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Abhinav Agarwal

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Updated: 17 hours 54 min ago

Creepy Dolls - A Technology and Privacy Nightmare!

Sun, 2015-06-07 22:22
This post was first published on LinkedIn on 20th May, 2015.

"Hi, I'm Chucky. Wanna play?"[1]  Fans of the horror film genre will surely recall these lines - innocent-sounding on their own, yet bone-chilling in the context of the scene in the movie - that Chucky, the possessed demonic doll, utters in the cult classic, "Child's Play". Called a "cheerfully energetic horror film" by Roger Ebert [2], the movie was released to more than a thousand screens on its debut in November 1988 [3]. It went on to spawn at least five sequels and developed a cult following of sorts over the next two decades [4].

Chucky the doll
(image credit: http://www.shocktillyoudrop.com/)In "Child's Play", Chucky the killer doll stays quiet around the adults - at least initially - but carries on secret conversations with Andy, and is persuasive enough to convince him to skip school and travel to downtown Chicago. Chucky understands how children think, and can evidently manipulate - or convince, depending on how you frame it - Andy into doing little favours for him. A doll that could speak, hear, see, understand, and have a conversation with a human in the eighties was the stuff out of science fiction, or in the case of "Child's Play" - out of a horror movie.


Edison Talking Doll.
Image credit: www.davescooltoys.comA realistic doll that could talk and converse was for long the "holy grail" of dollmakers [5]. It will come as a huge surprise to many - at least it did to me - that within a few years of the invention of the phonograph by Thomas Edison in 1877, a doll with a pre-recorded voice had been developed and marketed in 1890! It didn't have a very happy debut however. After "several years of experimentation and development", the Edison Talking Doll, when it launched in 1890, "was a dismal failure that was only marketed for a few short weeks."[6] Talking dolls seem to have made their entry into mainstream retail only with the advent of "Chatty Cathy" - released by Mattel in the 1960s - and which worked on a simple pull-string mechanism. The quest to make these dolls more interactive and more "intelligent" continued; "Amazing Amanda" was another milestone in this development; it incorporated "voice-recognition and memory chips, sensory technology and facial animatronics" [7]. It was touted as an "an evolutionary leap from earlier talking dolls like Chatty Cathy of the 1960's" by some analysts [8]. In some ways that assessment was not off-the-mark. After all, "Amazing Amanda" utilized RFID technology - among the hottest technology buzzwords a decade back. "Radio-frequency tags in Amanda's accessories - including toy food, potty and clothing - wirelessly inform the doll of what it is interacting with." This is what enabled "Amazing Amanda" to differentiate between "food" (pizza, or "cookies, pancakes and spaghetti") and "juice"[9]. "However, even with all these developments and capabilities, the universe of what these toys could was severely limited. At most they could recognize the voice of the child as its "mommy".
Amazing Amanda doll.
Image credit:amazing-amanda.fuzzup.netThey were constrained by both the high price of storage (Flash storage is much sturdier than spinning hard drives, but an order of magnitude costlier; this limits the amount of storage possible) and limited computational capability (putting in a high-end microprocessor inside every doll would make them prohibitively expensive). The flip side was that what the toys spoke in home to the children stayed at home. These toys had a limited set of pre-programmed sentences and emotions they could convey, and if you wanted something different, you went out and bought a new toy, or in some cases, a different cartridge.


That's where things stood. Till now.

