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Abhinav Agarwal

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Flipkart and Focus 3 - There’s Something (Profitable) About Your Privacy

Wed, 2015-05-20 09:45
The third in my series on Flipkart and focus appeared in DNA on April 18th, 2015.


Part III – There’s Something (Profitable) About Your Privacy
Why do so many companies hanker after apps? Smartphone apps, tablet apps, iOS apps, Android apps, app-this, app-that….
Leave aside for a moment the techno-pubescent excitement that accompanies the launch of every new technology (if you are not old enough to remember words like “client-server[1]”, then “soa[2]” will surely sound familiar enough). Every Marketing 101 course drills into its students that acquiring a new customer is way costlier than retain an existing. Loyal customers (leaving aside the pejorative connotation the word “loyal” carries, implying that customers who shop elsewhere for a better deal are of dubious moral character) are what you should aspire to – that keep buying from you for a longer period of time[3] – and which allows you to refocus your marketing and advertising dollars towards the acquisition of newer customers, faster. If you spend less on unnecessary discounts and expensive retention schemes then margins from existing customers are automatically higher.



Customers can stay loyal if you can build a bond of affinity with them. You should aspire to be more like the local kirana owner (only infinitely richer), who in a perfect world knew everything about you – your likes, dislikes, which festivals you celebrated, and therefore which sweets you would buy, when your relatives came over to stay and what their likes were, what exotic food items you wanted, and so on. And who knew your name. Hence the marketer’s love for loyalty programs[4], no matter that customer loyalty is notoriously difficult to guarantee[5].

In the world of online retailing (actually, it applies just as well to any kind of retailing), how do you get to acquire a deep level of intimacy with your customer? Smartphone apps provide this degree of intimacy that desktop / laptop browsers cannot. This is by simple virtue of the fact that the smartphone travels with the user, the user is constantly logged on to the app, and the app knows where you go and where you are. So no wonder that in December 2011, Amazon offered a “brazen[6]” deal to its customers in brick-and-mortar stores to do an “in-store” price-check of items using the Amazon Price Check app[7], and if the same product was available on Amazon, get it at a discount off the store’s price. Though termed “not a very good deal[8]”, it nonetheless angered[9] the Retail Industry Leaders Association, and elsewhere was described as “Evil But It's the Future[10]”. The combination of availability – the app was installed on the smartphone that was with the user – and the integrated capabilities in the device – a camera that fed into a barcode scanner app –made this possible. The appeal of apps is undeniable.

The magical answer is – “app”. Your best-thing-since-sliced-bread app is installed on the customer’s smartphone (or tablet or phablet), is always running (even when it is not supposed to be running), knows everyone in your contacts (from your proctologist to the illegal cricket bookie), can hear what you speak (even your TV can do this now[11]), knows where you are, who you call, what text messages you send and receive, knows what other apps you have installed on your smartphone (presumably so it can see how potentially disloyal you could be), which Wi-Fi networks you connect to, access what photos and videos you have taken (naughty!) and so on and so forth. All this the better to hear you with, the better to see you with, and ultimately the better to eat you (your wallet) with – with due apologies to Little Red Riding Hood[12]. You may want to take a closer look at the permissions your favorite app wants when you install it – like Amazon India[13], eBay[14], Flipkart[15], Freecharge[16], HomeShiop18[17], Jabong[18], MakeMyTrip[19], Myntra[20], SnapDeal[21]. Great minds do seem to think alike, don’t they?

[Technical aside: I covered the red herrings thrown in favour of apps in the first part, but here is some more… You can store more data, more effectively, and process that data better using an app than you can with a plain browser-based approach. True. But not quite. The ever-evolving world of HTML5 (the standard that underpins how information is structured and presented on the web) has progressed to make both these points moot – with offline storage[22] and local SQL database support[23]. Yes, there are arguments to be made about handling large amounts of data offline with browser-based mechanisms, but these are for the most part edge-cases. To be fair, there are some high-profile cases of companies switching to native apps after experimenting with HTML5-based apps (hybrid apps that wrapped a browser-based UI with a native shell), like LinkedIn[24] and Facebook[25]. The appeal of apps therefore is undeniable. But, as I argued earlier, the appeal of apps does not negate the utility of browser-based interfaces.]

What is all this useful for? Your app now knows that you Ram, Shyam, and Laxman in your contacts have birthdays coming up, and it can suggest an appropriate gift for them. Convenient, isn’t it? While driving to work, you can simply tell your app – speak out the commands – to search for the latest perfume that was launched last week and to have it gift wrapped and delivered to your wife. The app already has your credit card details, and it knows your address. Your app knows that you are going on a vacation next week (because it can access your calendar, your SMS-es, and perhaps even your email) to Sikkim; it helpfully suggests a wonderful travel book and some warm clothing that you may need. The imagined benefits are immense.

But, there is a distinctly dark side to apps – as it relates to privacy – that should be a bigger reason of concern for customers and smartphone users alike. Three sets of examples should suffice.
You get a flyer from your favourite brick-and-mortar store, letting you know that you can buy those items that your pregnant daughter will need in the coming weeks. You head over to the store, furious – because your daughter is most certainly not pregnant. Later you find out that she is, and that the store hadn’t made a mistake. It turns out the truth is a little more subtler than that[26], and a little more sedate than what tabloid-ish coverage - with headlines like “How Companies Learn Your Secrets[27]” - made it out to be (the original presentation made at the PAW Conference is also available online[28]).

There are enough real dangers in this world without making it easier to use technology to make it even more unsafe. Considering how unsafe[29] air travel can be for women[30] and even girls[31], one has to question the wisdom of making it even[32] more so[33]. If this does not creep you out, then perhaps the Tinder app – which uses your location and “displays a pile of snapshots of potential dates in a user’s immediate area”[34], to as close as within 100 feet[35] - may give you pause for thought.

