Cloud as a Product - An option to consider

When everyone is talking about the SaaS, and everyone seems to be so much fascinated by it that it seems that whole world is moving towards this new offering. But we as well know that nothing works in isolation for long. I believe in time to come, we are going to see some sort of convergence of Cloud and Productization. The success of XaaS and adoption of Cloud by various organizations (big or small) will drive a new business model in future. We have to be aware that SaaS, PaaS, IaaS are definitely going to have adverse business impact on most IT service or infrastructure providers and they are not gong to sit with folded hands. I would not be surprised if we see following business models in future as a result of Cloud Adoption:

-  Cloud as a Product (CaaP) – As of now we have XaaS which are primarily elastic and chargeable on per use basis. However, as the usage increases and demand stabilizes, we will very well see Cloud being offered as a Product. What this essentially means that there will be business opportunities when a company want to move its IT infrastructure to a Cloud in some distant location, but would like to own the complete Infrastructure, which might include different levels of engagement by service providers. In other words, managed services over Cloud.

- IT services as a product (ITsaP) – As of today, a company purchases IT infrastructure and related licensing, which at times remains unutilized. As Cloud usage tends to grow, we might see the IT infrastructure providing companies to come up with a different pricing model. They can also start offering to turn CAPEX into OPEX and charge on usage basis. It does not mean that a company necessarily have to move to Cloud to take benefit of flexi pricing. Darwin’s law will follow and each one will have to adapt to survive.

- Use-based licensing by product companies like Oracle or IBM or BEA – As of now they are charging per blade which means people using public cloud can take benefit of flexi pricing. It is only a matter of time, when the licenses will be made available on usage basis which will increase the cost of service for Cloud providers. This will be essentially driven by point above that instead of fixed pricing, charging will be based on consumption which will drive-up the cost of services.

Cloud - the buzz word

Lot of buzz around 'cloud' these days. It is being touted as the next big thing and seems everyone is rushing towards it to grab their share of pie. For the uninitiated, cloud is anything where IT services are available as a 'service' rather than in a conventional mode. In other words instead of purchasing IT products, you pay for what you use. Crude analogy would be instead of purchasing a car, take it on lease. Lets look at some of the benefits which cloud claims to offer:

1. No upfront Investment - It helps in turning my CAPEX into OPEX. I need not invest into the IT infrastructure which comes at huge cost and rather I would be happy paying for it as per my usage. As most of us know, it is a IT is highly depreciating asset - be it software product or be it infrastructure.

2. Focus on Business - I do not have any expertise in managing IT. So if I set-up IT, I will have to spend lot of energy and time towards it. Cloud providers are taking away this pain and I can focus on my core business.

3. Save Space - I need to allocate premium real estate space for the infrastructure. With each passing year, IT assets depreciate while the cost of real estate goes up. In other words, my cost of ownership is increasing two-fold. I need not worry about this when moving my IT to a cloud.

4. Experts for job- I can be assured that an expert is managing my IT. Much better than a novice who is preparing his resume for next job while sitting in my office.

5. Data anywhere: I can access my data anytime anywhere if I have Internet connectivity. Recently we went on a trip and we all left our phone in the cab. Unfortunately, the cab driver number was in the phone and there was no mean to get the number. Fortunately, my friend had his address book stored on iCloud and he accessed his address book from a nearby café and called the guy. It was pretty simple.

Recent reports by Gartner suggests that in India, cloud services are expected to grow at CAGR of 33% till 2017. And the above benefits are the reasons for it. The fears around cloud have been Security, Reliability and Speed are being addressed by Telcos. As these concerns would be addressed, we would see more and more adoption. Cloud indeed provides a lot more than what is mentioned above and is the next big thing for IT revolution. It is no surprise that we see everyone moving towards cloud adoption. And over this adoption journey, there are bound to be lot of fall guys. What will be interesting to see how other services evolve with the challenges posed by cloud adoption....
 

Standing Instruction or Unfair Trade Practice?

Each one of us have invested in recurring deposits (RD) at some stage. And the process is very simple, the instalments are made on a fixed date every month and the principal amount along with applicable interest is paid back exactly one month after the last instalment. I never bothered to check the interest as the amount is very less. However it helps me in generating some handy cash for big purchases. Can anyone manipulate the interest calculation? Very difficult, right? But what if a big bank like ICICI (which pioneered Internet Banking revolution in India) comes up with innovative way of cheating customer and siphons off small portion of interest from your RD. The amount is so miniscule that we will not even be aware of any manipulation. The interest on RD itself is something which we never care, what difference does it make if few percentage points are siphoned off. It is like taking off couple of cents (or paisa) from every transaction. It does not make any visible difference but banks can make millions from transaction worth trillions.