Screenshot of ToyFair websiteBetween February 14-17, 2015, the Jacob K. Javits Convention Center in New York saw "the Western Hemisphere’s largest and most important toy show"[10] - the 2015 Toy Fair. This was a trade-show, which meant that "Toy Fair is not open to the public. NO ONE under the age of 18, including infants, will be admitted."[11] It featured a "record-breaking 422,000+ net square feet of exhibit space"[12] and hundreds of thousands of toys. Yet no children were allowed. Be that as it may, there was no dearth of, let's say, "innovative" toys. Apart from an "ultra creepy mechanical doll, complete with dead eyes", a fake fish pet that taken to a "whole new level of weird", or a "Doo Doo Head" doll that had the shape of you-guessed-it [13], of particular interest was a "Hello Barbie" doll, launched by the Fortune 500 behemoth, Mattel. This doll had several USPs to its credit. It featured voice-recognition software, voice recording capabilities, the ability to upload recorded conversations to a server (presumably Mattel's or ToyTalk's) in the cloud, over "Wi-Fi" - as a representative at the exhibition took pains to emphasize, repeatedly - and give "chatty responses."[14] This voice data would be processed and analyzed by the company's servers. The doll would learn the child's interests, and be able to carry on a conversation on those topics - made possible by the fact that the entire computational and learning capabilities of a server farm in the cloud could be accessed by every such toy. That the Barbie franchise is a vital one to Mattel could not be understated. The Barbie brand netted Mattel $1.2 billion in FY 2013 [15], but this represented a six per cent year-on-year decline. Mattel attributed that this decline in Barbie sales in part to "product innovation not being strong enough to drive growth." The message was clear. Something very "innovative" was needed to jump-start sales. To make that technological leap forward, Mattel decided to team up with ToyTalk.

ToyTalk is a San Francisco-based start-up, and its platform powered the voice-recognition software used by "Hello Barbie". ToyTalk is headed by "CEO Oren Jacob, Pixar's former CTO, who worked at the groundbreaking animation company for 20 years" [16], and which claimed "$31M in funding from Greylock Partners, Charles River Ventures, Khosla Ventures, True Ventures and First Round Capital as well as a number of angel investors." [17]

Cover of Misery, by Stephen King.
Published by Viking Press.The voice recognition software would allow Mattel and ToyTalk to learn the preferences of the child, and over time refine the responses that Barbie would communicate back. As the Mattel representative put it, "She's going to get to know all my likes and all my dislikes..."[18] - a statement that at one level reminds one of Annie Wilkes when she says, "I'm your number one fan."[19] We certainly don't want to be in Paul Sheldon shoes.

Hello Barbie's learning would start happening from the time the doll was switched on and connected to a Wi-Fi network. ToyTalk CEO Oren Jacob said, "we'll see week one what kids want to talk about or not" [20]. These recordings, once uploaded to the company's servers, would be used by "ToyTalk's speech recognition platform, currently powering the company's own interactive iPad apps including The Winston Show, SpeakaLegend, and SpeakaZoo" and which then "allows writers to create branching dialogue based on what children will potentially actually say, and collects kids' replies in the cloud for the writers to study and use in an evolving environment of topics and responses."[20]. Some unknown set of people. sitting in some unknown location, would potentially get to hear and listen to entire conversations of a child before his parents would.

If Mattel or ToyTalk did not anticipate the reaction this doll would generate, one can only put it down to the blissful disconnect from the real-world that Silicon Valley entrepreneurs often develop, surrounded as they are by similar-thinking digerati. In any case, the responses were swift, and in most cases brutal. The German magazine "Stern" headlined an article on the doll - "Mattel entwickelt die Stasi-Barbie" [21] Even without the benefit of translation, the word "Stasi" stood out like a red flag. In any case, if you wondered, the headline translated to "Mattel developed the Stasi Barbie" [22]. Stern "curtly re-baptised" it "Barbie IM". "The initials stand for “Inoffizieller Mitarbeiter”, informants who worked for East Germany’s infamous secret police, the Stasi, during the Cold War." [23] [24]. A Newsweek article carried a story, "Privacy Advocates Call Talking Barbie 'Surveillance Barbie'"[25]. France 24 wrote - "Germans balk at new ‘Soviet snitch’ Barbie" [26]. The ever-acerbic The Register digged into ToyTalk's privacy policy on the company's web site, and found these gems out [27]:
Screenshot of ToyTalk's Privacy page- "When users interact with ToyTalk, we may capture photographs or audio or video recordings (the "Recordings") of such interactions, depending upon the particular application being used.
- We may use, transcribe and store such Recordings to provide and maintain the Service, to develop, test or improve speech recognition technology and artificial intelligence algorithms, and for other research and development or internal purposes."