Do apps need all the permissions they ask for? No. But, … no! Would they work if they didn’t have all those permissions? 99% of the time, yes – they would work without a problem. For example, an app would need to access your camera if you wanted to scan a barcode to look up a product. The app would need access to your microphone if you wanted to speak out your query rather than type it in the app. What if you don’t particularly care about pointing your camera at the back of books to scan their barcodes, or speaking like Captain Kirk into your phone? Sorry, you are out of luck. You cannot selectively choose to not grant to certain privileges to an app – at least on a device running the Android mobile operating system. In other words, it is a take-it-or-leave-it world, where the app developer is in control. Not you. And wanting to know your location? Even if you are a dating app, it’s still creepy.

But surely app makers will ask you before slurping your very personal, very private information to its servers in the cloud? Yes, of course – you believe that to be true, especially if you are still in kindergarten.

A few weeks before its IPO[36], JustDial’s app was removed from the Google Play Store[37]. It was alleged that the updated version of the JustDial app had “started retrieving and storing the user’s entire phone book, without a warning or disclaimer. [38],[39]” Thereafter, JustDial’s mobile “Terms and Conditions” were updated to include the following line: “You hereby give your express consent to Justdial to access your contact list and/or address book for mobile phone numbers in order to provide and use the Service.[40]

In 2013, US-based social networking app Path was caught as it “secretly copied all its users’ iPhone address books to its private servers.”[41] Action was swift. The FTC investigated and reached a settlement with Path, which required “Path, Inc. to establish a comprehensive privacy program and to obtain independent privacy assessments every other year for the next 20 years. The company also will pay $800,000 to settle charges that it illegally collected personal information from children without their parents’ consent.”[42] In the US, a person’s address book “is protected under the First Amendment[43].” When the controversy erupted, it was also reported that “A person’s contacts are so sensitive that Alec Ross, a senior adviser on innovation to Secretary of State Hillary Rodham Clinton, said the State Department was supporting the development of an application that would act as a “panic button” on a smartphone, enabling people to erase all contacts with one click if they are arrested during a protest[44].” Of course, politics is not without its dose of de-rigueur dose of irony. That dose was delivered in 2015 when it emerged that Hillary Clinton had maintained a private email account even as she was Secretary of State in the Barack Obama presidency and refused to turn over those emails[45].

So what happened to Just Dial for allegedly breaching its users’ privacy? Nothing. No investigation. No fine. No settlement. No admission. No mea-culpa. In short, nothing. It was business as usual.
Apps can be incredibly liberating in eliminating friction in the buying process. But hitching your strategy to an app-only world is needless. It is an expensive choice – from many, many perspectives, and not just monetary. The biggest costs are of making you look immature should you have to reverse direction. As a case-in-point, one can point to the entirely avoidable brouhaha over Flipkart, Airtel, and Net Neutrality[46]. In this battle, no one came smelling like roses, least of all Flipkart, which attracted mostly negative attention[47] from the ill-advised step, notwithstanding post-fact attempts to bolt the stable door[48].

Let me end with an analogy. The trackpad on your laptop is very, very useful. Do you then disable the use of an externally connected mouse?

Disclaimer: views expressed are personal.


