Are social networking sites profitable?

19 04 2009

Everyone of us, atleast in the IT industry, will be part of a social networking site. YouTube, Flickr, Facebook, Orkut, something or the other. Google acquired Youtube and Orkut, Yahoo acquired Flickr, and Microsoft acquired Facebook in the hope of generating money and adding numbers to the bottom line of the company. The business model was to generate revenue through advertisements. The content was user generated.

Credit Sussie estimates that 375 million people would watch 3 billion videos in Youtube this year. But is it adding money to Google? Last year Eric Schmidt was not very positive about Youtube generating revenue for google. Rather it is  bleeding Google’s money.

http://www.slate.com/id/2216162/?GT1=38001

Few numbers from that discussion (thanks to Tren Griffin)

“According a recent report by analysts at the financial-services company Credit Suisse, Google will lose $470 million on the video-sharing site this year alone.”

Google can post ad only on few videos due to legal restrictions (this pose a problem to monetize from free parking.). Youtube adopts ‘Pay Per Click’ or ‘Pay per Thousand Impressions’ (PCM) model for advertisements.

Infrastructure Maintenance            –     $ 450 million (Servers and Bandwidth to support videos)

Licenses to acquire few videos      –      $ 250 million

The expenses total to $700 million while advertisements generate $250 million dollars. This is loss. Other social networking sites face the same problems. Even flickr was not able to add much to the bottomline of Yahoo.

Few alternatives

1)    Making it a subscription based model.  But studies show that 70% of users would discontinue even if a 2$ subscription is levied. So it may not work out great.

2)  Few online gaming sites generate revenues by providing the actual games for free. But they monetize by selling gadgets, avatars, etc. Similarly can try selling applications, etc. But the concept of selling things in a gaming environment may work out.How will it work out in youtube or Facebook or Orkut?

This will be an interesting challenge for these companies. We need to wait and see whether social networking is there to stay , at the least for free!!





The Chat Shop!!

19 04 2009

Naveen (my room mate) and I were in Madhapur last week. Naveen heard from few of his colleagues about a chat shop in that area. We went to that shop. I was surprised to see a lot of people waiting in queue for the chat items. My first thought was that the food has to be divine. We tried 2 or 3 items. Though it was good, it was not great. Then why is it crowded?

After some thought and discussion with naveen, I found the following two can be a major reason for this success

1) The location of the place – No this is not about placing your shop in one of the busier roads. Madhapur is the IT hub in Hyderabad. And it is a busy area. But this shop was located on a road (adjacent to the main road) which had no houses or building on that road. There were couple of vacant grounds. The road was wide. People came with their family, parked their cars, bikes and had road-side Khana. I got to see a similar setup in Chennai. There was a dosa shop in Chennai (near to Aptech center in T.Nagar) and it was also located on a road with lot of open space. And he served amazing food and the business was successful.

2) The chat guy was also serving lot of items. Mostly the road side shops serve Pani Puri, Bhel Puri and Dhoklahs. But this guy had a lot to offer. Variety.





Is Calvin talking about the current situation?

9 01 2009

Found this strip in one of the discussion groups. Found it interesting and pertinent. Posting it.

calvinnhobbes





Predictions time!! Few Prediction for 2009!!

4 01 2009

Techology predictions for 2009 – PCMag –       http://www.pcmag.com/article2/0,2817,2336693,00.asp       

 Five Predictions from Wall Street Journal  – http://online.wsj.com/article/SB122902532265099095.html

Business Week  –  http://www.businessweek.com/technology/content/dec2008/tc20081211_906153.htm?chan=technology_technology+index+page_top+stories

 In the Asian Context,

http://www.enterpriser.in/India/Trends/Springboard_Outlines_Top_10_trends_for_2009/551-96407-452.html

In Short, next year should see lot of action in the following arenas

1) Cloud Computing  – VMWare building its data centre and Microsoft releasing Azure Services Platform indicates the start of the revolution. Software as a Service may become a reality in the coming years. But I am not sure about the business model. The monetization whether is it going to come from Subscription, Advertising or by other means. With advertising revenue not tracking the predicted lines a few years back, SAAS will need to re-evaluate its targets. But everything online will be the future.

