Archive for September, 2015

FORTUNE Is Changing – For The Worse:(

Friday, September 25th, 2015

FORTUNE magazine seems to be undergoing a transformation lately. I’ve listed the key changes I’ve observed in the magazine over the past 5-6 months.

Disruption. Disruption. Disruption. There’s a spate of articles on disruption of incumbents by newcomers. FORTUNE goes beyond the usual suspects like financial services, media and technology to drag industries like agriculture and food processing into its “everything is getting disrupted” rhetoric. At times, while drinking the disruption Kool-Aid, the magazine takes extra liberties with truth. More on that in a bit.
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Inside Stories. I see a major focus on investigative journalism, with several stories billed as “insider view”. Many of them are much longer than usual articles, with the one on Sony Hack of the Century taking up 22 pages out of the 64 pages of the 1 July issue.

GLOBAL 500 Not Cover Story! The Fortune GLOBAL 500 story appears as a thin strip on the cover. This is the first time nearly two decades of my following the list that it’s not featured as the cover story.

Lacklustre Transition to Digital. By thinning down the print issue and encouraging readers to “leave the page and head to the screen”, it’s quite clear that FORTUNE is trying to go digital. That’s not a bad thing except that the magazine displays abject disregard for the interactive nature of the digital medium. Tweets to @FortuneMagazine, the magazine’s official Twitter account, rarely elicit a response. Online articles don’t accept comments or even MEDIUM-style side notes. They do, now.

Lying with Big Data. In his classic “How To Lie With Statistics”, the author Darrell Huff showed readers how it’s possible to mislead people by changing the origin of graphs. Although the book is nearly 60 years old, you can find blatant use of this popular tactic on the pages of recent issues of FORTUNE. To take an example, a recent article claims that rising trend of “cord-cutting” – i.e. canceling cable TV subscriptions – is killing the cable TV industry and uses the following graph to back the claim:

FORTUNE-CORD-CUT-GRAPH

Cord Cutting Apocalypse?

A quick glance at the curve would make you believe that US households are turning cord-cutters en masse and that the share of US households with cable TVwill come crashing down to zero in no time. However, that’s far from the truth. The graph has conveyed this misleading impression by moving the origin of the vertical axis from 0% to 78%. If you dig deeper, you’d notice that 82.1% of US households had cable TV five years ago and 79% of them still did so in 2014. While cable TV has definitely lost customers, the drop in its presence is merely 3.1 percentage points over five years i.e. CAGR of -0.77% p.a., which is not life-threatening by any standard. I’ve shifted the origin of the Y-axis to 0% and replotted the curve, which you can see below:

not-cutting-cord

What’s Cord Cutting?

Let me place the two curves side-by-side so that the difference between them is obvious.

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While cord cutting is real – we knew that before this article – it doesn’t threaten cable TV anywhere as severely as the article would have us believe. And, with the recent hue-and-cry about widespread use of ad blockers on desktop and mobile browsers, it’s quite possible that many web content providers might be left with no source of revenues and fold up over a period of time, thereby reversing the cord-cutting trend in future.

Dodgy Behavior. FORTUNE recently changed from a bimonthly (2X / month) to a monthly magazine. As magazine readers would agree, this is a major change. Subscribers like me would also expect to be informed about it, not only as a matter of courtesy but because the change in frequency alters the date of last issue of current subscriptions, which are denominated by both number of issues and months. However, I didn’t receive any communication about this from the Time Inc., the publisher of FORTUNE magazine. In fact, I found out about it entirely by accident: I recently contacted TIME to complain about non delivery of magazines during the previous four to six weeks; I was told that, well, since the magazine had become a monthly, there were no issues during this period. As its loyal subscriber for over two decades, it’s not easy for me to insinuate FORTUNE of dodgy behavior. But I realize I just did!

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Maybe these changes can be tracked to the recent replacement of Andy Serwer by Alan Murray as the magazine’s editor. Maybe Murray deserves more time before we judge the transformation. But, as of now, these changes are not for the better.