[1] "Computerworld - Google Books", https://books.google.co.in/books?id=c2t_-WWE1VAC&pg=PA109&lpg=PA109&dq=client-server+hype&source=bl&ots=SJGHWFM-M5&sig=g6sagoJV_xVSvp22-rgOonfLpNY&hl=en&sa=X&ei=x1ExVb3NKYeumAX2_IGICQ&ved=0CDYQ6AEwBA#v=onepage&q=client-server%20hype&f=false
[2] "SOA: Hype vs. Reality - Datamation", http://www.datamation.com/entdev/article.php/3671061/SOA-Hype-vs-Reality.htm
[3] "How Valuable Are Your Customers? - HBR", https://hbr.org/2014/07/how-valuable-are-your-customers/
[4] "Loyalty programmes: Are points that consumers stockpile juicy enough to keep them coming back? - timesofindia-economictimes", http://articles.economictimes.indiatimes.com/2013-06-30/news/40272286_1_loyalty-programmes-loyalty-card-loyalty-management
[5] "What Loyalty? High-End Customers are First to Flee — HBS Working Knowledge", http://hbswk.hbs.edu/item/6679.html
[6] "Amazon's Price Check App Undercuts Brick-and-Mortar Stores Prices | TIME.com", http://business.time.com/2011/12/08/use-amazons-price-check-app-and-save-15-this-saturday/
[7] "Amazon.com Help: About the Amazon Price Check App", http://www.amazon.com/gp/help/customer/display.html?nodeId=200777320
[8] "Amazon pushing Price Check app with controversial online discounts | The Verge", http://www.theverge.com/2011/12/10/2626703/amazon-price-check-app-competition-discount
[9] "Retail association pissed about Amazon.com's Price Check app - GeekWire", http://www.geekwire.com/2011/retail-association-pissed-amazoncoms-price-check-app/
[10] "Amazon Price Check May Be Evil But It's the Future - Forbes", http://www.forbes.com/sites/erikkain/2011/12/14/amazon-price-check-may-be-evil-but-its-the-future/
[11] "Samsung smart TV issues personal privacy warning - BBC News", http://www.bbc.com/news/technology-31324892
[12] "Little Red Riding Hood - Wikipedia, the free encyclopedia", http://en.wikipedia.org/wiki/Little_Red_Riding_Hood
[13] https://www.dropbox.com/s/63zk6oyt9tqad4p/AmazonIndia_app.png?dl=0
[14] https://www.dropbox.com/s/g4tj1k5d5yfbqex/ebay_app.png?dl=0
[15] https://www.dropbox.com/s/wq0spvgzo9il6rx/Flipkart_app.png?dl=0
[16] https://www.dropbox.com/s/jxvur4g1jqdb03k/freecharge_app.png?dl=0
[17] https://www.dropbox.com/s/7aza8ipjvqhn6m1/HomeShop18_app.png?dl=0
[18] https://www.dropbox.com/s/jgel7ltka5u5ogr/Jabong_app.png?dl=0
[19] https://www.dropbox.com/s/wkqhewbizxpcw7w/MakeMyTrip_app.png?dl=0
[20] https://www.dropbox.com/s/pcp6hoy38pfkiw3/Myntra_app.png?dl=0
[21] https://www.dropbox.com/s/0gngd11rz2fpu3q/snapdeal_app.png?dl=0
[22] "Web Storage", http://dev.w3.org/html5/webstorage/
[23] "Offline Web Applications", http://www.w3.org/TR/offline-webapps/#sql
[24] "Why LinkedIn dumped HTML5 & went native for its mobile apps | VentureBeat | Dev | by J. O'Dell", http://venturebeat.com/2013/04/17/linkedin-mobile-web-breakup/
[25] "Mark Zuckerberg: Our Biggest Mistake Was Betting Too Much On HTML5 | TechCrunch", http://techcrunch.com/2012/09/11/mark-zuckerberg-our-biggest-mistake-with-mobile-was-betting-too-much-on-html5/
[26] "Did Target Really Predict a Teen’s Pregnancy? The Inside Story", http://www.kdnuggets.com/2014/05/target-predict-teen-pregnancy-inside-story.html
[27] "How Companies Learn Your Secrets - NYTimes.com", http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?_r=0
[28] "Predictive Analytics World Conference: Agenda - October, 2010", http://www.predictiveanalyticsworld.com/dc/2010/agenda.php#day1-8a
[29] "Federal judge upholds verdict that North Bergen man molested woman on flight ‹ Cliffview Pilot", http://cliffviewpilot.com/federal-judge-upholds-verdict-that-north-bergen-man-molested-woman-on-flight/
[30] "Man accused of groping woman on flight to Newark - NY Daily News", http://www.nydailynews.com/new-york/man-accused-groping-woman-flight-newark-article-1.1709952
[31] "Man jailed for molesting girl, 12, on flight to Dubai | The National", http://www.thenational.ae/uae/courts/man-jailed-for-molesting-girl-12-on-flight-to-dubai
[32] "Virgin is Going to Turn Your Flight Into a Creepy Bar You Can't Leave", http://mic.com/articles/37807/virgin-is-going-to-turn-your-flight-into-a-creepy-bar-you-can-t-leave
[33] "KLM Introduces A New Way To Be Creepy On An Airplane - Business Insider", http://www.businessinsider.com/klm-introduces-a-new-way-to-be-creepy-on-an-airplane-2012-2?IR=T
[34] "Tinder Dating App Users Are Playing With Privacy Fire - Forbes", http://www.forbes.com/sites/anthonykosner/2014/02/18/tinder-dating-app-users-are-playing-with-privacy-fire/
[35] "Include Security Blog | As the ROT13 turns….: How I was able to track the location of any Tinder user.", http://blog.includesecurity.com/2014/02/how-i-was-able-to-track-location-of-any.html
[36] http://en.wikipedia.org/wiki/Justdial, accessed April 11, 2015
[37] "Updated: JustDial App Pulled From Google Play Store; Privacy Concerns? - MediaNama", http://www.medianama.com/2012/09/223-justdial-app-pulled-from-google-play-store-privacy-concerns/
[38] "Updated: JustDial App Pulled From Google Play Store; Privacy Concerns? - MediaNama", http://www.medianama.com/2012/09/223-justdial-app-pulled-from-google-play-store-privacy-concerns/
[39] "Bad App Reviews for Justdial JD", http://www.badappreviews.com/apps/147872/justdial-jd-search-anything, accessed April 09, 2015
[40] "Terms Of Use”, http://www.justdial.com/MobileTC, accessed April 09, 2015
[41] "The Path Fiasco Wasn't A Privacy Breach, It Was A Data Ownership Breach - The Cloud to Cloud Backup Blog", http://blog.backupify.com/2012/02/09/the-path-fiasco-wasnt-a-privacy-breach-it-was-a-data-ownership-breach/
[42] "Path Social Networking App Settles FTC Charges it Deceived Consumers and Improperly Collected Personal Information from Users' Mobile Address Books | Federal Trade Commission", https://www.ftc.gov/news-events/press-releases/2013/02/path-social-networking-app-settles-ftc-charges-it-deceived
[43] "Anger for Path Social Network After Privacy Breach - NYTimes.com", http://bits.blogs.nytimes.com/2012/02/12/disruptions-so-many-apologies-so-much-data-mining/?_r=0
[44] Ibid.
[45] "Hillary Clinton deleted 32,000 'private' emails, refuses to turn over server - Washington Times", http://www.washingtontimes.com/news/2015/mar/10/hillary-clinton-deleted-32000-private-emails-refus/
[46] "Flipkart Pulls Out of Airtel Deal Amid Backlash Over Net Neutrality", http://www.ndtv.com/india-news/flipkart-pulls-out-of-airtel-deal-amid-backlash-over-net-neutrality-754829
[47] "Flipkart's stand on net neutrality - The Hindu", http://www.thehindu.com/business/flipkarts-stand-on-net-neutrality/article7106072.ece

[48] "Our Internet is headed in the right direction: Amod Malviya - Livemint", http://www.livemint.com/Companies/1J4CaeGnXvKCbwvWW76J6H/Our-Internet-is-headed-in-the-right-direction-Amod-Malviya.html


© 2015, Abhinav Agarwal (अभिनव अग्रवाल). All rights reserved.

Flipkart and Focus - 2 - Mobile Advertising Numbers Can Be Misleading

Sat, 2015-05-09 09:44
The second part of my series of articles on why I believed Flipkart was at losing focus, at the wrong time, when faced with its most serious competition to date. This one focused on why a fascination with mobile advertising numbers could be very misleading.
It was published in DNA on April 14, 2015.

