You Down With OTT?

Back in 1991, I was a freshman at Indiana University and the first few months were a haze with my new found freedom. When I look back to that time the one song that stands out is Naughty By Nature’s “You Down With O.P.P.” It was THE party anthem back in the day. You can visit the Genius page for the lyrics to understand why.

Recently, on one of my morning runs “You Down with O.P.P.” started playing and it got me thinking about a similar sounding acronym – OTT. Over-the-top (OTT) is a concept that you can thank the iPhone for ushering in and in the process opening up the mobile internet to anyone and everyone. Let’s first go back in time before we can thank Steve Jobs and Company.

15-20 years ago if you had a mobile phone you were at the mercy of your phone carrier such as Vodafone, AT&T, etc, some would even say you were a hostage. The reason is because the phone carriers had all the power back then, they decided which phones would be allowed to connect to their network and more importantly they would only allow certain “apps” on those phones. Today, if you are at the top of the Apple App Store or Google Play Store you are golden. Back then, you had to cut deals with the carrier to be “on deck”, meaning you would get valuable screen presence on their phones and in the process handover a large chuck of revenue to them. Or in many cases there was no “app” but just an SMS code you could send to get information like horoscopes, stock quotes or other bits of information that the carrier would monetize from the content providers.

Then Apple released the iPhone for sale in June 2007, which was really Apple’s trojan horse into the AT&T network. When the iPhone was first launched there was no App Store, the only apps available were the ones that Apple shipped with iOS. A little over a year later on July 10th, 2008 Apple launched the App Store and that set in motion a whole new industry – the app economy. Multi-billion companies were created like Snapchat, Ola, WhatsApp, Uber, WeChat, etc…

It meant that apps could be created and would automatically connect to the internet without needing the prior approval of the carrier who previously called the shots. In short, these apps went over-the-top (OTT) of the carrier. Today, these carriers are essentially “dumb pipe” providers and much of the revenue and intelligence is with the app providers. So yes in fact, “We Are All Down With OTT”.

India's Love Affair with Licenses

10362Have you heard the saying one step forward, two steps back? That’s how I feel when it comes to public policy in India. One day they release a new policy that seems to be a game changer and positively impacts certain industries. Then the next day they release another set of policies that totally kills or curtails other industries. It’s like the left hand has no idea what the right hand is doing, in the end it’s just masturbating.

A year ago, the one step forward was the concept paper around electronic payments. The Reserve Bank of India (RBI) introduced the Unified Payments Interface (UPI) which would connect all the banks and make it very simple for people to send money to others and generally make e-commerce much easier. The good news is that last month it was launched and it’s gaining traction as more and more banks integrate to the UPI platform. UPI is really just like a Paytm wallet, so instead of having a Paytm wallet you would get a “Payment Address” issued by your bank and then make payments or receive money directly into the bank account.

UPI is not completely new, it’s an advanced version of the Immediate Payment Service (IMPS). The basic flow is that when you visit the checkout screen of an e-commerce company you would enter in a unique “Payment Address” such as 9820012345@AxisBank. This would then route this transaction to the National Payments Corporation of India (NCPI) and it would automagically go to the correct bank. If the bank is Axis Bank, you would open the Axis Bank app and then authorize the transaction in the app. There would be no need for a one time password (OTP) as the Axis app would required a MPIN (mobile PIN) or potentially your fingerprint scan from your Aadhaar enrollment. Magic.

If you are interested in the technical features of UPI, I suggest you download and read the UPI specification document. When you start to read it, you quickly realize how this technology could leap-frog the e-payment systems that are currently in use in the US and Europe.

If UPI was the one step forward, then the newly introduced draft bill called the Geospatial Information Regulation Bill, 2016, (the Geospatial Bill) is two steps back. The Geospatial Bill was released by the Ministry of Home Affairs and when you read it, you realize it’s more like two thousand steps back. Take for example, if on a map you accidentally misrepresent the borders of India, it can be punishable with a fine ranging from Rs. 10 lacs (USD $15k) to Rs. 100 CR (USD $15 million) and even crazier is the potential imprisonment of up to seven years.

Oh, but there is much more. You have to apply for a license via the Security Vetting Authority (SVA), which sounds fucking ominous like something the US Government would have created after 9/11. So who or what is the SVA? According to the draft bill:

The Security Vetting Authority shall consist of an officer of the rank of Joint Secretary to the Government of India or above as Chairman and two members, one, a technical expert and the other, a national security expert.

