Prayatna

Reliance to set up Craft Training Institute

According to an ad in The Times of India (print edition May 03, 2006, pII of Ascent Supplement) and also a post on the company's web site, Reliance Industries is setting up a Craft Training Institute in Jamnagar.

RIL group, as a corporate citizen, has always believed in creating "employability" apart from providing employment. Towards this, it is in the process of establishing a World Class Craft Training Institute. This world class facility will have latest generation equipments and machineries imported from best of class manufacturers and will be located at Jamnagar.

The Scheme

We will bring in thousands of youngsters - skilled / semi skilled / partially skilled / unskilled from all over the country and provided temporary barracks - labour accommodation with full facilities through contractors. The institute will train them in respective trades with proper process for "Certification".

Current estimate warrants training of (assuming 50% will be Certified):

Welders - 8000,
Carpenters - 5000,
Pipe Fitters - 5000,
Grinders - 5500,
Mill Wright Fitters - 2000

Immediately on certification, they will be absorbed by our contractors and be deployed on our world scale project at Jamnagar for a period of approx. of 2 years. Thereafter, Reliance is confident that these skills, which are badly required, will have an unlimited market and therefore, offer a great earning future prospect to these youngsters around the globe.

This kind of a model of vertical integration is typical of Reliance. They're into training, absorb the best graduates into their own company for their needs and then farm out the surplus graduates to other companies. They did something similar in the sales/customer training area when they were looking for trained staff for their telecom venture and ended up buying the training outfit, NIS Sparta.

This will help boost the overall supply of skilled personnel in the manufacturing sector.

Reliance is looking to hire a Director, Dean and Faculty Heads for Reliance's Craft Training Institute, which was the purpose of the ad.

How TV changed the movie industry and how Internet could change the book publishing industry

A comment on a post about the impact of the Internet on the publishing industry makes an neat analogy. It suggests that the Internet will probably change the book publishing industry the way TV changed the old movie industry.

The old movie studio system is similar to the current publishing houses. Centralized production and promotion. The studios died and currently, the big movie stars have to hire their own staff of promotion people to support their celebrity. It used to be that this was handled by the studio. The internet offers the opportunity to decentralize the process. Independent marketers, writers, editors working a project like an actor or director for a movie. Better get a good agent quick.

I had earlier written about how Amazon could do an eBay for book publishing.

Rather than relying on publishers who decide what to publish and take on the risks of publishing a title, a new entity could help authors by setting up an eBay like portal for publishing tasks. Authors could then take on the risks of publishing (keeping all the rewards to themselves), and outsource all the actual tasks of a publishing house to editors, printers, distributors, marketing agents etc. who would all bid for jobs by various authors, through the eBay like portal.

What happened to the old movie houses is very likely to happen to the publishing business over time. Lightning Source (printing on demand) and Ingram (distribution) already offer to help authors take on the publishing risks. What is needed is a means for authors to find editorial and marketing help at a price they can afford.

On a related note, the Freakonomics Blog discusses if the Internet is the Publishing Industry’s Best Friend.

Tapping students to work for businesses, while they are still in school/college

Business Standard (July 20, 2005) reports on BSNL's move to get students to sell its broadband connections.

Bharat Sanchar Nigam (BSNL) has introduced a new scheme whereby students will install and sell broadband connections.  A commission of Rs 100 shall be paid to the student by sub-divisional engineer (SDE) in charge of broadband, after receiving a satisfactory report from the final user.

D K Agrawal, principal general manager, BSNL, Gujarat circle, said: "Engineering students, school and college students or any one who has passed the class 10 can sell and install these broadband connections."  Students will get the broadband form filled by the customers with the initial amount, that includes registration and security, and submit it to BSNL. Any student willing to do installation can go with lineman and configure customer premises equipment (CPE) and install the necessary software.  He will have to test the connection and demonstrate the working of broadband to customer, added Agrawal.

On registration with advance rental and security deposit, a commission of Rs 50 is paid and on installation of connection a commission of Rs 25 is provided to the student. On receiving 1st paid bill, additional bonus of Rs 25 will be paid. Students willing to do installation of broadband connections will be trained free of cost by the supplier or BSNL.