The Numbers Game Can be Very Misleading
According to the Internet Trends report of 2014, mobile internet advertising spend grew 47% year-on-year in 2013 to reach $12.7 billion, or 11% of the total global internet advertising spend. This mobile ad spend number was about 32 per cent of total mobile app revenues of $38 billion. Clearly mobile ad spend has been growing several times faster than non-mobile ad spend.
Facebook, the world’s largest social network, has been stunningly successful in growing its mobile revenues. So much so that “In the final three months of 2014, Facebook served 65% fewer ads than a year earlier, but the average cost of those ads to advertisers was 335% higher.[i]” As much as $2.5 billion in Facebook’s annual revenues came from these mobile ads – shown on smartphones or tablets. So successful has Facebook been in making money from selling these mobile ads that it “launched its in-app mobile ad network” in 2014[ii] to sell ads within other apps,


Meanwhile, Google has not been standing still. It is by far the largest player on the internet when it comes to online ads with estimated annual mobile ad revenues of $8 billion in 2013[iii], but its presence on the mobile platform has seen some hiccups. Its overall slice of the mobile ad pie has been shrinking, thanks to Facebook’s steroidal growth in the segment, but as an overall number Google’s mobile ad revenues continue to grow. It was estimated that Google and Facebook held a combined 50 per cent share of the global mobile ad revenue market in 2014[iv]. It is however a given that not only will it continue to persevere in that segment, but will sooner or later figure out the right approach to get growth back on track – given that less and less users were spending time on mobile browsers than on apps. For example, Google added deep-links[v] to its mobile search results[vi], so that users could click to be taken directly to a specific page (or its equivalent) in an app if they had that app installed[vii]. It also announced that it would start using “mobile-friendliness as a ranking signal” in its mobile search results[viii]. In yet another effort to boost ads on its app store, Google Play, it announced a pilot program to help app developers build targeted ads for search results on Google Play[ix]. It is expected that these will yields results in the coming quarters. Nor is it the case that everything is negative for Google on the mobile front. YouTube, for example, continued to be a star performer for Google. Google CFO stated that “YouTube’s mobile revenue (in 2014) increased more than 100 percent over[x]

Let’s not forget Twitter. “Mobile advertising revenue was 85% of total advertising revenue[xi]”, or $272 million, in in its third quarter of 2014.
In a somewhat incongruous presence, we also have Indian startup InMobi, with estimated annual revenues of $372 million, and which is also estimated to be the “biggest non-public mobile ad business on the planet.[xii]” Yes, that is very, very impressive and creditable. There are several other start-ups in this space; for example, Kenshoo, whose “CEO Izhar-Prato Says $15 Billion In Annual, Online Sales Revenue Flowing Through Platform[xiii]."

So, the decision to enter the mobile ad business should seem like a non-brainer, right? After all, didn’t Google CEO Eric Schmidt say that Amazon was Google’s biggest competitor in search[xiv]? Also, didn’t Amazon have search ambitions, seeking to start first with replacing Google ads that are served on Amazon’s pages[xv]?

Not quite, one hopes.

Before you gush over the fact that 98% of Facebook’s revenue growth in its latest quarter were accounted for by mobile ads[xvi], also note that Facebook has 745 million users on an average day (that is more than 22 billion visits a month) visiting its site via mobile devices[xvii]. By the by, Facebook crossed one trillion page views in 2011[xviii], so the company does not quite have a burning problem of engagement either on its hands.

Twitter’s numbers were achieved on the back of 181 billion (yes, that is 181 followed by nine zeros) timeline views by its 284 million monthly active users, of which 227 million were mobile users[xix].
Flipkart, by contrast, had “8 million daily visits” to its web sites – I assume desktop, mobile, and app combined – as of December 2014[xx].

Amazon, despite not being known as a search player, is still estimated to have sold $1 billion in search ads in 2014[xxi].

Much has been said and written about Google’s search business; so I will add just one more point here – Google AdWords has more than one million advertisers[xxii].

And if you are a start-up hoping to make it big by either acquiring or getting acquired, do take a minute to ponder on the sobering reality-check in the form of Velti’s meltdown[xxiii].

This is not to pour cold water over Flipkart’s acquisition of Bangalore-based AdIquity[xxiv] (which had raised $15 million from VC firms and was at one point known as Guruji[xxv]), or on Sachin Bansal’s statement, “"I believe it (mobile advertising) can be a big business for us[xxvi]". Far from it. Every company should look aggressively for avenues to disrupt existing business models as well as leverage strengths in one area to prise open a market in another area. That is what every leader aspires to do.

But, if you believe, as a start-up locked in a duel with a company like Amazon that has planted its feet in the Indian market and which is comfortable with having earned less profits in its entire existence than Apple in one quarter[xxvii],[xxviii], with no profits on the horizon (I touched on this in the previous post), VCs that would be getting increasingly worried about their exit strategy (and hopefully profitable exit strategy at that), you have the luxury of entering a market such as mobile ads – on a global level – and where the competition consists of companies like Google, Facebook, and Twitter, then do not be surprised if you are accused of having lost focus.

In the next part I will take a look at why Flipkart may still believe that its app-only drive and mobile ad ambitions could provide synergies.

