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Posts Tagged Ajit Balakrishnan

The Brief Wondrous Life of Indian eCommerce

( I wrote this at the request of Outlook Magazine who published a mangled version...this is the original)

Can all these web businesses that sell mobile phones, books and apparel 10-20% below the cost of what is available at retail shops and delivered free of charges home to you be for real? Will it all come crashing down? Or, perish the thought, is it one of India’s periodic spectacles that start with gushing media accounts of outsized company valuations, hitherto unknown entrepreneurs now being heralded as millionaires, which then leads to a grand denouement in which the same business men are then shown in rumpled clothes, with stoic expressions being led away by the CBI to Tihar jail?

Or, is all this a sign of India being dragged to its long overdue entry into the ecommerce era. Why long overdue? Because the percentage of all retail sales served by “organized” retail, i.e., non-mom-and-pop stores, and is considered a  measure of a country’s modernity and by that measure, in India is a tiny 3% compared to our sibling rival China at 13%  and European countries and the United States at 50%+. Why dragged?  Because the infrastructure that would have naturally led to ecommerce, the companies who could have provided widespread availability of credit and debit cards and reasonably priced broadband access have all being looking the other way while the world transitioned to the new economy.

I should know; it was on Independence Day 1998, that is to say, fifteen years ago, that I grandly declared at a press conference to an audience of puzzled journalists that Indian consumers could from now on, from their PC, “choose from over 40,000 music titles and 100,000 book titles to order online with discounts up to 40%, or make bookings in over a 180 carefully chosen hi-quality reasonably priced hotels”. For the next few years a few of us folks battled a narrow broadband user-base, a steeply depreciating Rupee that made PCs progressively more out of reach every year and poor credit card penetration; even a cash on Delivery payment system we launched in 1999 seemed to be of no avail.

What woke-up a somnolent Indian ecommerce industry that the rest of us had just about given up on was that a clutch of US private equity funds led by Tiger Global, had the vision to note that a consumer ecommerce market could be created in India because India had a per capita consumer expenditure roughly at the level of Brazil and China where ecommerce was flourishing. Since then, this group, and others who joined them, have invested large dollops of capital, by some accounts $2.5 billion, or Rs 15,000 crores in 2012 and 2013, into dozens of Indian ecommerce startups. These investors have then encouraged the ones who lagged behind in growth to merge with the ones which were forging ahead in an attempt to create at least one or two ecommerce companies that could make it to an IPO in the New York stock markets before the current euphoria about Asian ecommerce triggered by the impending IPO in New York of China’s ecommerce company Alibaba, ends.

Alibaba! Its annual revenues are $248 billion, about three times that of eBay worldwide and two-and-a-half times that of Amazon. Alibaba is also hugely profitable, its profit in a recent quarter was in excess of a billion dollars unlike Amazon which reported a loss. The international investors who are investing, merging and shaping India’s new ecommerce startups are betting that if China can produce an Alibaba with an expected market value of $ 170+ billion market value when it does its IPO, India should produce at least one or two with a $5bn+ market value.

There are many reasons why India may go the China path in its adoption of ecommerce. Organized retail companies that have the scale, management expertise and the information technology infrastructure to deliver consistently high quality and low cost goods, have never found a real foothold in China or in India. In China, for instance, such large retailers’ reach, even in urban areas is a mere 10%; in India even smaller. On the other hand, the Internet reaches more than half of China’s population, so selling things online in China makes eminent sense. India’s internet reach is only 11% now, but should it get to even 25%, as it is likely to in the next few years, one can easily imagine more than a handful of multi-billion dollar ecommerce players from India.

Indian ecommerce, so far, has merely taken its first wondrous baby steps.

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The battle about Big Data

In many forums in the world one can hear the call of bugles and the rattle of drums as a new set of battles loom- battles about who owns what data and for what purpose.

According to the scholars Martin Hilbert and Priscila López writing in the February 2011 issue of Science magazine, up until the year 2000, much of the world’s data was stored in “analog” formats and on paper ( reports, books, newspapers and magazines) and film (x-rays, photo negatives, movies, TV programmes). That year marked a turning point when the world switched to storing stuff in digital form on PC and server hard disks, memory cards and the internal storage of cameras, mobile phones and camcorders. Since this shift, they say, the amount of data captured and stored has increased exponentially.With this torrent of data, or Big Data, have come battles about who holds this Big Data, for what purpose and whose benefit.
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The value of data is contextual. A nurse encountering a baby with high temperature will conclude that the baby is unwell and requires care; she is using data in a rules-based way. If the number of babies being brought in with elevated temperatures suddenly increases, hospital administrators may temporarily allocate more nurses to the paediatric department. This is a tactical use of data. At the Health policy level of state or country what is of value are broad patterns in data across hospitals or across years.

