Thursday, 26 September 2013

RBI's bizarre take on the 0% EMI offer. Are we ready to be Americanized?

In simplest terms, it is ridiculous for a central bank to get into such micromanagement on offers and schemes of the bank, which are widely expected as well as accepted by consumers. Perhaps, our new Governor has returned to India after a long time and wants to implement the American system in India where pricing indeed is net of all the all possible discounts for upfront cash payments for purchases. In India, however, these steps hold no significance, except that they can spoil the festive mood.

Lets take a simple example of a Croma or a Flipkart. We all buy products from these websites and they offer an EMI option. The price to buy using cash on delivery or using your card or using the EMI option is the same. For periods where the pricing is higher, the payment gateway shows the additional cost involved using the EMI option. There is a clear distinction between the cost of the product and the cost of financing the purchase. When the distinction is so clear and evident, how does the RBI claim that the customer is being deceived?

Lets take an example. Assume that you want to buy a Google Nexus 4 on Flipkart.


This clearly indicates that
  • If you want to buy the phone by making a one time payment by card or cash, you pay Rs 26090
  • If you want to pay it by 3 EMIs, you pay an additional Rs 100 (26190 - 26090)
  • If you want to pay it by 6 EMIs, you pay an additional Rs 300 (26390 - 26090)
  • If you want to pay it by 9 EMIs, you pay an additional Rs 1200 (27290 - 26090)

We do not need brains to understand this. We just need eyes.

Is 0% EMI really a 0% EMI? Yes, it is, in most cases. To give an example, I purchased an iPad Mini last year. The cost of the device was Rs 21,900. I inquired at Reliance Digital, Croma, iStore and a couple of other outlets. I also checked several websites where I saw the same pricing. Now, when I went to buy at Croma, I was told that the processing fee for a 6 month EMI is Rs 300. However, this fee will be refunded to me after I pay those EMIs. Very technically speaking, may be, I would lose some Rs 15 as the opportunity cost (lost interest for 6 months). It is as good as zero.

But, like RBI, I wanted it to be ZERO ONLY. I walked in to Reliance Digital, where I was told, if I buy within a particular date, they have an offer going on, they will waive off the processing fee. I purchased the product right there and opted for the 6 month EMI option. Thus, it is clear that neither the retailer nor the banker are trying to cheat. Reliance knows that, if they give a really 0% EMI, they can get some customers to buy their products, who would have otherwise bought it at Croma. Croma, on knowing this, will ensure they have a similar offer in place soon. It indeed happened in the next 1 week.

Had I paid them in cash or through a one time payment in card, I would have been paying Rs 21,900 only. Now that I went in for an EMI, I paid Rs 3650 a month. Thus, very technically speaking, I saved some Rs 450 (the earning that I could possibly have by investing Rs 21900 in a FD, withdraw Rs 3650 every month and pay the EMI).

So, is it a 0% EMI? I would rather say, it is even better. A screenshot of my EMIs right here prove it.



What the RBI Governor has forgotten is the fact that he is not in America or Europe anymore. He is in India. India is still a nation where the bankers are fighting to increase the usage of cards. The whole effort that we did in the past several years to discourage cash transactions and encourage electronic transactions would be put to the bin with such steps. It would now be more attractive for someone to buy using cash at a retail store than buying it on EMI.

The RBI must understand the fact that we are in a market economy. There are competitors for every product and service, thus the pricing elasticity is not high. While there is a bank which has a strong customer base and wants to get some interest income by letting the customer purchase on EMI with interest, there is another bank which wants to grow its customer base and thus offers EMI without interest. Thus, the former is also forced to offer EMI without interest to remain competitive in the market.

Indian consumers are not only smart but also demanding. It would be foolish to think of them as fools. Before buying a product, a person goes to all shops or websites possible to find the cheapest possible price to buy. He goes for only such purchase. The RBI's job is not to get into shops, at least.

One must understand the basic fact that NO SELLER WILL SELL AT A LOSS. You can bar anyone from selling with or without certain clauses. However, he will still ensure that he will keep his margins in tact. If you do not give him any scope to keep his margins, he will increase the selling price itself. And thus, the customer will end up paying more.

The steps that the RBI is taking in respect of the EMIs could be required, may be, 100 years down the line. As of now, all the RBI has done is spoil the festive mood. In an already hurt economy, RBI could have just been successful in help it bleed even more. RBI is a macroeconomic regulator trying to micromanage things. It would be in the best of everyone's interest to do their own job perfectly.