[i] "Facebook's Mobile Revenue Hits $2.5 Billion as Prices Soar | Digital - Advertising Age", http://adage.com/article/digital/facebook-s-mobile-revenue-hits-2-5-billion-prices-soar/296869/
[ii] "With Ad Network, Facebook Targets Rest of Mobile World | Digital - Advertising Age", http://adage.com/article/digital/ad-network-facebook-targets-rest-mobile-world/292959/
[iii] "Google's 2013 Mobile Search Revs Were Roughly $8 Billion", http://searchengineland.com/googles-2013-mobile-search-revenues-nearly-8-billion-globally-201227
[iv] "Google, Facebook combined for 50% of mobile ad revenues in 2014", http://www.networkworld.com/article/2881132/wireless/google-facebook-combined-for-50-of-mobile-ad-revenues-in-2014.html
[v] "Google To Offer Targeted Mobile App Install Ads In Search And YouTube; Expands App Deep Linking To AdWords | TechCrunch", http://techcrunch.com/2014/04/22/google-to-offer-mobile-app-install-ads-in-search-and-youtube-expands-app-deep-linking-to-adwords/
[vi] "Will Deep Linking Shake Google’s Ad and Search Supremacy?", http://www.cheatsheet.com/technology/will-deep-linking-shake-googles-ad-and-search-supremacy.html/?a=viewall
[vii] "Overview - App Indexing for Google Search — Google Developers", https://developers.google.com/app-indexing/
[viii] "Official Google Webmaster Central Blog: Finding more mobile-friendly search results", http://googlewebmastercentral.blogspot.in/2015/02/finding-more-mobile-friendly-search.html
[ix] "A New Way to Promote Your App on Google Play | Android Developers Blog", http://android-developers.blogspot.in/2015/02/a-new-way-to-promote-your-app-on-google.html
[x] "Google Continues To Miss Revenue Estimates In Fourth Quarter Earnings", http://www.forbes.com/sites/aarontilley/2015/01/29/google-continues-to-miss-revenue-estimates-in-fourth-quarter-earnings/
[xi] "Twitter Reports Third Quarter 2014 Results (NYSE:TWTR)", https://investor.twitterinc.com/releasedetail.cfm?releaseid=878170
[xii] "2. Inmobi: Probably The Biggest Non-Public Mobile Ad Business On The Planet- Business Insider India", http://www.businessinsider.in/RANKED-The-Hottest-Pre-IPO-Adtech-Startups-Of-2014/2-INMOBI-PROBABLY-THE-BIGGEST-NON-PUBLIC-MOBILE-AD-BUSINESS-ON-THE-PLANET/slideshow/34262656.cms
[xiii] "Kenshoo CEO Izhar-Prato Says $15 Billion In Annual, Online Sales Revenue Flowing Through Platform – AdExchanger", http://adexchanger.com/online-advertising/kenshoo/
[xiv] "Google's Eric Schmidt: Our biggest search competitor is Amazon — not Microsoft or Yahoo - GeekWire", http://www.geekwire.com/2014/google-amazon/
[xv] "Amazon to challenge Google in online-ad business - MarketWatch", http://www.marketwatch.com/story/amazon-to-challenge-google-in-online-ad-business-2014-08-24
[xvi] "Chart: Mobile Ads Account for 98% of Facebook's Revenue Growth | Statista", http://www.statista.com/chart/2496/facebook-revenue-by-segment/
[xvii] Ibid.
[xviii] "Facebook is first with 1 trillion page views, according to Google | ZDNet", http://www.zdnet.com/article/facebook-is-first-with-1-trillion-page-views-according-to-google/
[xix] "Twitter Reports Third Quarter 2014 Results (NYSE:TWTR)", https://investor.twitterinc.com/releasedetail.cfm?releaseid=878170
[xx] "Flipkart.com", http://www.flipkart.com/s/press and http://www.entrepreneurindia.com/news/Flipkart-join-hands-with-EPCH-VTPC-and-KASSIA-to-help-small-entrepreneurs-5801/
[xxi] "Amazon to challenge Google in online-ad business - MarketWatch", http://www.marketwatch.com/story/amazon-to-challenge-google-in-online-ad-business-2014-08-24
[xxii] Ibid.
[xxiii] "How Velti, One Of The Largest Mobile Ad Companies On The Planet, Lost $130 Million | Business Insider India", http://www.businessinsider.in/How-Velti-One-Of-The-Largest-Mobile-Ad-Companies-On-The-Planet-Lost-130-Million/articleshow/22238675.cms
[xxiv] "Flipkart eyes more buys to boost mobile advertisement business - The Times of India", http://timesofindia.indiatimes.com/business/india-business/Flipkart-eyes-more-buys-to-boost-mobile-advertisement-business/articleshow/46616114.cms
[xxv] "Flipkart Acquires Mobile Ad Platform, Adiquity » NextBigWhat", http://www.nextbigwhat.com/flipkart-acquires-adiquity-297/
[xxvi] "Flipkart eyes more buys to boost mobile advertisement business - The Times of India", http://timesofindia.indiatimes.com/business/india-business/Flipkart-eyes-more-buys-to-boost-mobile-advertisement-business/articleshow/46616114.cms
[xxvii] "Amazon earnings: How Jeff Bezos gets investors to believe in him.", http://www.slate.com/articles/business/moneybox/2014/01/amazon_earnings_how_jeff_bezos_gets_investors_to_believe_in_him.html
[xxviii] "Rolfe Winkler on Twitter: "Apple's operating cash flow in Q4 -- $33.7 billion. Amazon's since 1994 -- $27.0 billion."", https://twitter.com/rolfewinkler/status/560214596532043776


© 2015, Abhinav Agarwal (अभिनव अग्रवाल). All rights reserved.

Flipkart and Focus - 1 - Losing It?

Wed, 2015-04-22 09:48
This is the first of a series of articles I wrote for DNA in April on why I believed Flipkart (India's largest online retailer and among the most highly valued startups in the world) was at losing focus, at the wrong time, when faced with its most serious competition to date.

"Why Flipkart seems to be losing focus", appeared in DNA on Sunday, April 12, 2015.

Part I
Among all start-ups that have emerged from India in recent and not-so recent times, Flipkart is likely to be at the top of most people’s minds. The list is admittedly weighted heavily in favour of newer companies, given that the Indian start-up ecosystem has only in the last decade or so started to pick up steam. But that is changing, and the list is getting longer and diverse, with such names as Urban Ladder, Zomato, Reel, Druva Software, WebEngage, etc…[1] in just the online segment. But today, in 2015, Flipkart is the big daddy of them; with total equity funding of US $2.5 billion and a valuation of a whopping US$11 billion as of April 2015, it was ranked the seventh most valuable start-up in the world[2] (though that was still a far cry from the $178 billion market cap enjoyed by US online retailer Amazon[3] and $220 billion market cap of Chinese online retailer Alibaba[4]).

