Reliance has raised more capital in the 2 months than all of the startup eco-system did in 2019. Indian startups raised a “record-breaking” USD 14.5 Billion in 2019!
Many investors and founders across many industries are worried about what might be possible with that kind of capital in their war chest. I think it is Reliance that should be worried now.
When working with startups we often say – once you raise money, the real pressure begins. You can’t be slow and deliberate anymore, investors want returns. Till such time that you raise capital, you are only answerable to yourself, not after. Also, with deep-pocketed investors, if you falter and your valuations fall, they can easily buy you out and throw you out of the company.
Building Products
I have worked with a fairly large number of startups and seen how tough it can be to get a product right and get users to adopt it. It takes several iterations before you can declare that a product has the right ingredients to grow. The best thought out business plans require a fair amount of revision. Growing a product is not just about getting the product right but also constant engagement with the users.
Often several assumptions are made and they are subsequently tested in the field. This is part of the reason slavishly copying another product rarely results in success. You have concluded without understanding the reason for arriving at that conclusion. Name one company that has been a runaway success consequence of a slavish copy. (Without giving it away free)
Have you heard of this app called ‘Hike’ which is owned by a company that has 100’s of millions of high paying users? Instead, an app developed by an 18 member team called ‘WhatsApp’ rules the world.
Reliance and Products
Reliance is not a product company. Reliance is a ‘license’ company. Right from the outset, their success has hinged on being able to extract licenses and political favours which have put them in the front. License for oil, license for telecom and license for retail (in the form of FDI limitation).
Which was the last Reliance product you loved? (Not because it was just cheap)
Winning on products is a whole different ball game. It is not just about getting access which others do not have. It is about excellence. You have to be able to compete in an open market and succeed at that. No license is going to make it impossible for the other company to do business. Reliance is doing its level best to irritate e-commerce competitors. The leverage is always the law. Not the ability to compete and win. While that may be, it is not possible to turn every industry into a policy nightmare.
Product and Customer
Deploying a product successfully is about making a lot of cheap mistakes to arrive at the right formula to be able to put all the wood behind that arrow. If you are armed with USD 20 Billion, you are probably going to make huge mistakes and mistakes from which you may not be able to recover. Companies that get funded heavily before they hit the market often flame out. Reason – expensive experiments.
The reason for the expensive experiments if something called the base effect. If I have 100 dollars in capital and I need to deliver 100% growth, I need to make a 100 more – easy. If I have 20 Billion and investors have come in assuming I will double it in 5 years. Well…
Somethings money can’t buy.
Google is the latest company to invest in Jio Platforms. Google was once seen as invincible at anything Internet and then Facebook came along. Google launched a competitor Google Plus. It was a monumental disaster. Nothing Google could throw at it, including listing it on the home page of “Google.com” could save it. The reason – Network Effect. People go to Facebook because their friends are on Facebook. Google Plus, by comparison, was a ghost town. It is the same reason Hike failed. The same reason Jio Meet is not Zoom. It does not enjoy a network effect.
So when it comes to the Indian 5G network, Reliance will have an upper hand in the highly regulated license driven space. But that will certainly not translate into successes in the area of Education, Healthcare, VR etc.
Also, you know what happens to all-star teams?
Customer and Products
I mentioned earlier that it is important to make a lot of cheap mistakes with products. When you develop a product you are often trying to find a product-market fit. In other words, the right customer for your product.
Jio Platforms is busy launching a bevvy of products which is completely divorced from its customer base. Jio has an ARPU of hundred something rupees. A very small number of its existing customers are going to be able to afford a Jio Glass or the numerous other products that have been debuting.
Finally
Reliance needed the fundraise desperately because they had piled on a lot of debt building Jio. The dominoes began to fall once Facebook stepped in and made a huge purchase. Everyone who had a few Billion in cash sitting around invested.
Having rid themselves of the debt, Reliance now has to undertake a metamorphosis to become a Product company. This is easier said than done. I think it is Reliance that has more to be worried than the startups that its businesses are going to threaten.