Further reading revealed that what your child spoke to the doll in the confines of his home in, say, suburban Troy Michigan, could end up travelling half the way across the world, to be stored on a server in a foreign country - "We may store and process personal information in the United States and other countries." [28]

What information would ToyTalk share with "Third Parties" was equally disturbing, both for the amount of information that could potentially be shared as well as for the vagueness in defining who these third-parties could possibly be - "Personal information"; "in an aggregated or anonymized form that does not directly identify you or others;"; "in connection with, or during negotiations of, any merger, sale of company assets, financing or acquisition, or in any other situation where personal information may be disclosed or transferred as one of the business assets of ToyTalk"; "We may also share feature extracted data and transcripts that are created from such Recordings, but from which any personal information has been removed, with Service Providers or other third parties for their use in developing, testing and improving speech recognition technology and artificial intelligence algorithms and for research and development or other purposes."[28] A child's speech, words, conversation, voice - as recorded by the doll - was the "business asset" of the company.

And lest the reader have any concerns about safety and security of the data on the company's servers, the following disclaimer put paid to any reassurances on that front also: "no security measures are perfect or impenetrable and no method of data transmission that can be guaranteed against any interception or other type of misuse."[28] If the sound of hands being washed-off could be put down on paper, that sentence above is what it could conceivably look like.

Apart from the firestorm of criticism described above, the advocacy group "Campaign for a Commercial Free Childhood" started a campaign to petition Mattel "CEO Christopher Sinclair to stop "Hello Barbie" immediately." [29]

The brouhaha over "Hello Barbie" is however only symptomatic of several larger issues that have emerged and intersect each other in varying degrees, raising important questions about technology, including the cloud, big data, the Internet of Things, data mining, analytics; privacy in an increasingly digital world; advertising and the ethics of marketing to children; law and how it is able to or unable to cope with an increasingly digitized society; and the impact on children and teens - sociological as well as psychological. Technology and Moore's Law [30] have combined with the convenience of broadband to make possible what would have been in the realm of science fiction even two decades ago. The Internet, while opening up untold avenues of betterment for society at large, has however also revealed itself as not without a dark side - a dilemma universally common to almost every transformative change in society. From the possibly alienating effects of excessive addiction to the Internet to physiological changes that the very nature of the hyperlinked web engenders in humans - these are issues that are only recently beginning to attract the attention of academics and researchers. The basic and most fundamental notions of what people commonly understood as "privacy" are not only being challenged in today's digital world, but in most cases without even a modicum of understanding on the part of the affected party - you. In the nebulous space that hopefully still exists between those who believe in technology as the only solution capable of delivering a digital nirvana to all and every imaginable problem in society on the one hand and the Luddites who see every bit of technology as a rabid byte (that's a bad pun) against humanity lies a saner middle ground that seeks to understand and adapt technology for the betterment of humanity, society, and the world at large.

So what happened to Chucky? Well, as we know, it spawned a successful and profitable franchise of sequels and other assorted franchise. Which direction "Hello Barbie" takes is of less interest to me as the broader questions I raised in the previous paragraph.

