Business

Making it For India

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A couple of months ago the streaming music service Spotify was launched in India with great fanfare. I had tried Spotify about 7 or 8 years back but then they started to block IP addresses from India so I quit using the app. At first I wasn’t planning to try it again but I did and I’m so glad I did, their recommendations are spot on…no pun intended.

What really caught my attention during the launch was their pricing matrix. Yes, the monthly price is cheaper in India Rs. 119 (USD$1.70) vs the US at Rs. 693 (USD$9.99). But they also offered daily packs at Rs. 13 (USD$0.18) and weekly packs at Rs. 39 (USD$0.56) as well, almost like the FMCGs offer sachet packs of their products. Sachets – a single-use, a simple flat pouch or stick pack for powders and other runny liquids and gels.

Spotify took that concept and turned it into a digital sachet. It’s a great way to get people to try the product. This is a great example of localization of a product.

When building an app or platform and going to other markets, there is always talk about internationalization (i18n) and localization (l10n) within the technology team. 7 or 8 years ago foreign companies would sell their products in India and only focus on internationalization. For example, if an app requires a login via a phone number then they enable +91 for Indian mobile numbers.

But the trend is to go one step further and localize the app or platform for the Indian market. And that is where Spotify just nailed it with it’s very Indian pricing matrix. I’m seeing more and more companies localize for the Indian markets because that’s where the growth is as other markets are mature and growth has slowed or stalled.

UPDATE: I’ve received many emails about the confusion about internationalization and localization. For me and the teams I work with, I break it down as:

internationalization – the backend technology to enable the use of the app or platform in another country. For example: language, phone numbers, etc…

localization – the frontend that the consumer will see and you. For example: pricing, localized content, specific features for a country, etc…

The Consumer Rating Conundrum

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Remember the first time you were able to rate your Uber driver, you felt empowered. It was the coolest damn thing and for the first 30 or so trips, I would sit there and spend a couple of minutes debating what rating I should give the driver as if I was handing out a fucking Academy Award. Did the driver deserve a 5? No not really, he was speeding like Lewis Hamilton in Monaco but than his braking skills were on point. Okay, so I’ll give him a 4 star rating. Good luck next time buddy!

Now, I have a simple rule. If I get to my destination in one piece, the driver gets a 5 star rating. However, if I feel they didn’t do a good job they get a 1 start rating. I don’t have the time to split hairs between a 2, 3 or 4 star rating. In fact, it got me thinking that Uber needs to ditch the 5 star rating and just have a thumbs up or thumbs down. If you see an Uber driver with a 3.8 or 4.5 rating, do you really give a damn? I can’t really tell the difference nor do I want to spend that time analyzing his driving habits. I took an Uber so I can get some work done or take a nap before I get to my next destination. Thank you Uber, for making it my job to improve your platform!

I started to think about this entire consumer ratings system when I recently ordered a single cafe latte from Swiggy. Half the latte split and I went on Twitter to complain. After the incident, I was presented with 2 ratings, 1 for the Swiggy service and 1 for the restaurant. Again, for the delivery either you are happy or your are not. Why make the consumer rate that on a 5 star scale.

There are a host of rating systems but the grand daddy of them all is the Net Promotor Score (NPS) which is based on a scale of 0 to 10. Leave it to a consulting company like Bain & Company to come up with this beast of a system. About a year ago I got a call from a car manufacture to rate their service experience on a 10 point scale, that experience was so painful I would have rather gotten a root canal then listen to the person explain the difference between a 5 or 6 rating. I hear people always talking about their NPS score when in reality a simple thumbs up or thumbs down would be sufficient.

The 5 star rating is pretty standard across most apps, but again what really differentiates between a 3 and 4.

I recently went to a restaurant and they had a 3 star rating, which was better but then imagine getting a 2. What does that mean as a restaurant owner…people would rather eat newspapers then come to your restaurant?

In this age of liking things and attention deficit disorder (ADD), I personally think the thumbs up or thumbs down is the best system. It’s quick and easy. If you are a business owner, you can tout the number of thumbs up (or likes) you get and if you get a thumbs down you can put a process flow in place to investigate what went wrong – easy peasy.

Getting a score of 1 or 2 is just meaningless on a scale of 1 to 10, clearly the customer is not happy. Why ask them, to rate you on a scale of 1 to 10 for services:
1 = I’m so angry I want to kill you and everyone
or
2 = I’m so angry I want to kill you only

Seems illogical to me. I wish more and more companies would simplify their ratings process and make the consumers life that much easier.

Is Cable TV Dead?

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In a nutshell, yes. The reason is plain and simple – Jio and our addiction to video content. Over the past 6 months when friends get together and discuss what shows to watch, I hardly hear anyone mention the shows that appear on cable TV. Instead, it’s about the latest series on Netflix, Amazon Prime, ALT Balaji, Hotstar or other streaming providers which are collectively known as over-the-top (OTT) providers. The name stems from the fact you can bypass your local cable TV provider and stream the content directly from the internet.