Yet Flipkart seems to be in trouble.


Let’s ignore for the time being the fact that it loses much more money than it makes, and that scale does not seem to have lessened the bleeding of money – it’s caught in a situation where the more it sells the more it loses[5],[6]. How much of it is by design – i.e., a result of a decision to focus on scale and top-line, consciously sacrificing the bottom-line in the interim – is up for debate, but that Flipkart is a long way from profitability is undeniable. Let’s ignore this for the time being.

First off, it is no mean feat to start a company out of the proverbial garage and grow it, in less than a decade (since its start in 2007), into a billion dollar start-up[7]. And make it a leader in an industry. And do it in India. Flipkart has managed to do all that, and more. It has established, spectacularly so, that an Indian start-up can make it to the very top in a fiercely-contested space. Flipkart is, for the most part, has been a spectacularly successful start-up by most counts. Let nothing distract from that fact.

So why the hand-wringing? In one word, focus. Flipkart seems to be losing focus. Three reasons stand out in my mind.

First, the ongoing controversy and its decision to shutter its browser-based web site and force customers to use only its mobile app – on smartphones and tablets.
It has already shut down the mobile browser site of Mnytra – the online fashion retailer it acquired in 2014[8]. Navigate to Flipkart’s website on your browser from your smartphone or tablet and you have no choice but to download and install the app. Come May 1st, and Myntra’s website is planned to be shutdown completely![9] Elsewhere, there have been more than a whiff of rumours that Flipkart is contemplating shutting down its website[10]. This seems not only quite unnecessary, but more importantly, indicative of the grandstanding that is coming to mark some of Flipkart’s actions. Shutting down the web site to become an app-only retailer harms the company in tangible, monetary terms, while benefitting it in the currency of zero-value digital media ink.

WhatsApp, the world’s largest instant-messaging application and which started out and since its launch existed as only a mobile app – with more than 700 million users[11] - launched a browser version of its application in January 2015[12]. Facebook, the world’s largest social network, launched a browser version of its mobile app[13], Facebook Messenger. In case you are tempted to argue that Facebook took that step out of some sort of desperate need to boost numbers, keep in mind that Facebook Messenger had 500 million users in March 2015[14], before it launched its browser version of Messenger. Let’s round off with one more example: Flipboard, with more than 100 million users in 2014[15], launched a browser version in Feb 2015[16]. Yet Flipkart wants to shut down its website.

Is it because of technology? Limitations of mobile browsers? Well, yes, if you are still living in 2010. Half a decade is an eternity in Internet years! Small screen sizes were a big reason why apps were preferred a few years ago, where browser chrome (the title bar, address bar, footer, etc…) would eat up a substantial amount of precious screen real-estate. But in today’s world of gigantic 5” and larger screens, with HD or higher resolutions, this is a moot point[17]. Smartphones are becoming faster and more powerful – quad-core processors and multiple gigabytes of memory are more and more commonplace, 3G is gaining increased adoption even in emerging markets as India. With the availability of UI systems like jQuery Mobile and frameworks like PhoneGap that make a web site adapt to different form factors and which provide substantial support for gestural interactions without additional coding, old arguments hold little water. Unless perhaps you are a gaming developer.

Which Flipkart is not.

Another much-touted argument is that in a country like India, most of the online usage is now coming from mobile devices – smartphones and tablets. India has been ahead of the curve – perversely thanks to its anemic and sparse broadband coverage. According to Mary Meeker’s much-watched-read-downloaded “Internet Trends” presentation at the D10 Conference in May 2012, “Mobile Internet Usage Surpassed More Highly Monetized Desktop Internet Usage in May, 2012, in India”[18]. Indicative of this shift is the fact that in 2014 global smartphone sales overtook feature phone sales, for the first time. A little more than a billion phones were sold of each type[19]. Most of India’s billion mobile users will move towards smartphones by 2020. However, there is, and should be, scepticism over numbers – especially that project into the future. A report that estimated the number of Internet users in India at 300 million by Dec 2014 was questioned by NextBigWhat, a “A Global Media Platform For Technology Entrepreneurs”[20].

But with so little revenue coming from the web site, a Flipkart cannot afford to continue to maintain its website. “It just isn’t viable to have three separate platforms” - so goes one argument[21]. But this thinking betrays a lack of understanding of the distinction between a platform and a consumption channel on the one hand and an even poorer understanding of how complex software applications have been architected for many years now (and especially those that live in the cloud). The code, APIs, database, web server, middleware, identity management, authentication, shopping cart, order fulfilment, security – all of these are common whether you are accessing a site through a website or a mobile app or a mobile browser or even via a wearable device. If you prefer techno-alphabet-soup to describe this, you use a SOA-based approach to software design[22]. Developing a new user interface – desktop, mobile, tablet, etc… - becomes an incremental effort rather than a multi-year, multi-million dollar exercise.

Yes, many technology innovations in the world of retailing are happening in a way that is inextricably intertwined with mobile – like mobile payments and hyperlocal retailing for instance. Wal-Mart uses its mobile app to guide customers to and within its stores (using location tracking via GPS[23]). But they are not shutting down their website either.

If you are in the happy situation of having too many customers, and are ok with ceding a third or more of the online retail market to your competition[24], then shutting down an important channel for your sales is a good idea. And no, let’s not have the argument about cars and buggies either[25].

So why is Flipkart so obsessed, to the point of distraction, with the mobile app strategy?
Customer information and its mobile search ambitions for one.

