Jio just announced that they're ready for 5G deployment by next year. How can they be ready so quickly when the rest of the sector is busy evaluating whether it even makes sense to do so? Let's understand how.

Leapfrogging - Generally bigger well-established companies improve their services/profits through small incremental changes. However sometimes, other companies come up with a new technology and that disrupts the whole space, leaving the previous incumbents in dust.

Jio has done the same with telecom.

Before figuring out how Jio leapfrogged others, it's important to understand how telecom systems work. In simple terms, there are two legs of a telco system.

The first one is the network station which connects with the mobile devices (which we fondly called 'tower').

The second leg is the backbone of the system connecting different 'towers' into a network. Traditional networks have a network of switches while Jio has a fiber-optic backbone.

To enable 5G speeds, each telco has to setup 5G enabled 'towers'. They also have to buy the spectrum to enable it. That would take care of the first leg.

But the backbone is where Jio beats everyone else.

Jio is the world's first and largest all-internet telco infrastriucture. So, when you call a friend, your voice is converted into small data packets and sent over to your friend just like a photo or video on internet. Reliance has spend 150,000 crores building this fiber-optic network over several years.

Other players have 'a network of switches'. When you call a friend in another city through a traditional network, you're connected to them through a series of switches. Imagine having a direct wire connected between you and the buddy. Whatever you say is output to them directly. Your connection is direct in a way. But this also means the network can support limited people and speeds. So, in order to catch-up, other players would have to invest huge amount of money.

The double whammy is that they're already under 150,000 crores of debt load while Jio just reduced their net debt to 0. It's fairly clear who's going to lead the Indian 5G story.

The zoom stock has really been true to its name, zooming ahead, racking up returns like nothing else. Not only was it not affected by covid-19, in fact, it turned out to be a baller stock. The stock, which had IPOed at about 40$ a share was already up to 100$ when the pandemic struck. Post that it went up about 2.4 times to 240$ per share.

I understand the euphoria behind the stock. But I also think that a lot of zoom's future is grossly overestimated. A few points made regularly in support of the stock's future are:

• Remote work is the future bro!
• Zoom is such an awesome product bro!
• Did you look at their earnings growth bro?!...

These are all very valid points. But they're true only in the current situation. If we want to justify the current market price of the stock, we need to look at the future. The stock is priced to perfection. Based on an analysis by Tanay, the company needs to grow at a crazy pace (~77% every year for 5 years) AND maintain its attractive margins till 2025 to justify the price right now. I'll try to dig deeper into reasons why it possibly wouldn't. At the end of the piece, if you think the fears are overstated, you can atleast agree that the risk here is definitely more than what's being perceived right now.

How do B2B sales work?

B2B sales are very different from B2C sales. For a B2C sale, things like branding, loyalty, perception matter as much as the actual product. That explains why Apple was able to sell so many phones back in late 2000s even though Android had some compelling devices in the lineup.

For a B2B sale, the equations are simple - Companies want the best product at the cheapest prices. The process of purchase is not based on 'feels'. The product specs are compared, products tested out, and based on the price difference the final product is selected. So we can boil down B2B sales to 3 key factors - feature set/performance, distribution, and prices.

Attracting the sharks - how long before the features don't matter?

Video conferencing isn't really a new beast. It has been there for long but none of the bigger competitors had really solved for it well. As a result, legacy players like Cisco Webex were doing great work, based on their core competency of networking. However, remote meetings and online interactions had not been mainstream for a long time and people preferred face to face meetings. But with the increasing bandwidth all across the world and more cultural acceptance of remote meetings compared to in-person meetings, the market has been growing tremendously. Covid has helped push this change in social psychology which bodes well for the business and not so much for the smaller players.