And don’t even get me started on YouTube. This past week there was an article in the Wall Street Journal which talked about the rise of YouTube in India as a search engine. Want to learn how to make a cake? YouTube it. Want to learn the best way to sleep? YouTube it. YouTube voice search is perfect for India where illiteracy is high. Users can speak what information they want and then the search results are videos, where they can see and hear the content.

In fact, I’m finding the quality and content getting better and better even with more and more content creators on the YouTube platform. Just like a Google search you need to know the right keywords for YouTube. But, where YouTube really shines and keeps you on their platform are their algorithms to show you more content that you will like.

A recent example was when I was searching on YouTube for a good vlogging camera. Yes, there were hundreds of thousands of videos but after watching 4 or 5 I was able to decide what camera I needed. And in the process, I came across the YouTube channel called Camera Conspiracies. The guy is a mix of camera reviews and comedy. I’m no longer looking for a camera but I still watch his YouTube channel because the content is addictive.

So where does that leave the existing players? It will be very tough for the direct to home (DTH) providers like DishTV, TataSky and Airtel DTH because they have no real strategy to add more customers. Most of the people I know don’t even turn on their DTH box and are planning to cancel the service when their subscription comes up for renewal.

The cable operators like Hathway are also in a similiar situation but since they own the physical connection to the consumer they have the ability to implement newer technologies such as gigabit fiber to the home. In fact, Reliance backed Jio recently completed the acquisition of Hathway not because of all the users of its cable TV platform but because of the physical access they have to the consumers home. I live in a building which has both Hathway and Jio GigaFiber and I can tell you first hand, we have not even turned on the set-top box (STB) for Hathway in 2-3 months. And all that viewing time has switched to the OTT providers and YouTube.

Taxes, Tariffs, and Testarossas

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Ferrari Testarossa

A couple of days ago there was an article in the DNA newspaper, an Indian daily, discussing how the high import tariffs/duties on luxury vehicles are killing the growth of high-end car sales. Well, I can’t argue with that!

But, that’s not the point of this blog post, it’s to review why there are tariffs/duties on certain products/markets and the thinking behind it. The basic idea of a tariff on imported goods is to protect the local market and give them an edge. Some may call this protectionist or nationalist but, pretty much every country does this to protect certain industries in that country. India is no different in that regard.

India has import duties on mobile phones so that local brands like Micromax have a price competitive edge over Chinese brands like Oppo and Vivo. To be price competitive, the next logical step would be for a foreign company like Oppo or Vivo to set up a manufacturing facility on the ground in India and avoid the import duties on fully assembled phones. The premise is that even if Oppo or Vivo send a large chunk of their profits back to their mother country of China, at least Indian workers have jobs. Not only are jobs created but all the other ancillary businesses would benefit from a manufacturing facility such as retail stores, restaurants, logistics companies, construction companies, etc.

Another market that India puts heavy import duties on is the automotive industry. Again the idea is to have the local companies like Maruti Suzuki, Tata Motors and other local players benefit. My issue is that I don’t see Maruti Suzuki competing in the same space as Mercedes, Ferrari or a Lamborghini.

This is where the Indian government’s logic is flawed. Imagine you bring down the import duty to 50% then the sales of these high-end cars will increase. Again, consumers that are buying a Mercedes-AMG G63 are definitely NOT looking at a Maruti Vitara Brezza as a viable option. So there is no chance of Mercedes cannibalizing the sales of Maruti. In fact, you will be creating a larger ecosystem for these brands which will mean more salespeople, more mechanics, more spare parts, more locations, etc.

car-import

The import duties are around 240% of the cost of the car. As you can see from the above example, if the cost of the car is imported at $100,000 then you will pay $240,400 in duties. For a total of $340,400 not including registration, transportation, insurance costs and the customary flower garland that is put on new cars! And of course, don’t forget about the manufacturer and dealer margin as well.

According to the article, Lamborghini sold 26 new cars last year across India…that is pathetic for a country with a population of 1.3 billion people. I’m guessing if the duties were cut to 50%, they would sell 10x more cars and would need more infrastructure to handle it. Which would generate more jobs and taxes for the Indian government. Looking at the raw revenue numbers from the import duties is misleading since you miss out on the entire ecosystem that is created in the process.

A big thanks to Gautam Madnani of Lamborghini Mumbai who patiently answered my 754 questions on pricing! He also was the first guest on the Performalux Podcast.

Subscriptions as a Service (SaaS)

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216702_new_volvo_xc40_exteriorFor many years we have been hearing the term Software as a Service (SaaS), where software is licensed on a subscription basis and charged on a monthly or yearly cycle. Companies like Salesforce and Dropbox have built their companies on this pricing model.

In 2012, Adobe which is known for products like Photoshop and Creative Suite took a chance and decided to move from a traditional pay once license model and move to a SaaS model. The first year was a disaster for revenues and their stock price took a hit. Today, in retrospect that move was brilliant – revenues are up, more people are using their products since the price points are reasonable and software piracy has come down. With the success that Adobe showed many other large companies are moving to a SaaS model, most notably is Microsoft.