Interest Accrued as per Bank

ICICI Bank has a very interesting feature called 'Standing Instruction', whereby a request is executed on scheduled date. I placed request for Recurring Deposit for 15 months using this facility on 23rd July with instruction for instalment on 2nd of every month. The first instalment was deducted immediately from my savings account on 23rd of July and the next instalment was deducted on 2nd Aug (and scheduled for 2nd every subsequent month). Now, this is strange! This is not what I learnt about RD all through my life. I did went through the pain of calling up customer care, sending mails, escalating to grievance forum and even sending mail to their senior management and received this sheet for interest calculation. As you can see clearly, this sheet for calculation of interest does not conform to the instalment schedule. I modified the sheet to account for the way instalment is being debited and (surprise surprise), found that I am being cheated for Rs 150/-. 

Actual Interest Accrued

Rs 150/- on a investment of Rs 30000, is that something one should be bothered? It does not even fit bill for one day commute to office. But it is more than 8% of the total interest on RD which bank is paying to me. Moreover, I am not the only one impacted, but it is every customer of ICICI who is placing standing instruction. Actually ICICI does not provide the option for a regular RD, but the only option is through Standing Instruction. On an average it translates to ~6% interest loss to customer on every RD being opened with ICICI. This loss for customer translates into profit for bank. Last year ICICI generated new deposits of ~INR 400 billion. It is not clear how much proportion of it was through RD, but even if it is 0.1%, this translates to couple of millions in free cash. Approximation might be way-off either side, but it is clearly visible that ICICI bank is indulging in Unfair Trade Practice and cheating the customer on the pretext of providing a facility to customer.

Sharing some of the response from ICICI when raised this issue to them.
Reply from Customer Care

On the basis of our telephonic conversation on August 10, 2014 at 10:30 a.m., we inform you that, for every Recurring Deposit(RD) the first instalment amount will be debited on the account opening date and the next instalments will be debited as per the standing instruction date set by you. If the resolution provided does not meet your expectations, you may escalate the issue to the next level.
Reply from Senior Management Desk

We would like to inform you that the standing instruction is a facility offered to the customer as a means of payment of monthly instalment. The date and medium through which the instalment is paid in a calendar month has no bearing on the interest to be paid on the Recurring Deposit for that month.

Take the case of a customer who places a request on 1st day of month for instalment to be debited on 2nd day assuming that RD will start from 2nd of month. He will actually end up paying two instalments within 2 days. That amounts to loss of interest on one instalment for the whole period!!! Clearly I do not see any facility to customer, rather he is on receiving end. The only one who is being benefitted through this feature is the Bank. As of now, I am still following up the issue with the Bank and they have requested one more week to respond. Next step is Banking Ombudsman, however suggestion from any quarter will be appreciated.

Meet the CEO - 'Shikshu' @ IIMB

"IIM B has come up with a programme called ‘Shikshu’ (apprentice in Sanskrit) specially for the one-year MBA participants at the B-school. As per the B-school, Shikshu, which is now in its second year, is a unique engagement initiative, between IIM B Alumni & IIM B’s one-year full time MBA (Executive Post Graduate Programme) students.

The programme gives EPGP students an opportunity to experience first-hand how a CEO’s office works..... "

 

More information on this initiative available here:

http://www.oneyearmba.co.in/internships-one-year-mba-epgp-students-iim-b-finds-way/

SpiceJet waging interesting battle

So again SpiceJet has come back with super sale, that too for travel as early as next month. It made sense when such offer was launched initially. But now every other day there is a super sale offer that I am tempted to equate it with road-side sales which run throughout the year. The mode for them is simple - put the price tag to an exorbitant amount and then offer discount to tempt the buyer. Simply put, Airline fares are probably only 20% cheaper in these super sale. They appear much cheaper as fare is artificially inflated during non-sale period. During last one year, the aviation fuel has not got any costlier. Though it was costliest in Sep 2013 when it crossed the last peak of August 2008 for the first time, the price has remained subdued in last year on account of global price movement. As projected by Airlines, aviation fuel constitutes close to 50% of running costs, so there is no genuine reason for airlines to increase price by 30% during non-sale season of off-peak season.

I did mentioned earlier that such discounts do make sense at end of the year as it makes balance sheet healthy and gives access to easy cash. However discounts everyday and even for period till Oct next year smells bad. For Indigo which is probably only airline in black, it has been a catch-up game as it is a market leader and is planning to come-up with an IPO soon. It simply cannot afford to loose any market share to SpiceJet as it will have impact on its valuations. Though such strategy might not bode well if IPO is delayed as the revenues will take a hit with such discounted fares for immediate travel (of course for trips beyond 4-5 months, I can bet its a good strategy).