Peter Drahos and John Braithwaite of the Australian National University in Canberra, warn of an emerging era of “Information Feudalism”. They say that in Europe in the Dark Ages, the period after the fall of the Roman Empire, the established patterns of order and security broke down and small landholders unable to protect themselves against the attacks of brigands and barbaric tribes offered their land and services to more powerful neigbours who they thought would protect them. Land and liberty was thus swapped for physical security. Thus was feudalism born. Feudal lords gained enormous wealth and power and the social subordination and services of the majority, the peasant serfs. The Russian novel, “The Brothers Karamazov” dramatizes the power of these feudal lords. A peasant mother is forced to watch her young son being torn apart by a pack of hunting hounds because her boy had accidentally injured the paw of the master’s favourite hound.

Drahos and Braithwaite provocatively suggest that business people who are pushing for ever tighter copyright and patent laws through the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO) are the modern day equivalent of feudal lords. If in the medieval era power lay in the hands of those who controlled land, in our present era, the source of power lies in the control of information and data.  They warn against the emergence of Information Feudalism because of the transfer of knowledge assets from the intellectual commons into the hands of media conglomerates and life sciences corporations rather than individual scientist and authors. This, they argue, has the effect of raising the level of “private monopolistic power to dangerous global heights, at a time when states, which have been weakened by the forces of globalization, have less capacity to protect their citizens from the consequence of the exercise of this power”. It was the loss of Rome’s capacity to protect its cizens that provided the conditions for the emergence of feudalism.

There is an inherent clash of interests between businesses push to make profits from data and citizens need to protect their privacy and the national need for security policy makers must balance these competing interests. They can do this by ensuring that the underlying legislation on copyright and patents reflect this need for balance and that there is an adequate investment in the information and communication infrastructure. Most of all ensure that there is an incentive for sharing data for the greater good.

There are constructive ways to use Big Data available with public agencies. New York City, for example, has made 350 data sets from 40 different public agencies under its control available to the public via application programming interfaces (APIs). Citizen programmers are using their imagination and free time to create free Apps that citizens can download onto their mobile phones and tablets. The “Water-on-the-Go” App, for example, helps users find the various locations in the New York City where clean tap water is available at a token cost for thirsty citizens. This free app supported a city government initiative to encourage citizens to drink water in preference to soft drinks (a typical can of which contains 150 calories, the equivalent of 10 teaspoons of sugar) and reduce the use of plastic bottles. For examples of other imaginative apps that work off public data: http://nyc.gov/cityapps).

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eBooks near tipping point?

This appeared in Business Standard

When Johannes Guttenberg, in 1439, thought up moveable types and oil-based inks and fixed them on an agricultural screw press no-one watch all this could have thought of this as a revolution. But a revolution it was, by making ideas and learning available to an audience larger than ever before.

This year, 2011, will perhaps be remembered in times to come for an invention that is likely to have an impact of similar magnitude, the eBook.

On the face of it, there isn’t anything revolutionary about reading a digital rendition of a book. It certainly is more convenient to carry one eReader with a dozen books on it than to lug a dozen books in your travel baggage; the word ‘revolution’ seems to be too big a word to describe this weight-saving invention. Then, why all this excitement and anxiety in the cultured world of publishing?

For one, eBooks are downloaded from websites and that bypasses bookshops, imperilling those charming symbols of civilization. Will the whole system of publishing made up of agents who discover talent, editors who help authors shape the manuscript wither away? Will this lower the incentives for books to be published  and perhaps make that genteel mark of civilization, ‘the reading habit’, become just another quaint memory?

In a sign of changing times, Stephen King, that master of horror novels and Paul Coehlo, the author of  The Alchemist and other best-sellers are reported  to be considering  direct distribution of their books via ebooks . Their hope perhaps is to expand their earnings beyond author’s royalties and take a share of what their publishers used to make.
There are other ominous signs as well. Books that used to be sold for $20 in their printed avatars fetch half that price, $9.90, in their ebook version without, as yet, any noticeable increase in the number of copies sold. 

Some of these anxieties were given a fillip when Amazon announced recently that more ebooks are nowadays being sold on their website than are printed books.

But pragmatists point out that statistics of this kind are probably misleading. eBooks make up just 10% of all books sold even in the United States. In  countries like the UK and Netherlands and even in Guttenberg’s own Germany, where one would have thought early adopters for new reading methods abound, eBooks account now for a mere 1-2% of all books sold.

