Everything as a Service (EaaS)

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Dropcam_Lens_Palm-580x414Predictable revenue – those are the sweet words of harmony that every chief financial officer (CFO) of a company wants to hear. The problem is that predictable revenue is sometimes a mirage. Over the past 10 years there has been a trend in the software industry called Software as a Service (SaaS), instead of buying software as one time upfront purchase you instead pay on a monthly or yearly basis. This benefits both sides, the consumer gets to pay a small amount every month and the software company gets consistent revenue month over month.

This model has been historically applied only to software companies but the hardware guys are getting in on the action as well.  The company that everyone talks about is Amazon Web Services (AWS) which is an internet infrastructure provider. They rent webservers on an hourly basis to businesses and you pay for what you use. (I could digress and tell you that in the “olden days” we had to lug Compaq ProLiant servers to a datacenter but I’ll spare you the details.)

Now, a new breed of startups are selling a hardware device and in addition charging a monthly service fee for enhanced services. The one that I love to talk about is Dropcam, they have a video monitoring camera that is so easy to use and makes every other video camera offering look like them came from the paleolithic era. You can throw down $200 for their Dropcam Pro camera and start using it in minutes and you will never have to pay any additional amount if you want live streaming.  However, where they really make their money is from their DVR offering. You can watch the previous 7 days or 30 days worth of camera footage and they charge you for that privilege. Their monthly charges are USD 9.99 for 7 days and USD 29.99 for 30 days. As you would imagine many people opt for these packages, no one is going to sit around and watch the camera all day and hence the DVR offerings are a great way to monetize the Dropcam hardware.

Another example are the hardware devices that are being introduce by Automatic, MetroMile and Zubie for your car, it allows you to track and monitor you car from your smartphone. The device fits snugly into the on-board diagnostics (OBD-II) port of the car and then provides location information, speed, mileage, check engine light status and other metrics. Some of the companies are selling the device as a one time purchase while others are selling it like Dropcam, sell the hardware and also have a monthly service fee. When you do the math, you realise the average new car costs about USD 40,000 in the US and that shelling out an extra USD 10-20 a month is really nothing to monitor such an expensive asset.

As more and more hardware devices are created to replace static devices:
Nest – thermostat
Nest Protect – smoke sector
August - door lock replacement

you will see an explosion in Everything as a Service (EaaS) offerings. It’s actually a great revenue model and more importantly it forces the company to continually up their game and make their product/service that much better in the long run.

No Name Startup vs. Big Brand Company

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startupsignIn real estate, it’s all about location, location, location… For a startup it’s all about people, people, people. Of course, for startups there are about 3.2 million other things to manage such as the idea, go-to-market strategy, margins, marketing, etc… However, without the right team in place all of those other things don’t mean sh**.

If people are the most important resource then recruiting is paramount and yet it’s also one of the most frustrating tasks for a startup in India because of the cultural issues. Recently, one of the companies that I’m advising was recruiting a junior technology person, he went through several rounds of interviews and we finally agreed to hire him. When he showed on his agreed start date, he starts to ask questions on why he should join a startup vs. working for a big information technology (IT) company. The type of questions he was asking were fine but the timing was wrong because those are the type of questions you want to ask BEFORE accepting an offer.

The sad truth is that for all the talk about Indian venture capital, startups, entrepreneurship, new economy, etc… There are some cultural biases that are just too tough to overcome. I’m sure the candidate got some “advice” over the weekend from his relatives and that was the end of it. I explained the pros and cons of working for a startup vs. a large company but I’m 110% sure he wasn’t listening because the decision was not in his hands – the decision was with the family elders. For many families its about the marketability of their children for getting married. It’s easy for a family to say their son/daughter works for Infosys, Volkswagen or Reliance but a tough sell when their child is working for ValiGo Technology Private Limited.

Of course, this not only happens to employees but also affects companies. If you are trying to strike a business development deal and have an opportunity to work with the biggest name you might jump at it, but usually when you look at the terms and conditions it’s not so great. When I came to India in 2004, I was looking to meet with commodity brokers that had the largest geographic reach. That came down to Refco, which at the time was the largest commodity broker in the world and Man Financial which was #2 globally.

During my meetings I kept on hearing about a new emerging broker/dealer that had several offices in Nariman Point and an office at the iconic Express Towers. I didn’t really followup with those guys because I had a chance to work with either #1 or #2 in the commodity space. (Also, in the back of my mind I kept on thinking that this emerging company’s name is a flower.) We finally partnered with #1 Refco and we launched our fund in August 2005. I landed into India on October 1, 2005 and by October 10th Refco had filed for bankrupty.

