• Guerilla marketing (PR, link swapping & viral marketing) as opposed to brand advertising.

For all those MSM firms hoping Web2.0 is their way out of this slump:

• Not everyone can be a content aggregator, it’s a fast-paced, “winner takes most” marketplace.

From the makers of the ubiquitous Stag umbrella

Fast Company has an interesting write up on the change in strategy by the makers of the Stag umbrellas. If you’re from Mumbai, you need no further introduction to the ubiquitous, black Stag umbrellas and the reasons to own one.

Threatened by cheaper products from China, the company switched from a low cost strategy to differentiation – offering specialized, high-quality products. The timing couldn’t be any better, the Indian consumer can definitely afford a premium on personalized umbrellas. On the other hand, corporates will be more than happy to give out branded umbrellas for free.

Datta Meghe CoE: What’s up with the board of directors?

I never paid attention as to who’s on my school’s board, not when I enrolled to Datta Meghe College of Engineering (DMCE) for my Bachelors or at NYU Stern for my MBA. I don’t think any student ever does. But I would imagine the board of directors/trustees are important people entrusted and responsible for the management of the school.

So as I was randomly clicking around on the newly redesigned DMCE website, I was surprised at the composition of my alma mater’s board – 5 business men/women, 1 Advocate, 1 Hotelier, 1 Farmer and 1 Fashion Designer. You have to wonder, isn’t this an engineering school? So what are these people doing on the board? Shouldn’t there be any active or retired senior managers from engineering companies and academic scholars or professors on the board?

Did you ever wonder who’s on your school board? Do you think it matters?