A lot of noise about this opportunity has meant a lot more focus on it by other larger players. Bigger firms like Microsoft and Google HAVE to look at new growth opportunities to meet the expectations set by wall street. So, if a big enough opportunity shows up, they are not shy of capitalizing on it and adding to their existing topline and bottomline. MS and Google have been doing exactly that. Google has focussed on a 'meeting' product and MS has worked hard on strengthening their video conferencing product that's bundled with MS Teams.

Compared to Zoom, these organizations have a lot more resources. With focus, they can meet and exceed the feature-set provided by Zoom no matter what they might be - weak-internet performance, drop rates, video quality, concurrent connections, latency etc. It's a matter of time when that tip happens and from the looks of it, it's going to happen sooner rather than later.

Distribution - the key to this business!

Once the feature set discussion is done, it becomes a game of who can reach how many businesses. Zoom's bad luck is that the people that it sells to are the same people who buy from Google and Microsoft.
What's worse, EACH organization has to reach out to Google or MS to setup its business basics like Gmail/Google suite or Outlook/MS Office.

Let's see how much Zoom spends on sales and marketing.

We can see that it spends about 70% in Sales and general expenses. That figure is huge! But let's say with a larger user base, the figure comes down to about 30%. How does that compare with Microsoft and Google? If you think about it, the big dogs wouldn't spend anywhere close to 30% on selling their new video conferencing product. The selling cost would be marginal for them considering  they already have a large sales force which is selling similar products to the same businesses.

It's a huge advantage for the big players that they would not think twice before milking. What's going to happen once the big dogs match-up with Zoom on features and understand they don't have to spend a lot of additional money on sales?

We should look at how MS teams scaled up compared to Slack when they hit feature parity. It left Slack CEO cribbing about how MS 'copied' features. Sadly, they could do no more. Check out this graph below on the number of active users for Teams vs Slack. I'm sure MS Teams padded the data here so it might not be super accurate. But this gives a fair enough warning.

Eroding margins - competing on prices

The only logical step would be to undercut zoom on prices. Now, this need not be a straight 20% discount because that would attract lawsuits. It can be done much more subtly.

Imagine you're a startup or a small enterprise with about 100 employees. You need to provide a useful communication tool to your employees so that they're more productive. You reach out to zoom and slack and you see it's going to cost you about 100,000$. On the other hands, MS Teams offers you the same setup at 30,000$ additional expense on top of your existing MS Office subscription. Considering you're tight on budget (as always) and the 2 products have similar features and performance, what would you do??

Of course, you would rather extend your MS Office or Google license and purchase this service as an add-on.

At this stage, the products would be almost similar and the price for the big dogs would be significantly lower, and we would see the growth for zoom and slack tapering off. Over a longer period of time, we would see customers migrating away towards MS or Google considering setting up a new VC system for your organization isn't that much of a hassle. Especially since you'll be saving money. The market would have matured and all the euphoria around zoom would die out and its market cap would get added to MS/Google's.  

So how can I make money off this?

What's an insight where you don't have a skin in the game. In the current crazy markets, it's really tough to take a call (or a put :p).

Markets can remain crazier than you can stay solvent. It's a risk especially when you're shorting stocks with margin.

In this case, the best thing to do would be to track earnings posted by zoom. And short it when we see weakness in the growth story. The euphoria around a stock typically wears off when the market sees less than expected growth in revenue/earnings. That's why a lot of executives are driven to do everything just to meet the quarterly numbers set by the wall street folks. So whenever the earnings wiggle and we see volatality in the prices, go short!

There are two major ways to make money. You either create something out of nothing - a product or service that others are willing to purchase. Or you connect the people who sell ‘something’ with those who would buy ‘something’. In medieval times, traders used to make a ton of money taking risky journeys, sourcing items of value and selling it at places where the items might be required. Technically, there is another way to make money by walking up with a gun to someone and acquiring their possessions (or them for that matter). However, we’re going to keep things legit and not venture out there.