But what of SpiceJet which has reported losses in excess of Rs 1000 cr in last fiscal. It is in hard need of cash to run operations. To keep the flag high, it is selling tickets till October 2015, more than a year later. It is a fool's guess if someone will buy a ticket for next October, but whatever small percentage it manages to sell, it still brings in liquidity. It will be difficult for it to sustain operations with such discounted fares and I am afraid it is going Kingfisher way. Just scared with the thought if this airline gets grounded or taken over in near future.

SpiceJet must be hoping that with economy reviving, people will start flying again and that will help it tide over this crisis. But it is hoping against hope. Since the slowdown of 2008 that led to travel freeze in most companies, people have learnt to work though audio and video conferencing. With economy reviving, this trend is not going to reverse as now even any infrastructure is not needed for video conferencing. In addition to downturn in Business Travel, baggage allowance restrictions turned away the family traveler. Cheap tickets for foreign destinations and new domestic airlines is not helping either. Recent incidents with airlines made matters worse.

So what this means is that SpiceJet is overburdened with over capacity. When everyone is offering discount, it is probably to lure passenger from other segment, but it is surely not a planned strategy or work of cartel. With all airlines offering discounts in response confirms the fact that supply is more and it is more of action and reaction.  Hoping for an revival in flying habits of passengers might hit them below the belt. Such frequent discounts is only going to harm the sector as a whole and someone should put in serious thoughts that working like a frenzied strategist. Probably some of my EPGP mates can help these guys ;).

Cloud - What it might mean for laptops?

One Device Fits All

Few years back if someone would have told me that we will see the end of laptop soon, I would have laughed at it. Laptop can be considered a natural descendent to desktop in terms of innovation. As laptop started providing more storage and RAM, and that too by occupying very little space, Desktop computer became thing of past. From big desktop machines to heavy laptops to light weight machines -they just kept on getting lighter and better. Next level of innovation was flexi screens, probably rollable screens as well. Laptop designers kept on doing away with once considered necessities like CD Drive, huge storage space etc all result of technical innovations like pen drive or portable hard disk. Continuous innovation did managed to impress the old timers like me who has grown up booting desktop through 4" floppy drive. However Gen 'Y' who is growing up on smartphones is giving it a miss. They are so used to working with smartphones that I doubt they will ever need laptop for their work.

I wrote an article few months back that this generational shift and preference for tabets and phablets will break WINTEL 'cartel' (if I may say). Little did I realized that this erosion is faster than I anticipated leading to its death and number of new technological breakthroughs are contributing big time. Key among them is evolution of Cloud. Everyone keeps on talking about it, but once its full potential is realized, I would not hesitate in chucking laptop on the ground. The biggest challenge for any cloud computing solution is reliability, security and speed. Even though I am a fan of dropbox, google drive etc but that is only to ensure availability of documents anytime, anywhere. I still have thick client installed and keep a local copy. The simple reason is ease of use and updating.

If technological breakthroughs are to go by, these challenges with Cloud computing will disappear very soon. Private clouds are the solution to security and cloud providers are investing heavily to pacify nerves here. Fibre optics have led to speeds unimaginable only couple of years back. A normal retail customer can get speed in excess of 15 MBps (in India) and in excess of 100MBps in matured markets which makes it indifferential to access data on cloud. The network connections are getting more and more reliable with 24*7 access QoS. Telcos are investing heavily to augment cloud computing and are coming up with special offerings for this solution which will make market more mature. With cloud access through Internet, it does away with need of VPN too.

If we take away the storage feature, there is very little ground left for smartphones to cover. Available RAM has already crossed 2GB and storage has already reached 64GB. Of course it is in high-end smartphone, but laptop does not come cheap either. In the excitement to make laptops lighter, one of the thing was to remove the burden of excess storage and providing it over cloud. That actually became its bane. If I can get a smartphone which has a port to connect to a screen and a keyboard, I would not require a laptop. And I don't think that day is quite far.

So what does it exactly mean? In simple terms, laptop could be thing of past. Users are comfortable with one device rather than carrying multiple devices performing similar functions. With dwindling user base, there would not be money to invest in innovations and it will be stucked at this level itself. No doubt, laptop manufacturers like Dell and Lenovo has seen the writing on the wall and are trying their hand at smartphones. It will be very sad to see a marvelous product dying but that's the crux of innovations and it will not be wrong to say that laptop has scored self-goal by pushing cloud computing forward!!!

Disruptive Innovation leading to Convergence of Services

Couple of days back, read about a bunch of students from Bangalore offering free calling services. The catch is that users will have to listen to advertisements during the conversation. At onset my reaction was like 'what the heck',  I don't want any silly advertisement to disrupt my conversation. But the response to this service has been phenomenal, more than 4 lakh calls within 5 days of beta testing. On similar lines, in January, Micromax launched a app on its smart phones to reward users for watching ads and similar scheme was launched by Tata DoCoMo where free airtime was offered. There are many such variations being launched where users get freebies for simply watching advertisements.

