Our world, in bits and bytes

Moving

I have relocated my writings to a full fledged blog site (here).

Revenue and earnings forecasts; active vs. passive investing

When companies like Intel are hesitating to forecast revenue numbers because of the current economic environment, do startups need to come up with one for their investors?  The answer is yes, but we may need to give them a little more wiggle room than usual.  The difference lies in the divergence between internal budgeting and external investor communications — as active investors and board members, we have a budget-view of forecast sales.

This however points to one of the differences between active and passive investing: we can manage our own expectations as the fiscal year drags on and actuals roll in. Further we actually assist the company as it grows to meet its forecasts.  On the other hand,  retail (passive) investors in Intel, Manpower, etc., will (in the near term) not have the luxury of expectation and the gains/losses that are bred by beating/missing forecasts.

Narrow based markets (tech, telecom, India)

I was looking at some data put together by IndiaNomics listing the top 50 IT companies in India and the top 30 Telecom companies.   It has some interesting implications for VC/PE investing here.  It is striking how quickly the value graph tapers down to $200M market cap.

• Telecom: The top four operators together account for 90% of market cap.  And this does not include Vodafone which rolls up into the global behemoth that it is.  Even “stars” like OnMobile ranked at 10th (an MVAS company) is valued at 1% of the market cap of Bharti.
• Info Tech: Similar story except the IT services firms dominate the head of the table. Educomp at $900M and in 9th place is less than 5% of Infosys’s revenues.

Of course similar tapers are seen in other markets but the distribution here indicates both a smaller and narrower market.   Building businesses to land up in the mid-caps where investors can exit is not easy ($300M market cap usually implies $300M in revenues and/or consistent $30M profit-after-tax in good markets).

India IT and Telecom Market Value Concentration

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Knock-offs.in

The folks at the young but fastest growing Indian online destination (in.com) have now floated Blish, a knock-off of Tumblr.  Tumblr was a major innovation in the world of personal publishing - it sits between blogs and Twitter defining the space where most substantive thoughts lie.  Some of its coolest features are easy media support, post by email, and Twitter integration.

[This mini-blog is run off Tumblr, for example.  Admittedly, some of my raves and rants run a little longer than the typical Tumblr post but that is besides the point.]

Let us put aside the blatant copying of site functionality and user interface for a minute.  I am surprised at the effort the In.Com team is putting into creating a me-too publishing site.  India claims nearly 70M internet users but most of them have used the net at SOME point in their lives or sporadically at best.   The country has fewer than 6M active users of the internet according to my estimates and most of these folks spend 90%+ of their time on entertainment sites (Bollywood and cricket dominate their addictions).   There are even fewer folks generating their own content (beyond banalities on Facebook usually typed in SMS-speak).

India has a few illustrious bloggers but, do we really need our own blogging platform?   A knock-off at that? And what is the revenue model here?  They could of course wait for Tumblr to figure it out, but then the larger ecosystems of ad-networks at scale, auditable click-streams, etc. does not exist here.

I was talking to Uday Sodhi (who recently moved on from Rediff) and I like the point he made: the online services sector in India is ripe for truly Indian innovation. Alibaba has flourished because it is a Chinese company and not despite it.  We still have to see a thriving, compelling Indian online property.

Managed services

The first conference on Managed Services in India came together in Delhi last Friday at the underwhelming Hotel Lalit in Connaught Place.   I had to be there - not least because I have several investment and strategic interests in the sector (NetMagic, Colt, etc.)

Summary learnings from the show (since some of you asked about my thoughts via LinkedIn:

• The “Managed Services” show was hijacked by a VAS and Telecom agenda.  Not least because the primary sponsor, Comviva, formerly called Bharti Telesoft used the show to launch its new name.  Comviva is one of the largest providers of so called value added services (VAS) to mobile operators and their services range from outsourcing billling functions to managing roaming and ringtones and gaming.
• The morning keynote was followed by a couple of panels primarily focused on the telecom operators imperatives: why outsource?  To convert capex to opex?  To reduce opex?  Been there done that; but VAS vendors can also provide them new revenue opportunities.
• Some of us with a more enterprise-centric view of managed services were hanging on until the last session when a couple of operators finally got around to what seems to be a totally new idea to them: managed connectivity, managed hosting, managed security, managed routers, etc. etc.  The party broke after a few insipid questions and answers.

Despite the negativity in my coverage of the show, I think this was a good starting point.  There was a fair representation from IT services firms, operators’ enterprise solutions crews, and managed services focused startups.   I am hoping that somebody does a better job putting together a good show on managed services.  The market and solutions both exist and are thriving here even if this show missed them completely.