In modern times, as a lot of goods and services have become intangible and it’s much more easier to whip up a bunch of code, put it on the internet and boom - you’re now platform which connects buyers with sellers and are now generating value! Like every business, every platform eventually has competition. Basic law of economics - If you’re making a tooon money, someone WILL come in and try to steal your pie. For every Uber, there’ll be a Lyft; for every Ebay, there’ll be Amazon; for every Google, there’ll be Bing. Wait! Scratch that last one.

There’s one little challenge with a platform business. For a platform to succeed, it’s very important to be the biggest, most efficient one out there. Why is that the case? If you don’t have consumers, you lose your attractiveness to the partners providing service. If you don’t have enough products of partners providing good quality service, you lose your attractiveness to the consumers. It’s like a big-ass flywheel. Difficult to get going, but if you’re able to get it going, you can rip through the competition and diversify like no other business. This is called the winner takes all dynamic of marketplaces.

This brings us to the question - how to become the winning marketplace? Well, the answer varies for each ecosystem. In general, you need to bring in the creators or the providers of products/services first. As a customer, you wouldn’t want to go to an empty market. The market needs to be lively with content first. This is the strategy taken by almost all marketplaces. So, for a food delivery startup, it makes sense to get the restaurants and drivers online first. For a ride-hail startup, it makes sense to have the drivers on the platform first. For Etsy, it makes sense to connect to creators across the globe to put their wares on the platform first.

This all makes sense. But what if there are several platforms and they offer the same things? It would be like sabzi-mandis (grocery-market). If each market has the same offering, would a customer or a seller really pay the guys maintaining the mandi? If any mandi charges a hefty fee, the buyers and sellers can move to another one. So, in the long term, all the profits of the mandi would go down to 0 and would get into the pockets of either the sellers or the buyers.

There are a few ways in which platforms can become ‘pricey’. They can start selling products that just cannot be bought anywhere else. They can start providing additional services that other platforms don’t provide. They can also start producing articles/services which means they can make additional margins on what they sell. This is exactly what Netflix and Primevideo do - by creating original content. For spotify, this means signing up exclusive content. And that’s what they’ve done with ‘The Joe Rogan Experience’, paying them ‘uuuuge sum of 100 million $ to put his podcast exclusively on Spotify forever!

Can Spotify just pay money to all the podcasters out there to go exclusive on their platform? Well, they don’t have to pay off everyone. They just have to pay enough high value podcasters so that their unavailability on other platform pinches people. Content creation follows the power law like a lot of industries. Once they reach a stage where every avid podcast consumer would be willing to pay Spotify to access a bulk of their favourite podcasters, they would have won. Gradually, the smaller marketplaces would die out and only a couple of marketplaces would remain. Consumers would have only 1 or 2 alternatives to consume. And every producer would have 1 or 2 places where they can gather listeners or risk substantially reducing their outreach. That’s an amazing place to be for the platforms. But it’s a sad place to be as a producer and consumer of content.

The content producers cannot really negotiate if there are only 2 ways to distribute their content. They could launch their own app and website, but that is only possible for the bigger fishes, and even they would miss out on a lot of people who could consume their content. Once the marketplace reaches a monopoly/duopoly stage, they would be paid less for their content. Now music artists etc can make money on the side through concerts and their social media profile. Podcasters generally do not have that luxury.

In an extreme condition, the content producers can even lose rights to the content they produce. For example, the music artists do not own the songs they release under a music label. This sounds preposterous but is true. Imagine putting your heart and soul into something just to end up giving it away to a corporation. Spotify itself has certain rules that allow them to tamper with the content produced by artists and insert contextual ads into podcasts. When you hear words like contextual, personalization, advertisements, you can be sure there is some shady stuff happening under the hood.

Right now, as podcasters, you have the choice to say no to Spotify and go to another platform which has a decently big listenership and would be willing to not edit your content. That is some power! But with the deal like ‘Joe Rogan x Spotify’, things are changing. This is a typical game theory scenario called the Prisoner’s Dilemma. Check out the payoff matrix below to understand better.