Bank Insources Credit Card Reward Redemption Theft

Friday, September 18th, 2015

birt01In Beware Of Credit Card Reward Redemption Theft, I’d written about the many occasions in the past when I didn’t receive my credit card redemption until I chased the bank in question. In all those cases, the courier company in question seemed to be waiting to decamp with the gifts if I hadn’t followed up on their non-receipt.

Cut to the present.

I’m now wondering if the bank – the Indian subsidiary of a Top 5 UK bank – has recently decided to cut out the courier company from the loot.

I recently placed a redemption order for rewards on this credit card. As many times in the past, I didn’t get the consignment even after 30 days. But, this time, when I complained to the bank about non-receipt, I didn’t receive the consignment within four hours. So, I couldn’t suspect the courier on this occasion. I was right – the needle of suspicion clearly pointed towards the bank when I got its reply the next day.

The bank claimed in its message that it had canceled my order because I’d selected items that were only eligible on a Premier Card. I pointed out to the bank that I’d no reason to find out which category my Visa Gold card didn’t belong to and posed the following questions to it:

  1. birt03You let me see your gift catalog only after I log into your rewards redemption portal with a user name, primary password and a secondary password generated by a hardware device that itself needs a PIN to display the secondary password. Therefore, you very well knew my identity upfront. Using that info, you could figure out at the very start of my online session that my card wasn’t a Premier Card. So, why did your portal even show items applicable only to Premier Cards? That too, in this day and age when technology is available – e.g. Birdvision Redemption Hub – that can help you to personalize the assortment of displayed gifts by customer segments as granular as “segment of one”.
  2. Why didn’t your portal stop me from adding ineligible items to my shopping cart?
  3. After receiving my redemption order, why did you send me a confirmation email saying I’d get the consignment in 3 weeks (instead of summarily rejecting my order)?
  4. Why didn’t you check back with me, as a matter of courtesy, when you took the decision to reject my order?
  5. Above all, why did you have to wait for my reminder to tell me that you’d canceled my order?

birt-fi

I never received any reply from the bank.

I’ve tried to find some innocuous reasons to explain what happened. But I couldn’t find anything that fit the sequence of events. “If it doesn’t fit, you must acquit” may have worked well in OJ’s defence but made my bank look even guiltier. Alas, I’m forced to conclude that it (A) realized how lucrative credit card reward redemptions could be (B) learned from somewhere – maybe even my previous post! – that courier companies were dipping into this rich mother lode, and (C) decided to stop outsourcing the theft.

Maybe I’m jumping to conclusions. If you can think of any alternative explanation for this incident, please let me know in the comments below.

A Truly Indian IT Company Will Join Fortune Global 500 Earlier Than Predicted

Friday, September 11th, 2015

In the latest GLOBAL 500 list published by FORTUNE magazine in August 2015, WAL-MART STORES (USA) ranks #1 and WUHAN IRON & STEEL (China) ranks #500.

F500-02

The world’s 500 largest companies collectively generated US$ 31.2 trillion in revenues and US$ 1.7 trillion in profits in the latest fiscal year (ended on or before 31 March 2015).

(In the nearly two decades that I’ve been following the GLOBAL 500 list, this is the first time I recall that it’s not featured as the cover story, instead appearing as a thin strip on the issue’s cover. This is just one of the many changes I’m seeing in FORTUNE magazine in recent times but that’s a topic for another blog post.)

FORTUNE-GLOBAL500-FLATLINE-2015

On page 93 of this issue, I noticed a graph (shown on the right) predicting that China’s TenCent will join the GLOBAL 500 in 2018. When I examined it carefully, I noticed that the line representing the projected revenue of the last company on the list was flat. I was a bit taken aback by this because, when I’d done a similar forecast for the Indian IT industry three years ago, the same line – based on the prevailing growth rate at the time – was clearly trending upwards. I was wondering if FORTUNE had made some goof up – one of the many I’ve been sadly noticing in the recent past – and went back to check the revenue tables. Well, there was no goof up. The actual revenue of the lowest-ranked company on the GLOBAL 500 has indeed flatlined at ~US$ 23B in each of the last three years.