When asked about targets, Agrawal said that for installation of broadband connection, at least two installations per day is mandatory and for sale of broadband connection, at least 25 new broadband connections per month are a must.  The registration will be cancelled if the students fail to achieve this target. There will be a bi-monthly progress review, he added.

This seems to be an excellent idea to experiment with. The biggest challenges for BSNL will be in training and managing a diverse body of students and ensuring the quality of service provided by the students, especially when they won't be employees. The report claims the student will go with the lineman to install the software - BSNL's linemen themselves are no paragons of quality. Poor quality of service can affect the brand, but BSNL probably doesn't care as much about its brand, as other private telecom providers, which is why it is even willing to experiment. No private provider would have considered such an idea.

In an earlier post, I had looked at the possibility of tapping school and college students to create local information service businesses. I think there's a lot of potential for businesses to tap into the student segment and benefit not just in terms of access to low(or no) cost resources, but also in terms of brand as well, if they are able to carry it off well. Kinko's in the U.S. have been successful in getting high school students to run a Kinko's store (they do it as part of their curriculum without getting paid).

The store is part of the curriculum offered by the Global Business and Information Technology Academy within Southfield High. Students in business classes are assigned to work at the store, handling all areas of operation from marketing to management. The store provides office products such as business cards and services such as copying and flier production to its clientele. The equipment to establish the store is sold by Kinko's to the school district at cost, and all profits from the store are redirected into store operations and a scholarship program for seniors in the Academy. The school saves money on equipment, receives higher quality services and products, and the profits return to the school and students rather than to a vendor.

Tina Richmond, the Kinko's liaison for Southfield High, explained that the Southfield program is a way for the company to advertise its name, while providing great service and educational opportunities to the school district and its students.

It will be interesting to see how BSNL's experiment shapes up.

A new book industry business model

I stumbled on this proposed new book publishing business model via Om Malik, which would extend the self-publishing models in vogue today to the limit.

The model has been put forward by Peter Redford who has set up a blog to develop his ideas and business model out in the open. His new publishing business model is built around a web portal to publish books. He's named his company Browse Books Inc. and his web portal is at http://www.browse.net/, which currently points to his blog.

Here's what he says on his blog (excerpted from a series of posts).

I am a serial entrepreneur.

I try to guess the next big thing and then build a company to bring it to market. I always need a monster market, an unfair competitive advantage and a business model leveraging this unfair advantage.

It's time again to hunt for the next big thing and I have an idea. The idea is to build a new book publishing empire. Like Random House or McGraw-Hill, but better... This is going to be my monster market.

"Puny little $100 million markets don't interest me; I like the ones that are monster in size", as Don Valentine of Sequuoia Ventures would say. That is also what I am looking for.

Consumers spent $63 billion on books in 2002, according to Euromonitor International. $35 billion of this was sold in the US and $11 billion in Japan. Table below shows the retail sales of the top 5 World markets for books.

Retail Sales of Top Five World Book Markets in 2002
($ in millions - Sourc: Euromonitor International)

$34,920.10    United States
$10,945.60    Japan
$  7,914.60    Germany
$  5,565.60    China
$  3,729.40    United Kingdom

Structurally, a business is based on ideas: a monster market, an unfair advantage and a business model that leverages that advantage. Operationally however, traditional companies run on people: suppliers (input), employees (processing), and customers (output).

My holy grail is to build a multi-billion dollar company that operates without people. This implies complete automation of input, processing and output functions.

One company that comes close to this ideal is Ebay. Billions of dollars are made by Ebay through an automated auction Web portal. Sellers register their products on Ebay by using an automated on-line form (input). The web portal displays the auction for a specified period of time and facilitates the payment transaction through a serive provider, PayPal, (processing) when the highest bidder (output) wins the auction.

Can a publishing company be automated like Ebay?

A publishing company’s input is in the form of book manuscripts from authors. The publishing company processes these manuscripts into finished books. It then outputs finished books to book sellers. My business plan is to create a Web portal called Browse that completely automates book publishing.

I now have all three essentials of Browse crystallized:

• Monster market: book publishing;
  
• Unfair advantage: new “merged-media” book format, every book will include a DVD with related electronic media -- merged through DVD menus;
  
• Business model that leverages that unfair advantage: books produce themselves via the publishing portal and Browse gets a cut of each transaction in the process.