You have 2 players of the game - Joe Rogan and other podcasters. In a case where no-one sells out, no platform would have a monopoly and everyone would keep earning a decent amount of money. But if one of them sells out, that person would make a ton of money upfront - at the cost of pushing the ecosystem towards a platform consolidation. The others would then see their earnings decrease gradually over time. If all of them sell-out at once, everyone’s earnings would decrease as the platform would become a monopoly and could then move ahead to suck everyone dry - generating “shareholder value” in the process at the cost of a thriving podcasting ecosystem.

If you were able to understand this, you get where this train is going.

In all the cases, the average amount of money made by the podcasters would go down substantially. The train is going to collect all the gravy from the podcasters, load it up, and take it to platform town. I would be short podcasters, long spotify.

The recent breakout of coronavirus led to a spike in sales for a mobile game. What could coronavirus have to do with video games sales? Sounds a bit confusing!

Check out Plague Inc, a mobile game where you play a god-cum-mass-murderer ('coz devil always tempts never mass murders), intent on killing every human being on the planet. The outbreak was followed by a massive media coverage. Almost anyone with a social life has talked about it, and a majority of people who have played this game discussed this in a conversation. This led to a massive uplift in the download and sales of the mobile game.

So why did so many people talk about Plague Inc and not about 2048? The simple answer is 'trigger'. A trigger is a an internal or external pinch which causes people to think/do something. For example, social media networks work on the internal trigger of boredom. Think about this - Suppose you're engaged in a conversation with someone and they suddenly have to leave the room to take a call. Your hands would instantly, inadvertently go into you pockets and fish out your phone. Noone would sit down quietly in deep thought about how Parasite actually won the "Oscars without a host".

Triggers affect human behaviour. Almost every event in our surrounding is a trigger. However, their usefulness is often overlooked. Often people focus too much on the message and not so much on the triggres. Triggers are so important that they trump the actual messaging when it comes to making an idea viral.

Remarkable content doesn’t always lead to viral. For example, imagine you dressed in an orange clown jumpsuit, put on white wall-paint as makeup and went to office. It would surely create a roar on the day, however people wouldn't share it and discuss it with others a few days later.

Companies and marketers often aim to come up with dazzling ads aiming to 'start a conversation'. They assume that the depth of thought and emotion in their ads would make their ad viral. But often they ignore the importance of triggers in propagating their message.

P&G made an amazing ad about the olympics and moms (P&G 'Thank You, Mom' Campaign). I love this ad for its thought and emotional value. Anyone watching it would probably share it because it's so warm and fuzzy. However, after the initial push, it's only recalled once every 4 years (when the olympics are close or whenever someone wants it to feature in a blog post).

On the other hand, think about how many times (in millions) have you heard an Indian person ask another one "Kya chal raha hai?" (Wassup?) and heard the other one reply "Fogg chal raha hai" (Fogg is up!). I don't want to speculate on how they came up with the ad, but I know for a fact that if one of the interns at the popular ad agencies had pitched this ad idea to a senior, they would only be making coffee all summer. The ad came out in 2016 and is still (sadly) a part of our conversation today. The obvious reason is that the ad piggy backed on one of the commonest triggers in our lives - someone asking you what's up? It managed to be goofy enough to be used by people whenever they encountered this trigger.

Check out another ad which really moved sales for its product. They really owned the trigger of people asking others (or thinking to themselves) - Do I want to buy Panda cheese! Think about the thousands who would have asked themselves the question, smiled, and proceeded to by the not-so-good tasting cheese.

