Is Google Over?

Posted on August 8, 2010 by

Fortune’s latest cover story argues that Google “is transitioning from a growth company to-and there is no other way to put it-cash cow” It goes on to say “that ranks up there with being a former super model”

Google clearly has challenges:

  1. Its search business is expected to grow at 15-20 % p.a. instead of the 30-40% growth it enjoyed till recently
  2. Google’s social networking initiatives have failed while Twitter and Facebook are becoming plausible alternatives to search (at least for certain use cases)
  3. Despite making ~ 80 acquisitions (for more than $ 6 B), and entering half a dozen new businesses, Google still makes 99% of its profit from search.

Yet, it may be too early to write Google off. Afterall, search accounts for 3.5 % of time spent online and almost 50% of total online advertising spend. As Google and others figure out how to extract more value from the other 97% time spent online, the pie will continue to grow. And Google has several aces up its sleeve:

  1. Android is now selling 200,000 new phones every day, and has surpassed the iPhone. While Google makes very little revenues from the Android OS today, since the OS is free, over time, the ad revenues could exceed its current search revenues. After all, Google makes more per PC user (via search) than Microsoft does from selling Windows, and there will probably 1 B+ internet connected mobile phones by 2015
  2. YouTube accounts for 10% of all time spent on-line and 43% of all on-line video. And this is the beginning: on-line video consumption is up 100% YoY. A recent comScore press release indicated that 178 M US users watched 30.3 B videos in April 2010(100% growth YoY), and yet these numbers are a fraction of the time spent watching TV. On-line viewership will continue to take share from TV. As that happens, its anyone’s guess how much of the $175B that advertisers spend on TV (WW) will move to on-line video. Given’s Google’s dominance in on-line video, is it beyond the realm of imagination that Google might have a $ 10B + video advertising business by 2015?
  3. Google’s display advertising platform (acquired via the acquisition of DoubleClick, Teracent and Invite Media) is growing at 40% YoY and will probably do $ 1 B in revenues in 2010.

Clearly Google has competition. And thank god for that! But it’s a little early to write it off!

Posted in Internet, On-Line Advertising | 2 Comments

Rodinhood…

Posted on August 3, 2010 by
One of my favorite blogs is Rodinhood by Alok Kejriwal. Alok’s latest post on “What Entrepreneurs must learn from Fashion Models!” is both hilarious and insightful. Its a must read, in my book.
Posted in Personal Reflections | Leave a comment

Gandhian Innovation

Posted on August 2, 2010 by

HBR calls it Gandhian innovation, the BusinessWeek refers to it as jugaad, and Carlos Ghosn (Renault/Nissan CEO) calls it frugal engineering. These are just some of the buzzwords used to describe a uniquely Indian model of innovation, one that builds global quality products at price points that are affordable for the Indian masses. While the Indian IT Services story is very well known (Infosys/Wipro/TCS and dozens of Indian out-sourcers charge a fraction of their global competitors and still have higher margins), there are many other equally impressive examples:

  1. Bharti Airtel which charges 1cent/minute (vs. 8 cent/minute in the US), has an ARPU of $ 5 (vs. $50 in the US) and is still the one of the largest and most profitable carriers in the world.
  2. Narayana Hrudayalaya (NH) Heart Hospital in Bangalore charges less than $ 2000 for open heart surgery (vs. $ 100,000 in the US) and has mortality rates that are comparable with or better than the US/UK. If you like details, this case study on Indian innovation in healthcare is worth a read.
  3. The Tata Nano, India’s $ 2000 car, attracted a lot of publicity when it was launched last year.
  4. Nirma’s success against Unilever in the 70s is less well known but no less important. It re-defined the detergents market by launching a product that was priced at ~1/5th of Surf, the market leader. Today, Nirma is a $ 1 B company (in revenues) and has led the way for many other Indian multi-nationals in the CPG space.

My personal favorite is EMRI, an emergency response management (medical 911) service. EMRI was initially set up by the Satyam foundation and is now supported by the GVK Group. It offers emergency response (think ambulances) services to almost 400 million people across 7 states. EMRI handles 60,000-80,000 calls a day, has a fleet of 2,600 ambulances and responds to 7000 emergencies/day. Its average response time in urban areas is 14 minutes and ~30 minutes in rural India. And it has achieved these amazing statistics within 6 years of being set up, with Indian traffic and after spending 1/200 of what it would cost to build similar infrastructure in the US. And off-course the cost per emergency is ~ 1/50th of the cost in the US.

