Strategy Process Blog

Will A Google Phone Change The Game?
Mobile biggies are quaking at the idea of competition from a free, ad-based service
By Roger O. Crockert. Business Week October 8, 2007

Imagine your cellphone as a mini marketing machine. As you head into your car after dinner, a text alert pops onto the screen of your handset announcing the 9 p.m. lineup at a nearby cineplex. You choose the Jodi Foster flick The Brave One and a promo video for the next Warner Bros. release, a George Clooney movie, starts running. Afterward, more text appears, prompting you to launch the phone's Web browser so that you can click through to buy the movie's ringtones and wallpaper.
That kind of 24/7 advertising engagement--on a phone, no less--may sound like a nightmare. But what if you could determine the kinds of products you get pitched? Or, when your flight gets canceled in a faraway airport, text messages pop up for the best hotel deals in town? No random insurance ads or airline deals for trips to places you never visit. Best of all: Watch or read the custom ads, and your phone minutes are free.
For big cell carriers, that's the real nightmare. And it may be coming in the form of a Google phone. Wireless industry consultants and marketing executives with knowledge of Google's plans say it has been showing prototypes of a new phone to handset manufacturers and network operators for a couple of months. Its plans have been kept top secret, but Google is expected to tap a company on the Pacific Rim that specializes in mobile design and manufacturing to build a handset to its specs. Google could then apply its expertise in operating software and user applications, says Paul Catalano, a partner at consultancy RelevantC Business Group (RCBG). Google officials won't talk about phones, and industry sources don't expect one before the second half of 2008.
Still, Google has made it clear it has an interest in wireless. It is experimenting with wireless broadband networks in a couple of U.S. cities. In August, CEO Eric Schmidt announced his intention to participate in a federal auction early next year of the sort of radio spectrum that would help pull off a phone service.
So far only a few outfits in Europe and the U.S. have dabbled with ways to serve up ad-based service. Most, like Virgin Mobile USA, have limited control over ad delivery because their service runs over a network leased from one of the big players. Moreover, there are good reasons that advertising accounts for less than 1% of phone company revenues: Consumers remain skittish about ads on their phone. Networks and handsets are only now getting sophisticated enough to deliver colorful, location-specific ads. And Verizon, AT&T, and T-Mobile have no interest in giving up their fat service fees.
That equation goes out the window, though, once you combine Google's financial heft with its ultra-sophisticated ability to target ads to specific customers. "The day is coming when wireless users will experience nirvana scenarios--mobile ads tied to your individual behavior, what you are doing, and where you are," says Linda Barrabee, wireless analyst at researcher Yankee Group.

BILLIONS OF EYES
Google and advertisers drool over the growth potential in wireless. The more than 2 1/2 billion phones in use worldwide exceed the number of PCs and TVs combined. On Sept. 17, Google announced a Web program aimed at advertisers who have created sites for display on cell phones and other handheld devices. Like its online ad network, Google's AdSense for Mobile delivers ads relevant to the advertiser's mobile audience. "The sheer volume of users across the globe makes mobile the next channel for information," says Dilip Venkatachari, director of product management for Google's mobile team.
Why stop there? The core of Google's online ad strategy has always been to help advertisers target their ads so they fit like spandex tights with user interests. Employing technologies that figure out where callers are and where they're headed boosts advertising prices by 50%, according to studies by RCBG.
A number of existing strategies by smaller companies offer a glimpse into how Google might play its wireless hand, once all the cards have been dealt. Blyk, a wireless startup that made its debut in Britain on Sept. 24, offers free mobile phone calls and text messages for people aged 16 to 24 who agree to let companies such as L'Oréal, McDonald's, and Coca-Cola send text ads to their handsets. Blyk leases space on European carrier Orange's network in Britain, but it operates its own billing and marketing system. That lets it retain full control of valuable customer information and avoid sharing ad revenues with the carrier. Users fill out detailed information about their lifestyles, areas of interest, and brand preferences. Those who agree to receive tailored ads get 43 minutes per month of free mobile voice service and 217 free text messages.
In the U.S., a service from Virgin Mobile called Sugar Mama offers subscribers a chance to earn free minutes if they agree to view tailored ads. As of August, more than 425,000 people had signed up. They can choose to have text ads in the form of quizzes and games sent to a phone a couple of times a week; play the games and you earn minutes.
The big-time carriers already have banner ads from companies such as Avis or the Discovery Channel on the pages of their mobile Web portals. But don't expect the phone giants to change their business model if they don't have to. A Verizon spokesman says the incremental dollar value of advertising pales next to the cost of losing customers who don't like ads. Says AT&T Mobility's Mark Collins, vice-president for consumer data: "We don't believe in a world where you have to give everything away for free."
That's precisely what Google represents. Even without a network, Venkatachari says Google plans to connect mobile advertisers with users based on information from its search engine, maps, and other software, just as it has done on the desktop. Via Google search, for example, an advertiser learns a user is at the corner bakery in downtown Chicago. And it learns the person has a taste for sweets. Wireless carriers have customer information as well, but "they are not a data warehouse, the way Google is," explains Richard Siber, principal of SiberConsulting.
If Google decides to spend the $4.6 billion that may be needed to win the spectrum auction, analysts speculate that it has several options: continue its broadband expansion, or perhaps buy a wireless carrier, such as beleaguered Sprint Nextel. Then it could launch the first ad- supported, and free, nationwide phone service. "Google is the first gambler sitting down with as big a bankroll as the carriers have," says John du Pre Gauntt, a wireless industry analyst for researcher eMarketer. "By playing in wireless, they have caused people to look at the industry in a different way."