                Google is ‘Gear’ing up too. With a browser (Chrome) and a development platform (Gears), Google is looking at building an ecosystem. I heard that Google was pursuing with OEM Channel partners to include the Google suite as part of the installwares. Amazon’s Elastic Engine is not full-fledged was what I heard. They may be able to cut some ice in the Online Transactions Arena but as a whole, not very sure.

2) SmartPhones  :  Microsoft has started with its ‘Windows without Walls‘ campaign.  Apple with its non-dwindling profits through IPhone will be a good match. And need to see how Android Platform evolves.

3) Consolidation of assets, cost-cutting exercises, more offshoring will mark this year.





Where did all the money go?

4 01 2009

As usual, let us look at the few financial jargons involved in this crisis

     Leveraging and Deleveraging   :   Leveraging is synonymous to borrowing. A has put up some product for sale with a selling price of Rs. 100. B has Rs. 100 with him. 

    1) B invests Rs. 100 in this product. And sells the same for Rs. 11o to someone else in the future. Rate of return – 10%

    2) B Borrows Rs. 90 and adds it to Rs. 10 from his pocket. B invests Rs. 100 in this product. And sells the same for Rs. 11o to someone else in the future. Rate of return – 100%.  (Rs. 90 goes to the lender and Rs. 10 goes as profit.) . And the remaining Rs. 90 can go in for other investments. Hedge Funds generally do this.   

         Here B tries to leverage Rs. 10 to buy something worth Rs. 100. (meaning it has borrowed Rs. 90 showing its Rs 10).         Deleveraging in the company parlance is to reduce the debt in its balance sheet.

        Credit Default Swaps  :    It is like a debt insurance. I lend some money to someone. And I take an insurance for the debt. If the borrower fails to pay, the bank covers the amount for me.  But this instrument was used (misused) like the following

                   1) Banks, Hedge Funds and other financial instituitions provided Credit Default Swaps (Insurance) without posting adequate collateral (money to pay back) if it has to pay for the debt.

                   2) CDS was started for Corporate Debts and Bonds. But CDS was later extended to Mortgage loans as well. (as there was economic boom). The mortgage loans were divided into pieces called ‘Collateralized Debt Obligations’. (CDO) – in plain English Debt backed by money. You will get money for sure.

                    3)  CDS can be used to earn higher profits through speculation. Lets say ‘A’ is an entity. There is another Company ‘C’. A thinks (speculates) ‘C’ will default (fail to pay) on its Debt. A need not hold any of the debt of ‘C’. But it can get a protection cover of Rs. 100,000 for ‘C’ at a premium, lets say, of Rs. 5000 per year. (Bank levy protection cover rates like LIC premiums). What do Banks get? Premium. What will ‘A’ get? If  ‘C’ defaults (one time, the first time), A gets Rs. 1,00,000. Or Scenario 2 – the next annual results of  company ‘C’ is not encouraging. ‘A’ can sell this insurance for Rs. 10000 where ‘A’ has paid only Rs. 5000 for the first year.

    Sub-Prime Lending : Loans given to people with bad credit.

How things are connected? 

                     Post 1995,IT Boom and lot of economy boom all over the world. India and few other Asian countries opening their market. Things were looking great.  Lot of DotCom Companies mushroomed. Few unworthy companies also earned lot of money in this era. One fine day, the DotCom Boom saw its end.

                     There was a financial crisis looming big. In order to curb it or contain it, many monetary measures were taken. As a result, money was becoming available for free. (at a very less rate of interest.). So people started borrowing. They wanted to invest in something which can fetch them good rate of return. Home investments looked like a great investment arena. People believed that the house rates will keep on increasing.

