Before you start reading this blog I want to make you aware that I am big fan of Google like many of you but I am playing the devil advocate to fuel debate. I am in minority group who though being an ardent reader didn’t like the book Google Story because I perceived the book to be one of the marketing techniques of Google rather than its true story. There were only positives about Google and that is what I see is the perception of most of the people. People have been made to believe that Google stands for philanthropy, they want to make life of people better by providing them access to vast amount of information at low cost. At same time Microsoft is being perceived as giant monopoly crushing any opponents in the industry with only aim to earn huge profits. Every computer science graduate dreams to be in Google and brand Google now stands for innovation, noble cause. There are ample of articles and cases that document work culture at Google, their success story and their noble intention. People are speculating that there is nothing that can stop Google’s growth. But there are few people who have raised doubts on Google. Most famous being by Dr. Benjamin Edelman, assistant Professor at Harvard Business School, whose article in HBR about how Google’s Ad deal with Yahoo is nothing sort of monopoly was really alarming. This blog has been inspired, in fact most of points have copied from famous article ‘Google Engima’, published by Booz Allen and I am just putting my interpretation of that. So credit goes to them for these insights which I think we should know before we try to emulate Google in our business.
Let’s first see the Google’s claim of providing information for free as no noble vision but rather perfect business strategy. It is similar to Microsoft strategy of providing Internet Explorer for free to destroy Netscape. However Microsoft was criticized for its action while Google actions are being considered as noble. That’s strength of good marketing communication. I know many of you won’t agree on this so let’s get some clarity. If anyone looks at Google revenue stream then it would be crystal clear that online advertisement business is its cash cow which generates more than 80-90% of its revenue. Now answer simple question when would online advertising industry thrive? Only when there are more users online i.e. using Internet. So who are the competitors of Google? Anyone who provides users with utility that doesn’t require user to use Internet. So if Google provides those utility online and with reduced cost in fact for free and similar or better performance then users would prefer online version then offline one. Thus it is a direct competition for Microsoft. It is very famous strategy of using complements to drive the main product. Google by its support to open source, developer group is doing nothing but reducing the cost of complements. Now look at all the product that Google gives out for free like Blogger, Google Docs, Maps etc and you will this why they are free. Because they make people connect to Internet and moreover by using Google products they get more information about the user preferences which turn helps it search engine. In fact the success of search engine lies with heavy usage of Google by people. Microsoft office suite is expensive and offline utility so Google came with its online suite. Gmail provides Google with one more avenue to earn through advertisement. So get out of philanthropy its business and Google derives its strength from this strategy which acts as big barrier of others. Let’s understand that now.
Lot has been written about 20% time which Google employees are given to work on areas of their interest and the liberty they enjoy. People have concluded this has been reason of Google being highly innovative and ahead of everyone. This strategy works for Google because the cost of failure of its new product is much cheaper for them. This is because Google normally introduces half developed product as Beta version in market and entire Google devoted fan club starts using it and promoting it. It provides them revenue from that stage itself through advertising and also provides important data on customer behavior. Other fact is that range of the compliments that can be developed are also huge. So any work done by its employees in those 20% time doesn’t go wasted. In fact it provides lot of learning which is most essential in knowledge industry, satisfaction to employees (which implies low attrition and low cost of attracting new talent) and huge marketing for the Google. If any product is developed successfully then more revenue is generated for itself. However that is not the case for others since cost of failure is too high for them. In fact closer analysis would suggest that this initiative also has complete business sense.
Now next point of contention is Google success because of all this practices or are this practices are being used by management guru’s to be cause for its success. Is there cost-effect relationship? If you consider most of the successful products in Google bouquet have been acquired. Google video was failure but Youtube an acquired entity is success. Other examples are Google Earth, Blogger, Feedburner, Orkut, wiki developer JotSpot are nothing but acquisition. So where is its innovation? Rather it spots and buys innovation and reinforces its own brand as innovator. In fact even the concept of bidding for advertisement was taken from GoTo by Google and it perfected the process later. It was also not its creation.Hey Google fans don’t swear at me I am just providing other side of story which is neither publicized nor communicated. All those fight against copyright restriction for free information is for their business. Ask any student how much dependent he is on Google for code, papers, forums, assignments etc. Google has been involved in battle against copyright material, privacy issues time and again and every time it gets away because it has been able to create an image of a noble organization working in larger interest of society. Its ties with academic world have also help to create this perception. So now answer is Google a case study for innovation or its marketing strategy?
As I told you all before I am big fan of Google and this blog is just one side of tale which is never thought of by anyone. At end of day Google is one the most successful business venture and there is huge learning for every one of us and I sincerely believe that.