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BY ANAND GIRIDHARADAS. New York Times. New York, NY. September 25, 2007.

MYSORE, India — Thousands of Indians report to Infosys Technologies’ campus here to learn the finer points of programming. Lately, though, packs of foreigners have been roaming the manicured lawns, too.

Many of them are recent American college graduates, and some have even turned down job offers from coveted employers like Google. Instead, they accepted a novel assignment from Infosys, the Indian technology giant: fly here for six months of training, then return home to work in the company’s American back offices.

India is outsourcing outsourcing.

One of the constants of the global economy has been companies moving their tasks — and jobs — to India. But rising wages and a stronger currency here, demands for workers who speak languages other than English, and competition from countries looking to emulate India’s success as a back office — including China, Morocco and Mexico — are challenging that model.

Many executives here acknowledge that outsourcing, having rained most heavily on India, will increasingly sprinkle tasks around the globe. Or, as Ashok Vemuri, an Infosys senior vice president, put it, the future of outsourcing is “to take the work from any part of the world and do it in any part of the world.�

To fight on the shifting terrain, and to beat back emerging rivals, Indian companies are hiring workers and opening offices in developing countries themselves, before their clients do.

In May, Tata Consultancy Service, Infosys’s Indian rival, announced a new back office in Guadalajara, Mexico; Tata already has 5,000 workers in Brazil, Chile and Uruguay. Cognizant Technology Solutions, with most of its operations in India, has now opened back offices in Phoenix and Shanghai.

Wipro, another Indian technology services company, has outsourcing offices in Canada, China, Portugal, Romania and Saudi Arabia, among other locations.

And last month, Wipro said it was opening a software development center in Atlanta that would hire 500 programmers in three years.

In a poetic reflection of outsourcing’s new face, Wipro’s chairman, Azim Premji, told Wall Street analysts this year that he was considering hubs in Idaho and Virginia, in addition to Georgia, to take advantage of American “states which are less developed.� (India’s per capita income is less than $1,000 a year.)

For its part, Infosys is building a whole archipelago of back offices — in Mexico, the Czech Republic, Thailand and China, as well as low-cost regions of the United States.

The company seeks to become a global matchmaker for outsourcing: any time a company wants work done somewhere else, even just down the street, Infosys wants to get the call.

It is a peculiar ambition for a company that symbolizes the flow of tasks from the West to India.

Most of Infosys’s 75,000 employees are Indians, in India. They account for most of the company’s $3.1 billion in sales in the year that ended March 31, from work for clients like Bank of America and Goldman Sachs.

“India continues to be the No. 1 location for outsourcing,� S. Gopalakrishnan, the company’s chief executive, said in a telephone interview.

And yet the company opened a Philippines office in August and, a month earlier, bought back offices in Thailand and Poland from Royal Philips Electronics, the Dutch company. In each outsourcing hub, local employees work with little help from Indian managers.

Infosys says its outsourcing experience in India has taught it to carve up a project, apportion each slice to suitable workers, double-check quality and then export a final, reassembled product to clients. The company argues it can clone its Indian back offices in other nations and groom Chinese, Mexican or Czech employees to be more productive than local outsourcing companies could make them.

“We have pioneered this movement of work,� Mr. Gopalakrishnan said. “These new countries don’t have experience and maturity in doing that, and that’s what we’re taking to these countries.�

Some analysts compare the strategy to Japanese penetration of auto manufacturing in the United States in the 1970s. Just as the Japanese learned to make cars in America without Japanese workers, Indian vendors are learning to outsource without Indians, said Dennis McGuire, chairman of TPI, a Texas-based outsourcing consultancy.

Though work that bypasses India remains a small part of the Infosys business, it is growing. The company can be highly secretive, but executives agreed to describe some of the new projects on the condition that clients not be identified.