References:
[1] http://www.imdb.com/title/tt0094862/quotes?item=qt0289926 
[2] "Child's Play" review, http://www.rogerebert.com/reviews/childs-play-1988
[3] http://www.the-numbers.com/movie/Childs-Play#tab=box-office
[4] https://en.wikipedia.org/wiki/Child%27s_Play_%28franchise%29
[5] "A Brief History of Talking Dolls--From Bebe Phonographe to Amazing Amanda", http://collectdolls.about.com/od/dollsbymaterial/a/talkingdolls.htm
[6] "Edison Talking Doll", http://www.edisontinfoil.com/doll.htm
[7] http://www.canada.com/story.html?id=f4370a3c-903d-4728-a9a4-3d3f941055a6
[8] http://www.nytimes.com/2005/08/25/technology/circuits/25doll.html?pagewanted=all&_r=0
[9] http://www.canada.com/story.html?id=f4370a3c-903d-4728-a9a4-3d3f941055a6
[10] http://www.toyfairny.com/toyfair/Toy_Fair/Show_Info/A_Look_Back.aspx
[11] http://www.toyfairny.com/ToyFair/ShowInfo/About_the_Show/Toy_Fair/Show_Info/About_the_Show.aspx
[12] http://www.toyfairny.com/ToyFair/ShowInfo/About_the_Show/Toy_Fair/Show_Info/About_the_Show.aspx
[13] http://mashable.com/2015/02/15/weird-toys-2015-toy-fair/
[14] https://www.youtube.com/watch?feature=player_embedded&v=RJMvmVCwoNM
[15] http://corporate.mattel.com/PDFs/2013_AR_Report_Mattel%20Inc.pdf
[16] http://www.fastcompany.com/3042430/most-creative-people/using-toytalk-technology-new-hello-barbie-will-have-real-conversations-
[17] https://www.toytalk.com/about/
[18] https://www.youtube.com/watch?feature=player_embedded&v=RJMvmVCwoNM
[19] http://www.imdb.com/title/tt0100157/quotes?item=qt0269492
[20] http://www.fastcompany.com/3042430/most-creative-people/using-toytalk-technology-new-hello-barbie-will-have-real-conversations-
[21] http://www.stern.de/digital/ueberwachung/barbie-wird-zum-spion-im-kinderzimmer-2173997.html
[22] https://translate.google.co.in/?ie=UTF-8&hl=en&client=tw-ob#auto/en/Mattel%20entwickelt%20die%20Stasi-Barbie
[23] http://www.france24.com/en/20150224-hello-barbie-germany-stasi-data-collection/
[24] http://www.stern.de/digital/ueberwachung/barbie-wird-zum-spion-im-kinderzimmer-2173997.html
[25] http://www.newsweek.com/privacy-advocates-want-take-wifi-connected-hello-barbie-offline-313432
[26] http://www.france24.com/en/20150224-hello-barbie-germany-stasi-data-collection/
[27] http://www.theregister.co.uk/2015/02/19/hello_barbie/
[28] https://www.toytalk.com/legal/privacy/
[29] http://org.salsalabs.com/o/621/p/dia/action3/common/public/?action_KEY=17347
[30] http://en.wikipedia.org/wiki/Moore's_law


Disclaimer: Views expressed are personal.


© 2015, Abhinav Agarwal. All rights reserved.

Flipkart and Focus 4 - Beware the Whispering Death

Sun, 2015-06-07 12:43
The fourth part of my series on Flipkart and its apparent loss of Focus and its battle with Amazon appeared in DNA on April 20th, 2015.

Part 4 – Beware the Whispering Death
Monopolies may have the luxury of getting distracted. If you were a Microsoft in the 1990s, you could force computer manufacturers to pay you a MS-DOS royalty for every computer they sold, irrespective of whether the computer had a Microsoft operating system installed on it or not[1]. You dared not go against Microsoft, because if you did, it could snuff you out – “cut off the oxygen supply[2]”, to put it more evocatively. But if you are a monopoly, you do have to keep one eye on the regulator[3], which distracts you. If you are not a monopoly, you have to keep one eye on the competition (despite what Amazon may keep saying to the contrary, that they “just ignore the competition”[4]).