That just sounds like code for – be prepared to pony up some cash so we can “move your file” through the process. This licensing process is a throwback to the good old days of the License Raj in India. And, don’t get me started on how this will effect EVERY phone app that asks for your location or shows you a map. As I said, one step forward and two thousand steps back.

UPDATE:
Some sensible people have come together to rally against the current form of the Geospatial Bill, please visit SaveTheMap.

US and India Taxation

18949788.cmsDear e-commerce expat,

So you moved to India to join the e-commerce boom, you get to deliver packages during the day and tweet selfies all night. My only advice to you is get your financial house in order. In the weeks and months before you moved to India, I’m sure several people asked you “do you have to pay taxes in both countries?” The short is no, the long answer is – it’s complicated.

Why is it complicated? Because if you are a U.S. citizen and moving to India, you are essentially stuck between two countries that are absolutely obsessed with milking you for every dime that is owed to them. It’s justifiable, but let’s rewind and understand how we got here and go over the basics of each countries tax regime.

U.S.
The U.S. national debt is at over $18 trillion dollars and many of the largest corporations like Apple, Microsoft and Cisco Systems have kept their profits offshore and refuse to repatriate (fancy word for bring) the funds to the US and pay taxes.

The Internal Revenue Service (IRS) is the government agency that collects the taxes. The tax year is based on the calendar year (January 1 to December 31, 2013) and for individuals, the taxes are due on April 15, 2014 based on the example. They refer to the different rates of taxation as “tax brackets”. The IRS is sometimes referred to as Uncle Sam. If you are a U.S. citizen or resident alien, your worldwide income is subject to U.S. income tax, regardless of where you reside.

In 2010, the US passed the Foreign Account Tax Compliance Act (FATCA). This made it mandatory that all non-US financial institutions automatically report if they have accounts for US citizens and report that information back to the US authorities. But, why let the institutions have all the fun? Individuals still need to file Form 114 – Report of Foreign Bank and Financial Accounts (FBAR). An FBAR filing is required if all foreign financial accounts exceed $10,000. In addition, a Form 8938 – Statement of Specified Foreign Financial Assets is required if you have assets over $200,000 during the year. The amounts vary, depending on whether you are single, married or filing seperately.

India
In India, the issue is with a cash based economy and corruption. When people pay for services in cash, the government has no way to track it and thus people avoid paying taxes. With corruption, much of the money that is meant for government programs for the poor gets siphoned off and put into off-shore bank accounts.

The Income Tax Authority is the government agency that collect the taxes, it’s part of the Ministry of Finance. The financial tax year is based on April 1, 2013 to March 31, 2014 for example. Individual taxes are due on July 31, 2014 based on the example. They refer to the different rates of taxation as “tax slabs”.

In 2015, the Indian government passed the Black Money (Undisclosed Foreign Income and Assets) Act. It’s commonly referred to as the “Black Money Act” and the intent and spirit of the law was to go after politicians and large businesses that for years had stashed their money in foreign countries. The deadline to declare ANY and ALL foreign assets was September 30, 2015 and the results were less than stellar. Many of the people that declared their assets were working professionals and not the intended target of politicians and large businesses.

It’s Complicated
The US and India do have a Double Tax Avoidance Agreement (DTAA) in place and for the most part works. So if you make the equivalent of USD 100,000 in India, then India will tax you at 30% and the US will not double tax you because of the DTAA that is in place. However, if you make the equivalent of USD 500,000 in India, then India will tax you at 34% (30% + an additional 10% surcharge on 30% + an education tax of 3% on the entire tax amount). In the US, since the highest tax bracket is 39.6% you will have to pay the delta of 5.6% to Uncle Sam.

Suppose you have a 401k retirement plan which allows you to generate income within the account tax free and pay taxes at the time of distribution. Unfortunately, according to the DTAA between India and the US, India does not recognize the account as a pension so you will have to pay taxes on the income generated in the account to the Indian government. 😦

Another example, suppose you buy an equity mutual fund in India and after 13 months you sell it. In India, there is no long-term capital gains on equity mutual funds – awesome right? Wrong, since you hold a US passport you will have to pay long-term capital gains in the US based on the US tax bracket you are in.

So technically, there is no double taxation but you will get taxed at the highest rate whether it’s in India or the US. DTAA should really stand for Double Trouble And Anguish.