In one project, an American bank wanted a computer system to handle a loan program for Hispanic customers. The system had to work in Spanish. It also had to take into account variables particular to Hispanic clients: many, for instance, remit money to families abroad, which can affect their bank balances. The bank thought a Mexican team would have the right language skills and grasp of cultural nuances.

But instead of going to a Mexican vendor, or to an American vendor with Mexican operations, the bank retained three dozen engineers at Infosys, which had recently opened shop in Monterrey, Mexico.

Such is the new outsourcing: A company in the United States pays an Indian vendor 7,000 miles away to supply it with Mexican engineers working 150 miles south of the United States border.

In Europe, too, companies now hire Infosys to manage back offices in their own backyards. When an American manufacturer, for instance, needed a system to handle bills from multiple vendors supplying its factories in different European countries, it turned to the Indian company. The manufacturer’s different locations scan the invoices and send them to an office of Infosys, where each bill is passed to the right language team. The teams verify the orders and send the payment to the suppliers while logged in to the client’s computer system.

More than a dozen languages are spoken at the Infosys office, which is in Brno, Czech Republic.

The American program here in Mysore is meant to keep open that pipeline of diversity.

Most trainees here have no software knowledge. By teaching novices, Infosys saves money and hopes to attract workers who will turn down better-known companies for the chance to learn a new skill.

“It’s the equivalent of a bachelor’s in computer science in six months,� said Melissa Adams, a 22-year-old trainee. Ms. Adams graduated last spring from the University of Washington with a business degree, and rejected Google for Infosys.

And yet, even as outsourcing takes on new directions, old perceptions linger.

For instance, when Jeff Rand, a 23-year-old American trainee, told his grandmother he was moving to India to work as a software engineer for six months, “she said, ‘Maybe I’ll get to talk to you when I have a problem with my credit card.’ �

Said Mr. Rand with a rueful chuckle, “It took me about two or three weeks to explain to my grandma that I was not going to be working in a call center.�

Posted by Troy Smith at 9:44 AM | Permalink | Comments (3)

Rebecca Buckman. Wall Street Journal. (Eastern Edition). New York, N.Y.:Sep 18, 2007. p. B.1

San Jose, Calif. -- Rehan Jalil founded his wireless-broadband company WiChorus Inc. two years ago and based it here in the heart of Silicon Valley. But when it actually starts selling its gear to phone companies next year, WiChorus won't be looking for customers in California or anywhere else in the U.S. The company's target market is thousands of miles away -- in India.

In a twist on globalization -- and a nod to India's fast-growing economy -- an increasing number of high-tech start-ups, like WiChorus, are basing their operations in the U.S. but setting their sights on Indian customers.
Many of these Silicon Valley companies, often headed by Indian-born entrepreneurs, sell specially designed, low-cost products particularly suited to people in developing nations.

Examples include Bubble Motion Inc., based in Mountain View, Calif., which sells a voice-messaging service popular with non-English speakers who can't or don't want to type out text messages on a phone keypad. (Though some customers speak English, others are illiterate or use local Indian dialects that don't employ the Roman alphabet.) Biotech outfit ReaMetrix Inc., of San Carlos, Calif., develops low- cost diagnostic tests to manage ailments like diabetes and HIV infection. And Mobio Networks Inc. of Cupertino, Calif., is working with several Indian phone carriers to offer via cellphone free and low-cost entertainment, like sports information and gossip. All are funded by U.S. venture-capital firms.

Some of these start-ups are also targeting U.S. or European customers, or could do it down the road. But for now, most are following the made-in-the-USA, sold-in-India model, trying to tap India's rapidly expanding consumer market in hot industries like wireless technology and life sciences.

With these companies, "the market is Indian. The entrepreneur might be Indian," says Navin Chaddha, a managing director with the Mayfield Fund venture-capital firm, which is an investor in WiChorus. "But the problem is being solved in the U.S. for a market that sits outside the U.S."

Even though their products are destined for foreign shores, often these companies say they must be based in the U.S. to have access to specialized engineering talent, U.S. venture capital, or to protect intellectual property.
The trend represents the latest wrinkle in Silicon Valley's relationship with India. Engineers from the country have long migrated to the San Francisco Bay Area to get graduate degrees, find jobs and start companies. More recently, Silicon Valley companies have outsourced customer support and even some product-development work to India, though some have pulled back as labor costs there have climbed.

Venture capitalists also have begun investing directly in Indian companies, targeting the domestic Indian market. According to the National Venture Capital Association, a trade group, U.S. venture capitalists sank nearly $932 million into Indian companies last year, up from $583 million in 2005.

But WiChorus's Mr. Jalil, 37 years old, says many Indians prefer to work for bigger, brand-name firms and are hesitant to sign on with start-ups, which are seen as risky. He also says the U.S. offers a bigger, deeper pool of engineers with more expertise in a wireless technology called WiMAX and other arcane specialties critical to WiChorus's success. (WiMAX is similar to the Wi-Fi technology that creates Internet "hot spots" in cafes and airports, but operates over a much larger geographical area and can sometimes be accessed on the go, such as from a moving car.)