Now, it would be interesting to see how the banks and retailers structure their product offers now. They will drill into some loophole for sure.

Sunday, 8 September 2013

Yahoo! wants its reigning internet legacy back, Now

At one time, this website designed by Jerry Yang and David Filo was was the home page for every internet user. Yahoo!, an acronym for Yet Another Hierarchical Officious Oracle went live in 1995 and was an internet giant until recently. Of course, it continues to be a mammoth organization even today but the rate at which it is losing its market share is worrisome. Several web players have aggressively gained market share at a scorching pace, leaving the likes of Yahoo! and MSN with a lot to worry about. The companies enjoy tremendous exposure to cash and that has been one factor helping them to implement business strategies, which most other companies can not afford to, to come back to business.

The rise of Google has been the greatest contributor to the falling market share of Yahoo!, especially after GMail was launched, Yahoo! has failed to keep pace. MSN continued facing similar troubles. In 2008, Microsoft made a ~$45bn to acquire Yahoo!, which Yahoo! rejected. Interestingly, Yahoo!'s market cap is ~$29bn today. The further rise of Facebook has not just hit Yahoo! and MSN but Google as well. All these companies have been unable to keep pace with the future's technologies.

A look at several of Yahoo!'s products indicate that they have failed to compete.

Yahoo! Answers
The portal offers some very good information database. It allows people to ask questions and answer these questions. A lot of questions that you want to ask are already answered. The of Wikipedia, however, has been a major drag on the growth of Yahoo! Answers. Further, Google's strong search capabilities help the users to find information by providing them search results containing articles or discussions by experts in the field compared to Yahoo! Answers where the people answering the questions may not be the same. People generally find it safer to refer expert blogs to find answers.

Yahoo! Finance
A relatively better portal. However, it has no USP to attract people to stick on to it.

Yahoo! Groups
One of biggest reasons for Yahoo!'s user base growth could be this, after Yahoo! Mail. While competition from Google and Facebook groups is strong, Yahoo! Groups continues to be a very strong product in its basket.

Yahoo! Mail
Yahoo!'s email services gave a definite shock to Hotmail. The volume of Yahoo! mail users has been very high. However, over the years, Google has been grabbing a significant share in the email market. In fact, the younger generation definitely has more interest in GMail than in Yahoo! mail. In the longer run, this could become a risk. Yahoo! has been making desperate attempts to revamp it mail services. Several changes to the interface have been introduced over a period of time. However, it still fails to keep up with GMail.

Yahoo! Maps
Maps services have undergone a tremendous transformation over the years. Google Maps have taken a huge lead by allowing users to add locations and approve such edits after due verification. Nokia maps also are well developed. Bing Maps have grown with support from Facebook. Yahoo! maps, thus, faces enormous competition and it would be a herculean task to get any significant move in this field. Further, considering that Yahoo! doesn't have any significance in the mobile space and maps are building a strong base through mobiles.

Yahoo! Messenger
Yahoo! Messenger is definitely one revolutionary product that brought about an era of chatting in the world. The internet's ability to communicate grew rapidly by enabling people to instantly communicate through IMs in lieu of emails. Further, the addition of group chat and video chat played a dramatic role in increasing Yahoo!'s presence all over. MSN introduced its messenger which which did not catch up as much. However, Google's GTalk took over a significant market share away from Yahoo!. The recent switch-overs to Facebook chat and mobile applications like Whatsapp, WeChat, Viber, etc. have put messengers at bay.

Yahoo! Search
The search business is perhaps the biggest way to garner revenues in the internet market. Yahoo!'s search mostly works through its homepage. Considering that Yahoo!'s homepage contains a lot of stuff, of which the search bar occupies a small space. On the other hand, Google's homepage is dedicated solely for search, which has slowly, perhaps, induced the mindset that Google is THE search engine. Its also not news that the search capabilities of Google are relatively advanced than any other search engine. Furthermore, the entire search business has now moved from the search box to the address bar. Google's Chrome has made the address bar itself the search box and other browsers have kept pace. However, while IE doesn't see great success in getting people use Bing and Firefox as well as Opera set the default search engine to Google. The latest beta version of Chrome provides instant results in the address as you type in the address bar. Yahoo! tried to developed an IE optimized for Yahoo!. However, it failed to catch any interest. Chrome's increasing market share, by default, improves Google's search market share as well. Not just for Yahoo!, it would be a very difficult task for anyone to displace Google in this business.