Well, I hadn’t reckoned with a flat entry level when I’d previously predicted the year of entry of an Indian IT company in the GLOBAL 500. I was curious to know how this new development impacted the following predictions I’d made in Has The Indian IT Industry Missed The FORTUNE 500 Bus?:

  1. TCS will not enter the GLOBAL 500 until 2021, which was the last year of my previous projections.
  2. COGNIZANT will become a GLOBAL 500 corporation in 2020.

I checked the latest results of these two companies and found out that neither had managed to maintain its earlier growth rates. The slowdown was relatively minor in the case of TCS (14.97% versus 18.1%) but quite substantial in the case of COGNIZANT (16.05% versus 33.3%).

At first glance it appeared that since the growth of the 500th company in GLOBAL 500 and of TCS and COGNIZANT had all cooled down at the same time, my above predictions should continue to hold good.

But I was not content to leaving this to gut-feeling and decided to rework my earlier model based on the latest figures. When I did that, the following picture emerged:

fortune-global-500-2015-model

(Click here to download the model in Excel format).

Accordingly,

  1. TCS will join the GLOBAL 500 in 2019 (or even 2018 since it only misses the previous year’s list by a whisker). The earlier-than-predicted entry of India’s largest IT company is driven by a comparatively lower downturn in its growth rate compared to the lowest ranked company on the list.
  2. COGNIZANT’s entry into the GLOBAL 500 will get pushed out to 2021, thanks to a bigger fall in its sales growth even compared to the last company on the list.

The  above predictions assume that both companies maintain their latest revenue growth into the future. Going by the experience of the last two years, that might not be a piece of cake. That said, because organic growth has cooled, these companies are perhaps more likely to engage in big-ticket M&A activity than in the past, in which case they could grow faster than in the latest fiscal year (and enter the GLOBAL 500 earlier than predicted).

With COGNIZANT having totally shed its Indian origins, it’s now down to a truly Indian IT company – TCS – to win a place for the Indian IT industry in the Fortune GLOBAL 500 list.

Teardown Of Myntra’s App Mantra

Friday, September 4th, 2015

MYNTRA-APP-ONLY-ADIndia’s leading online fashion brand Myntra recently shut down its desktop and mobile websites and decided to go mobile app only. As far as I know, this is an unprecedented move by any ecommerce player anywhere in the world. It flies in the face of moves by brands to increasingly hop on to the omnichannel bandwagon. Customers and pundits have panned the company for taking this decision. The CEO of Snapdeal, the chief rival of Myntra’s parent company Flipkart, has called it the “most consumer-unfriendly idea I have ever heard of”. Despite all that, Myntra has stuck to its decision. And that too with a fervor that resembles a religious predilection more than a business decision. Hence I’m calling it “Myntra’s App Mantra” (MAM).

This post is a teardown of Myntra’s App Mantra. I wish I could claim that my dissembling is the result of extensive research, incisive analysis and a dose of investigative journalism. Instead, I’ll have to admit that it’s only my attempt to connect a few random dots, based on personal experience and anecdotal evidence.

I prefer mobile app to desktop web or telephone when I’m ordering a “dedicated” product like a cab. When it comes to “open” categories like apparels and gadgets, I prefer brick-and-mortar stores or desktop web. Therefore MAM is repugnant to my shopping behavior. However, even while I’m writing this, I recognize that I have a choice between desktop web and mobile app. That’s apparently not the case for hundreds of millions of Indians for whom mobile is the first and only gateway to online commerce. Going by that, MAM is not harebrained at all.

Besides, MAM benefits Myntra in the following ways by letting it do many things that are not possible on its desktop website:

  • Collect insight from all users, not just the ones who are logged in, because a mobile app is a “walled garden” in itself
  • Track consumer’s location using a smartphone’s LBS features
  • Send targeted offers to the user’s smartphone. These offers can be personalized for a “segment of one” if Myntra so wishes. Such a granular level of targeting is not possible on any other media – print, TV or digital
  • Disintermediate Google Ads and Affiliate Partners by connecting directly with existing customers, thereby saving advertising and affiliate margin costs
  • Make it hard for users to do comparison shopping – which is de rigueur on desktop web and a major cause of shopping cart abandonment on the traditional online platform.