But is it profitable? Profitability will depend on:

• Head-count
  
• Book pricing
  
• Pricing of services
  
• Percentage that Browse keeps from each transaction
  
• How fast we grow in terms of book titles.

This is as far as Peter Redford has gotten on his blog now. He's created a trial press release for browse.net which explains how the model would work.

Sramana Mitra calls Redford's model the Open Source of Book Publishing, Om Malik asks what is Open Source about this, and Peter Redford responds by saying the "the portal is the company in his model and asks what could be the Open Source rules when the software IS the company?"

What would be the impact of this model, if it catches on?

• It could gradually disintermediate the mainstream publishing houses over time, with the editorial and publishing talent preferring to set up shop on their own rather than work for a big name publishing house, now that they can find work themselves by bidding for it on the Browse.net portal.
• It would shift the risks of publishing from the publishing houses to the authors who would now be in a position to finance the publishing of a book from manuscript to delivery to the readers by finding a set of people (editors, distributors, marketing agents etc.) willing to work for them on terms acceptable to them. This could be the start of the long tail of talent.
• It could provide a huge boost to the (long tail of) content  on the supply side (the creation of more content) with a wide and extremely dense spectrum in the range of subjects and genres as well as the quality of content. Lots of moderate/poor quality books can and will  begin to see the light of day and this is no bad thing. A few poor/moderate quality books are better than no books at all in many  areas where there are few or no books available today. This is especially so in the context of publishing in various Indian languages (Tamil, Telugu, Malayalam, Kannada, Bengali, Gujarati, Punjabi, Marathi, Hindi etc..) that command far smaller markets than English. The size of the entire Indian book publishing industry is estimated to be around US$ 1.3 billion per year, of which about half a billion dollars comprises English publishing in India with the rest being Indian language publishing. There could be a huge surge in publishing output in such languages with smaller markets.
• It could provide a huge boost to the (long tail of) content on the demand side (the consumption of content) with a dense and dynamic spectrum of price points (changing in time)  and types of content consumed, in terms of level of depth as well as the quality of the output.
• It could be extended all the way to the retail consumer, with retail users participating in open auctions to arrive at the optimal pricing of books.

This is one model I'm going to be keenly following as it develops.

Economic castles protected by unbreachable moats: should the moats be wide or deep?

[via Yahoo] An article in Morningstar.com quotes the Oracle of Omaha, Warren Buffett, who said "In business, I look for economic castles protected by unbreachable 'moats", and points to Buffett's philosophy of wider moats being far more important than the deepest of moats.

Many investors easily surmise the first point about moats--that a competitive advantage is required--but they miss the importance of the second, which is above-average returns. If the business doesn't throw off attractive returns (making the castle a worthwhile target for competitors), then who cares if the business has a competitive advantage? Autos and airlines are two businesses with very high barriers to entry, but few new competitors are trying to crash the party in a race for single-digit ROEs or bankruptcy.

Over the years, Buffett has frequently referred to his desire to widen the moats of his companies, but it's rarer to see him refer to a moat's depth. In his 1995 letter to shareholders, he notes his pleasure in the widening of auto insurance subsidiary Geico's moat, thanks to rock-bottom operating costs falling further and improved underwriting. A year later, in his 1996 letter to shareholders, he notes that "The economies of scale we enjoy should allow us to maintain or even widen the protective moat surrounding our economic castle." In a 2001 memo to employees, he writes, "What should you be doing in running your business? Just what you always do: Widen the moat, build enduring competitive advantage, delight your customers, and relentlessly fight costs."

Thus, assuming the competitive advantage is of sufficient depth, it can be more productive to widen the moat than to deepen it. To purposefully strain the analogy, it doesn't really matter if the moat is 10 feet deep or 100. Knights aren't going to capture the castle by shoveling dirt into the moat and walking over the refilled trench; they're going to use a ladder or a drawbridge.

The long tail in software on the supply side as well as the demand side

Joe Kraus, the founder of JotSpot, recently described the potential of the long tail in (business) software on the supply side.