This is just the beginning. Over the next decade, there will be 100s of such success stories. 100s of Indian innovation led companies will become global market leaders in pharmaceuticals/healthcare, software (products), infrastructure, telecom, consumer packaged products (CPG), automobiles, and energy services. These companies will leverage:

  1. The exploding domestic market to develop and perfect their products/offerings and then roll them out globally. Bharti, Tata Motors, Bajaj and Godrej are all global companies today, but none of these would have been possible without a substantial domestic market.
  2. The Indian talent pool with its associated cost structures and their willingness to travel/live abroad for extended periods of time. While costs are rising in India, especially for software engineers, it is still possible to hire skilled functional talent (think designer, teacher, lab technician) for less than 1/5th of what they cost in the US.
  3. Access to venture capital and private equity that has deep pockets, patience, and a global perspective
  4. Access to global skills/expertise via acquisition and/or partnerships. The Nano is a great example of this – Germany’s Bosch designed the engine management system, Italy’s IDEA and Trilix did its styling, America’s Johnson Controls built its seating system, and Japan’s Toyo created its engine cooling module. Other Indian companies like Fortis (acquired Parkway) and Godrej are making global acquisitions to acquire brands and/expertise. Godrej has leveraged acquisitions (e.g. Tura in Nigeria, Megasari in Indonesia and Issue group and Argencos in Argentina) to acquire distribution and critical mass. As a result, it doubled its CPG business to roughly $ 1 B in the last 2 years

While the opportunity is immense and there is a lot of momentum, there are a few challenges ahead.

  1. Management talent. India lacks great product managers; people like Girish Wagh who built the Nano. CEOs are also in short supply, especially CEOs who have the experience of building substantial businesses and yet are willing to bet on a start-up (and all that it involves). More broadly, even when you can find them, seasoned India based executives are now as expensive as the Bay Area, and much more risk averse.
  2. Angel investors/super angels. For start-ups, the first source of capital is friends and family and then angel investors. There is lots of annectodal evidence and now even an HBS study to show that angels play a critical role in the supporting start-ups through their earliest years.
  3. Lack of a supportive ecosystem for young companies. Start-ups depend on cheap real estate (one can’t imagine the Bay Area without its $1-2 /sq ft/month sub-leases), an easy to do business environment, and board members/advisors who will invest time in return for the joy of mentoring and a modest amount of equity. Getting off the ground is so hard in India that it puts an undue premium on a certain type of operational/execution skills, and often deters innovators

All of these are solvable challenges, and Indian jugaad will have a role to play in crafting uniquely Indian solutions. If you have ideas or know companies that you believe are stepping out, do drop me a line.

Posted in India, Personal Reflections | 6 Comments

Mobile OSs/Platforms: will Apple win in India ?

Posted on July 22, 2010 by

In an earlier post predicting that there will be 200M BB connections in India by 2015, I raised the following questions

  1. Which OS/platform will dominate?
  2. Will incumbents like Microsoft and Nokia maintain leadership in the new paradigm?
  3. Will the iPhone become the way to access the web in India? Or will India be the country where Google first takes market leadership with Android and Chrome?
  4. And finally, will it matter who wins?

Soon after I wrote the post, Apple announced fabulous results. Apple announced that in 3 years, it has sold 100 M iOS devices. Interestingly Blackberry also announced that it had sold 100M BB devices, albeit with the difference that Blackberry has been in the market since 2002. With such a backdrop, is the issue of which platform will win even worth debating?

I think so. What Apple did not announce is that it is losing market share – Google is activating 160,000 Android phones every day as against ~100,000 for Apple. And the HTC EVO 4G which is being sold by Sprint has a significant order backlog. Or that both the 4G networks being rolled out in the US (Sprint, T-Mobile’s HSPA Plus) are only offering Android phones. Read Walt Mossberg’s review of the new Samsung Galaxy phones to see how far Android phones have come. And All of this pales beside the fact that, in China, Android is winning against iOS hands down. In a recent TechCrunch post, Richard Yu talks about how Android’s open source business model is fueling a virtuous cycle of innovation on 2 fronts: devices and applications. In an earlier post, I already talked about how prices for smartphones and tablets are dropping. Since then, I got a quote from a Chinese vendor willing to supply an “APad” with a 7″ screen for $ 65.


It looks pretty good, huh? The catch is that it has a 500 MHz processor which will struggle to render HD or to multi-task. But for many, its good enough. And the $ 65 price wins vs. $449 for an iPad.