Few companies exist in a competitive vacuum. In Flipkart’s case, the competition is Amazon – make no mistake about it. Yes, there is SnapDeal, eBay India, and even HomeShop18; but the numbers speak for themselves. Flipkart has pulled ahead of the pack. As long as Amazon had not entered the Indian market, Flipkart’s rise was more or less certain, thanks to its sharp focus on expanding its offerings, honing its supply-chain, and successfully raising enough capital to not have to worry about its bottom-line while it furiously expanded. Amazon India made a quiet entry on the fifth of June 2013[5], with two categories – books, Movies & TV shows, but followed up with a very splashy blitz two months later in August (it offered 66% discounts on many books[6] to mark India’s 66 years of Indian independence – I should know, I binge-bought about twenty books!). A little more than a year later, in September 2014, Amazon turned the screws even more when its iconic founder-CEO, Jeff Bezos, visited India. In a very showy display that earned it a ton of free advertising, Bezos wore a sherwani and got himself photographed swinging from an Indian truck[7], met Narendra Modi, the Indian Prime Minister[8], and reiterated Amazon’s commitment and confidence in the Indian market[9] - all this without ever taking Flipkart’s name. It didn’t help Flipkart that on July 30th 2014, Amazon India had announced an additional $2 billion investment in India[10]. It didn’t hurt Amazon either that it timed the press release exactly one day after Flipkart closed $1 billion in funding[11] - this was entirely in Amazon’s way of jiu jitsu-ing its competitors (so much for “ignoring the competition”). Flipkart on its part ran into yet more needless problems with its much-touted “Big Billion” sale that was mercilessly ambushed by competitors[12], and which resulted in its founders having to tender an apology[13] for several glitches its customers faced during the sale. Then there were questions on just how much money it actually made from the event, which I analyzed[14].

Flipkart seemed to be getting distracted.

When facing a charged-up Michael Holding, you cannot afford to let your guard down, even if you are batting on 91. Ask the legendary Sunil Gavaskar[15]. Amazon is the Michael Holding of competitors. Ask Marc Lore, the founder of Jet, “which is planning to launch a sort of online Costco later this spring with 10 million discounted products”[16]. Marc who? He is the co-founder of Quidsi. Quidsi who? Quidsi is (was) the company behind the website Diapers.com, and which was acquired by Amazon. Therein lies a tale.

Diapers.com was the website of Quidsi, a New Jersey start-up founded in 2005 by Marc Lore and Vinit Bharara to solve a very real problem: children running through diapers at a crazy pace, and “dragging screaming children to the store is a well-known parental hassle.” What made selling diapers online unviable for retailers was the cost involved in “shipping big, bulky, low-margin products like jumbo packs of Huggies Snug and Dry to people’s front doors.” Diapers.com solved the problem by using “software to match every order with the smallest possible shipping box, minimizing excess weight and thus reducing the per-order shipping cost.” Within a few years, it grew from zero to over $300 million in annual sales. It was only when VC firms, including Accel Partners, pumped in $50 million that Amazon and Jeff Bezos started to pay attention. Sometime in 2009, Amazon started to drop prices on diapers and other baby products by up to 30 percent. Quidsi (the company behind Diapers.com) lowered prices – as an experiment – only to watch Amazon’s website change prices accordingly. Quidsi fared well under Amazon’s assault, “at least at first.” However, growth slowed. “Investors were reluctant to furnish Quidsi with additional capital, and the company was not yet mature enough for an IPO.” Quidsi and WalMart vice chairman (and head of WalMart.com) Eduardo Castro-Wright spoke, but Quidsi’s asking price of $900 million more than what WalMart was willing to pay. Even as Lore and Bharara travelled to Seattle to meet with Amazon for a possible deal, Amazon launched Amazon Mom – literally while the two were in the air and therefore unreachable by a frantic Quidsi staff! “Quidsi executives took what they knew about shipping rates, factored in Procter and Gamble’s wholesale prices, and calculated that Amazon was on track to lose $100 million over three months in the diapers category alone.” Amazon offered $580 million. WalMart upped its offer to $600 million – this offer was revealed to Amazon, because of the conditions in the preliminary term sheet that required Quidsi “to turn over information about any subsequent offers.” When Amazon executives learned of this offer, “they ratcheted up the pressure even further, threatening the Quidsi founders that “sensei,” being such a furious competitor, would drive diaper prices to zero if they went with Walmart.” Quidsi folded, sold to Amazon, and the deal was announced on November 8, 2010[17]. Marc Lore continued with Amazon for two years after that – most likely the result of a typical retention and no-compete clause in such acquisitions.

The tale of Quidsi is one cautionary tale for any company going head-to-head with Amazon. For more details on the fascinating history of Amazon, I would recommend Brad Stone’s book, “The Everything Store: Jeff Bezos and the Age of Amazon”[18] – from which I have adapted the example of Diapers.com above. You can read another report here[19]. I suspect you may well find some copies of the book lying around in Flipkart’s Bengaluru offices!