On the face of it eReaders and eBooks burst into sight just last year but they have been in the coming for more than two decades. The first attempt was by Sony; with their 1990 product Discman, they no doubt hoped to do to books what they had successfully done to music with their Walkman. More attempts by Sony and others met a similar fate. For eBooks to take off, there needed to be a large enough number of internet-enabled consumers, price points needed to be lower and, most of all, enough eBooks available for download. All of this came together in 2007 with the launch of Amazon’s Kindle in the United States.

Today, there is a dog-fight in the business of eReaders. In addition to dedicated eReader makers, tablet manufacturers, notably Apple with their iPad, are in the fray not to mention every PC and mobile phone maker in the world. Models are getting ever thinner, ever lighter, and ever cheaper and batteries are lasting ever longer.  Social software features that, for example, show what other readers have bookmarked, enhance the reading experience.

There are many incumbents who look to be winners in the eBook movement. Textbooks, those weighty, dull staples of college life, are blossoming in the eBook era by adding audio and video content. In some examples that I saw recently, physics and chemistry textbooks really came to life with these multi-media enhancements.

Magazine publishers are another lot who are looking optimistically at the eBook era after facing a decade of onslaught of the web and its free culture. Consumers appear to like reading magazines on eReaders and, more importantly, seem to be ready to pay for subscriptions.

 eBooks, as we noted, as yet account for a miniscule part of book sales even in advanced Western countries, but the tipping point may not be as far away as it appears. A recent study done by the consulting firm PWC in the US, UK, Germany and the Netherlands, shows that a mere 15% of people in these countries read 50% or more of all books. That means that if the penetration of eBooks rises from its present modest levels to even10%, a tipping point would be reached. Some experts say that this penetration level could occur if eReader prices drop to below $50 from their present $125.

Like Guttenberg’s invention, this may herald the true democratization of knowledge.


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Financial Derivatives in the 2000′s like Thalidomide in 1950′s?

Remarks I made at IIM Cal’s International Finance Conference, Calcutta  Jan 10th, 2010 with India’s Finance Minister, Pranabh Mukherjee attending.

‘Whenever financial experts gather nowadays the talk inevitable veers to the financial industry meltdown of 2009 in the US and Europe. Was it greed on part of the market participants, was it a failure of the regulatory system, was it the compensation system for financial industry executives that lay at the bottom of this crisis which has created immense suffering for tens of thousands of ordinary people in the United States and Europe?
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We have seen an outpouring of dozens of scholarly papers, many dozens of books and thousands of newspaper editorials trying to make sense of these events. Implicated in all of this are ‘derivatives’,mathematical abstractions. Even a savvy marlet player like Warren Buffet has called them weapons of mass destruction.

But do derivatives deserve this kind of demonization?

I draw your attention to a similar event inthe pharmaceutical industry in the 1950′s in the early days of the synthetic drugs era when a German company came up with a ‘wonder drug’ that supposedly cured coughs, cold, headaches and was also a tranquilizer, a pain killer and could also cure insomnia. It was soon a best seller in many countries. It was then also discovered that this wonder drug could also relieve morning sickness in pregnant women, so tens of thousands of pregnant women took to it.

Then reports started filtering in that pregnant women who took this drug were giving birth to babies with deformities: the feoutus would have fish-like flippers instead of arms and legs. Tens of thousands of children were born by the time alarm bells rang and sales of this wonder drug were halted.

This, of course, was Thalidomide.

There were many calls at that time for the ban of all further synthetic pharmaceutical innovations such as derivatives are now being demonized. Wiser counsel prevailed. An elaborate system of clinical trials was instituted, the scale and expertise of national level drug approval authorities like the US Food and Drug Administration was bolstered. The occasionally confliciting needs of Consumer protection and technical innovation were reconciled. The world has since then benefited enormously from an outpouring of synthetic pharmaceuticals.

The derivatives issue needs to be looked at in a similar light. If properly designed and tested and with the right regulatory system, derivatives could play as big a part in our lives as other financial innovations such as the metal coin or the paper currency note or Bills of Exchange have done.
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Instead of demonizing the derivatives innovation, we should put in place testing facilities and regulatory systems which will allow mankind to benfit from this financial innovation.  Central to this new system of regulation of derivatives are expert and neutral bodies who can undertake stres testing of derivatives.

IIM Calcutta’s Financial Research and Trading Lab is one such facility which is ready to undertake such stress testing on behalf of regulatory authorities.

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