While I am on the topic, NetMagic has been getting a lot of press this week - they launched the first cloud computing offering in India.  To quote the story: “While there are various definitions of cloud computing given by various vendors, what it basically entails is the provision of every element of IT infrastructure available as an on-demand service, including operating systems, applications, storage, servers, appliances and workflow management.”

Monetizing content in emerging markets

(I’ve got a slew of thoughts sitting in my drafts folder that I need to get out today.)

Money-spinning content engines in the West may have to think hard about their emerging market strategy; especially markets like India.

One case in point: HBO which is a premium commercial-free channel in the west (I used to pay $10/mo to receive it) is FREE in India and competes with 200 other channels. And the excellent Hollywood fare it belts out is interrupted every few minutes by commercials.  Turns out there isn’t much else you can do in a market where ARPUs are $3-$4/month.

And a second: A couple of nights ago, I had dinner with the chief strategist for one of the largest media brands in the world.  The company has done well to monetize its content in almost every major developed market, primarily through paid subscriptions and ad-supported services.   However, their India entry efforts are in a bind.  Their content is well suited to broadcast, print, online and mobile media.  There are regulatory hurdles which prevent them from owning media outlets directly so they have to work with existing distribution engines.  Unfortunately these folks aren’t used to sharing revenues with content owners: the typical content revenue share in any value created is between 5% and 20%.  And yes, the brand does not go very far in these discussions.

So how do mediacos monetize their content in a market where nobody is willing to pay for their content and ad-revenues are likely to be usurped by their channel?

Oil prices

Oil prices rose sharply Thursday despite recent indications that energy use is way down.  The trend chart also looks interesting.  Is this the beginning of the end of the gloom?

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OmniGlobe trotting

That little company in Montreal that my Columbia Business School classmate Jason Neale and I founded in 2004 is now reaching puberty!  We made Branham’s list last year as a top 25 company but this year we are the fastest growing IT company in Canada.   OGN ranked 164 in the top 250 tech companies in all of Canada.  I am proud of what the team has achieved with so little.

Mobile value added services

Last Friday (March 6th, 2009), I was invited to speak at a day long conference on Mobile Value Added Services organized by the local chamber of commerce.  This was one of the better attended shows I have been to lately - most conferences this year have been disappointing.    The entire program would be of interest to anyone wanting to learn more about the #1 telecom market as of this month where 15M subscribers are being added each month across 8 competitive operators.  Leading operators are generating over 20% EBITDA off the backs of 300M+ subscribers who spend less than $5/month (ARPUs) and talk up a storm (max MoU per month in the world).   More on operator economics in a separate post, but this blah-blah is more about so-called Mobile Value Added Services (mVAS).

The day-long video is interesting:  http://www.24framesdigital.com/imc/060309/

But, yours truly gets busy speaking his mind on investing in the space on a panel with my cohorts from Matrix, Morpheus, and Canaan Partners.  http://www.24framesdigital.com/imc/060309/panel_discussion.htm

India update

I moved to India in June from the US, so have developed a personal view on the situation here, if it interests you:

At a macro level, we have seen a gradual dampening of growth (down from 9% forecasts for 2009 a few months ago to about 5% to 6% now. The IMF projects it at the lower end of the range and the self-serving politicos claim the higher end. Some sectors like IT and BPO (about 15% of GDP) which are directly export linked are expected to suffer but domestic consumption continues. Sectors like Telecom and Consumer Goods (non-durables) are growing well.

At a more micro level: Anecdotal evidence suggests that firms and families are beginning to review discretionary spending. So new car sales are down. What had emerged as the fastest growing aviation market is hurting badly as vacations abroad are no longer the talk of house parties. Malls are busy but primarily at eating establishments. Stock markets are down 65% from their year ago highs. However, there is rampant optimism that rural consumption, some sectors like telecom and a resurgent IT/BPO sector will see the country through the global crisis.

Jobs: Some multinationals have been shedding jobs here since they effectively used India as a back-office to a crumbling front-office in the West. But domestic (especially public sector) banks are hiring. The largest employer in the country is (to my amazement) the federal government and we are heading into election season here. Couple that with stringent financial controls on banks and insurance companies and I feel we have enough dykes built around the economy to hold out for a few months at least.

What could go wrong? India’s emergence as an Asian tiger has been fueled primarily by foreign investment. We have had our own Enron here recently which doesnt help stock market valuations. A couple more of these and foreign investors will exit this market in a hurry. The local currency (Indian Rupee) is down 30% since I moved here in June closing at about 52 INR/USD on Friday. That is another impediment to FDI here since every dollar generating returns in rupees has to produce 30% just to break even. And yes, if the rest of the world gets a lot worse, then all this wont matter. We will be back to a closed, socialistic, primarily agrarian economy.