Asha to Ashes: Microsoft’s Emerging Markets Conundrum

A piece I wrote with Devi in Delhi, and the help of a couple of other colleagues. 

Asha to Ashes: Microsoft’s emerging market conundrum

By Jeremy Wagstaff and Devidutta Tripathy

SINGAPORE/NEW DELHI | Thu Sep 5, 2013 9:22pm EDT

(Reuters) – Microsoft Corp’s acquisition of Nokia’s handset business gives the software behemoth control of its main Windows smartphone partner, but leaves a question mark over the bigger business it has bought: Nokia’s cheap and basic phones that still dominate emerging markets like India.

Microsoft Chief Executive Steve Ballmer has said he sees such phones – of which Nokia shipped more than 50 million last quarter – as an entree to more expensive fare.

“We look at that as an excellent feeder system into the smartphone world and a way to touch people with our services even on much lower-end devices in many parts of the world,” he said in a conference call to analysts on Tuesday.

But analysts warn that’s easier said than done.

The problem, said Jayanth Kolla, partner at Convergence Catalyst, an India-based telecom research and advisory firm, is that Microsoft simply lacks Nokia’s retail and supply chain experience in the Finnish company’s most important markets.

“The devices business, especially the non-smartphones business in emerging markets, is a completely different dynamic,” he said.

Kolla pointed to the need to manage tight supply chains, distribution, and building brands through word-of-mouth. “Microsoft doesn’t have it in its DNA to run operations at this level,” he said.

India is a case in point. Nokia has been there since the mid 1990s and the country accounted for 7 percent of its 2012 revenue while the United States generated just 6 percent, according to Thomson Reuters data. Its India roots run deep: it has a presence in 200,000 outlets, 70,000 of which sell only its devices. One of its biggest plants in the world is in the southern city of Chennai.

For sure, Nokia has slipped in India as elsewhere: After nearly two decades as the market leader it was unseated by Samsung Electronics Co Ltd in overall sales last quarter.

But it still sold more of its more basic feature phones.

As recently as last October, market research company Nielsen ranked it the top handset brand. The Economic Times ranked it the country’s third most trusted brand.

LOYALTY RUNS DEEP

In a land of frequent power cuts and rugged roads, the sturdiness and longer battery life of Nokia’s phones have won it a loyal fan base – some of whom have stayed loyal when trading up.

Take Sunil Sachdeva, a Delhi-based executive, who has stuck with Nokia since his first phone. He has just bought his fifth: an upgrade to the Nokia Lumia smartphone running Microsoft’s mobile operating system.

“Technology-wise they are still the best,” he said of Nokia.

But Microsoft can’t take such loyalty for granted. Challenging it and Samsung are local players such as Karbonn and Micromax, which are churning out smartphones running Google Inc’s Android operating system for as little as $50.

Such players are also denting Nokia’s efforts to build its Asha brand, touchscreen devices perched somewhere between a feature phone and a smartphone.

Nokia shipped 4.3 million Asha phones globally in the second quarter of this year, down from 5.0 million the previous quarter.

“The sales performance of the Asha line has been quite poor,” said Sameer Singh, Hyderabad-based analyst at BitChemy Ventures, an investor in local startups. “With increasing competition from the low-end smartphone vendors, I’m unsure how long that business will last.”

That leaves the cheap seats. Singh estimates that the Asia Pacific, Middle East and Africa accounted for two-thirds of Nokia’s feature phone volumes in the last quarter, at an average selling price of between 25 to 30 euros ($32.99 to $39.59).

“I don’t see how Microsoft can really leverage this volume,” he said. “The market is extremely price sensitive and margins are racing into negative territory.”

TOO BIG TO IGNORE

The quandary for Microsoft is that while the basic phone market may be declining, it may simply be too big to ignore.

“If you look at markets like India and Indonesia, more than 70 percent of the volume comes from the feature phone business,” Anshul Gupta, principal research analyst at Gartner said. “It’s still a significant part of the overall market.”

That means that if Microsoft wants to herd this market up the value chain to its Windows phones, it needs to keep the Nokia and Asha brands afloat – while also narrowing the price gap between its smartphones and the feature phones and cheap smartphones.