Over the past couple of months, Porsche and Volvo have announced their subscription programs for cars. The two programs are very different, Porsche charges $2000 a month and gives you access to a fleet of vehicles such as 718 Boxster, Cayman S, Macan S and Cayenne which you can pick and choose each month. The plan includes vehicle tax, registration, insurance, maintenance and detailing. This is not a lease, where you typically have a large upfront deposit and still have to pay for your own vehicle tax, registration, insurance and maintenance. The Volvo plan is for $600/month and gives you access to an XC40 SUV.

For many people the above model for cars is super. You get a new car every couple of years and the biggest issue of maintenance is solved. It’s in the best interest of the car company to make sure their cars are trouble free since in the end they will be footing the bill if something happens. Of course, what will happen to the car dealers with their showrooms?

Software and cars are not the only businesses I see where this subscription business model can be implemented, what I’m calling Subscriptions as a Service (SaaS). I envision many physical products moving to this model of essentially renting something and all the costs are covered in the monthly/yearly fee. In your home white goods like TVs, refrigerators, washing machines, a dryer or an air-conditioning unit would be a perfect fit. Yes, there are places where you can rent or rent-to-own these devices but those companies are notorious for renting at insane markups and usually do not cover the maintenance or service costs. I’m talking about the manufacturer offering these products directly on a subscription model to the end consumer under their existing brand or a new private label.

Suppose you put your property on Airbnb. You rent it out and something happens to the TV or refrigerator you will most likely have to coordinate with some local person to get those issues resolved. With a subscription service all the issues and headaches are handled by someone else.

Also, you can space out your payments and if you don’t want to rent the property for a year, you can cancel the TV, washing machine, dryer, etc. This model for white goods works brilliantly. This again ensures that the manufacturers make great products because if not, they will end up eating the cost of fixing any issues. With this shift to a sharing economy model, subscriptions for everything makes sense.

Update:
1. A great article on the history of renting white goods
2. NerdWallet series on Rent-A-Center horror stories

The Tesla of India?

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mahindraA couple of days ago the Mint newspaper published a story about Mahindra & Mahindra (M&M) working with Ford to develop an electric sedan. Ford would get the technology to build a low-cost electric vehicle from M&M and in exchange M&M would get technology to build a larger electric vehicle for potentially the Indian market. M&M is part of the Mumbai based Mahindra Group conglomerate which is run by Anand Mahindra.

So you ask what low-cost electric vehicle technology does M&M have? The answer is quite simple – REVA, which it bought in 2010. REVA (Revolutionary Electric Vehicle Alternative) was started in 1994 by Chetan Maini and way before Tesla came to the market and made electric cars cool. REVA has since been renamed to Mahindra Electric and under the M&M umbrella.

When I look at the Indian car manufacturers – Maruti, M&M and Tata Motors. Maruti is a one trick pony – build cheap cars that the masses will buy. This is not a knock on Maruti it’s just their playbook that has made them the #1 car seller in India. Tata Motors which is part of the Tata Group is currently embroiled in corporate strategy indecision and I’m sure they have not clear strategy in place for electric vehicles.

That leaves M&M, which has the best chance of being a leader in the electric vehicle space not only for Indian but other markets located near India. The Mahindra Group over the years has acquired several companies that call help it achieve it’s goal. If you look at Tesla, they are leaders because of 3 things:

  1. Design
  2. Their manufacturing plant in Fremont, California
  3. Battery technology

For design the Mahindra Group bought Pininfarina SpA in 2015. Pininfarina is the legendary Italian design house that has designed most of the Ferrari’s and one of my favorite American cars the Cadillac Allanté. With Pininfarina in-house they have no excuse not to sketch a car that is out of this world.

Tesla recently admitted that building cars is hard and hence behind schedule with their Model 3 builds. M&M has been building cars and trucks for many years and also purchased SsangYong Motors, South Korea’s 4th largest automobile manufacturer. From a manufacturing perspective M&M seems to have their act together since they have been assembling cars and trucks for many decades.

That leaves Mahindra Electric and their battery technology, which really is the main ingredient in an electric car. I’m assuming their technology is not so strong but with the partnership and knowledge sharing with Ford that should all change. With the partnership and acquisitions it looks like the Mahindra Group is leagues ahead of anyone else in India…now they just need to release a product that will wow the world.

Update: April 13, 2018
The Mahindra group launched Automobili Pininfarina, an all-electric luxury car brand. Automobili Pininfarina plans to launch its first model, a `Pininfarina’ badged electric hypercar, in 2020. Click for more info.

“Hello, World!’ for Quant Traders

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high-frequency-tradingThis is the second blog post on my journey to learn Machine Learning. My first blog post talked about setting up the infrastructure. Now that the infrastructure is up and running, I’m able to get to the business of writing Python code.

Whenever you start to learn ANY programming language the first lesson is usually titled “Hello, World!“. It’s something of a tradition to teach the person the basics of the programming language to output something to the screen which is usually – “Hello, World!”

For quant/algo traders the equivalent of “Hello, World!” is calculating a simple daily moving average (DMA) and building some logic to buy or sell a security based on the DMA parameter.

Below is my “Hello, World!” Will this strategy make you money? Absolutely not. Will it help you build other strategies? Absolutely.