                       People started investing. Home rates started increasing. Banks started lending. (Mortgage Loans). Brokers and Agents started giving money to people with bad credit. There was a bubble forming. In the similar vein, lot of Credit Default Swaps (CDS) were given to lot of mortgage loans. (AIG ws a big time invester in this.). People broke these mortgage loans into pieces and sold it to other firms, fund houses in US and abroad as well. (Heard China might be deeply affected).

     What is in there for Banks who give Mortgage Loans?   If the borrower does not pay the money back, the bank would sell the property (rate is ever rising) and cover the costs.

         What is in there for bad borrower?   Borrowers in general were leveraging. They had Rs. 10 and invested in a property worth Rs. 100 believing that it would rise to Rs. 110, when they can sell.

          What is there for Banks like AIG giving CDS?  Premiums. You remember that these banks were charging for giving the protection cost. They thought that the bubble will never burst. And they did not attach the adequate collateral required for the CDS they issued.

           What is in there for Banks which bough Collateralized Debt Objects?  High returns. They thought that since the Mortgage funds were protected through CDS, they will always get their money. They never checked the paying capacity of the CDS lender.

          One fine day, people found that the supply of homes were greater than the demand. So the cost of houses started coming down. So people were shocked. Bad borrowers started defaulting. Bank was not able to confiscate and sell the property as it would incur a loss. People were no more ready to buy the CDOs. And people who wanted to buy postponed their buy expecting the prices to decrease further.

          The world spiralled down. So where did the money go? The money went into the greed of human minds. So is it possible to avoid this in the future. With more regulations, people will be able to avoid these kind of issues. But it would take a different form to hit us. After all, we are human!!





The world is pi(u)nk’ed

4 01 2009

                                         There was a nice illustration in the following link  about  the US Financial Crisis

                     http://blog.mint.com/blog/wp-content/uploads/2008/11/visualguidecrisis2.jpg

US Financial Crisis

US Financial Crisis





Interesting Ads, Intent and their impact!!

13 12 2008

                 Advertising is a challenging business. One needs to convey the message in 30 seconds. One needs to take care of the brand image, appeal factor and lot of other things.    

                  One of the famous ads in the recent past was that of Fevicol’s.

                   Few great ads like ‘Pulli Raja’ (in Tamil Nadu to create AIDS awareness), Amul, Leo Coffee, etc  created a stir. I still remember the ‘Thumbs Up – the Zing thing’, ‘Citra’ ads.  Or who can forget the impact of  ‘Hutch’ ad. (The dog did a great job in that ad. 🙂 ). In India, Ads mixing the right emotions tick.

                   At this time of economic slowdown, we are getting a chance to see lot of Bank Ads, canvassing for lot of deposits. (See this post -https://sundarkp.wordpress.com/2008/12/13/inflation-crr-credit-crunch-and-few-other-financial-jargons/ – to see the connection).

             Industrial Development Bank of India (IDBI) has to break its image of support to industries alone as its name expansion indicates. This ad has done a great job in that aspect.

                  HDFC Standard Life insurance’s ‘ Sar utke jeo’ or Union Bank of India’s ‘Ad of the girl collecting and burying the teeth, are great ads which can create a cut very easily.

                  World-over, star values also play a major role. Cadburys had to bring in Mr. Amitabh Bachan to save its skin in India after getting into some controversies. (Water contamination allegation and bugs infested choclates issue).  Dhoni and Sachin are oft-scene faces on the screen outside the grounds as well.  Colgate did a great job by portraying Dentists recommending the paste.

                 In the recent past, one Ad/Billboard which shocked me was that of ‘State Bank of India’. The billboard went like “Do you know who owns the largest number of ATMs in India? Surprisingly SBI”. I did not like the word ‘Surprisingly’. It did not convey the message intended. And it was a bad show in my opinion. Fortunately, they changed it after some time.





Inflation, CRR, Credit Crunch and few other financial Jargons

13 12 2008

                               Economic Slowdown – After the cruel death of many big enterprises and the evaporation of trust world over, the whole world is in a state, which is totally unforeseen and unfathomed even a few months back.  We are hearing a lot of economic terms from financial analysts world over. Let us unravel and connect them!