Microsoft has hinted that lowering prices of smartphones would be a priority. The Windows Phone series includes the top-end Lumia 1020, which comes with a 41-megapixel camera, while it also sells simpler models such as the Lumia 610 and 620 aimed at first-time smartphone buyers.

“The lower price phone is a strategic initiative for the next Windows Phone release,” Terry Myerson, vice president of operating systems said on the same conference call, while declining to provide details.

An option for Microsoft, analysts said, would be to shoe-horn services like Bing search, Outlook webmail and Skype, the Internet telephony and messaging application, into the lower-end phones as a way to drive traffic to those services and make the devices more appealing.

“So you can bundle services with these low-end products and that way you can reach a wider audience,” said Finland-based Nordea Markets analyst Sami Sarkamies.

But in the meantime Microsoft needs to brace for assault on all fronts as emerging market rivals see an opportunity to eat further into Nokia’s market share. In India, said Convergent Catalyst’s Kolla, cheap local Android brands have been held back by Nokia’s strong promotion of its mid-tier Asha brand.

“Now, I expect them to pounce,” he said. ($1 = 0.7577 euros)

(Reporting By Jeremy Wagstaff in Singapore, Devidutta Tripathy in New Delhi, Bill Rigby in Seattle, Ritsuko Ando in Helsinki; Editing by Emily Kaiser)

Facebook can’t take Asian growth for granted

A piece I wrote ahead of Facebook’s IPO, casting a skeptical eye over assumptions that Asia would continue to be a source of major growth for the company.

Even as Facebook fever grips investors ahead of the social networking giant’s potential $100 billion-plus initial public offering, its breakneck growth in Asia may be slowing as it moves beyond desktop users to those who access the Internet largely or solely from a mobile phone.

In March, Facebook revised its own SEC filings to scale back its scope for further growth in India – its third-biggest user base and the largest population it currently has access to – China remains off-limits to Facebook. And independent data show that user numbers in Indonesia and the Philippines, its other largest Asia user bases, have actually fallen off slightly in the past three months.

“If you’ve been growing at such a huge amount it will definitely trail off,” said Ganesh Kumar Bangah, Kuala Lumpur-based CEO of online payment provider MOL Global. “You can’t expect it to keep growing.”

Read the rest: Analysis: Facebook can’t take Asian growth for granted

Facebook’s daunting Asian challenge

Here’s a piece I pulled together with the help of Reuters reporters Andjarsari Paramaditha, Camilo Mejia and Estelle Griepink in JAKARTA, Harichandan Arakali in BANGALORE, Lee Chyen Yee in HONG KONG, Kazunori Takada in SHANGHAI and Harry Suhartono in SINGAPORE.

Facebook aims to connect all two billion Internet users. So far it has captured 845 million of them. Of the rest, nearly 60 percent live in Asia and hooking them is going to be a daunting challenge.

A block on access in China, court cases in India and rivalry from other services elsewhere in the region stand between Mark Zuckerberg’s Facebook and more than 700 million users.

"The size of our user base and our users’ level of engagement are critical to our success," Facebook said in its SEC filing for an initial public offering. Quoting industry data that there were two billion Internet users globally, it said: "We aim to connect all of them."

Growth is held back in the rest of the world, either because of limited Internet penetration, or because those who want a Facebook account already have one.

Full text here.

Former Soviet Bloc, Allies, Under Lurid Attack

Trend Micro researchers David Sancho and Nart Villeneuve have written up an interesting attack they’ve dubbed LURID on diplomatic missions, government ministries, space-related government agencies and other companies and research institutions in the former Soviet bloc and its allies. (Only China was not a Soviet bloc member or ally in the list, and it was the least affected by the attack.)

Although they don’t say, or speculate, about the attacker, it’s not hard to conclude who might be particularly interested in what the attacks are able to dig up:

Although our research didn’t reveal precisely which data was being targeted, we were able to determine that, in some cases, the attackers attempted to steal specific documents and spreadsheets.

Russia had 1,063 IP addresses hit in the attacks; Kazakhstan, 325; Ukraine, 102; Vietnam, 93; Uzbekistan; 88; Belarus, 67; India, 66; Kyrgyzstan, 49; Mongolia, 42; and China, 39.