These three facts

• every business has multiple processes
• processes that are similar in name between businesses are actually often highly customized
• there exist a large number of processes unique to millions of small clusters of industries.

means that there is a combinatorial explosion of process problems to solve and, it turns out, little software to actually support them. Said another way, there is a long tail of very custom process problems that software is supposed to help businesses solve.

Inaccessible Tail

In the past, software’s long tail has been generally inaccessible because software has been

• Too difficult to write
• Too expensive to write and distribute
• Too brittle or expensive to customize once deployed.

It just hasn’t been economical for someone to create a custom software company to help architecture firms. That’s why, in the software business, the traditional focus has been on dozens of markets of millions instead of millions of markets of dozens.

So, my tip for entrepreneurs? It’s all about the long tail. Whatever business your starting, think about how to serve millions of markets of dozens instead of dozens of markets of millions. Serving the head isn’t a bad strategy. You can build a great business. But, figure out how to serve the tail of your market efficiently and you’ve got a blockbuster.

The Economist  reports on Softwide, an example of a business exploiting the long tail in software on the demand side. But the software in this case is not limited to just business/utility software, but educational and entertainment software as well.

Softwide is a kiosk-based approach to selling software on the high street that makes obscure but useful titles available to a far larger market. Set up by Daniel Doll-Steinberg in 2002, this long tail business is a hyrid of electronic storage (online as well as on local hard disks) and online as well as offline distribution through physical stores. Here's how The Economist describes Softwide's business.

Mr Doll-Steinberg originally set out to increase the range of software that could be sold in existing shops. With limited shelf space, most shops stock only a few dozen titles. So his firm, SoftWide, devised a kiosk-based system that can store thousands of pieces of software on a hard disk, burning a disk only when a customer wants to buy a particular title. The first kiosks were tested in WH Smith, a British retail chain, and in Fnac stores in France. But having some titles in boxes on the shelves, and others provided by kiosks, was confusing. So Mr Doll-Steinberg decided that SoftWide should open its own chain of shops. The first two opened in London in 2002, and have since been followed by three more.

In computer superstores, 60% of software sold is games, and about 35% is business software. In SoftWide's stores, in contrast, 50% of the software sold is educational and reference software (much of which is otherwise only available by mail order), 30% is business software and only 20% games. More than half of SoftWide's customers are women, and many are pensioners.

SoftWide's unusual model has a number of benefits over superstores and online downloads, Mr Doll-Steinberg insists. It makes it possible to offer customers advice, which is hard to come by in big superstores where shelves must be kept stocked. Users feel more comfortable with physical disks than with downloads, which can go wrong, cannot be resold, and are unsuitable as gifts. And popular products cannot sell out.

Mr Doll-Steinberg believes he has discovered a huge untapped market. In Britain, the educational and reference market is worth £50m ($96m), and has been in decline since WH Smith pulled out in 2000. Its stores stocked only 50 titles; SoftWide's kiosks hold more than 2,000, including programs to help people learn yoga, stop smoking, design a garden, prepare for a driving test, write business plans and complaint letters or fill in government forms. "Most of the people who come into our stores have never bought software before," says Mr Doll-Steinberg. "They say: 'I didn't know you could do that on a computer'." Such software, he says, should not be relegated to an obscure niche. He estimates that the market could be worth more than £600m.

The article does not say if business/utility software is also sold through Softwide, but it certainly can be, and its quite likely that it is already happening.

Specifically, in a market like India, apart from educational and entertainment software, business/utility software targeted at the large number of very small businesses and homes will require support for installation and help in teaching the users how to use the software. I think Softwide's model can be suitably adapted to build the software distribution network for SMEs in India with the kiosks serving as both demo outlets as well as sales outlets.

Bezos on Amazon

In an interview with Wired Editor Chris Anderson (of  long tail fame), Amazon CEO Jeff Bezos says,

We not only help readers find books, we also help books find readers, with personalized recommendations based on the patterns we see. I remember one of the first times this struck me. The main book on the page was on Zen. There were other suggestions for Zen books, and in the middle of those was a book on how to have a clutter-free desk. That's not something that a human editor would have ever picked. But statistically, the people who were interested in the Zen books also wanted clutter-free desks. The computer is blind to the fact that these things are dissimilar in some way that's important to humans. It looks right through that and says yes, try this. And it works.

