June 10, 2010

55) ITC Limited (eChoupals)

危 wēi  danger

As I outlined in a post last year the Indian agricultural market is tough.  Farm ownership tends to be heavily fragmented, the infrastructure is often poor and historically the supply chain has been clogged by middlemen. This makes life difficult for both farmers and the buyers.  For example, often farmers would have to travel for days to a market with no knowledge of current prices, once there the exploitative middlemen could pay below the market rate and refuse to pay any premium for quality.  It has been estimated that farmers were losing up to 60% of the value of their crop as a result.  This in turn disincentivised the farmers from improving their crop quality and made supply to the industry’s big buyers unpredictable.  Large food buyers, such as ITC Limited (an Indian conglomerate), would surely have to accept this status-quo?

机 jī opportunity

No, to the contrary ITC has harnessed technology to overcome these structural problems by investing in internet kiosks in rural villages.  The kiosks, named eChoupals, enable the farmers to sell direct to ITC at an agreed price, give access to best practices and enable them to place orders for agricultural inputs such as seeds and fertilizers.  In order to instill trust in the system ITC trains a local farmer to run the system and places it in their house – on average each serves 600 farmers in the surrounding ten villages.  To ensure that they remain incentivised the sanchalaks receive a small service fee.  Even after this service fee it is estimated that farmers’ profits have increased by more than a third and ITCs costs have reduced. The conglomerate plans to scale up to 20,000 eChoupals by 2012 (from 6,500 today) potentially servicing 15 million farmers.

How About…

  • Harnessing technology to disintermediate inefficient value chains?
  • Empowering local talent to assist in supporting your customers?

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May 25, 2010

53) eBay

危 wēi  danger

In September 2005 online auction house eBay paid over $3bn for Skype, which had been founded in 2003 by Niklas Zennstrom and Janus Friis.  In stark contrast to when it had bought PayPal (the internet-based payment company), industry commentators were quick to question the logic behind the deal, pointing out that there was little obvious fit between eBay and the internet phone company.  CEO Meg Whitman defended the deal vigorously, stating in a BusinessWeek article on the 12th titled “Why eBay Is Buying Skype” that “Together, we can pursue some very significant growth opportunities. We can create an unparalleled e-commerce engine.” But, within a year of the acquisition Ebay had written down the value of Skype to $1.2bn, suggesting that it too began to think that the company was not a strategic fit and it had overpaid. Perhaps the purchase of Skype was a case of what Warren Buffet calls “Institutional Imperative” – the “need” for managers to act and do like their peers no matter how irrational it may seem (in this case drive growth through technology company acquisition).  However, with eBay having sunk so much emotional energy and resource into Skype surely they’d sit on the investment indefinitely?

机 jī opportunity

Under eBay’s ownership, Skype continued to grow – the number of registered Skype users rose from 53 million to 405 million.  Even though this progress had been made, on September 1st 2009 eBay sold 65% of Skype to a group of private investors in a deal that valued the firm at only $2.75bn – stating that ‘limited synergies exist’.  eBay was smart to realize that the companies might do better apart, to ignore sunk costs in the process and to retain 35% of a business that remains full of opportunity.

How About…

  • Taking a breather before any strategic decision to remind yourself to ignore sunk costs (easy to say, tough to do)?
  • Asking if your M&A will make your company better (rather than just delivering growth)?

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March 2, 2010

41) Vodafone

危 wēi  danger

Fixed line and mobile telephone providers have been on a collision course for years, after all to consumers the way ‘communication’ is fulfilled is unimportant – differentiation has principally been around service experience and price.  The convergence has been particularly interesting in large businesses, where mobile phones have become the medium of choice for many executives even when sat at their desk, representing a valuable revenue stream for mobile telco’s such as Vodafone.  However, these revenues fell away quickly when new technologies emerged to route mobile calls made within offices through the local IP network, drastically reducing call costs.

机 jī opportunity

To arrest this loss of revenues Vodafone went back to basics and benchmarked its customer value proposition agaist its competitors.  It realised through customer research that the Achilles heel of these new technologies was the need to set up multiple accounts with service providers and the hugely complex bills that resulted. Vodafone responded by entering into partnerships with fixed-line operators (including BT in the UK) and service providers (including Central Telecom) to manage technology interfaces and provide a single solution to the customer.  Through these partnerships it was able to provide customers with a single bill and a single number per user – thereby gaining revenue from all aspects of the call routing (both fixed line and mobile) and recapturing the lost revenue of calls made on mobiles within offices.