The campaign has been going for at least a year, and has infected some 1,465 computers in 61 countries with more than 300 targeted attacks.

Dark Reading quotes Jamz Yaneza, a research director at Trend Micro, as saying it’s probably a case of industrial espionage. But who by? ”This seems to be a notable attack in that respect: It doesn’t target Western countries or states. It seems to be the reverse this time,” Yaneza says.

Other tidbits from the Dark Reading report: Definitely not out of Russia, according to Yaneza. David Perry, global director of education at Trend Micro, says could be out of China or U.S., but no evidence of either. So it could be either hacktivists or industrial espionage. Yaneza says attackers stole Word files and spreadsheets, not financial information. “A lot of the targets seemed to be government-based,” he says.

My tuppennies’ worth? Seems unlikely to be hactivists, at least the type we think of. This was a concerted campaign, specifically aimed to get certain documents. Much more likely to be either industrial espionage or pure espionage. Which means we might have reached the stage where groups of hackers are conducting these attacks because a market exists for the product retrieved. Or had we already gotten there, and just not known it?

Either way, Russia and its former allies are now in the crosshairs.

More reading:

Massive malware attacks uncovered in former USSR | thinq_

Cyberspy attacks targeting Russians traced back to UK and US • The Register

Why We Work in Starbucks

(this is a copy of my Loose Wire Service column, syndicated to newspapers; hence no links.)

By Jeremy Wagstaff

Why do we work in Starbucks? It’s a question I ask myself every day, because I usually find myself in one at least once. This despite having an excellent home office replete with cappuccino machine, music, ergonomic chair and, most importantly, sofa. But lo, every day I wend my way to a Starbucks, or one of those other chains, and park myself in an uncomfortable chair and too-low table, dodging the students with their bags strewn across space they’ll never use, the dregs of a smoothie enough to make it look as if they’re paying their way, babies screaming blue murder by the sugar dispenser.

Why? Why do I do it?

Well, I think it has to do with noise. And a cycle that goes back 300 years and, importantly, has to do with organ grinders.

So first, the organ grinders.

Next time you look out of your window and you don’t see an organ grinder making his way down the street, you can blame Charles Dickens. And Tennyson, Wilkie Collins and 28 authors, painters, engravers, illustrators, historians, actors, sculptors, musicians, architects and scientists. All of them, in 1863, co-signed a letter that “in their devotion to their pursuits—tending to the piece and comfort of mankind—they are daily interrupted, harassed, worried, wearied, driven nearly mad, by street musicians.” Most gave their home and work address as the same. The letter was the centerpiece of a 120-page bill submitted before the British parliament by one Michael Thomas Bass. The letter, and dozens of others, reflect a single themes: a rearguard action to defend the home as workplace against the slings and arrows of street noise.

This was no idle irritant. The streets of central London had become a sea of itinerant workers, musicians and hustlers. Those who didn’t like to have their ears assailed by the noise could either pay them off or complain. But the latter was not without risk. One of Dickens’ friends confronted two street musicians and was insulted, in the words of a friend, “in the choicest Billingsgate.” Another, Charles Babbage, inventor of the Difference Engine, waged a guerrilla war against street musicians from Manchester Square and was not popular for it: mobs, some numbering more than 100, would pursue him, leave dead cats on his doorstep, break his windows and threaten his life.

The Street Music Act was passed the following year, and decimated the itinerant musician community—among them violin-players and street bands, Irish and Scotch pipers, a German brass-bandsman, a French hurdy-gurdy-player, Italian street entertainers, and percussionists and minstrel singers from India and the United States. Many were gone by the latter years of the century—but so were most of the knowledge workers, who upped sticks to the suburbs or took refuge in offices.

The truth is that knowledge workers, or whatever we choose to call ourselves, have long struggled to control the level of noise in our world.

I’ve waged my own noise battles over the years—dogs in Hong Kong flats, car alarms in Singapore, firecrackers in Indonesia. But at issue is not the pursuit of silence, per se, but to find a place where the noise is conducive to work. And that’s trickier—because we’re not sure what it is.

Which is where the coffee house comes in.