On the application front, there are ~100,000 apps in the Android marketplace and it could catch up with iTunes in a year. And the fact that both China Mobile can launch Ophone (which its own Android marketplace) and Motorola can launch Android devices with Baidu in China is further evidence of the innovation underway in the Android ecosystem.

In India, where consumers are ultra-price sensitive, Apple has virtually no presence, and Google/Nokia/Microsoft are very well entrenched, it’s hard to see Apple being a major player. In India (IMO),

  1. Android shall rule and will likely have ~50% market share in the “smart phone+ tablet” market within 3 years
  2. Nokia, with 60% market share, cannot be ruled out and it will end up with 25 % of the mobile + tablet market
  3. Microsoft could actually claw back some market share in India, given its overall dominance/brand position but it will end up being # 3 with 15-20 %
  4. Blackberry will be next, leaving Apple behind in the dust

Now for the real question, does it matter? For consumers, the platform battle will fuel innovation and drive costs down and so, they win, irrespective of how this plays out. With HTML5 and development platforms like PhoneGap, I suspect that most app developers will feel the same way and say, “chalta hai” (Hindi for “whatever dude!”)

What do you think?

Posted in India, Mobile | 8 Comments

“We are What We Choose”

Posted on July 22, 2010 by

Jeff Bezos’s commencement address to the Princeton class of 2010; “We are What We Choose” struck a chord for me.  In this, Jeff recounts a story from his childhood, making the point that “Cleverness is a gift, kindness is a choice. Gifts are easy — they’re given after all. Choices can be hard. You can seduce yourself with your gifts if you’re not careful, and if you do, it’ll probably be to the detriment of your choice“. Its worth reading or even better, watching on YouTube.

He ends by saying, “I will hazard a prediction. When you are 80 years old, and in a quiet moment of reflection narrating for only yourself the most personal version of your life story, the telling that will be most compact and meaningful will be the series of choices you have made. In the end, we are our choices. Build yourself a great story“

Posted in Personal Reflections | Leave a comment

200 M broadband users in India by 2015: crazy or plausible ?

Posted on July 20, 2010 by

In an earlier post, I stated that I think there will be 200 M broadband connections (access speed > 1 Mbps) by 2015. I got some feedback that the prediction seems unrealistic (some called it crazy) given that there are less than 10 M broadband connections today and probably less than 2 M connections with speeds greater than 1 Mbps. I agree that a 10-100X increase in the number of BB connections in 5 years is aggressive. Its also plausible. Here are some factoids to keep in mind:

  1. A MediaTek chip set based 3G phone (with a 2-2.5” screen) costs $ 35 to make (BOM cost) and sells for $ 50-60
  2. iPhone copycat phones are available for $ 70-100 today on ebay
  3. There are 200M + mobile internet users in China today, and projected to grow to 1 B+ by 2015
  4. 3 G data access costs $3-10/month in China today, see link

Is it crazy to think that by 2015, mobile phones with 3.5” screen size and features similar to the iPhone 4 will cost $ 50 (Rs 2500)? Or that iPad like tablets will be available for $100 (Rs 5000) ? Or that netbooks will cost less than $ 150 (Rs 7,500)? Or that an always on broadband connection will cost most consumers less than $ 10/month (Rs 500)?

If you believe the above, then, why is it hard to believe that there will be 125 M+ mobile (smart) phones with 3/4 G connections, and another 100 M PCs/tablets/net books with broadband access ?

If you buy into my vision of ubiquitous broadband in India, then the following questions arise?

  1. Which OS/platform will dominate? Will incumbents like Microsoft and Nokia maintain leadership in the new paradigm? Will the iPhone become the way to access the web in India? Or will India be the country where Google first takes market leadership with Android and Chrome? And will it matter who wins?
  2. How will consumers discover content and applications? Will the web paradigm of Google.com being the start page extend to the mobile web? Or will operators continue to exert the same stranglehold that they do on SMS/VAS services?
  3. What will be the killer application? Communication or shopping or gaming or….Will FB dominate mobile social networking? Or will networks like RockeTalk and SMS GupShup be the new Facebook?
  4. What will be the payment platform? Will Indian consumers take the plunge and begin to make on-line payments via credit/debit cards? And do credit/debit cards have adequate penetration to be relevant? Or will the ease of use of pre-paid cards win the day?

Let me know what you think?

Posted in India, Internet, Mobile | 5 Comments

HTML5: what does it mean for the mobile ecosystem ?

