Business Today

The road ahead in the free economy

Entrepreneurs must think beyond high-volume, low-margin models to succeed in consumer businesses.
Valerie R Wagoner        Print Edition: Jan 4, 2015
The road ahead in the free economy
(Illustration: Raj Verma)

Valerie R. Wagoner, co-founder and CEO of ZipDial
Valerie R. Wagoner, co-founder and CEO of ZipDial
The truism that India's growing domestic market is a high-volume, low-margin opportunity has a negative side. For many entrepreneurs, the country's growing mass market is a distraction from the real opportunity the market presents and weakens many entrepreneurs competitive advantage outside its borders. The country's innumerable talented entrepreneurs need to set their visions beyond high-volume, low-margin models.

Consumer businesses will win in India and internationally by embracing these essential strategic pillars:

>>  The most important asset is not the people, it's data

>>  Have courage to price at a premium, then invest in research and development

>>  Build trust ahead of regulations

DATA, NOT PEOPLE

India's massive population has been utilised as an asset for historical business success. The massive talent pools were the foundation for the IT services boom. The voluminous middle class is a ripe consumption market for many industries. However, to succeed in the future, businesses need to think beyond just the number of people as an asset. Most important is the data and intelligence about these people.

The behaviours and profiles of India's mass of consumers are unique in ways that local entrepreneurs are primed to understand. Local innovators have a head start on understanding the operational models to acquire and build data and intelligence on this mass of consumers.

Entrepreneurs need to think beyond the one truism of "high-volume" and marry themselves to another - "Big Data". Uber is not worth $40 billion because it is a successful ride-sharing business, but because Uber owns the invaluable data on when and where its million users are going every day. To use an Indian example, the 30-month-old Housing.com is not valued at $250 million just because its product and user experience are far superior to incumbent real estate portals like 99acres and MagicBricks. Housing.com is valued for its incredible data assets. The company has verified and unique data on every single property, and has invested heavily into its fundamental big data technology and data scientist teams. There is not a single other entity, private or public, with such data assets in India.

The behaviours and profiles of India's mass of consumers are unique in ways that local entrepreneurs are primed to understand. Local innovators also have a head start on understanding the operational models to acquire and build data and intelligence on this mass of consumers. We entrepreneurs in India need to redefine the opportunity from being about the large market to being about the data and intelligence on the large market, and then embrace our unique position to win in this market.

PRICE AT A PREMIUM, THEN INVEST IN R&D

The beauty of a data and intelligence strategy is that it is more valuable, both to customers who will pay at a premium. This then allows for further R&D investment and a virtuous cycle of value creation and extraction of value from the market. This is an essential strategy to fuel the business before being able to demonstrate the data assets to investors who, like for Uber or Housing.com, may invest at a premium.

Too many entrepreneurs miss this opportunity and instead are trapped by the truism of "high-volume, low-margin". My company, ZipDial, regularly faces difficult sales conversations due to copycat competitors, who have significantly undercut on price. All our unique, patent-pending solutions remain at their higher premium price points. While pricing negotiations take longer, customer retention remains extremely high, and ZipDial has never lost a customer to a copycat who didn't shortly return to ZipDial. Customers recognise the power of the technology assets we have built around the data on our nearly 60 million users in India and how that can make their marketing more effective. Commodity, low-margin copycats cannot compete.

More entrepreneurs need the courage to price at a premium. Even though the start-up funding market is maturing quickly, it still lags behind other markets. Funding R&D is essential for long-term success, and more innovators in India need to embrace the strategy of using premium pricing and higher gross margins to fund R&D and future innovation. This will enable consumer businesses to stay ahead of competitors in the market, in India and abroad.

BUILD TRUST AHEAD OF REGULATIONS

Building business models based on consumer data can only be done well if that data is protected. Regulations around data protection and consumer privacy in India lag way behind the global standards in Europe and other regions. In other words, it is extremely easy to get away with abusing consumer data in India, both because of nascent regulations and difficulties in enforcing these regulations.

THERE ARE ALMOST ZERO SHORT-TERM INCENTIVES TO BUILD FOR DATA PROTECTION AND TRUST IN INDIA and other emerging markets today. Regulators don't require it, and most consumers do not demand it.

Self-regulation is essential for success, both because that is the only way to build consumer trust and consumer loyalty over the long-term, and the only way to play on the global stage. For example, ZipDial has held this vision from day one. While the much-needed restrictions on SMS spam in early 2011, instituted by the Telecom Regulatory Authority of India, led to a sudden decrease in revenues and even the shutting down of a number of businesses in the mobile marketing space, there was no change to ZipDial's model which protected consumers even before regulations required it.

Over time ZipDial has turned down substantial short-term revenue opportunities to monetise the rich consumer data we have on our nearly 60 million users. But from early on we committed to building a global company based on global data protection standards. This is why we now work with marquee customers such as Unilever and Procter & Gamble in five markets, with more launching soon. Indian entrepreneurs must operate according to global standards for data privacy protection if we are to compete internationally and export our unique and innovative models to other markets.

There are almost zero short-term incentives to build for data protection and trust in India and other emerging markets today. Regulators don't require it, and most consumers do not demand it. I am honored to be one of two members representing Asia on the World Economic Forum council for the Future of Consumer Industries, and I regularly debate with my North American and European counterparts that concerns about trust are a luxury for consumers in emerging markets who otherwise do not have access to goods and services. However, I strongly believe that it is essential for Indian entrepreneurs to build today for future model.

The winning approaches to entrepreneurship in India over the coming decade are to:

>>  Invest in data assets

>>  Build premium value that demands a premium price

>>  Maintain global standards for data protection and consumer trust

These will continue to propel innovative companies onto the global stage.

(Valerie R. Wagoner is Co-founder and CEO of ZipDial, a Bangalore company that runs a missed call platform connecting advertisers with potential customers. Wagoner and her co-founders are credited with building a fast-growing "free economy" business in a tremendously value-conscious market like India, but they also argue for the need to evolve)

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