                              Inflation – Inflation is an upward movement in the average level of prices. In India, Inflation is calculated using “Wholesale Price Index”. What causes inflation? Supply-Demand theory.

  •  The supply of money goes up.
  • The supply of goods goes down.
  • The demand of money goes down
  • The demand of goods goes up.

               To curtail inflation, government hikes the Cash Reserve Ratio (CRR) or reduce the supply of money.  CRR refers to the mandate on each bank to maintain a certain ratio of their funds in deposits and p-notes.  So with less fund to lend, banks increase the ‘Interest Rate’ on loans to compensate on the reduction in disbursable funds.

               To curtail inflation, government hikes the Repo Rate or Reverse Repo rate. Repo rate – rate at which banks borrows money from RBI. Since the funds become dearly, the increase in rate of interest is passed on to the common man thereby curtailing the supply of money. everse Repo rate – rate at which RBI borrows money from banks. Since RBI is a safe haven, banks deposit all their money thereby draining the available money in the finance system. So funds become unavailable to common man. Realty, Capital Goods, Auto and many other business generally feel the heat.  

                              Economic Slowdown->Credit Crunch.  What is Credit Crunch? A credit crunch (also known as a credit squeeze) is a sudden reduction in the general availability of loans (or credit), or a sudden increase in the cost of obtaining loans from banks. (frm Wikipedia).

                               But in India, the credit crunch is for a different reason. In the western countries, if it is the lack of trust, in India, it is the increase in demand for the available credit. The CDR (Credit-Deposit ratio – ratio of the deposits lent out.) of India is at an all-time high. So the nation is buoyant and there is no reduce in the supply of money from banks.  The problem is that sectors, which were dependent on money from foreign funds or non-banking firms, are coming to domestic banks for funds. So there is a credit squeeze.

                                What is the government doing? It is reducing the CRR, Repo rate and Reverse Repo rate.  And banks are canvassing for deposits, by offering increased Rate of Interest. So you will be buying cars, homes, etc at a lesser rate of interest in the near future!!





Business Acumen

13 12 2008

                   “Business Acumen” – I attended this training 2 weeks back. We were five groups (each had five members) in the class. We had to run a “fictional” company. People in my group had different backgrounds – Advertising, Finance, Program Management, Test.

                     Each group will be running the fictional company in its own style. (The initial state of the company was same for all the groups – Cash Balance, Assets, Liabilities, Money in the market, Labour, Inventories and other costs).

                      After that, each group was given a set of cards (Events, Options and Consequences).  One person will be reading a card from the ‘Events’. The group will debate and select an option from the ‘Options’ card. After that, the balance sheet is tallied. Finally, the ‘Consequence’ card talks about the impact of the ‘Option’ chosen and how it impacts the business.

                      The class made me understand that  business thrives on decisions. This information may look trivial but not the task. ‘Decision Making’ is considered to be the toughest thing to do. I read somewhere that 80 % of the business leaders take decisions out of intuition. But I understood that intuition should have been built on intrinsic capability, experience and expertise. Future Business Leaders need to grow themselves to face tough situations and take a decision. “Decision Making is not about making the right choice or wrong choice but to make an informed choice hoping that things will turn out right”

                        And second thing, I understood that making a 1$ profit is a great thing. I felt a huge respect for all the big companies which are employing thousands of people and pushing the world ahead!!





Protecting one’s team

8 11 2008

                  My friend and I were discussing an issue in his team. He was explaining the problems created by the brutal honesty of one of the leads in his team. He revealed to the business that an oversight on the team’s part has created a delay in the delivery of the project. But the business did not take it in the right spirit. Now his team members are also unhappy as the business might take it to be a carelessness on the part of the team members. After working really hard for the release, they did not want this.

         This reminded me of what one of my first managers told me – “Listen. Your team is a family. You have to protect it from external criticisms to maintain its morale and you have to criticise it and guide it to build it into a stronger team”.

       I think the lead’s misplaced honesty has cost the confidence or trust the business had and the morale the team had.