Posted on July 10, 2010 by

The recent skirmish between Apple and Adobe has focused attention on Flash vs. HTML5. Its native support for video could render flash obsolete. Furthermore, it treats audio and video as first class citizens, and this has widespread implications for how audio and video are integrated into web sites, e.g. imagine being able to insert an adsense like feed into a video that is playing without server side connections.

However, its impact is much broader, especially in th emobile ecosystem. HTML5 has several new APIs such as offline storage, local SQL database, drag and drop and geolocation. These will change how web sites are developed. For more details,

However, the most important change will be in the mobile ecosystem. HTML5 has the potential to reverse the trend towards mobile apps. Thorough its APIs, HTML5 enables most of the capabilities that mobile app. developers have come to depend upon without the challenges of developing/maintaining multiple apps (for theiPhone, Android, etc.).

The recent re-launch of the YouTube mobile site is a sign of the times. In many ways, it renders YouTube’s iPhone app obsolete. With better functionality for touchscreen users, it is more efficient, faster, has a better interface, allows for like/unlike flags and playlists, streams better quality video over 3G, and includes suggested searches.

For developers, this has obvious benefits. A mobile web site can be tweaked and enhanced faster than issuing updates for an onboard app which requires multiple versions and approvals by various hall monitors (such as the iTunes store). Also, most mobile browsers use webkit as their layout engine (see http://en.wikipedia.org/wiki/Comparison_of_layout_engines_(HTML5) making it easier for developers to build web apps that will work across devices. In addition, even where developers do need to build applications, HTML5 frameworks (such as Sencha) make it much easier for developers to produce cross platform applications

If HTML5 does reverse the trend towards platform specific mobile apps, it could level the playing field between various mobile OSs and under-cut Apple’s tightfisted control over its ecosystem. Yet another sign that Apple’s best days may be behind it…

Posted in Internet, Mobile, Video | Leave a comment

iPhone: Taking a break before climbing the next hill or starting to slip down a cliff ?

Posted on July 8, 2010 by

Just 6 months ago, Mary Meaker said that “Apple’s iPhone / iTouch / iTunes ecosystem may prove to be the fastest ramping+ most disruptive technology product / service launch the world has ever seen” And with good reason. In 3 years, the iPhone has captured ~28% market share amongst US smartphone users (vs. 9 % for Android). The Apple App Store has 200,000+ apps and its developer ecosystem was gaining momentum on every front.

And then, with the iPhone 4, Apple stumbled. First, its vaunted veil of secrecy was broken when an employee left a test device in a bar. Then came the signal problems with its new antennae design, followed by the revelation that its algorithms for calculating signal strength are faulty (and have been since the launch of the first iPhone). Suddenly Steve Jobs was human again.

One has to wonder whether these are minor fumbles (considering that Apple did sell 1.7 M handsets in the first 3 days) or signs that Apple is under pressure. I think that at a minimum, these are warning signs that the road ahead may have a few more bumps. Apple’s tight control over the every aspect of the ecosystem has been critical to its success. But it also means that Apple has the burden of getting everything right every time.

And Android is nipping at its heels. It has steadily taken market share from RIM, Nokia, Microsoft and Apple. Yes, Apple lost 1% market share between Jan and May 2010) – android gains apple wanes. Android is also gaining momentum with developers specially those who rail against Apple’s heavy handed tactics. With ~ 100,000 apps, Android’s app store and its developer ecosystem are on a tear, and could be competitive with Apple in 12 months, see android-market-share-grows-rapidly-ios-still-dominates/. And it helps that Google controls a few killer apps such as search and Youtube. Finally, a formidable set of Android devices has emerged from HTC, Motorola, Samsung, LG and others, see the-best-android-phones. I would not bet on any one of these against Apple, but collectively, these companies pack quite a punch.

Finally, though, Apple’s achiles heel is its weak position in large but price sensitive markets like India and China. India and China will have 2 B handsets within a few years, and Google has a very strong brand in both countries.

When you add all this up, does that mean that that iPhone 4’s stumbles are the beginning of the end ?

Posted in Mobile | Leave a comment

Ubiquitous broadband in India: mirage or miracle?

Posted on June 20, 2010 by

The Indian media is full of news about how investors such as Reliance Industries have paid Rs. 38,000 Cr. ($ 8 B) to buy 4G/wireless broadband access licenses. And this is on top of the ~ Rs 70,000 Cr ($ 16 B) telcos have spent on 3G licenses. Clearly people with money are betting that internet usage in India is at an inflection point; Mukesh Ambani recently predicted that there would be over 100M broadband users in India within 5 years. Considering that after 10 years, there are only 5 M broadband connections in India and in 2009, the number of users only grew at 17% YoY, that’s ambitious. But is it crazy ? China has 200 M + internet connections and 50 % + of US households have broadband. Furthermore, Indian telcos hope to replicate their mobile voice success – in 10 years, India has added over 600 mobile connections, and continues to add 20 M new users every month.