This got my grey cells ticking. Who could be the users of such services, who would not mind small disruptions for the sake of talking free. Of course not those people who are always pressed for time and won't mind shelling extra pennies to save the time. Had it been 5 years back, these innovations could have targeted college going crowd. But with calling rates already at the floor and with numerous free options available like voice chats, whatsapp, viber etc., it makes no sense. To me, it looks like these strategies are searching fortune at the bottom of pyramid.

So is there a pattern or trend which is emerging? Though some sort of targeting was seen earlier when companies provided free billboards to shop owners, but it never benefited actual customer which we are seeing now. People are getting those services free which they have always assumed to be paid. No one would have imagined that they would get to make free calls or would get paid to watch advertisement. On the other extreme we see emergence of paid services which were always assumed to be free. Gone are the days of free broadcast by Doordarshan when advertisers used to fund the content. People are now paying to watch TV and even going to the extent of paying more for On-Demand channels or ad free channels.

So what should we call it. To me it seems more like convergence of services to target specific segments. One section getting paid for watching advertisement while the other paying extra to get rid of commercials. Both the target segment is different. And the type of commercials will be different. So you can expect those free services targeting poorest socio-economic group or a shade higher. Ads will be more like for products like Nirma, Wheel, soaps, Re 1 shampoos etc. I am expecting, we will soon see this disruptive innovation in number of other areas like transport where one can travel free or cinema halls screening movies free while generating revenues through advertisements. On the whole, it makes a win-win situation as everyone, from advertisers to customers, will be benefiting from this convergence!!!

Economics of Advance Booking of Airline Tickets

Starting December, the airlines ticket prices started going up. It was understandable considering that holiday season is the best chance to make some profits and demand outstrips the supply. What was surprising that the price of tickets for non-holiday season also displayed increasing fares. Bangalore-Delhi round trip which used to cost 9k-11k with 15-30 days advance booking, was costing 15k for month of February. Now suddenly we see 30-day advance booking fares reduced to as low as Rs 8000 for round trip Bangalore-Delhi. It seems to be a great deal which ideally should not be missed and that is why everyone is gung-ho about this scheme. But what is the benefit in this for airlines and on the surface it does seem that airlines will be making a loss with such schemes when they are already bleeding(?).


First of all, such schemes are being launched close to the financial year end. This scheme brings huge cash to the airlines and also make their cash flow statements a bit healthy. The revenue is still considered unrecognized and shown as liability in Balance Sheet till the time customer take a flight, but if it is cancelled with such revenue recognized the previous year and only balance is shown as unrecognized (same scheme was launched last year). Minimum of 40% of this revenue will stay with the company as that is the cancellation fees for tickets, if all customers decide to cancel their tickets. It can be assumed that now started, these schemes will come every year as otherwise operating cash flow will take a hit.

Economics of it: Lets consider the Delhi-Bangalore sector. Regular advance fare on this sector are Rs 4500-Rs 4900. During this scheme, the tickets are priced at Rs 3900. If the cost of capital for airlines is 16%, averaging for an half year to keep it simple @8%, airlines would have paid Rs 312 as interest to get this revenue. Since no one is sure of plans 6 months in advance, lets say 15% of tickets are cancelled and 15% are schedule changes. It brings in additional Rs 474 (Rs 1580 as cancellation/change charges). Airlines do consider these cancellation/schedule changes and overbook factor @20% brings in additional Rs 780. In total, a seat which is being sold as Rs 3900 is actually bringing in Rs 5446 as revenue to airlines companies. This is much better than the regular advance fares which used to be sold at Rs 4500-Rs4800. It is actually a good strategy.

So does this mean are we being cheated? Not exactly, because it is working more like insurance, as you do get cheap fare if you actually take the flight. For travelers, cost of capital is not more than 8%, which averages to Rs 156 for 6 months. So your total cost for flight is only Rs 4050. The only catch is premium for this insurance is very high. It would be a good entrepreneur opportunity for someone to start such exciting insurance schemes. However, airlines have resorted to gimmicks to make this scheme attractive. Like artificially inflating advance fares by 20-30% a month earlier. There has been no recent developments to justify this rise.

But is that reason to complain. I do not think so, as it still works in benefit of customer. In addition, this adds to load factor of airlines and brings in some new customers. Not to ignore huge sum of cash as revenue and not borrowings, that makes their life easier. To me, it is more like a win-win combination and those gimmicks can be termed nothing but Corporate Strategy!!!