This is an example of Chris Anderson's long tail idea.

I think online ultimately will be 10 to 15 percent of retail. The vast majority of retailing will stay in the physical world because people have acute needs, they want things now. Also, there are products, like a yard rake, where the economics of delivery don't make sense. But a 600-pound table saw is a great item to sell online because it always gets delivered. And it's expensive enough that there is enough profit in it to cover the cost of shipping. Plasma TVs, same idea.

Bezos believes that physical bookstores have some advantages over online ones,

One thing is face-to-face meetings with authors. And what Howard Schultz at Starbucks likes to call a third place, where people go and sit and spend time. We humans are a gregarious species; we like to mingle with other humans.

but print-on-demand will work better for online stores than for physicals stores. Apparently, Amazon are already printing books on demand for online orders today.

That's a possibility, but I think that's a pretty small part of what would happen there. Print-on-demand actually plays more to the strengths of the online world. We already have many in our catalog, but it's invisible to you, the customer. We use a number of companies that do the actual printing, but we mail them like regular books. They look like regular trade paperbacks.

On Amazon's expected launch of a business competing with Netflix,

that is a business we know something about. One of the big costs here is that an extremely large fraction of those monthly subscription fees are used to acquire new customers. Amazon is well positioned to offer a low-priced service of high quality, and we wouldn't have to pay heavy marketing fees.

Bezos then goes on to add that Amazon believes its better to put the marketing spend into improving service and making it great rather than shouting about your service.

About three years ago we stopped doing television advertising. We did a 15-month-long test of TV advertising in two markets - Portland, Oregon, and Minneapolis - to see how much it drove our sales. And it worked, but not as much as the kind of price elasticity we knew we could get from taking those ad dollars and giving them back to consumers. So we put all that money into lower product prices and free shipping. That has significantly accelerated the growth of our business.

I'm not saying that advertising is going away. But the balance is shifting. If today the successful recipe is to put 70 percent of your energy into shouting about your service and 30 percent into making it great, over the next 20 years I think that's going to invert.

Is iPod the razor or the blade? and Is the Mac Mini the iPod equivalent for movies?

Robert Cringely asks if the iPod is the razor or the blade, drawing an analogy to Gillette's marketing innovation over a hundred years ago.

Gillette's marketing breakthrough was selling the razor handles at little or no profit while making huge profits on the consumable -- the blades. This same technique is used today to promote mobile phones and inkjet printers. And it is supposedly behind Apple's success with the iPod music player.

But in the case of Apple, is the iPod a razor or a blade? In other words, is Apple a hardware company or a media company?

I think they are a hardware company, but one very well-informed reader with whom I've been discussing this disagrees.

To me, it seems that Apple has reversed the relationship of razors and blades, and eliminated the loss leader role entirely. Apple makes very little money from selling songs, but it does make some profit. Apple makes a LOT of profit from selling iPods. So the song is the razor, not the iPod, and that's because the price sensitivity is currently about the content, not the player.

Apple's margins on the iPod Mini are about 30 percent from the retail channel and 60 percent through its own stores, so let's say that's an average of 35 percent or $75 on an iPod Mini. Apple makes about $0.20 on each song. So to make more money from the songs than from the iPods they'd have to sell 375+ songs per iPod. Apple has sold 250 million songs to date and has sold 10 million iPods. That is 25 songs per iPod, not 375+.

How long does a digital song last? If the customer is careful, it should last effectively forever. How long will an iPod last? The life expectancy of a mobile phone is 18 months and the life expectancy of a PC is 3-5 years. I'm guessing the life expectancy of an iPod will be something in-between, on the order of three years. That means Apple can expect to make the profit equivalent of 375 songs every three years from selling a new iPod to each old customer.

So Apple isn't in the content business, they are in the hardware business, and will be for sometime to come.

But he also provides a counterpoint from one of his readers.

"I see your point on the iPod being the razor, but we thought of it more as the blade since it is essentially the disposable item. You will constantly be upgrading your iPod, much like you buy improved razors and as you point out, the music file should last indefinitely..."