Yahoo! Toolbar
Toolbars caught up our attention some years ago. They seem to have disappeared now. Had they continued with some pace, Yahoo! could have been a beneficiary as it enjoyed a strong market share in this segment.

The recent Flickr changes
Yahoo! acquired Flickr several years ago and closed Yahoo! Photos. It was a strategic move to fight against the rising popularity of Google's Picasa. Off late, Picasa too has lost its charm and considering that Google has started focusing on Google Plus, its social networking adventure, Google has been making attempt to make Picasa a part of Google Plus. Yahoo! recently introduced several value added features to Flickr included an incredible 1TB storage space. This was, perhaps, more to attract people back to the Flickr platform. Google Plus and Facebook, anyway, offer an unlimited storage space for photos. However, the greatest deal with Flickr is it will save and let you access the original version of the photograph and not the one with reduced resolutions (like on facebook and on google plus). Picasa still allows original size pictures but the storage space is just a GB. Flickr could also be taking Dropbox head on through this move by possibly deterring users to make a move to Dropbox to save their photographs as the storage space is relatively limited.

Tumblr
Tumblr is another recent gamble by Yahoo!. Yahoo! 360, an attempt to enter the blogging arena, did not take off as expected. The Tumblr acquisition has been termed as a game-changer in the blogging space, like all acquisitions are termed. Posterous was acquired by Twitter in 2012 and it was shut down in 2013. Blogging itself may not be a real strong business, for some platforms. Wordpress and Blogger lead this market and it remains to be seen how much Tumblr could do to tumble the giants down. 

Executive Changes
Yahoo! has been making some desperate moves to get back their crown in the internet business. In the recent past, there have been several executive changes, the most talked one being the hiring of Google's Marissa Mayer to the CEO's position. Mayer was the first female employee at Google and has been the face of several Google products. She has been taking some decisions that have caught the market's attention, for eg, stopping the work from home facility for most employees, a spree of acquisitions including the $1.1bn Tumblr, $50m Qwiki, $40 Xobni, $30m Summly, etc. totaling to nearly 20 in just a little more than a year. This clearly indicates the serious desperation in Yahoo!, just like something similar seen with Microsoft, to turn around themselves to a company/product that the consumers would switch to.

A dire challenge to acquire loyalty
However, it is a real challenge for any company to migrate customers. New customer acquisition is relatively easier. To take a simple example, even though Tumblr or Wordpress can give me a lot more advantage, switching over to them would mean a loss due to new links, loss of some reader base, etc. Even though Yahoo! Mail or Hotmail revamp and ask people to sign up, it would be tough for people who are used to GMail to make a move. Google gives a host of services, like Drive, Calendar, Play (linked to android phone for quick access to apps), Youtube and Maps, the most crucial and useful services for many of us in a single access in a superbly powerful, neat and clean interface. Plus, the chatting app within gmail, where we get instantly connected to friends, is another benefit. Unless Google itself makes some mistakes, like it has been doing off late, be it introducing the new mailing interface similar to chats or forcing an inbox classification which some are not interested to use, etc., it would be difficult for any email service, no matter how wonderful, to get back some loyalty.

Next is What
Tech companies have to always remain ahead of race. There is 100% truth in the fact that what gets invented today gets outdated tomorrow. While acquiring tomorrow's technology is one side of the game, the real game is to develop such technology which would keep your consumer with you for a long period of time; something in which Google is the leader. Anybody with money can acquire companies but what do they do after acquisition is a big question. Twitter acquired Tumblr and closed it after having, perhaps, no clue of what to do with it. Flipkart acquired Letsbuy just to kill it. There have been acquisition disasters in the past as well. A lot remains to be seen what happens to all the acquisitions that Yahoo! has done recently. Could Yahoo! think of designing a mobile operating system? Something like Apple. Or could it partner with Microsoft or Apple to do something? Microsoft would definitely not like to do anything with Yahoo! as most of the products are competing products, and thus, if at all an acquisition happens, it would be to kill competition. There, anyways, doesn't seem to be such a competition with them now. An Apple tie up with Yahoo!? Who knows?

Well, the world changes each moment and thus, nobody can be sure of what happens in the coming days. For the moment, lets, as consumers, enjoy the attention all these are paying to us to keep us happy.

And yes, Yahoo! now has a new logo as well. All we can say, "All the best Yahoo!"

 is now


Disclaimer: All the information in this post is to the best of my knowledge. I might be wrong at several instances. Any help to correct the statements above would be highly appreciated. Images and references used are solely the property of their registered owners. They are used here solely for educational reference.