In their evolution and growth as an online retailer, Flipkart has adopted and emulated several of Amazon’s successful features. Arguably the most successful innovation from Amazon has been to reduce, or entirely eliminate in some cases, the friction of ordering goods from their website. The pace and extent of innovation is quite breath-taking. A brief overview will help illustrate the point.
Amazon used to charge for every order placed in addition to a handling charge per item (typically 99 cents). In 2002, it launched “Free Super Saver Shipping on qualifying orders over $49” as a test. After seeing the results, it lowered this threshold to $25[20]. For over ten years that price held, till 2013, when it raised this minimum to $35[21]. Not content with this, to lure in that segment of customers who wanted to order even a single item, and have it delivered in two days or less, Amazon launched a new express shipping option – Amazon Prime – where “for a flat membership fee of $79 per year, members get unlimited, express two-day shipping for free, with no minimum purchase requirement.”[22] This proved to be a blockbuster hit for Amazon, and the company piled on goodies to this program – Amazon Instant Video, an “instant streaming of selected movies and TV shows” at no additional cost[23]. That same year it launched “Library Lending for Kindle Books”, which allowed customers to “to borrow Kindle books from over 11,000 local libraries to read on Kindle and free Kindle reading apps”[24], with no due date, and added that to the Prime program, at no extra cost. In 2011 it launched “Subscribe & Save” – that let customers order certain items on a regular basis at a discounted price – basically you had to select the frequency, and the item would be delivered every month/quarter without your having to re-order it. Amazon launched “Kindle Matchbook”, where, “For thousands of qualifying books, your past, present, and future print-edition purchases now allow you to buy the Kindle edition for $2.99 or less.[25]” Similarly, its “AutoRip” program allowed customers to receive free MP3 format versions of CDs they had purchased from Amazon (since 1998)[26], and which was extended to Vinyl Records[27].

If all this was not enough, in 2015 Amazon launched a physical button called Dash Button – on April 1st, no less – that would let customers order an item of their selection with one press of the button. It could be their favourite detergent, dog food, paper towels, diapers – an expanding selection. You could stick that button anywhere – your refrigerator, car dashboard, anywhere. It was indeed so outlandish that many thought it was an April Fool’s gimmick[28].
Amazon has been relentless in eliminating friction between the customer and the buying process on Amazon on the one hand, and on squeezing out its competitors with a relentless, ruthless pressure on the other. It manages to do all this while topping customer satisfaction surveys[29], year after year[30].

Flipkart has certainly not been caught flat-footed. It’s been busy introducing several similar programs. It began with free shipping, then raised the minimum to ?100, then ?200, and eventually ?500. Somewhere in between, it modified that to exclude books fulfilled by WS Retail (which was co-founded by Flipkart founders and which accounts for more than three-fourths of all products sold on Flipkart[31]) from that minimum. In May 2014, it launched Flipkart First, an Amazon Prime-like membership program that entitled customers to free “in-a-day” shipping for an annual fees of ?500[32]. It also tied up with Mumbai’s famed “dabbawalas” to solve the last-mile connectivity problem for deliveries[33].

Flipkart’s foray into digital music however was less than successful. It shuttered its online music store, Flyte, in June 2013, a little over a year after launching it[34]. Some speculated it was unable to compete with free offerings like Saavn, Gaana, etc… and was unable to meet the annual minimum guarantees it had signed up with music labels for[35]. Whether it really needed to pull the plug so soon is debatable – for all purposes it may have signalled weakness to the world. Competitors watch these developments very, very closely. Its e-book business has been around for a little over two years, but is not clear how much traction they have in the market. With the launch of Amazon Kindle in India, Flipkart will see it being squeezed even more. The history of the ebook market is not a happy tale – if you are not Amazon or the customer.

The market for instant-gratification refuses to stand still. Amazon upped the ante by launching Amazon Prime Now in December 2014. Prime program customers were guaranteed one-hour delivery on tens of thousands of items for $7.99 (two-hour delivery was free)[36]. This program was launched in Manhattan, and rapidly expanded to half a dozen cities in the US by April 2015[37]. Closer to home, in India, it launched KiranaNow in March 2015, in Bangalore, promising delivery of groceries and related items in four hours[38].