So what was the name of that small emerging broker everyone was mentioning back in late 2004…Edelweiss Capital. The name is very fitting because the edelweiss flower grows in rocky conditions which pretty much describes the working conditions in India, although not a household name it’s a powerhouse in the industry. It has grown from being a broker into a massive financial services firm with 1000′s of employees all over India. Once again, No Name Startup vs. Big Brand Company.

Mobile Carriers Are Lost

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mobile-carriersThis week all the movers and shakers of the mobile phone industry are gathering in Barcelona for another edition of Mobile World Congress (MWC) or as I like to call it - Boondoggle de España. MWC is a gathering of wireless carriers, device manufacturers,  mobile infrastructure players, content providers and others that are interested in the mobile space.

I’m sure one thing that will be on everyone’s mind is the USD $19 billion acquisition of WhatsApp. That single acquisition has clearly shown that mobile is the future and there is big money in it. The mobile carriers must be hitting their heads against the wall because the money they are losing to these messaging platforms is a sizeable portion of their revenue. Currently, the mobile carriers are just dumb pipe providers and enabling companies like WhatsApp to make all the money.

You hear terms like social, local and mobile thrown around all the time and the mobile carriers have the keys to the kingdom since they have access to all the components:

Social – they know how often and for how long you call people (call records are much more richer then just a phone book entry)
Local – they know where you are via GPS data and cell phone tower triangulation
Mobile – they are the Mobile in Mobile, need I say more?

Yet, the mobile carriers can’t monetize their way out of the low ARPUs (average revenue per user) they are currently getting. For the past 10 years the carriers have been living off exorbitant roaming rates, SMS and VAS (value added services). VAS was not really value added anything, it was garage services offered by the carriers. SMS is officially dead on arrival and roaming rates are coming down everywhere. It appears the carriers are locked in a battle with themselves to offer higher speeds and monetize via the download caps that are in place.

It’s a shame since the mobile carriers have the 3 pieces to the puzzle that every app developer wants. Many might say there are privacy concerns with the data that the carriers have and thus they cannot monetize it. I say BS, if the carriers came out with a free phone that was entirely paid by advertisers that phone would sell out overnight in India even if it had a long list of terms and conditions attached to it – free is free. Imagine a phone that could serve up local offers based on your geographic location or based on the number of times you called Dominos Pizza. The ideas are endless and the revenue potential to the carriers could be much more then what they now generate from end consumers. But, with all the technology the mobile carriers have they are clueless and lost when it comes to monetizing in the mobile era.

Political Dynasties and Corporate Families

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indian-partiesI never expected this blog post to be written because I figured I would never care enough to write about Indian politics. After having spent the last 8 years surveying the Indian political landscape, I felt it was time to pen some of my thoughts.

An Indian Election Primer
Elections are held every 5 years to decide who gets elected into Parliament. The Parliament consists of the Lok Sabha and Rajya Sahba, the election process will start very soon for the Lok Sabha. When a political party has a majority of the seats in the Parliament then that party selects who becomes the Prime Minister of the country.

There are two main political parties - Bharatiya Janata Party (BJP) and Indian National Congress (usually referred to as the Congress party).  In addition, there are many smaller regional parties. This year out of nowhere an independent party called Aam Aadmi Party (AAP) was formed and has been gaining a lot of traction.

Historically, a single party has never had a majority in the Lok Sabha so they end up forming a coalition with smaller regional parties. The two main coalition governments are National Democratic Alliance (NDA) led by the BJP and the United Progressive Alliance (UPA).

Okay, now that the basics are out of the way.

If you have any interest in Indian politics then you have probably watched the train wreck that is the Rahul Gandhi interview on TV. The interview was Rahul’s first in-depth public interview and it showed he has some very big shoes to fill.

Rahul Gandhi is part of the Gandhi family dynasty. His grandmother, Indira Gandhi, was Prime Minister of India and his father Rajiv Gandhi was Prime Minister as well. In addition, his mother Sonia Gandhi is arguably the most influential female in Indian politics. Sonia is an Italian by birth and thus can’t be the Prime Minister since she is not a citizen of India, it’s rumored she controls the current Prime Minister – Manmohan Singh.