Every Saturday, I publish this series called ‘Learning by Proxy’. It is a capsule of some of the stuff that I found interesting over the week along with some context to it. I hope you enjoy it.
I was planning to follow-up on some of the topics that I had written the last time. But the geo-politics of it is so interesting, it almost turned into an essay in and of itself. I lost the politics section to it.
Follow Up
See below!
Politics
Chris Voss is a former CIA negotiator and the author of the book ‘Never split the difference’. The premise of the book is – when you are negotiating for the life of a hostage you can’t agree to split the difference. You have to get it the way you want it. One of the lessons therein – When negotiating, always give your adversary a way out. If you corner them – expect the unexpected.
Some context first
China had started down the path of world dominance a few years ago. They decided to use the American (actually British) play of economic dependence = political dominance. They announced this thing called One Belt One Road, which was to be second coming for the Silk Route. They engaged over 130 countries and poured in hundreds of Billions to create infrastructure such as Road, Ports, Airports, etc. Every continent apart from North America was involved. India refused to be a part of it.
Now let us see the corner China has been painted into.
Hong Kong was an itch which has been hard to scratch for the last 3 years. In addition to that Trump and his trade wars had made life difficult.
The Coronavirus put a new spin on things. Many of these countries that China has lent to are poor Asian and African nations and with Coronavirus ripping up their economies, they have requested loan waivers and renegotiation.
As the coronavirus spread around the globe, Pakistan’s foreign minister called his counterpart in Beijing last month with an urgent request: The country’s economy was nose-diving, and the government needed to restructure billions of dollars of Chinese loans. […]
With each request, China’s drive to become the developing world’s biggest banker is backfiring. Over the last two decades, it unleashed a global lending spree, showering countries with hundreds of billions of dollars, in an effort to expand its influence and become a political and economic superpower. Borrowers put up ports, mines and other crown jewels as collateral.
Pakistan was supposed to keep India in check. They are now broke. The Middle-East is in a financial crisis of its own with oil prices at historic lows. This implies very limited options available to finance terrorism. Therefore, Trump is not going to give money away to Pakistan as liberally as Obama did.
Further, not agreeing to the cries of the poorer countries will make it seem like it was an engineered Virus. The optics of it all are terrible!
Trump called it the ‘China Virus’ and has been pressuring WHO to investigate them – WHO acquiesced. India supported the probe into China. China grudgingly agreed.
A pretty deep corner you see. Now for the push back.
China put an end to Hong Kong by passing a law that forever ends Hong Kong’s democracy – at least the way we knew it. With Pakistan now being rendered incompetent, they had to take matters into their own hands. They started trouble in Ladakh and Sikkim. India pushed back. Both sides said they will protect their sovereignty. All good distraction. But then…
Chinese President Xi Jinping on Tuesday ordered the military to scale up the battle preparedness, visualising worst-case scenarios and asked them to resolutely defend the country’s sovereignty.
Then Trump tweeted offering to arbitrate between India and China. China changed course and figured this was one more thing they would want the American to stay out of.
On Wednesday tensions between the two nations seemed to de-escalate as China took an apparently conciliatory tone by saying that the situation at the border with India is “overall stable and controllable.”
While there is a change of tone, satellite pictures show artillery build up on the Chinese side of the border. The US in the meantime is preparing to pass a law rescinding Hong Kong’s trade status.
Economics
Truth
It was a couple of editions ago that I had mentioned that the truth about the actual economic state of India will emerge post-COVID when nobody is paying attention. It is happening.
Bank lending to MSME collapsed after 2016 as per RBI data. This during a time when the government claimed to have 7.2% GDP growth rate. Many of the MSMEs are critical suppliers to large industries how could they not want loans? If they saw an opportunity, they would have taken loans to grow.
While large industries saw their credit expand by Rs 1.73 lakh crore, or at an annual growth rate of 1.9 per cent between April 2016 and March 2020, micro and small industries saw their credit expand by only Rs 10,335 crore, or at a 4-yr CAGR of 0.69 per cent during that period.[…]
The decline in demand for credit by the industry, however, coincides with the decline in the demand in the economy and falling capacity utilisations. The RBI’s Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the October-December 2019 quarter shows that the capacity utilisation declined to at least 12-year low of 68.6 in the quarter ended December 2019.
