Mobile Phones And Disruptive Technology

Two developments over the last few years have caused unbelievable upheaval and disruption in all sectors of the economy. First, the advent of the smartphone has given the common man the computing power of a desktop in the palm of his hand. Second, the flood of applications (or apps) is thumbing its nose at the oldworld economy. Mr. Neeraj Roy, MD and CEO of Hungama Mobile, United Home Entertainment and Hungama Digital Media Entertainment Pvt. Ltd., made these points at the last meeting while giving an interesting talk that focused on e-commerce, transportation, messaging and entertainment. He said that in four years the number of smartphones has gone up from 12 million to 120 million.

This has made India one of the fastest-growing markets in the world and is the principal reason for the heightened activity in the “start-up eco-system.” As India moves from 2G and 3G to 4G technology which promises even better connectivity, and with almost all (new) businesses offering goods and services through apps, people are doing virtually everything with the help of their phones. Footfalls in malls are dropping and those who do walk in are making on-the-spot price comparisons – and walking out without buying. Mr. Roy, who was introduced by Vineet Suchanti, made a remarkable point while comparing old-fashioned phones to the new smartphones. Earlier, the device used to be in contact with the ear, but now it has moved to a space in front of the nose, with the eyes concentrating on the screen. As a result, the world has virtually turned upside down.

With 5.5 billion out of the 7 billion people on earth owning mobile phones, it has become the most ubiquitous item of consumption, beating toothbrushes, shirts, pants and shoes. Smartphones are prompting users to buy groceries and to do virtually everything else through apps. There is an opportunity for India to go from its current base of 300 or 325 million consumers to 600 or 650 million in four years (about half the population). Mr. Roy touched on four key aspects: e-commerce; the transportation and hospitality industry; the messaging platform; and entertainment. In India, with a GDP of $2.25 trillion, e-commerce is pegged at $8 to 10 billion in transactions. China, with a GDP of $9.8 trillion, is edging towards $500 billion worth of business through e-commerce, which is about 5% of its GDP. But these figures will undergo exponential change with the next phase of innovation coming from “augmented reality,” which means walking into stores and doing comparisons. Already, consumers are walking into stores, picking up garments or other products, getting on their phones and doing a price comparison, “and then probably walking out.”

According to Mr. Arvind Singhal of Technopak, in just one year there has been a 31% drop in footfalls in two of the largest malls in Gurgaon – all thanks to the impact of ecommerce. Similar innovations are taking place in deliveries. From same-day delivery, sites are now offering delivery in two hours in categories like groceries. The logistics and delivery segment will see many more innovations. How can trade and industry combat this? That will be wellnigh impossible because the future appears to be ecommerce. Online companies have already created a unique model (cash on delivery) for India, where only 450 million have bank accounts and most cards are used for withdrawals from ATMs. Given this, there will be greater use of the “Buy” button on Facebook and Google, thus causing even more disruption. Mr. Roy then turned to the transport and hospitality sector which he called a “fairly disaggregated kind of market against a background of inefficiency” although they accounted for huge consumer spends. Two companies, Avis and Hertz, together had an enterprise value of $16 to 18 billion and had real assets in the form of automobiles that they rented out.

But Mr. Travis Kalanick, the founder of Uber, did something revolutionary. For the first time, he made consumers wonder whether they really needed to own a car. He offered a high level of predictability: they only had to press a button to know within minutes that a “personal chauffeur” would be there to receive them. This was totally disruptive for car rental firms. Given that driverless cars were just a few years away, the valuation of Uber at $60 to $65 billion made a lot of sense. Similarly, Airbnb owns no hotels and yet offers confirmed bookings at discounted rates. “What are these two companies doing? They are bringing about productivity in otherwise unproductive assets. A hotel room is probably one of the most perishable commodities, like airline seats… That is why people are asking today, what is the way to ‘Uberise’ your business? It’s almost becoming generic, creating productivity out of unproductive assets.” The third subject Mr. Roy covered was messaging. Last year, Facebook acquired Whatsapp which had a staff of 49 and was bought for $19 billion – even though it was not making even a dollar in revenue. People wondered what was going on.

China has its own Whatsapp called WeChat, except that through WeChat one can do airline bookings, hail a cab, do commerce, make bill payments, do banking and so on, everything – all within the same chat application. Clearly, messaging is the next big evolutionary platform. As for entertainment, Mr. Roy says that it is ripe for disruption. A comparative study in the US has shown that in the five years since 2010, there has been no growth in the time spent in front of television sets (it has been constant at four hours). Similarly, people are spending the same amount of time, about 2.5 hours, in front of their desktops. But real growth is seen in the time spent looking at mobile screens (called vertical rather than horizontal screens). Today, about 60 million people in India have DTH settop boxes with ‘x’ number of channels. Over the next few years, various forms of media will gain maximum traction. Hungama runs a successful music channel and has now launched a dedicated movie service. It serves about 60 million consumers every month and 14.5 million of them do regular transactions. In the next few years, the number of consumers is likely to rise to 200 million, about a third of the total consumer base (of 600 million). Many of them will use applications to access entertainment.

Hungama has already launched 7,500 movies which can be streamed on smartphones or on big screens in HD quality. Summing up his talk, Mr. Roy said “disruption is in the air. My suggestion and advice is, try and spend 15 minutes a day searching for your category on YouTube, and chances are that you will come across things that are happening in your category which will make you aware, better prepared and a lot more competitive… “There is some kid somewhere in some garage, whether in Bombay, Bangalore, Dibrugarh or Noida, who is thinking about every one of these businesses… This is one of the most exciting times for entrepreneurship.”