I am a believer. I believe that in 5 years, broadband access will be ubiquitous in India, with 200 M + connections with speeds exceeding 1 Mps (on average). I also believe that while mobile phones will be the most common way to access the internet in India, iPAd like tablet devices will become mainstream. And thin/zero client devices that leverage TVs and mobile phones to provide access to computing for less than Rs 500/month will become widespread.

The obvious question is why? Why am I so bullish (or as some might say, naïve)? At current growth rates, there will only be 10 -15 M broadband users in 5 years. And even those who have internet access don’t seem to use it much; Indian internet users only spent 11 hours/month online, the lowest in Asia, and 50% of the global average.

Here is what’s changed, IMO.

Telcos are incented to drive adoption. Wireless broadband has a high upfront fixed costs(for licenses and equipment) and the incremental cost of adding a subscriber is low. As a result, having bought licenses, telcos will price broadband access very aggressively and put their considerable marketing muscle behind it, i.e. they will replicate the mobile formula, and they are starting from a position of strength, in terms of expertise, access to capital, subscriber base, etc.
Tablets will be available for less than Rs 15,000 in less than 18 months. And smart phones with 4″+displays will soon sell for Rs 5000. Tablets in particular,I believe, will drive internet usage in India, because they combine the best of a phone (personal, portable, apps) with the screen size of netbook. I suspect that in a couple of years, riders on the Delhi metro will all pull their tablet as soon as they board and watch a movie, pay bills or even trade on the stock market on their way to work/home.
Social media and video conferencing will drive adoption. In the US, the bubble in the late 90s primed the pump by funding an ecosystem of on-line content and commerce providers like Yahoo, Amazon and Ebay. Such start-ups coupled with the widespread deployment of broadband triggered a virtuous cycle accelerating both penetration and time spent online. In India, historically, there have been very few (in relative terms) things to do on-line, beyond e-mail and porn. Social media has changed that. Even my mother has a FB page. India is one of the largest markets globally for Orkut and YouTube traffic in India is exploding. And, RockeTalk, an Indian social application is growing like a weed. To sum up, social media is driving content creation, providing entertainment and fueling video communication. And doing so without depending on large amounts of VC funding.
Electronic payments finally taking off. E-Commerce depends on widespread adoption of electronic payments. After all, people who have not used an ATM are unlikely to buy goods online. Well, finally, there are almost 100M debit+ credit cards in India and a host of recent regulatory changes are likely to accelerate adoption of electronic payments
To sum up, the 3G/4G auctions are the flashpoint for a virtuous cycle which will be a game changer for the Indian economy. In less than 5 years, the internet will impact the daily lives of 100s of millions Indians providing cheap entertainment, reducing consumer prices, creating millions of new jobs and improving productivity of every Indian business.

Posted in India, Internet, Mobile | 1 Comment

Google – is the sheen wearing off?

Posted on May 7, 2009 by

In its 10Q filing with the SEC yesterday, Google disclosed that its cost-per-click in the first quarter declined 14% year-over-year and 6% sequentially. Google asserted in the filing that “the decrease in the average cost-per-click paid by our advertisers was primarily the result of the strengthening of the U.S. dollar relative to foreign currencies,” but also reflected the way advertisers managed their ad costs in response to the downturn. “Specifically, we believe that as a result of the general economic downturn, advertisers, in aggregate, have lowered their bids for keywords in response to a decrease in the sales they are able to make per paid click,” the company said. During the same time period, aggregate paid clicks increased 17% year-over-year and 3% sequentially.

Google’s explanation that the drop in cost-per-click is a result of a drop in conversion rates seems plausible. It also implies that advertisers were already paying the most that they could afford. That is because if advertisers had room to increase bids (assuming the same conversion rates), then they would do so to try to increase market share as the overall market declined. Therefore, while the cost-per-click will probably see a onetime increase when the economy recovers, it is less likely to continue to grow at the torrid pace that it has over the past several years.

Where does that leave Google? With market share growth being limited and overall search volume growth slowing down, it just makes Google’s display and video initiatives more critical to its future.

Posted in Internet, On-Line Advertising | Leave a comment