The interest rate is an instrument that is used to stimulate the economy when the times are good, expectations form the future are clear and risk can be estimated. When none of this is clear – the Interest rate becomes merely a number. If you play with it unnecessarily, you diminish your power. Modi placed a historian at the head of the RBI to act as his puppet and the bankers are giving him a lesson. RBI dropper repo rate (the rate at which banks borrow) once again to 4%. An all-time low.
“When a heightened level of risk aversion exists among banks, lower cost of capital alone incrementally will not translate into higher lending in the current situation,” said Sreejith Balasubramanian, an economist at Mumbai-based mutual fund IDFC AMC. “Banks make lending decisions based on their risk appraisal and appetite which is currently low.”
In a world that is locked inside their homes, connectivity is a very valuable resource. It is the only thing that preserves a certain degree of sanity and allows for commerce in whatever form to thrive. Connectivity is unlocking its value.
A couple of editions ago, I had mentioned how Reliance has used Jio to free itself of debt. Also last time I had shared the surprise upswing that Airtel had registered. Airtel is now borrowing a trick or two from the Reliance Playbook. They have raised over a Billion dollar through a stake sale and reduced their debt burden.
Bharti Airtel’s promoter firm Bharti Telecom raised Rs 8,433 crore on Tuesday, selling 2.75% stake in the telecom major to institutional investors through an accelerated book-building process in the secondary market. With this, the Sunil Bharti Mittal led-Bharti Airtel’s promoters are ostensibly looking to go ‘debt-free’, a path similar to the one chosen by Reliance Industries’ Mukesh Ambani. Bharti Airtel share price traded flat on the BSE on Wednesday. After the sale, the promoter group will continue to own 56.23% in the company.
Also, rumours are that Google is planning to buy into Idea-Vodafone.
Not to be upstaged – Jio Platforms as it continues to raise its Billions announced Microsoft as one of the suitors willing to throw in USD 2 Billion. And they also announced their wishes to list on an international stock exchange.
Post bagging multi-billion dollar deals from marquee investors in the last one month, Billionaire Mukesh Ambani’s Reliance Industries is said to be now considering an overseas listing of Jio Platforms, according to people aware of the development.
Social media is an echo chamber and that echo chamber has resulted in far too many countries in the world having right-wing governments. India included. Life is good so long as you are on the right side of the line – White in the US – Hindu in India and so on. Facebook knew what it was doing and why it was wrong. An explosive and incriminating report exposes the upper echelons of the company brushing aside genuine concerns.
“Our algorithms exploit the human brain’s attraction to divisiveness,” read a slide from a 2018 presentation. “If left unchecked,” it warned, Facebook would feed users “more and more divisive content in an effort to gain user attention & increase time on the platform.” […]
But in the end, Facebook’s interest was fleeting. Mr Zuckerberg and other senior executives largely shelved the basic research, according to previously unreported internal documents and people familiar with the effort, and weakened or blocked efforts to apply its conclusions to Facebook products.
The person who made this presentation was the head of the ‘Integrity Team’ at Facebook. The company has none of it.
Twitter has been a haven for trolls permitting harassment at an unprecedented level. It came as a huge surprise when Twitter which is in part responsible for Donald Trump being president decided to flag this tweet at false.
There is NO WAY (ZERO!) that Mail-In Ballots will be anything less than substantially fraudulent. Mail boxes will be robbed, ballots will be forged & even illegally printed out & fraudulently signed. The Governor of California is sending Ballots to millions of people, anyone…..
The move, which escalates tensions between Washington and Silicon Valley in an election year, was made in response to two Trump tweets over the past 24 hours. The tweets falsely claimed that mail-in ballots are fraudulent. Twitter’s label says, “Get the facts about mail-in ballots,” and redirects users to news articles about Trump’s unsubstantiated claim.
The president threw a fit on Twitter about Twitter. Then announced on Twitter that he would be releasing an Executive Order against Twitter.