"As for Apple being in the content business, let me offer a comparison. In the 1970s, Motorola used to tell people it sold technology. You talked to any of the SPS engineers, production control managers, marketing people, etc., at their facilities and operations in Phoenix, and they would say that 'we make and sell technology.' But between 1978 and 1982 they stopped saying that. They began to say 'we provide the technology.' That subtle shift in language reflected a change order of magnitude. Technology migrated from being a product to being the process (an enabler) by which things happened.... It seems to me that Apple is now making that shift. They appear to recognize that digital or electronic technology is no longer a product but a process, an enabler of activities rather than the activity itself. When I bought my first computer, I was buying a computer. Sure I wanted to write programs to do things, and use software that did things, but fundamentally I was buying a product that was about the product."

He then follows up on his previous article which speculates that the new Mac Mini is all about movies. He suggest that a video distribution service from Apple (like the iTunes audio distribution service) based on the Mac Mini as a high definition movie machine (like the iPod is to music) is likely to be in the making.

Fascinating stuff  - another sign of  the revolution in the making in the area of content business models.

Times of India plans to put out a branded RSS reader for its users

Steve Yelvington writing in E-Media Tidbits, a group weblog on online media/journalism and publishing says:

One of the issues publishers have with RSS (a.k.a., webfeeds) is that it can divert usage from the home page -- where we have control of presentation and can include advertising -- to an unpredictable set of RSS software where we get no branding and no ad slots. The Times of India is working on something that could make those issues moot. It's a custom RSS reader that the Times intends to make available to its users. Nikhil Soman provided a brief peek over the weekend at one of the NEXPO sessions in Washington, D.C. Providing a branded RSS reader makes a lot of sense, although there's always the possibility that Microsoft will seize RSS the way it seized web browsing, building a reader into Internet Explorer.

In India, with awareness of RSS being very low amongst the general Internet audience, will Times of India (ToI) be able to push its branded news reader to the masses, given its huge marketing reach through indiatimes.com as well as its print dailies? If ToI is able to do it sufficiently quickly, there's a good chance that they can own the newsreader space for some time to come.

It is interesting to see ToI coming up with interesting initiatives like this. I didn't imagine any Indian media group would be thinking along such lines.

If and when ToI goes on a marketing blitz to push the RSS reader, that could be the big boost required in India to take RSS usage to the next level.

Indego - A new car industry business model proposed

Financial Times reports (via Business Standard) on Indego, a new business model for a new-style car company. According to AT Kearney and Martin Leach (former head of Ford Europe), who have developed the model, the business could be profitable in three years and make a long-term operating margin of almost 22%, more than four times the norm for volume car manufacturers.

The car industry currently works by massive investments in factories which produce large numbers of vehicles to push through dealers as news sales, with the second-hand market left to itself.

Indego would set up small assembly units in retail parks, importing most of the car in flatpack form from India or China and, partly thanks to plastic panels replacing paint, allowing fashion to dictate rapid changes.

Broadly, the new model is of a company selling trendy transport solutions rather than cars. The customer would pay for a package, not just a vehicle.

Production would actually be slightly more expensive than the big factories, because of the loss of scale and the "soft" tooling which lasts less time. But the plants would be more flexible allowing more frequent updates of vehicles, so there is always something fresh to persuade drivers to upgrade to.

But the cards would not be sold. The biggest increase in profitability, on the Indego model, would come from leasing the vehicles - so when one driver returns a car, it can be refreshed and released as a second-hand model. In effect, the second-hand market, profits from which are currently shared by dealers and private buyers, would be controlled by the manufacturer. Leasing also opens up the world of financial services.

Customers have to take insurance from the manufacturer but, beacuse there is no second hand market, there would be little incentive for theft. What would you do with a stolen car you couldn't sell? So the insurance could be cheap and profitable.

Servicing and repairs would be included in the lease, again locking in profits not currently seen by manufacturers.

The other big changes involve cutting costs. Research budgets would be kept down by concentrating on having "good enough" products, not the best; development costs would be low because cost would be outsourced. On the other hand, customer-care would all be in-house, reversing the current model of outsourced call centres.

Some of what is being suggested is already underway in the industry, while much of it is lifted from successful businesses in other sectors including Dell, the computer maker; EasyJet, the airline; and Zara, the clothes retailer.