Tuesday, December 30, 2014

The digital divide

One the one side we have the digital haves with their ipads, iphones and wearable technologies. On the other side we have the digital have not’s in many parts of the world like Africa, India, China, and Latin America who are struggling for the basic necessities of life like food, clothing and shelter. In most of the countries less than 10% of the population own most of the wealth while most of the remaining population struggle with a tough daily existence. We are told that this gap will widen further with people who have access to digital technologies having more opportunities to improve their standard of living compared to those that don’t.

It is refreshing to hear about success stories like M-Pesa (Mobile money transfer and payments), Grameen Bank (Micro Lending) and about the potential fortune to be made at the bottom of the Pyramid (C K Prahalad). The bottom of the pyramid consist of 4 billion potential consumers waiting for products and services like M Pesa and Grameen Bank. They aspire to a better standard of living same as any anyone else.

As we have seen from many of the case studies on internet companies like Google, Facebook they have been able to make money on the internet only by doing innovative things like using two sided markets (one side gets products and services for free while the other side pays), Freemium model (you give the product or service for free till you get enough customers on your platform, then you charge a nominal price to make money). Many of these innovations can be very relevant to create business models that are viable and sustainable in Bottom of the Pyramid markets.

I personally hope that digital technologies even though they may increase the gap between the digital haves and have not’s, can at the same time help us to create a world where every person on the planet has access to the basic necessities of food, clothing and shelter. This can only happen with more and more innovations at the Bottom of the Pyramid. If we can have an innovative encyclopedia like Wikipedia which has defied all economic theory and which is growing and thriving on voluntary contributions from its users, we can all be optimistic about our digital future.

Saturday, December 13, 2014

How to make money on the internet?

Whether is it music, movies, books or newspapers the underlying theme of all these industries is “Content is King”. The delivery medium may change over time in these industries, but one thing that will always remain constant is the demand for quality content and creative content providers.

If you still don’t believe content is king, then read the article below by Bill Gates who predicted in 1996 when we were still using dial up modems that made those shrill, weird sounds when we connected to the internet. This is when downloads were at bullock cart speed compared to today’s lightning fast broadband downloads. The article starts with a prophetic statement “Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting.”

What I find interesting though is that even though Bill Gates had this vision in 1996 and strongly believed in it, Microsoft was not able to monetize this vision. It was companies like Google, Amazon and Facebook that were able to monetize on this vision much better than Microsoft. It took a few years for each of these companies to figure out how to make money on the internet.

The main lesson here is that just having vision and predictive powers is not enough. You need to constantly be on the lookout on how to deliver quality content and value to your consumers in a way that they are more than happy to pay for it. This is no easy task as I learnt from my EMBA classes that the marginal cost of delivering content on the internet is close to zero and hence people expect most content to be either free or at a very nominal price.

That is the reason that you will see that while companies in most other industries focus on margins, the companies that make their money on the internet focus on market share and growing the market share at a rapid pace either organically or through mergers and acquisitions. Whether it is Facebook, Google or Amazon most of these companies hardly made any profits in their early days. It is all about becoming the number one player in your space. When you have your customers locked into your platform even if you make very low profits from each customer, the high volume more than makes up for the low margins.

Everybody has been wondering about the 19 Billion USD acquisition price for WhatsApp. When Facebook acquired WhatsApp there were 400 million users on WhatsApp. In one year the number of users have gone from 400 million to 600 million. Facebook already has 1.23 billion active users. So once WhatsApp gets more integrated into the Facebook platform, it can easily have 1 billion users. Even if you charge one dollar per user, that is one billion dollars in revenue. And as we have already learnt, the marginal cost of every additional user is zero. So you do the math in terms of what the profits will look like.

So in summary quality content and high market share are the 2 most important things for making money on the internet. You need to manage your cash flows very tightly till you have enough market share and are able to start monetizing that market share.

Friday, December 12, 2014

The future of Search

Google has become synonymous with Search. “To google” has become a verb. So when anyone raises the question will Microsoft or any other company be able to beat Google in search, most people say it’s highly unlikely.

But it was not so long ago when Xerox had a similar reputation in the photo copying world. Kodak in the world of cameras. There are very few companies who have remained dominant in the information technology industry for more than 20 years.

Based on the history of disruptive innovation in the information technology industry, Google will most probably be disrupted by some company that is as yet unknown and flying below the radar. A company that can leverage nano technology, information technology and biotechnology. Such a company will have the necessary skills and knowledge to create human + machine interfaces which can allow the human brain to seamlessly connect to all the knowledge and information stored in the cloud.

Hollywood has been very good at creating movies which depict possible technologies of the future. One such movie that anyone interested in technology should watch is “The Matrix”. In this movie there is a scene where the hero Neo asks the heroine Trinity if she can fly a helicopter. She says not yet. Then she asks for an instant download of instructions to fly the helicopter directly to her brain. She gets the download in a matter of 5 seconds and then flies the helicopter.

Check the link below to see this particular scene to get a feel of the kind of possible technology I am talking about.

This is the kind of search and knowledge acquisition technology that may very well be possible in the next 20 years. The company that comes up with this kind of technology will be the one that will replace Google.

Google’s mission is “Organizing the world’s information and making it universally accessible and useful”.

The company that will disrupt Google will connect your brain directly to the information that is organized by Google.

If you are interested in transformation through technology below is a link to a Ted talk by Ray Kurzweil who is a technology thought leader that I respect and have been following for some time.  You many find this interesting.

The Digital Nation

Every person on the planet who has access to the internet can become a global citizen today. Facebook has been able to achieve in a span of 10 years what politics and business could not achieve for hundreds of years. All you need is one user id and password and you become a citizen of this Digital Nation called Facebook which has 1.23 billion active citizens as of today. Only China (1.35 billion) and India (1.25 billion) have more citizens than Facebook. It has helped us overcome time and space and connect to people on the planet in real time. Just imagine the potential of what Facebook could achieve in the next 10 years compared to what it has been able to achieve in the past 10 years.

Now that I have shown you the dream, here is a reality check on Facebook. Below are 2 major roadblocks because of which many people don’t want to be part of this digital nation or even if they are part of this nation they are very passive and not active citizens.

  1. People share all kinds of crap on Facebook. So instead of becoming a place where people can improve the quality of their lives and communities by sharing good quality information and knowledge you see people following their own agendas and polluting the digital nation with garbage which turns many people off.
  2. Privacy is a very big concern, as there have been many cases where a lot of private information that people would not like to share becomes public knowledge because they have accepted all the default privacy settings that Facebook has.

Below are 2 points Facebook and its digital citizens need to keep in mind if they want to realize their full potential to be the best nation in the world.

  1. To quote Spiderman’s uncle Ben “With great power comes great responsibility”. Facebook needs to put in a lot of efforts to make sure it does not become an arrogant bully and big brother who does not care about its citizens.
  2. When all is said and done a nation is as good as its citizens. In fact every nation in the end reflects the quality of its citizens. That is why at least in a democratic system, you get the government you deserve.

I sincerely hope that Facebook can achieve its full potential, so that every person on the planet would want to be an active citizen of this digital nation.