An Example
Suppose you earn Rs. 78 lakhs for April 1, 2014 to March 31, 2015 for the work you have done in India. That is Rs. 6.5 lakhs a month and at the current exchange rate comes to USD 10,000 a month. In India you would fall under the 30% tax slab and in the US you would fall under the 28% tax bracket. You will first have to file your US taxes which are due on April 15, 2015. Since you earned USD 90,000 over the 9 months you fall under the Foreign Earned Income Exclusion which means the US government won’t tax you on anything. You will need to look at Form 2555 and Form 1116 for Tax Credits to see which makes more sense for you.

Then when you file your Indian taxes on July 31, 2015 you will report the Rs. 78 lakhs on your ITR (income tax return). You will have to show the long-term capital gains on your Indian taxes in Schedule TR which is for taxes paid outside India. And of course you will need to fill out the Schedule FA for foreign assets. If on February 10, 2015 you have a short-term capital gains of Rs. 5 lakhs, your tax will be Rs. 1.5 lakhs which is 30%. Then when you file your US taxes for calendar year 2015, you will have to show the gains and the credits will be listed on Form 1116.

Yeah, it’s almost better to be just a delivery person in India.

Google Cloud vs. Amazon

gcp_next_2016_LP_logo-square-2xLast week, Google hosted their inaugural cloud conference called Google Cloud Platform Next in San Francisco. Google Cloud Platform (GCP) is Google’s answer to Amazon Web Services (AWS), IBM Bluemix and Microsoft Azure. If you were to rattle off the names of Amazon, Google, IBM and Microsoft, and ask any non-technical person to pick who is winning the cloud war…I imagine no one would pick Amazon.

Yet, Amazon is the correct answer. AWS is the gold standard when it comes to cloud computing and they have a large lead since they essentially created the market around 10 years ago. The reality is it didn’t have to be that way. Google has the intellectual knowledge and the technical ability, when you think of Big Data processing you can thank Google. The technology behind Hadoop – Google File System and MapReduce both originated at Google. However, Google didn’t realize the full market potential for cloud computing services like Amazon did.

Now Google is playing catch-up, last year it hired Diane Green to lead the GCP team. Diane Green was the co-founder of VMware, whose software allowed corporate data centers to create “virtual machines”, which is really the heart of any cloud computing platform.

The GCP Next conference was to let the world know that Google has arrived and are a force to be reckoned with. It’s clear Google is going after large enterprise customers which is a very different sales strategy then how AWS grew. AWS initially focused on developers and startups to grow their business and added features as their core audience requested them.

I believe Google has a shot at being #2 but they really need to start rolling out features on an hourly basis! That’s no exaggeration, there are days where AWS will launch 10-15 features which is just unheard of for the scale at which AWS operates.

Anyways, to prove my technical street cred, below is a tutorial I put together to show how to install WordPress on GCP:

 

 

 

On-Demand: Technology or Service Delivery?

a-little-bit-ofWho would have guessed that in 2009 the idea of hailing a taxi via a mobile app would spark a revolution. That is exactly what Uber has single-handedly done and kicked off what is now termed the “on-demand economy”. In the process, Uber has been estimated to be worth over $50 billion and continues to grow into new markets.

Because of Uber, there are a host of on demand services from delivering groceries, restaurant meals, laundry, home repair, car repair, etc… The list is long and keeps growing by the day. It’s still early days in India and the intense competition in these various verticals has led to a minimum of 10 startups in each category. Which explains why venture capitalists are still funding these “on-demand” startups because no one really knows who will come out on top. Since India is such a large and diverse country, I’m willing to bet that each vertical will end up with 2-3 large players in each vertical category.

Over the past several years I’ve been advising many startups on their product/market fit and technology stack. (Pro tip, to sound smart add stack to anything and people will think you are well versed in that area. Food stack, technology stack, retail stack, etc…). Many of the startups I’ve interacted with for the “on-demand” space are divided into 3 groups:

  1. A team of computer geeks who are looking to provide a solution to a problem
  2. A team that has domain knowledge of the space but lacking any technology strategy
  3. A team that has neither the domain knowledge nor the technology skills, these ideas usually forever remain in PowerPoint

The first group seems to have gotten all the love and media attention. How many times have you read the following headline “3 IITians launch an Uber like service for X”. Initially, I used to enjoy advising those startups because we had so much to talk about in regards to the technology stack. But, when the topic turned to service delivery, business metrics and customer engagement the response was pretty much the same – oh, we’ll just hire some business development and project managers. That should have been my first clue that they were going down the wrong path. For them, the technology was more important than the consumer.