More than anything else, the online retail world is a race to eliminate friction from the buying process, to accelerate and enable buying decisions – as frequently as possible, and to provide instant gratification through instant delivery (in the case of e-books or streaming music or video) or one-hour deliveries. Flipkart may well be the incumbent and the player to beat in the Indian market, but Amazon brings with it close to two decades of experience – experience of battling it out in conditions that are very similar to the Indian market in several respects. More ominously, for Flipkart, Amazon has won many more battles than it has lost. Distraction can prove to be a fatal attraction and affliction.

[1] This is described in James Wallace’s book, “Overdrive: Bill Gates and the Race to Control Cyberspace”, http://www.amazon.in/gp/product/B00J348MXG/ref=as_li_tl?ie=UTF8&camp=3626&creative=24822&creativeASIN=B00J348MXG&linkCode=as2&tag=abhisblog-21&linkId=XIHAIBIQ3H6L6NMH
[2] "BBC NEWS | Special Report | 1998 | 04/98 | Microsoft | USA versus Microsoft: The first two days", http://news.bbc.co.uk/2/hi/special_report/1998/04/98/microsoft/198390.stm
[3] " Justice to Launch Probe of Microsoft ", http://www.washingtonpost.com/wp-srv/business/longterm/microsoft/stories/1993/launch082193.htm
[4] "We just ignore our competitors, never felt pressure from Alibaba's rise: Jeff Bezos, CEO Amazon ", http://articles.economictimes.indiatimes.com/2014-09-29/news/54437158_1_amazon-india-expectations-competitors
[5] "Amazon Launches In India", http://www.amazon.in/gp/feature.html/ref=amb_link_183716847_70?ie=UTF8&docId=1000728823&pf_rd_m=A1VBAL9TL5WCBF&pf_rd_s=center-4&pf_rd_r=05DGNQKB48Z6RV3KZV1G&pf_rd_t=1401&pf_rd_p=605972407&pf_rd_i=1000834593
[6] https://www.dropbox.com/s/jb9wa2vqu1x0p4x/AmazonIn_2013.png?dl=0
[7] "jeff bezos truck bangalore - Google Search", https://www.google.co.in/search?q=jeff+bezos+truck+bangalore&tbm=isch&tbo=u&source=univ&sa=X&ei=_IszVc3QGc-LuAT5i4CADw&ved=0CB0QsAQ&biw=1600&bih=741
[8] "Amazon chief Jeffrey Bezos calls on Prime Minister Modi - The Times of India", http://timesofindia.indiatimes.com/business/india-business/Amazon-chief-Jeffrey-Bezos-calls-on-Prime-Minister-Modi/articleshow/44229776.cms
[9] "No obstacles to growth in India: Amazon CEO Jeff Bezos", http://www.hindustantimes.com/business-news/no-obstacles-to-growth-in-india-says-amazon-ceo-jeff-bezos/article1-1269464.aspx
[10] "Amazon Announces Additional US $2 Billion Investment in India", http://www.amazon.in/gp/feature.html?ie=UTF8&docId=1000818573
[11] "India's Flipkart Raises $1 Billion in Fresh Funding - WSJ", http://www.wsj.com/articles/indias-flipkart-raises-1-billion-in-fresh-funding-1406641579?mod=LS1
[12] "Ambushed: When Flipkart’s Big Billion Sale turned into a nightmare | Best Media Info, News and Analysis on Indian Advertising, Marketing and Media Industry.", http://www.bestmediainfo.com/2014/10/ambushed-when-flipkarts-big-billion-sale-turned-into-a-nightmare/
[13] "Flipkart’s ‘Big Billion Day Sale’ Prompts Big Apology - India Real Time - WSJ", http://blogs.wsj.com/indiarealtime/2014/10/08/flipkarts-big-billion-day-sale-prompts-big-apology/
[14] "A Billion Dollar Sale, And A Few Questions", http://www.dnaindia.com/analysis/standpoint-a-billion-dollar-sale-and-a-few-questions-2047853
[15] "3rd Test: India v West Indies at Ahmedabad, Nov 12-16, 1983", http://www.espncricinfo.com/ci/engine/match/63352.html