Skyrocketed SENSEX : A Mirage
This post is meant for the novice investors who would have sudden jump in SENSEX and NIFTY and would have concluded end of the bear market. Suddenly one can see people talking again of SENSEX reaching 20000. Popular TV channels creating the excitement and hype around the frenzy market. At this moment I would like everyone to introspect and understand what has suddenly changed so much that we see such confidence. We must understand what this index numbers suggest.
First let us remove the misconception if anyone has that these numbers are real number. On NSE website one can get following statistics about the equity market:-
Traded Qty. (lakh shares) 84.3
Traded Value (Rs. crores) 170.32
This numbers should ring bell in anyone's mind. They clearly suggest that hardly any trading took place on NSE. Thus the stock prices at end of the day are some random prices which got matched. It might be just one trade which took place at that valuation and subsequently there were no buyers at that price.
Second let's look at other important data about the activities of DII's (domestic institutional investors)
DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category Date Buy Value Sell Value Net Value
DII 18-May-2009 41.62 50.03 -8.41
This clearly suggests the intention of the institutional buyers. They were invested in the markets during the bear phase and booked profits today i.e. buy at low price and sell at high price.
Now let's look at NSE F&O market statistics
Index Futures and Index Options
Index futures saw a trading volume of Rs.1372.38 crores arising out of 65288 contracts and Index options saw 31003 contracts getting traded at a notional value of Rs.599.21 crores. The total turnover of the Futures & Options segment of the Exchange was around Rs.2599.35 crores.
Options on individual securities
Out of 233 securities, options on 48 underlying securities got traded. The total number of contracts traded was 360 with a notional value of Rs.16.24 crores.
Futures on individual securities
Out of 233 stock futures on 197 underlying securities got traded. The total number of contracts traded was 12467 with a traded value of Rs.611.51 crores.
Index Futures
Symbol | Open interest (Qty.) as at end of trading hrs. |
NIFTY | 39342850 |
MINIFTY | 1268460 |
BANKNIFTY | 961650 |
CNXIT | 8400 |
Index Options
Symbol | Open interest (Qty.) as at end of trading hrs. |
NIFTY | 82245650 |
MINIFTY | 10800 |
BANKNIFTY | 8400 |
CNXIT | 0 |
It is these huge open positions which people are trying to cover up which led to this sudden jump in the market. It was general expectation that people would elect hung house and thus speculators had taken positions in the market accordingly. But with the people mandate for single alliance without support of Left clearly raised hopes for reforms and more possibility of foreign investment pouring in. So in order to avoid huge losses speculators started to cover up positions. These open positions also suggest that such activity can be seen even tomorrow or in near future but this does not indicate any long term trend.
I know many of you would be against entire explanation of mine. You may say that markets are leading indicators and they reflect the future health of the Indian economy. Stable non-Left government indicates possibility of reforms and high growth. However my answer to all this explanation is that nothing has change in the neither global economy nor Indian economy in a day. The impact of the action which we speculate would be taken by government in near future can be seen only after a year or so at earliest. Further the valuation of any company cannot change by more than 30% in a day. The fundamentals haven't changed to that significant level. There is liquidity crunch at global level, less demand and a change in government cannot impact this in a day or a month or so. If we go by theory then the information of change in government is known to everyone and by efficient market hypothesis we cannot make profits because of this publicly know fact.
Thus its right market to sell and book profit or get out of bad investment. That's my advice.
China's Dilemma
In my previous post, I elaborated on the one of the point of debate that Dr. D. Subbarao (Governor, RBI ) discussed in his speech at RBI-BIS. In this post I am going to elaborate on his second point of debate. He believed most of the Asian countries especially China have held huge amount of foreign reserves as measure of self-insurance.Asian Economic Crisis in 1997 saw IMF impose strict conditions on bailout recipients.Most of these emerging countries felt that they hadn’t been treated fairly and thus to avoid themselves getting into such trouble they have maintained huge reserves. But is this self insurance viable policy? Is it serving the purpose?
India’s foreign reserve was more to do with capital inflows and with the crisis that turned negative and now we have deficit. China’s foreign reserve was from trade surplus and seems to be real. This would suggest that China should not face any problems at surface but that’s not the case. Problems are twofold. To earn this huge reserves China has made herself dependent on exports. Now this has become liability because the growth of your nation is now dependent on foreign economy for which you have no control. Current crisis exhibits the same problem.Next problem is are thess reserves for real?
