Category: Corporate Strategies

The bitter clash between the RIL-RNRL has been the most talked about case in the recent months. Here is a simple version of the case. A family MoU signed by the two brothers on June 18, 2005 stated that while Anil gets power, financial services and telecom business, Mukesh gets energy and petrochemical business. According to the MoU Anil’s Reliance Natural Resources Ltd (RNRL) will be supplied gas from the KG D6 block for 17 years at $2.34/MMBtu by Reliance Industries Ltd (RIL). But soon after the MoU was signed, the prices of hydro-carbon fuels sky-rocketed resulted in RIL backing from the MoU. When RIL failed to keep its word, RNRL filed a case against it in the Bombay high court for violating the terms of the agreement on November 7, 2006. Meanwhile the government constituted a committee to work out the price for the gas; the committee submitted a report pricing the gas at $4.20 /MMBtu.

Empowered group of ministers (EGoM) approved of RIL’s gas pricing formula with minor changes. The price for first five years fixed at USD 4.20/MMBtu. EGoM also allocated gas distribution priorities with first preference to existing fertilizer, cooking gas, power and steel unit on October 2007. Bombay High Court’s verdict was in favour of RNRL, instructing RIL and RNRL to draft an agreement that gives gas to RNRL as agreed upon in the MoU. If RIL agrees to supply gas at $2.34/MMBtu, it will be facing a huge loss because it has to pay royalty to the government according to the government approved price of 4.20/MMBtu. So when RIL moved to Supreme Court to plead its case, the Petroleum Ministry also intervened stating that the gas is a national property, it belongs to the people and not to RIL. RIL has only a right over its distribution and so the family pact deal regarding the fuel price is null and void. The government supported RIL because of its own vested interests i.e. a share of profits earned by RIL will go to the government. Thus on May 7, 2010 the Supreme Court passed its final verdict stating that RNRL has to buy gas at the government approved price of 4.20/MMBtu and the family pact was null and void. Thus this came as a severe blow to Anil’s RNRL who were expecting gas for a cheaper price for its Dadri based power plant. Meanwhile the other competitors like GMR, GVK industries, Torrent power were relieved when they heard the verdict, because had RNRL got its way, they would have faced stiff competition.

– Radha Krotthapalli

It is highly likely that the last time that you went to your friend with a question, you met with the familiar response, “Just ‘Google’ it dude!!”

So would be the case in many other places in the whole wide world, but possibly not so in dragon land (yes you guessed it right, China).

So when one fine day Google announced that it intends to stop honouring Chinese laws due to issues related to cyber security (Jan 12, 2010 to be precise. Google claims that digital bandits in China stole some of its computer coding and attempted to break into the e-mail accounts of Chinese dissidents), people said that they might just be bluffing, because they believed that Google wouldn’t readily exit the world’s biggest market of internet users. Contrary to popular belief, China is one of the few nations where Google has not been able to establish itself in a manner that it would have desired. A little number crunching will probably provide a clearer picture –

It is estimated that China will account only for around 2% of Google’s total revenue in 2010. That is nothing but a drop in the ocean for Google. Exiting China does not mean much to Google if we talk about the near future. But taking into account the fact that as of last year China had the largest Internet population, second largest number of searches conducted, and the search engine market size reaching 1.72 billion Yuan (or about $252 million USD) in Q2 2009 (source: iResearch) it seems that Google pulling out is not too plausible, as it would mean Google losing out on the lucrative growth. Google China (Google’s Chinese Extension) serves a market of mainland Chinese Internet users that was estimated in July 2009 to be 338 million. This estimate is up from 45.8 million in June 2002, according to a survey report from the China Internet Network Information Center (CINIC) released on June 30, 2002. Google is outranked only by homegrown Baidu in terms of the approximate revenues of the respective companies. Exiting now would mean that Google would have to concede considerable ground, which it has gained over the past 4 years, to Baidu. Not to forget that Google’s exit would open up the Chinese market to other international players as well, the most notable being Microsoft. Also the investment made by Google in the launching of goes waste.

Google never had a Chinese arm (if you may call it that) to begin with. It was only in 2006 that Google decided to set up a server in the Chinese mainland thus subjecting itself to local laws. These laws required Google to censor every website that the government considered a potential threat to law and order in the country. The number of such sites was, to say the least, staggering. This decision of Google’s raised a lot of hue and cry in the free world, with a large number of people condemning the move, alleging that this decision was completely financially motivated and that Google had gone against its principals (coincidentally ‘Don’t Be Evil ‘ happens to be its tagline). The following quote from the New York Times wonderfully puts things as they were into perspective,

“What eventually drove Google into China was a carrot and a stick. Baidu was the stick: by 2005, it had thoroughly whomped its competition, amassing nearly half of the Chinese search market, while Google’s market share remained stuck at 27 percent. The carrot was Google’s halcyon concept of itself, the belief that merely by improving access to information in an authoritarian country, it would be doing good.”