[16] "Why Amazon Refuses to Wear Purple Lanyards in Vegas", http://www.bloomberg.com/news/articles/2015-04-01/why-amazon-refuses-to-wear-purple-lanyards-in-vegas
[17] "Amazon.com to Acquire Diapers.com and Soap.com", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1493202
[18] “The Everything Store: Jeff Bezos and the Age of Amazon”, by Brad Ston, http://www.amazon.in/Everything-Store-Brad-Stone/dp/0593070461/tag=abhisblog-21&ref=sr_1_1?ie=UTF8&qid=1429439636&sr=8-1&keywords=the+everything+store#reader_0593070461
[19] "Amazon vs. Jet.com: Marc Lore Aims to Beat Bezos", http://www.bloomberg.com/news/features/2015-01-07/amazon-bought-this-mans-company-now-hes-coming-for-them-correct
[20] "Amazon Media Room: Press Releases", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=503037
[21] "Amazon Raises Free Shipping Threshold From $25 to $35", http://www.pcmag.com/article2/0,2817,2426202,00.asp
[22] "Amazon Media Room: Press Releases", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=669786
[23] "Amazon Media Room: Press Releases", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1531234
[24] "Amazon Media Room: Press Releases", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1552678
[25] "Amazon.com: Kindle MatchBook", https://www.amazon.com/gp/digital/ep-landing-page?ie=UTF8&*Version*=1&*entries*=0
[26] "Introducing “Amazon AutoRip” – Customers Now Receive Free MP3 Versions of CDs Purchased From Amazon – Past, Present and Future", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1773251
[27] "Amazon Media Room: Press Releases", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1802939
[28] "Amazon launches a product so gimmicky we thought it was an April Fools' joke", http://venturebeat.com/2015/03/31/amazon-launches-a-product-so-gimmicky-we-thought-it-was-an-april-fools-joke/
[29] "Customer Satisfaction Lowest at Wal-Mart, Highest at Nordstrom and Amazon", http://247wallst.com/retail/2015/02/18/customer-satisfaction-lowest-at-wal-mart-highest-at-nordstrom-and-amazon/
[30] "Customers Rank Amazon #1 in Customer Satisfaction", http://www.amazon.com/gp/feature.html?ie=UTF8&docId=1001924291
[31] "Flipkart top seller WS Retail to separate logistics arm Ekart into wholly-owned unit", http://articles.economictimes.indiatimes.com/2015-01-21/news/58306262_1_ekart-ws-retail-logistics-arm
[32] "India's Flipkart Launches Subscription Service for Customers", http://thenextweb.com/in/2014/05/08/indias-flipkart-launching-amazon-prime-like-subscription-service-called-flipkart-first/
[33] "Now Mumbai's famed dabbawalas will deliver your Flipkart buys", http://www.dnaindia.com/money/report-now-mumbai-s-famed-dabbawalas-will-deliver-your-flipkart-buys-2076276
[34] "Flipkart closes Flyte MP3 store a year after launch", http://www.livemint.com/Consumer/TJOoP9he0fq0EG7S8lRXYK/Flipkart-closes-Flyte-MP3-store-a-year-after-launch.html
[35] "Why Flipkart Shut Down Flyte Music - MediaNama", http://www.medianama.com/2013/05/223-why-flipkart-shut-flyte-music/
[36] "Amazon Media Room: Press Releases", http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2000521
[37] "Amazon again expands 'Prime Now' one-hour delivery service, this time to Austin", http://www.geekwire.com/2015/amazon-again-expands-prime-now-one-hour-delivery-service-this-time-to-austin/

[38] "Now Amazon will deliver from your local kirana store", http://www.dnaindia.com/money/report-now-amazon-will-deliver-from-your-local-kirana-store-2076280


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

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.