There is a set of people who do not believe on Dr. D. Subbarao’s logic of self insurance. They believe China deliberately bought US dollars to manage the value of the yuan which provided the Chinese manufacturer cost leadership in market and thereby gain competitive advantage. In doing so China's foreign exchange reserves have increased from $216 billion in 2001 to $1.52 trillion in 2007, then $1.95 trillion in 2008, according to a Congressional Research Service (CRS) report published in March. Economists estimate that about 70% of those reserves are held in dollar-backed assets. These numbers on the face indicates the power China has over US by helping them finance their huge debt of $11 trillion. But then why does China not exhibit the same? Because the fact is that she cant without damaging herself. Lets look at Chinese investment portfolio. As risk averse nation it initially used to invest on US Treasury bonds which were considered risk free. Later on it diversified to riskier assets like investment in PE firm Blackstone and Morgan Stanley. They had bought $3 billion share worth $31 each of Blackstone whose value fall to $8 in October 2008. Similarly they had exposure to asset backed securities thus they lost of foreign reserves in such investments. Paul Krugman writes humorously in one of this article that they supplied us with poisonous toys and we gave them false assets so its like what you give you get. China subsequently purchased $44.5 billion and $65.9 billion of U.S. Treasury securities in September and October of 2008.Now China’s huge reserves are in form of US dollars and US bonds. If they starts to sell their dollar reserve then there is none presently in world to buy them thus it would bring value of dollar down. This implies value of China’s foreign reserve would also decrease by similar amount.To invest in its own country also she would have to sell dollar and buy RMB which would appreciate its currency and depreciate dollar.This would again affect its exports which have already dipped. If it does nothing then worry is that the value of the US bonds would decrease significantly due to rising inflation.
Thus China is in huge dilemma with what can be done with its huge foreign reserves. Neither can it invest nor sell. It would be great if some of the valuation guru’s of the world try to find the true value their foreign reserves. Further to add to her woes there is no other currency on which China can rely upon. So recently China has voiced the need for new global currency and its concerns about any action taken by US government which affects value of US dollar.So I still ponder is China really rich? Was her export oriented policy not correct? Is success story of China just limited to its even more reliance on US? In this struggle to be global powerhouse who has edge over other US or China? Co-opetition at its best.
India’s foreign reserve was more to do with capital inflows and with the crisis that turned negative and now we have deficit. China’s foreign reserve was from trade surplus and seems to be real. This would suggest that China should not face any problems at surface but that’s not the case. Problems are twofold. To earn this huge reserves China has made herself dependent on exports. Now this has become liability because the growth of your nation is now dependent on foreign economy for which you have no control. Current crisis exhibits the same problem.Next problem is are thess reserves for real?
There is a set of people who do not believe on Dr. D. Subbarao’s logic of self insurance. They believe China deliberately bought US dollars to manage the value of the yuan which provided the Chinese manufacturer cost leadership in market and thereby gain competitive advantage. In doing so China's foreign exchange reserves have increased from $216 billion in 2001 to $1.52 trillion in 2007, then $1.95 trillion in 2008, according to a Congressional Research Service (CRS) report published in March. Economists estimate that about 70% of those reserves are held in dollar-backed assets. These numbers on the face indicates the power China has over US by helping them finance their huge debt of $11 trillion. But then why does China not exhibit the same? Because the fact is that she cant without damaging herself. Lets look at Chinese investment portfolio. As risk averse nation it initially used to invest on US Treasury bonds which were considered risk free. Later on it diversified to riskier assets like investment in PE firm Blackstone and Morgan Stanley. They had bought $3 billion share worth $31 each of Blackstone whose value fall to $8 in October 2008. Similarly they had exposure to asset backed securities thus they lost of foreign reserves in such investments. Paul Krugman writes humorously in one of this article that they supplied us with poisonous toys and we gave them false assets so its like what you give you get. China subsequently purchased $44.5 billion and $65.9 billion of U.S. Treasury securities in September and October of 2008.Now China’s huge reserves are in form of US dollars and US bonds. If they starts to sell their dollar reserve then there is none presently in world to buy them thus it would bring value of dollar down. This implies value of China’s foreign reserve would also decrease by similar amount.To invest in its own country also she would have to sell dollar and buy RMB which would appreciate its currency and depreciate dollar.This would again affect its exports which have already dipped. If it does nothing then worry is that the value of the US bonds would decrease significantly due to rising inflation.
Thus China is in huge dilemma with what can be done with its huge foreign reserves. Neither can it invest nor sell. It would be great if some of the valuation guru’s of the world try to find the true value their foreign reserves. Further to add to her woes there is no other currency on which China can rely upon. So recently China has voiced the need for new global currency and its concerns about any action taken by US government which affects value of US dollar.So I still ponder is China really rich? Was her export oriented policy not correct? Is success story of China just limited to its even more reliance on US? In this struggle to be global powerhouse who has edge over other US or China? Co-opetition at its best.