End of Part I

[1] See "80+ Indian startups to work for in 2015", http://yourstory.com/2014/12/top-startups-india-work-job-employee/ , "80+ Indian startups to work for in 2015", http://yourstory.com/2014/12/top-startups-india-work-job-employee/, and "India Top | Startup Ranking", http://www.startupranking.com/top/india for a more exhaustive list.
[2] "The Billion Dollar Startup Club - WSJ.com", http://graphics.wsj.com/billion-dollar-club/ - accessed April 8, 2015.
[3] "Amazon.com, Inc.: NASDAQ:AMZN quotes & news - Google Finance", http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1428639923069&chddm=1173&chls=IntervalBasedLine&q=NASDAQ:AMZN&ntsp=0&ei=sFAnVeC4NpD6uAT5zIHoCg, accessed April 10, 2015
[4] "Alibaba Group Holding Ltd: NYSE:BABA quotes & news - Google Finance", http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1428640100641&chddm=1173&chls=IntervalBasedLine&q=NYSE:BABA&ntsp=0&ei=X1EnVamuCInwuAS5koAo , accessed April 10, 2015
[5] Per http://www.livemint.com/Companies/nEzvGCknQDBY2RgzcVAKdO/Flipkart-India-reports-loss-of-2817-crore.html, for the year ending March 31, 2013, “Revenue soared fivefold to more than Rs.1,180 crore from Rs.204.8 crore in the previous year”, but “expenses jumped more than five times to Rs.1,366 crore from Rs.265.6 crore last year” – clearly, they were not yet at the point where they could reap economies of scale. As an aside, Flipkart’s Mar 2009 FY revenues were approximately 2.5 crore rupees - http://www.sramanamitra.com/2010/10/06/building-indias-amazon-flipkart-ceo-sachin-bansal-part-3/ - and approximately 30 crore rupees for FY 2010 - http://www.sramanamitra.com/2010/10/07/building-indias-amazon-flipkart-ceo-sachin-bansal-part-4/.
[6] "For the year ended 31 March 2014, the losses of all Flipkart India entities amounted to Rs.719.5 crore on revenue of Rs.3,035.8 crore, according to data compiled by Mint from the Registrar of Companies (RoC) and Acra.", http://www.livemint.com/Companies/VXr8oJzNJ4daOYSO5wNETN/Inside-Flipkarts-complex-structure.html This tells us that both expenses and revenues are growing almost in lock-step – economies of scale are still elusive.
[7] "Flipkart claims to have hit a run rate of $1 bn in gross sales", http://www.business-standard.com/article/companies/flipkart-claims-to-have-hit-a-run-rate-of-1-bn-in-gross-sales-114030700029_1.html
[8] "Press Release - Flipkart.com", http://www.flipkart.com/s/press
[9] "Flipkart, Myntra Shut Mobile Websites, Force Visitors To Install Mobile App", http://trak.in/tags/business/2015/03/23/flipkart-myntra-shut-mobile-websites-force-mobile-app-install/
[10] "Flipkart moves towards becoming app-only platform - Livemint", http://www.livemint.com/Industry/J9VeQxowSOlHU8ZMUParUL/Flipkart-moves-towards-becoming-apponly-platform.html
[11] "• WhatsApp: number of monthly active users 2013-2015 | Statistic", http://www.statista.com/statistics/260819/number-of-monthly-active-whatsapp-users/
[12] "WhatsApp Web - WhatsApp Blog", https://blog.whatsapp.com/614/WhatsApp-Web
[13] "Facebook Launches Messenger for Web Browsers | Re/code", http://recode.net/2015/04/08/facebook-launches-messenger-for-web-browsers/
[14] "Facebook new Messenger service reaches 500 million users - BBC News", http://www.bbc.com/news/technology-29999776
[15] "The Inside Story of Flipboard, the App That Makes Digital Content Look Magazine Glossy", http://www.entrepreneur.com/article/234925
[16] "Flipboard Launches a Web Version For Reading Anywhere", http://thenextweb.com/apps/2015/02/10/flipboard-launches-full-web-version-display-feeds-browser/
[17] "The Surprising Winner of the HTML5 Versus Native Apps War | Inside BlackBerry", http://blogs.blackberry.com/2015/01/surprising-winner-of-html5-apps-war/
[18] "KPCB_Internet_Trends_2012_FINAL.pdf", http://kpcbweb2.s3.amazonaws.com/files/58/KPCB_Internet_Trends_2012_FINAL.pdf?1340750868
[19] "Global feature phone and smartphone shipments 2008-2020 | Forecast", http://www.statista.com/statistics/225321/global-feature-phone-and-smartphone-shipment-forecast/
[20] "300 million Internet Users in India By Dec? Grossly Wrong [10+ Questions to IAMAI] » NextBigWhat", http://www.nextbigwhat.com/300-million-india-internet-users-iamai-297/
[21] "Flipkart, Myntra’s app-only move draws mixed reactions - Livemint", http://www.livemint.com/Industry/v6SCQhhl94uriMLM3Qev6N/Flipkart-Myntras-apponly-move-draws-mixed-reactions.html
[22] "The Secret to Amazons Success Internal APIs ·", http://apievangelist.com/2012/01/12/the-secret-to-amazons-success-internal-apis/
[23] "Walmart Mobile - Walmart.com", http://www.walmart.com/cp/Walmart-Mobile-App/1087865
“[24] In 2014, 50 per cent of shopping queries were made through mobile devices, compared to 24 per cent in 2012”, http://www.business-standard.com/article/companies/google-says-indian-e-commerce-market-to-hit-15-bn-by-2016-114112000835_1.html
[25] "Failing Like a Buggy Whip Maker? Better Check Your Simile - NYTimes.com", http://www.nytimes.com/2010/01/10/business/10digi.html?_r=0

© 2015, Abhinav Agarwal (अभिनव अग्रवाल). All rights reserved.

Big changes ahead for India's IT majors

Tue, 2015-02-03 02:22
My article on challenges confronting the Indian IT majors was published in DNA in January 2015.