How About…

  • Researching your customers’ experiences of your product/service and that of your broad competitive set?
  • Partnering with players from adjacent industries (who otherwise might be competitors) to offer single, simple solutions and derail disruptors?

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(co-authored with Matt Lill, London-based strategy consultant and serial enthusiast – thanks Matt)

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January 29, 2010

33) Bloomberg

Bloomberg logo

危 wēi  danger

In 1981, Michael Bloomberg was fired from Salomon Brothers, where he was a General Partner.  He used his $10 million severance package to found Innovative Market Systems (subsequently renamed Bloomberg LLP) with the help of 2 former co-workers.  Their aim was to provide financial software tools such as analytics, an equity trading platform, data services and news to financial companies globally.  At the time the online market for financial information was dominated by Reuters and Telerate who had successfully sold their products to the IT managers of brokerage houses and investment organizations. These purchasers valued standardization of the product above all else because this made installation and management of the systems easier.  Given these needs were so well met by the incumbents it was unclear how Bloomberg might break into the market.

机 jī opportunity

Bloomberg had other ideas– having worked in the industry he knew that it was the traders and analysts that created the value in the finance houses and that they were the key users of the services.  For them, accuracy and speed of information was far more important than ease of installation. Bloomberg built a proprietary terminal, with 2 screens rather than one, and tailored all services to the needs of the traders and analysts – he then began marketing his product directly to them on a subscription basis.  Bloomberg’s offer was so clearly superior to that of his rivals that the traders and analysts trialed it, and then pressured the IT purchasers to switch across.  Bloomberg also used this deep understanding of its users to begin to offer completely new services, for example enabling them to buy flowers and jewellery from their desks (probably to make amends for working such long hours!).  Bloomberg grew to become one of the largest providers of online financial information in just 15 years.  Incredibly Michael Bloomberg still owns 85% of the group which boasts 100,000 users in the US and 150,000 across the rest of the world.

How About…

  • Questioning the established buying processes in your industry, perhaps shifting your focus from purchasers to users?
  • Offering a physical aspect to a service with a subscription model, claiming valuable real-estate and making your offer stickier?
  • Examining other potential needs of your core users for additional revenue streams?

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January 21, 2010

31) Amazon Web Services

amazon web services logo

危 wēi  danger

Founded in 1994 by Jeff Bezos as a result of his ‘regret minimisation framework’ – an effort to fend off regret for not staking a claim in the Internet gold rush – Amazon has grown to be America’s largest online retailer, with nearly three times the internet sales of its runner up, Staples, Inc. Amazon’s growth has been fueled by continuous innovation of both its retail offer (including moving from books into broader categories and opening up its platform to third-party vendors) and its core technology. Its investment in the latter, mounting to billions of dollars, led it to begin exploring web services in order to help it manage peaks in demand on its website in 2002.  Amazon saw the value in this approach, adopted it internally and continued to build its competence in the area – eventually launching Amazon Web Services in 2006 with a data-storage service, called S3.  However, at the time there was significant concern from industry commentators that the launch was a strategic mistake with key resources, both time and money, likely to be diverted from the retail side of the business.

机 jī opportunity

However, the move made complete sense to Amazon, which above all else viewed itself as a technology company. It continued to develop its web services offer and has since added additional web based services, including online database, content delivery, and secure payment services – each of these services was born from investment in Amazon.com. The company has also been creative in how it has taken its new services to market, for example in December 2009 it launched a spot market to sell off excess capacity on its EC2 platform which allows enterprises, developers and hosting companies to bid for and buy capacity at prices set by demand and availability.  Although web services represented less than 3% of Amazon’s total revenue as of 2008, the bandwidth (number of bits per unit time) consumed by its Web services division has surpassed the demand from its better known retail websites as of 2007. The offer has helped continuous development of the Amazon platform and has given the company a foothold in some significant emergent markets.

How About…

  • Appraising your internal capabilities for those that might seed completely new offers?
  • Using auction-based pricing in order to price exactly at customers’ willingness to pay?

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