Starbucks likes to portray itself as a “third place”—a term purloined from Ray Oldenburg, an urban sociologist, who mourned the demise of informal public gathering places. The idea is that your local Starbucks fulfills a role beyond just providing  you with coffee, but connects you to others in your community, along with sparkling conversation and wit.

The truth is this doesn’t happen—at least not in any Starbucks I know, a point made by historian Bryant  Simon, who hung around in more than 400 Starbucks trying to strike up conversations with strangers. Despite what Starbucks would like us to believe, with its Annual Report covers of friendly people chatting in their outlets, faux artwork and lame noticeboards, and a short-lived community magazine called Joe, we don’t come to Starbucks to chat. Well, not with strangers.

That dream pretty much died long before Dickens got hot under the collar about the racket-making riff raff . Back in the 1700s there were things called coffee houses, all over the place. They were the place where men met—women were usually banned—to drink coffee, read the paper, discuss politics and basically to get away from things (meaning the house.)  These were vibrant, noisy places and there were lots of them. Samuel Johnson called them ‘penny universities.’

But they began to die out, ironically, when newspapers became cheaper and more plentiful, and were delivered to your home. Then the reason for someone to go to a coffee house declined, and our knowledge workers began two centuries of toiling, either in a cubicle or alone at home.

Starbucks—and other things—have brought us full circle. Starbucks was never what Starbucks would like us to think it is: It is, primarily, a solo-friendly environment. You can go there on your own, order something and sit there on your own and no-one is going to bat an eyelid. Social phobics feel uncomfortable there, but less uncomfortable than pretty much any other eatery. Indeed, the size of tables, the size of the chairs, the layout of the place, is designed to cater to someone alone.

Which is why it has become the perfect workplace. It’s not just the free Wi-Fi, the power outlets, the no-nag policy, although that helps. It’s a complex social and psychological thing. For students, libraries are too quiet, too noisy, too old, too full of friends. You are less likely to fall asleep in a Starbucks. For those who work at home, they feel they might be missing something. Or they like to watch other people. It’s a place for introspection, a refuge from the city, from the kids, from everything: There are people around you, but with no obligation to talk to them. The barista can be as friendly or as taciturn as you want her to be. It’s not a sexy environment, and it’s relatively safe: Leave your belongings while you visit the washroom and they may well still be there when you get back.

For people who work in an office it’s refuge from the boss, the people hanging around your cubicle, the greyness of it all, the phones ringing. In libraries it’s people whispering—loud enough to hear them whispering, but not loud enough to hear what they’re whispering about.

So it’s actually often about noise. It turns out we actually need noise. We just need a certain kind of noise.

JK Rowling wrote Harry Potter in a cafe. Stephen King writes to AC/DC or Guns n Roses. Xerox chief researcher John Seely Brown did his doctoral thesis in a bar.

Researchers in Sweden found that actually a certain level of white noise actually helped kids with Attention Deficit Disorder concentrate better. Apparently it’s something to do with increasing the levels of dopamine activity in the brain.  Canadian researchers found that masking noise—adding white noise to their work environment to reduce the intrusion of things like ringing phones—also helped office workers. Kodak issued a manual a few years ago advising offices to do just this—48-52 decibels is the best level, they reckon. Perhaps Dickens and co could have saved themselves the wrath of the mob if they’d installed a white noise machine or invented the iPod.

It’s also related to the way we work, and communicate, today. It’s tempting to imagine Dickens hunched up in the corner scribbling Nicholas Nickleby. But while we knowledge workers have something in common, our tools are quite different, and what we’re asked to do with them: we’re all touch typists, of a sort, which means we write dozens of words a minute. We answer emails as if we were flicking dust off our coat. We write proposals, reports, requests for proposals  that not long ago would have taken teams a month to write. Laptops are lighter, with better battery life, and connected to a communications network. We are our office. Companies realize they don’t need to shackle people to their desks all day—less than 40% of our time, according to one property consultancy, is actually spent at our office desk.

We operate in a supercharged environment, which makes the coffee shop of today a perfect setting. Visual and audible stimulation, but with none of the distraction of having to be sociable. Oh and the coffee. It’s no coincidence, I suspect that caffeine also increases the production of dopamine in the brain. A double whammy of noise and caffeine.

If you’ll excuse me, I need to head off. You know where you can find me.