It’s clear Rahul is completely out of his league to run a tea-stall let alone the largest democracy on planet Earth. I compare his situation to someone in a large corporate family such as the Ford’s, Mittal’s or Ambani’s. I don’t think LN Mittal or Mukesh Ambani would ever promote their children to the top job if the kid didn’t have the track record to prove they could grow the company and increase shareholder wealth. In a corporate family such as the Ford’s an individual might make a mistake and wreck a couple quarters for the company. No business person is going to risk an empire that was built over generations just because they want to keep family name going in the running of the business. The smart ones will hire outside professionals to run the organization and tell their kids to go and spend their inheritance.

Yet in politics, you see children coming into the business of politics all the time to try their hand at it. Politics may not have “shareholder wealth” but they do have a vote bank which is somewhat similar in value. In India, “trying your hand” at politics means whatever you do affects 1.3 billion people and not quarterly profits such as in a corporate environment.

If Rahul had a LinkedIn profile, it would show his brief political work history and 1 recommendation from his mom, which is sometimes all you need in Indian politics.

 

I Love Cars but Hate the Industry

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2012 Porsche 911When you decide to buy a car and open an Excel sheet to start doing the math you soon realize cars are a horrible investment. The minute you drive off the parking lot the car has already depreciated by 30%…WTF. However, one thing that Excel can’t capture is the experience of sitting in a new car and inhaling that “new car smell” or driving a Ferrari and getting pushed into your seat as the car sprints forward. Ask any car lover and that’s what you will hear them poetically speak about, ask anyone else and they will spit out those facts that cars are a horrible use of money.

The automotive industry is like many other industries, there is the glitzy side and the not so glitzy side. In the fashion industry, you have fashionista’s walking around with their $100,000 Birkin’s and then you have clothes being made by 7 year old kids in a run down factory in Bangladesh. For the automotive industry it’s pretty clear cut, the glitz and glamour is everything up until you buy the car – the car shows, the magazine review, the test drive, the jovial banter with the sales rep at the dealer, etc… The not so glitzy side is everything after you buy the car – car servicing issues, dealer not responding, insurance for the car, gas prices going through the roof, etc…

I love everything about cars, but hate stepping into a dealer because it just goes downhill for me. In fact, last week I visited a Mercedes-Benz dealer in Bombay to see the new A Class. I mistakenly gave my phone number and now I’m getting an SMS almost every other day to buy the A180 because “the prices are going up as we speak”. My other pet peeve is when a salesperson tells you how reliable and awesome their cars are, then when you are about to sign on the dotted line they will start talking about an extended warranty. A sales practice that puts most people off, but is a huge revenue generator for the dealership.  (This American Life podcast has a great episode about what happens among a sales team at a car dealership - a highly recommended listen.)

For car makers I believe it’s a case of innovator’s dilemma, they don’t want to try new things that might hurt their existing product lines and revenue stream. Over the past 4-5 years there has been an increased interest in shaking things up in the automotive industry from companies based in Silicon Valley. Tesla which is a manufacturer of electric vehicles has not only innovated on the technology used in the car but the entire car user experience – the dealership experience, servicing the car, over-the-air updates, fixed pricing, etc… Google X which is an top secret group within  Google is pouring money into self-driving car technologies, this from a company that made its mark in online advertising.

Car servicing is usually the biggest pain and most frustrating experience for a consumer since they are at the mercy of what the mechanic or service advisor tells them. My interest in cars is also in the not so glitzy side, I’ve been advising a company in India called MotorExpert.in which is changing the way people get their cars serviced in India. The team is looking at many angles of the workshop experience and the consumer website to compare facilities is the first and the most visible product from the team.

Everything I have mentioned so far is around ownership of a car, another area that is being innovated is short term usage of vehicles. Uber with its easy to use iPhone app to “hail a taxi” has quickly rolled to markets all over the world. Uber has been very successful simply because people hate the current system of getting a taxi or paying for a taxi. Because of its popularity, Uber has had to fight the taxi union in many of the cities it has launched its service. Another company, Getaround allows you to rent your personal car to others – peer to peer car sharing. In India, I can see this working for people that have a car and a driver where the car is sitting idle for many hours of the day. You can instantly and safely monetize your car by turning it into a “taxi” on the Getaround platform.

Another area ripe for innovation is car parts with 3D printing of certain car parts. Imagine how great that would be for the spare parts market, it would require much smaller warehouses and reduce the overall time to deliver those parts.

As you can see, I love cars but hate the old school car industry. Much of the innovation for the car industry is coming from outsiders which is not surprising, since no car insider wants to kill the golden goose for their old school car company.

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