In the meantime, Kellyanne Conway his “Counselor” went on a rant against – guess who? – the head of the Integrity Team of Twitter; Yoel Roth. He has been subjected to a lot of trolling by Republicans and Trump supporters – where else – on Twitter.
The Indian Government is using drones to chase away locusts.
These are designed to spray 10-litre of chemicals, along with creating a sound that would disperse the locusts into different areas. “It has successfully contained the movement of locusts in an open area and on the foothills where it was not possible for the usual tractors to make it reach. A detailed assessment of its impact is being studied by the field officers,” said Om Prakash, commissioner, state agriculture department.
The Democrats are using the Republican playbook – GOD. Only God can save them now. God is peddling conspiracy theories on Trump!
Donald Trump killed his personal assistant, Carolyn Gombell, in October 2000. He strangled her because he’d gotten her pregnant and was threatening to tell the press. Then he bribed NYPD Police Chief Bernie Kierik to cover it up. IT’S TIME TO INVESTIGATE. #JusticeForCarolyn
Sometimes, the only thing that is left for you to do is go all out and put yourself out there. Such is the case with what Apple is doing in India.
The company has traditionally been very conservative with advertising in India and left it to the die-hard fans to show up at the store to purchase their devices. That was all fine up until the smartphones market in USA began to saturate. Once the growth pace in the developed markets began to slow, it was necessary to start tapping China and India. The Chinese case is rather settled, given that the China Mobile deal is an open secret. The only other large market left to dominate is: India.
The number of Apple advertisements in India has shot through the roof after the launch of the 5s and 5c. As in the US, they are primarily advertising the 5c, but I get to see at least 5 spots everyday in some channel or the other. Given that I probably spend a couple of hours everyday watching TV, I am sure that they are booking a huge number of spots. I have never witnessed as many Apple Ads in India. Never, not for any product. Couple this with fact that this was the first time Apple held launch events in 5 different cities in India, on the 1st November, for the iPhone; shows that Apple is taking India very seriously.
The religious Apple fans lined the malls to pick up their iPhones. According to reports I have read, about 30,000 iPhones were sold on the launch day across India. This might look like a far cry from the 9 Million that sold on the opening weekend, so let me put that in perspective. Apple does not have an online store in India, so the sales were restricted by the quantum of supply brought in. Last year during the April-June quarter, Apple sold 200,000 units of iPhone and that was a 400% jump on the year before. (All numbers are from various media reports, may not be completely accurate.) What may be more important to note here is that, the jump in that quarter came on the back of a new distribution model, aggressive exchange and EMI schemes that were introduced by Apple and most of the units sold at the time were iPhone 4.
At the moment, Apple is selling 5s, the top of the line device, with higher margins in India. And as it is across the world, the demand for iPhone 5s is much higher than that of 5c. This is extremely good news for the Cupertino based company. Add to this the fact that for the first time iPhone is going to be available on contract in India through Reliance Communications (R-Com) augurs very well for Apple. The deal with R-Com is done and the iPhone 5s and 5c are both going to be available for free on a 2-year contract (I do not think Apple has issued any stock to R-Com because of the hardship they are facing in meeting the western demand during the crucial Holiday period, they just have a form on their site at the moment). As per the Ads published by Reliance, iPhone 5s is going to be available for Rs. 3,000 ($50) a month, and the 5c for Rs. 2600 ($44). Unlimited 3G, Unlimited Call and Unlimited Roaming! In my opinion, this should cause a huge spike in sales of the iPhone and should improve the fortunes of Reliance considerably. Also, if this gamble by Reliance pays off, the rest of the operators in India will queue up to request Apple for a similar structure. This will results in Millions more in customers for Apple and also Millions who would get on the upgrade cycle as is the case in US.
All this makes for a strong case for Apple to engage in the advertising binge. I am 90% certain that the Reliance deal is going to be a huge hit. It is similar to the structure that they offered for the EMI scheme, only this time an operator stands to benefit.
Only time will really tell, how this all plays out for Apple, though it all looks really good!