Over the past year, I’ve had the opportunity to work with several startups that fall into the second category. They have the domain knowledge of their particular space but need some hand-holding when it comes to technology. The more that I engaged with these startups the more I realized that they would be more successful because for them it was about maintaining their brand at all costs. Which meant making sure the customer was the most important piece of the equation, not the technology stack which is really just an enabler.

Many of the heavily funded “on-demand” startups built large marketing and technology teams but failed to monitor, measure and understand what the customer experience was. I can’t tell you how many times I’ve heard from colleagues that they used a restaurant delivery app and the food was delivered late, food was cold or something was missing. If you can’t get the basics right, it doesn’t matter how much awesomesauce technology you have running on Amazon Web Services because it’s not a technology problem, it’s all about the service delivery.

Dear Ola & Uber, Welcome to the License Raj

Bits-Bytes-CarEveryone from the Bay Area to Bangalore is talking about whether we are in a technology funding bubble or not. I think that misses the bigger question in India of whether the Indian government might have an effect on it. I woke up this morning and saw an article that Vijay Chibber the secretary of the Ministry of Road Transport and Highways, has stated that companies like Ola and Uber must be registered with the state government like any other taxi operator. Vijay refers to Section 93 of the Motor Vehicles Act which states that the state governments have jurisdiction.

Ola has raised just under Rs. 6,660 crore in funding and employs thousands of people and that is most likely going to come to a screeching halt if the government has its way. Registering with the government is not the issue but existing taxi’s are registered and it’s pretty clear no one likes the existing system. How many times have people been refused a ride from a taxi driver? How many times has the taxi driver driven like he was in an F1 race? How many times have you stepped into a taxi and the floor board has rotted and you can see through? Yup, I’m sure all of us have faced this issue.

This issue goes back to my disconnect with Modi. He will travel all around the world and meet with enthusiastic entrepreneurs like Facebook’s Mark Zuckerberg and Tesla’s Elon Musk but back at home…

Well back at home, we are back to square one with the “license raj” of yesteryear. The central government has punted on the issue and has let each state government frame the guidelines for the taxi app aggregators like Ola and Uber. This just means more work for Ola and Uber in dealing with each state government – oh, what joy for them! And, in states like Maharashtra they may impose a cap on the number of taxi’s that an operator can have, because that’s how we roll in the license raj era. VC funding meet Indian Government regulators, you may have met your match.

 

The Disconnect Between Modi and Me

modi-digital-indiaYesterday, India’s Prime Minister Narendra Modi (@narendramodi) visited ground zero for the home of many unicorns – Silicon Valley. Modi hosted a Digital India dinner to show that India wants to roll out the red carpet for companies to invest in India. Modi is an articulate salesman and its just want India needs. Someone to get out there, cold call, visit countries and get them excited about India and it’s 1.3 billion people.

When I used to live in the US, a colleague of mine at Cisco Systems would always tell me – never confuse selling with installing. In his eyes, they were two distinct activities handled by different teams. The selling was done by the sales guy and the installing was done by someone else. Of course, you really need to make sure the entire process works well or they may not buy again.

Since Modi assumed the office in May 2014 he has been busy trying to handle both sides of the equation. Traveling all over the planet in Air India One selling the vision of India and getting companies to sign on the dotted line for foreign direct investments (FDI). In India he has been battling the Congress party to get many of the needed reforms in place such as the land acquisition act and GST (Good and Services Tax).

For the uninitiated the GST bill will unify the tax code and shifts the power from the States to the Central Government. Currently, each State collects various taxes if you manufacture products and if you move goods from one state to another, it’s like moving it to another country. With GST, the Central Government handles the taxation piece and goods can freely move from state to state, which would be the logical thing to do. Of course, this creates an issue because the guys on the ground that used to get bribes to move the paperwork more quickly are effectively cut from the action.

There are many rules and regulations that need to be passed in order to get India moving in the right direction. Another example is if you are trying to open a restaurant in Bombay, you need over 40 licenses in place to be compliant. My favorite is you need a phonographic license to play music in your restaurant. You can imagine dealing with over 40 departments for running a restaurant will definitely lead to some policy violations and those representatives are all to happy to show up asking for a bribe…welcome to India.

I’ve talked to many people that run manufacturing facilities and they all say the same thing, the Make In India initiative is a joke. The disconnect is Modi is absolutely selling the vision of India but the implementation of policies to operate in India is still stuck in neutral. Fix that.