Many times, triggers are good enough to drive results on their own - no message required. This is rarer but for cases where the need is psychological or already internalized, only triggers can drive people to use/buy the product. Few years ago, my daily routine involved a walk in Manhattan from my hotel to the nearest Path station. On the way, I would always grab a cup of coffee from Starbucks. Conveniently, one was directly in the path, along with another one just across the street. I never quite understood the logic of 2 stores so close by, until I reached b-school. Where I understood that the aroma and smell of coffee from a Starbucks store is a very important part of their marketing. The smell is a strong enough trigger to cause people to take a small detour and buy a cup! Now, every time I walk in the Dubai Mall, I can't help but notice how Starbucks stores are strategically placed such that you have to walk through them while moving around. I have to say, the fresh smell of coffee is a very enticing trigger!

Having discussed triggers for so long, I want to make one thing clear - I'm not saying a remarkable message isn't important. Yes, the Fogg peeps were able to make the message viral with the lamest of messaging. However, emotions and intensity of the message always help in making things stand out and discussed. They just need to be combined with the right triggers that the message can piggyback on and spread like fire. The right combination can yield returns on investment similar to Yahoo's Alibaba investment!

Triggers are gradually forming important parts of marketing strategy and leading to creation of some terrifyingly interesting business models. Think about this - there are companies that pay your cellphone providers to get your approximate coordinates (triangulated through cell phone towers) - and then they sell this information to companies to send you SMSes when you're near their stores. All so that you buy more!

There are other negative impacts of triggers that we don't think about. Many times, wide-scale reporting of things like suicides, cause a spike in suicide rates. This is especially dangerous when the trigger is a popular TV series which are discussed by people in their day-to-day conversation.

Recently, Bollywood released a movie on acid attacks, starring Deepika Padukone, that got a lot of coverage. I would be interested in looking at the acid attack crime data post the release of the movie. Sometimes, things done with good intentions can have a negative impact on the society.

Understanding and thinking about triggers has had a lot of impact on personal life as well. During the course of my life, whenever I feel uncomfortable or agitated, I always look for the trigger that caused it. It might take some time and several rounds of analysis - but when you do understand it, you can train yourself to avoid those triggers altogether or respond better to them. Hopefully you would give this topic some thought in your daily life. It's a nice little aha moment when you're able to observe triggers and the accompanying actions that follow it.

Why does it make sense for Netflix to increase engagement of users beyond a point, especially when more engagement leads to more burn in terms of cost of producing and serving the content.

There are so many movies, TV series etc. on the platform. Definitely, more than what an average consumer can ever consume throughout their life. What’s the need then?

The answer is simple: More hours spent watching Netflix implies more value of the service for the consumers. On first thought, it seems like a simple idea. But the extent of influence that it can have on people's lives can be amazing.

We should not think of television watching as a basic need that needs to be fulfilled. It’s not like people cap their watching to 2 hours a day. Given the right content, people can spend 8–9–10 hours on it or even more. And then TV competes for everything else you might do in your life — eating out, calls, get-togethers, gym, cycling, reading, walking, shopping, everything else!

This is one of the few industries where you can play with the willingness to pay of the customers. The more the number of original shows created on the platform, the more valuable the platform becomes for the subscribers. More value of the service leads to a couple of income opportunities for Netflix:

1) It makes sense for more consumers to jump on the platform. If they were missing out on 4 omg! crazy! shows, now they’re missing out on 6. The fomo becomes all the more strong.

2) The current customers become even more inelastic in their demand for the service. Thus, it would make sense to increase the price of the service and improve margins in the long term.

There are other important strategic advantages.

Original content:

A. Differentiates the service from the competitors.

B. Ancilliary income opportunities by selling rights for products like soft toys, posters etc.

C. In the long term, they’ll protect their value prop. and margins from an OPEC like body of content studios. (I know OPEC doesn’t have that level of pull now but it’s still a cartel)

D. They have much more freedom w.r.t. the types of shows they can create.

If you look at the pricing of Netflix services, it has indeed increased over the years. A 16$ per month rate seems exorbitant if you’re watching <1 hour of TV a day. But if you’re watching 4–5 hours of TV a day, it becomes a bargain. Because now you’re saving on the fuel you’d have spent to go meet a friend. 😄