Many of Mr. Jalil's most-important employees are veterans of local high-tech companies, most notably Cisco Systems Inc. And his investors are big-name venture capitalists from Menlo Park and Palo Alto, which are both near his company's headquarters.

"Silicon Valley is the only place you could do this," asserts Mr. Jalil, an engineer who was born in Pakistan but educated in the U.S. He started WiChorus in late 2005 after leaving another wireless start- up, Aperto Networks, because he says he wanted to create lower-cost broadband technology for the developing world.
WiChorus does employ about 15 people in Hyderabad, a city in India well-known as a high-tech hub. But those workers mainly build network- management software, which Mr. Jalil calls "very specific, contained work," though it is critical to WiChorus's product.

WiChorus's 45 employees and assorted consultants in San Jose -- who work in cubicles and labs on the third floor of an office building with eye-catching, pumpkin-colored walls -- are the ones doing the hard-core product innovation, Mr. Jalil says. They include researchers with Ph.Ds from the University of California at Berkeley and managers like Sheldon Gilbert, the company's Massachusetts Institute of Technology-educated head of business development who founded another wireless-broadband company called Ensemble Communications. WiChorus's head of engineering, Kamal Avlani, spent 10 years at Cisco developing high-end routing devices for directing Internet traffic.

WiChorus is focusing on India first because WiMAX is sorely needed there, according to Mr. Jalil. The Indian government is pushing to increase broadband penetration but is now stymied by a lack of phone lines to offer high-speed access.

Of India's more than 1.1 billion people, only about 40 million subscribe to a traditional landline phone service, according to the Telecom Regulatory Authority of India. And not all of those lines are capable of transmitting data at broadband speeds, Mr. Jalil says. As of July, there were 193 million wireless-phone subscribers.
WiChorus says its gear can help offer Internet connectivity without the phone lines for as little as $15 a month. That may still be too expensive for the average Indian, who makes less than $900 a year, according to the World Bank, but it is affordable for higher-skilled workers. And prices could dip lower, just as charges for cellphone services have dropped in India over the past several years, according to Mr. Jalil.

Mr. Jalil says the reason that phone carriers using WiChorus's equipment will be able to charge so little is that the company has simplified products such as cellphone base stations (which serve as hubs to let the phones communicate), taking out nonessential features and functions. The company announced yesterday that it has received nearly $25 million in financing from U.S. investors that include the Mayfield Fund, Redpoint Ventures and Accel Partners.

Not everyone is convinced the new offshore business model is a good one. Rob Chandra, a managing partner at investment firm Bessemer Venture Partners in Menlo Park, says companies need more than great engineering talent to build products the developing world will buy.

"I am skeptical of companies that can know enough about what Indian consumers and enterprises need if the start-ups' management is sitting in Silicon Valley," says Mr. Chandra.

Mr. Jalil notes that most big Indian telecom carriers buy their core infrastructure from Western companies, like Finland's Nokia Corp. He is convinced WiChorus's technology is very relevant to India. "You can really bridge the gap between the emerging world and the developed world by bringing broadband connectivity," he says.

Posted by Barbara Thomas at 11:41 AM | Permalink | Comments (1) | TrackBacks (0)

To all iPhone customers:

I have received hundreds of emails from iPhone customers who are upset about Apple dropping the price of iPhone by $200 two months after it went on sale. After reading every one of these emails, I have some observations and conclusions.

First, I am sure that we are making the correct decision to lower the price of the 8GB iPhone from $599 to $399, and that now is the right time to do it. iPhone is a breakthrough product, and we have the chance to 'go for it' this holiday season. iPhone is so far ahead of the competition, and now it will be affordable by even more customers. It benefits both Apple and every iPhone user to get as many new customers as possible in the iPhone 'tent'. We strongly believe the $399 price will help us do just that this holiday season.

Second, being in technology for 30+ years I can attest to the fact that the technology road is bumpy. There is always change and improvement, and there is always someone who bought a product before a particular cutoff date and misses the new price or the new operating system or the new whatever. This is life in the technology lane. If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product because there is always something better and less expensive on the horizon. The good news is that if you buy products from companies that support them well, like Apple tries to do, you will receive years of useful and satisfying service from them even as newer models are introduced.

Third, even though we are making the right decision to lower the price of iPhone, and even though the technology road is bumpy, we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these.

Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. Details are still being worked out and will be posted on Apple's website next week. Stay tuned.

We want to do the right thing for our valued iPhone customers. We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.

Steve Jobs
Apple CEO

Posted by Michael DeVaughn at 11:40 PM | Permalink | Comments (1)