When China is being talked about, can we possibly leave India out of the picture?

Google may finally decide to wrap up operations in China, because it may have realised that they are fighting a lost cause and might as well channelise their resources into more fruitful economies. And this is where India walks into the picture.

In India, 89% of Internet searches go through Google, 68% of India’s social networking occurs on Google’s Orkut service and 82% of media is viewed on YouTube, according to the internet marketing research company Comscore. Astonishingly, Indian users spend almost 30% of their entire online time on Google sites – three times the world’s average. Why would any company not want to take advantages of these statistics?

Completely pulling out of China will help Google garner immense worldwide support (something that any company doesn’t mind) and gain a lot of sympathy. People will see Google as a victim of wrongdoing. It will actually enhance the company’s image as one which takes its corporate social responsibility seriously and is actually committed to the welfare of people, and thus generate goodwill (which any company doesn’t mind either).

Even though a huge cry was raised over this issue, Google keeps censoring the results on till date, indicating that it is not really willing to leave China completely, and neither is the government too keen on letting it leave as it would reflect poorly on them. The Chinese administration recognizes that it needs revolutionary innovators in IT, like Google, to help fuel the country’s robust economic growth, but being the good and faithful Marx-abiding regime that they are, the administration fears losing control of the educated public that may replace a programmed one.

It remains to be seen whether a middle path can be worked out that is in the interest of both the sides.

– Piyush Agarwal

If you are reading this, you would definitely have an account on facebook, orkut, myspace or twitter. The advent of social media in the last few years has changed the outlook of many people towards the internet. Online advertisements received a much needed boost as many people started using social media. Social media brought with it a new business model, which forms the core of many companies these days.

You get a free account on any of the social networking sites, making you wonder how these sites sustain themselves. Let us take the case of Facebook, the social networking site founded by Mark Zuckerberg in 2004. Today, facebook has more than 350 million users with 50% of the users logging in every day. This creates a huge market for advertisers. Facebook initially was concentrating on increasing its value, rather than looking for a revenue model.

Facebook uses a concept called targeted advertising. It allows advertisers to choose a much wider array of characteristics for the users who see their ads. This not only includes age, gender and location, but also favourite activities, music, sports, etc. Facebook points the ads to various groups of people without exposing their personal information to the advertisers. If you’re going to be forced to look at advertisements why not be forced to look at advertisements that you may be interested in? Either way, the Facebook corperation makes money off of the advertisements that they have plastered throughout their entire social website. This advertising avenue is not limited to big companies alone. Anyone who wants to highlight their profile, their page, their group, basically anyone who is willing to give money can advertise on FB.

During the initial years of its conception, FB was facing a lot of losses. Their monthly electricity bill reached astounding heights. The amount of data stored in its database is humungous, which adds to the maintenance costs. But, in September 2009,FB declared that it had turned cash flow positive for the first time. The estimated revenue is $550million, gathered from a variety of sources- from deals with Microsoft to Self Service Ads.

On the flipside, the online advertising rates are slowly decreasing as the internet is slowly getting saturated with ads popping out of each and every corner of the page. Also, facebook is planning to make capital investments to support its growing need for data storage.

Recently, there were mini controversies surrounding celebrities in India. Making a mountain out of a molehill, the focus was on tweets posted on twitter. This micro-blogging website is increasingly growing popular. One astounding thing about this pretty nascent stage website is that it has no advertisements.

Twitter hasn’t attempted to profit from its popularity yet, leaving everyone guessing about how the start up will pay its bills after it exhausts its venture capital. It is believed that twitter would be hard-pressed to sell advertising on its messaging service without alienating its users. Also, twitter’s co-founders, Evan Williams and Biz Stone, have indicated that advertising is low on their priority list. They have suggested they might impose fees on companies interested in mining the data about consumer preferences and peeves that pour into Twitter.

Many people ask for recommendations on twitter, so also do companies tweet about their new products. Recently, twitter announced that it will let companies monitor tweets about their products and other services for a paid service. It could become a distributer of third party apps that use twitter and take a cut in return.

Twitter is still looking to add value to its service despite which the founders have hinted that advertisement could be on their cards in the future, not now. If it does go along that path, it would probably follow the same model as facebook, that is, targeted advertising.

Twitter turned down a $500 million acquisition offer from facebook in 2008. Also, internet giant Google is showing continued interest in this very popular service. If at all twitter cannot come up with a good revenue model, its exit strategy is well chalked out.

-Rohit Bhat