Here is the complete text of the article - Big changes ahead for India's IT majors:

Hidden among the noise surrounding the big three of the Indian IT industry - TCS, Wipro, and Infosys - was a very interesting sliver of signal that points to possibly big changes on the horizon. Though Cognizant should be counted among these biggies - based on its size and revenues - let's focus on these three for the time being.

Statements made by the respective CEOs of Infosys and Wipro, and the actions of TCS, provide hints on how these companies plan on addressing the coming headwinds that the Indian IT industry faces. Make no mistake. These are strong headwinds that threaten to derail the mostly good fairy tale of the Indian IT industry. Whether it is the challenge of continuing to show growth on top of a large base - each of these companies is close to or has exceeded ten billion dollars in annual revenues; protecting margins when everyone seems to be in a race to the bottom; operating overseas in the face of unremitting resistance to outsourcing; or finding ways to do business in light of the multiple disruptions thrust by cloud computing, big data, and the Internet of Things, they cannot continue in a business-as-usual model any longer.



For nearly two decades the Indian IT industry has grown at a furious pace, but also grown fat in the process, on a staple diet of low-cost business that relied on the undeniable advantage of labour-cost arbitrage. Plainly speaking, people cost a lot overseas, but they cost a lot less in India. The favourable dollar exchange-rate ensured that four, five (or even ten engineers at one point in time) could be hired in India for the cost of one software engineer in the United States. There was no meaningful incentive to either optimize on staffing, or build value-added skills when people could be retained by offering fifteen per cent salary hikes, every year. Those days are fast fading, and while the Indian IT workforce's average age has continued to inch up, the sophistication of the work performed has not kept pace, resulting in companies paying their employees more and more every year for work that is much the same.

TCS, willy nilly, has brought to the front a stark truth facing much of the Indian IT industry - how to cut costs in the face of a downward pressure on most of the work it performs, which has for the most part remained routine and undifferentiated. Based on a remark made by its HR head on "layoffs" and "restructuring" that would take place over the course of 2015, the story snowballed into a raging controversy. It was alleged that TCS was planning on retrenching tens of thousands of employees - mostly senior employees who cost more than college graduates with only a few years of experience. Cursory and level-headed thinking would have revealed that prima-facie any such large layoffs could not be true. But such is the way with rumours - they have long legs. What however remains unchanged is the fact that without more value-based business, an "experienced" workforce is a drag on margins. It's a liability, not an asset. Ignore, for a minute, the absolute worst way in which TCS handled the public relations fiasco arising out of its layoff rumours - something even its CEO, N Chandraskaran, acknowledged. Whether one likes it or not, so-called senior resources at companies that cannot lay claim to skills that are in demand will find themselves under the dark cloud of layoffs. If you prefer, call them "involuntary attrition", "labour cost rationalization", or anything else. The immediate reward of a lowered loaded cost number will override any longer-term damage such a step may involve. If it is a driver for TCS, it will be a driver for Wipro and Infosys.

Infosys, predictably, and as I had written some six months back, is trying to use the innovation route to find its way to both sustained growth and higher margins. Its CEO, Vishal Sikka, certainly has the pedigree to make innovation succeed. His words have unambiguously underlined his intention to pursue, acquire, or fund innovation. Unsurprisingly, there are several challenges to this approach. First, outsourced innovation is open to market risks. If you invest early enough, you will get in at lower valuations, but you will also have to cast a wider net, which requires more time and focus. Invest later, and you pay through your nose by way of sky-high valuations. Second, external innovation breeds resentment internally. It sends the message that the company does not consider its own employees "good enough" to innovate. To counter this perception, Vishal has exhorted Infosys employees "to innovate proactively on every single thing they are working on." This is a smart strategy. It is low cost, low risk, and a big morale booster. However, it also distracts. Employees can easily get distracted by the "cool" factor of doing what they believe is innovative thinking. "20%" may well be a myth in any case. How does a company put a process in place that can evaluate, nurture, and manage innovative ideas coming out of tens of thousands of employees? Clearly, there are issues to be balanced. The key to success, like in most other things, will lie in execution - as Ram Charan has laid out in his excellent book, unsurprisingly titled "Execution".

Lastly, there is Wipro. In an interview, Wipro's CEO, TK Kurien, announced that Wipro would use "subcontracting to drive growth". This seems to have gone largely unnoticed, in the industry. Wipro seems to have realized, on the basis of this statement at least, that it cannot continue to keep sliding down the slipper slope of low-cost undifferentiated work. If the BJP government's vision of developing a hundred cities in India into so-called "Smart Cities", one could well see small software consulting and services firm sprout up all over India, in Tier 2 and even Tier 3 cities. These firms will benefit from the e-infrastructure available as a result of the Smart Cities initiative on the one hand, and find a ready market for their services that requires a low cost model to begin with on the other. This will leave Wipro free to subcontract low-value, undifferentiated work, to smaller companies in smaller cities. A truly virtuous circle. In theory at least. However, even here it would be useful for Wipro to remember the Dell and Asus story. Dell was at one point among the most innovative of computer manufacturers. It kept on giving away more and more of its computer manufacturing business - from motherboard designing, laptop assembly, and so on - to Asus, because it helped Dell keep its margins high while allowing it to focus on what it deemed its core competencies. Soon enough, Asus had learned everything about the computer business, and it launched its own computer brand. The road to commoditization hell is paved with the best intentions of cost-cutting.

While it may appear that these three IT behemoths are pursuing three mutually exclusive strategies, it would be naïve to judge these three strategies as an either-or play. Wach will likely, and hopefully, pursue a mix of these strategies, focusing more on what they decide fits their company best, and resist the temptation to follow each other in a monkey-see-monkey-do race. Will one of the big three Indian IT majors pull ahead of its peers and compete with the IBM, Accenture, and other majors globally? Watch this space.