In short, Myntra’s App Mantra helps the company increase conversion and decrease SG&A costs. Which is a great thing for the company.

But not necessarily for its customers for one or more of the following reasons:

  • ROMBOW01

    Research On Mobile Buy On Web (ROMBOW)

    Many people are not comfortable shopping for apparels, bags and other fashion items on the small screen of a smartphone. According to New York Times (http://nyti.ms/1H80Pw1), “Despite spending close to three hours of each day staring at their mobile phones, Americans continue to do the vast majority of their online shopping through desktop and laptop computers”. We call this shopping behavior ROMBOW or “Research On Mobile Buy On Web”. According to Business Insider data and our analysis, the ROMBOW segment doubled last year. But these figures are for US consumers. We don’t know whether they reflect Indian shopping behavior. Interestingly, not just Myntra but many other ecommerce companies have been claiming exactly the opposite behavior for consumers in India.

  • People keep running out of memory in their smartphones and they need to delete some apps from time to time. An infrequently used ecommerce app like Myntra is likely to face the ax to make space for cab, food delivery, grocery and other more frequently used apps. (While a company executive recently claimed that a Myntra customer uses the app eight times a month, that seems like wishful thinking and I’m ignoring this metric.)
  • Some people just don’t want their suppliers to track them so closely. But that segment must be tiny since, while justifying the move to “app-only” regime, not just Myntra but many other companies have brazenly touted their new-found ability to track location and spends via mobile apps without even appearing to pay lip service to consumer privacy preferences.

Myntra has tried to offset these issues by introducing personalization, deep-linking and “authentically mobile” features in the latest version of its app. However, they haven’t solved my fundamental problems: I couldn’t decide whether a leather bag costing a bomb was right for me on Myntra’s website and I’m not likely to manage the feat on a smartphone screen; when my smartphone ran out of space, some apps had to go, and Myntra was one of them.

So, I bid farewell to Myntra. Going by the rants on the blogosphere, I’m not alone. Therefore, MAM is bound to cause some customer loss.

mam-fi

As long as *some* is within reasonable limits, that’s not such a bad thing.

According to common wisdom, revenues can grow only by acquiring more customers. However, that’s only true until a company achieves critical mass. Beyond that point, a company can grow revenues even by shedding customers if it can increase its share of remaining customers’s wallets. With “10M – 50M” installs of just its Android app, Myntra might have reached critical mass and maybe it’s possible for the company to take its revenues to the next level by engaging deeper with its existing customers, increasing their purchase frequency and growing their ticket size.

This approach is not unique to ecommerce: Companies in other industries have done this for ages. For example,

  • Banks have been cutting down rural clientele, shedding low balance accounts and pruning their customer base in many other ways, as highlighted here and here, yet they’ve become bigger and more profitable over the years.
  • A leading IT services company discovered in the mid 2000s that the bottom 30% of its customer base was sapping its management resources. It took a conscious decision to shed this segment and divert its attention to the Top 40% that was not only profitable but offered immense growth potential. The company’s meteoric growth in the last 7-8 years is adequate testimony to the effectiveness of its strategy.

If customer attrition can work for banks and IT companies, it can equally well work for Myntra.

Besides, it offers an additional benefit to Myntra. As widely reported, every customer is a loss center for many Consumer Internet companies including Myntra. In other words, more customers means more loss. Culling some customers is a good way for Myntra to reduce losses and slowly inch its way up to profitability (apart from reducing discounts and taking other steps that may or may not be practical in a crowded market.) This resonates well with Myntra’s stated goal of turning profitable by FYE 2016.

Only time will tell how Myntra’s App Mantra will play out but I’m already convinced that it’s not half as dumb as it’s made out to be.