Enanomics

Choice of Free Products (or Services) is of utmost consumer interest regardless of our ideological beliefs. There are several blokes on the Internet who strive to give quality product or service completely free. The analysis of “Free” is essential to our understanding of Enanomics (web economics). When it comes to web technologies the cost of each transaction cannot be measured accurately, there is some kind of uncertainity principle. Nano-economics or Enanomics has not been understood properly and is not even defined in Wikipedia, let me make a humble beginning.

The Institutional Free:

As a class VI student I recollect an essay on Mother Teresa. She would accept broken biscuits from local bakery to feed the growing needs of her institution Missionaries of Charity. Charity missions have two important elements (a) champion visionary and (b) public private partnership to channelize spare/unused resources for the goodness of society.

In any given technology the hard part is to develop the tools and knowledge. It requires champion visionaries to build and enrich tools or knowledge. One can look up to institutions like universities to sustain this effort (BCD UNIX Project). GNU and Wikipedia are two examples which have been built on charity model. The principles used by GNU and Wikipedia developers are to keep software tools and knowledge above business greed. This philanthropy drive helped in getting the best people to contribute for noble cause. The time-management inefficiency in knowledge industry is being channelized for contribution towards building GNU and Wikipedia.

It is not that GNU and Wikipedia are allergic to Money. Every Wikipedia page carries the slogan “Wikipedia is sustained by people like you. Please donate today”. Likewise one can support Free Software Foundation through donations as well. Wikipedia has Alexa Ranking 7 and can easily switch to self-sustained Advertisement Model, but then I could lose my OpenId for spreading such blasphemy! The time saved by millions of people searching for right tools or information is good enough reason for well meaning people to contribute and make it available for “Free”. Though unlikely but if for some reason Wikipedia was to file for bankruptcy, UN will declare it as “World Heritage Site”! The power of “Free” cannot be undermined in a democratic society.

Disclaimer: there is a conspiracy theory that GNU and Wikipedia were created to check the monopoly of Microsoft, though I do not subscribe to it. These are just good examples of how to institutionalize “free” for a good social cause.

The Free Institutions:

All other free stuff on Internet has sound business plan. The business plan could be around “renting virtual shelf to distributers – Amazon”, “target advertising social networking platform - Facebook”, “viral or pyramid marketing tool - Twitter”, “Online publishing – Wordpress”, “Direct mailers – Hotmail” etc. There are times when web developers go awfully wrong with their business plan and they turn to selling their software for "Free" or as "Donationware". This usually doesn't work, they must join SAAS Therapy group to get out of their self-inflicted misery. We are in the early days of Enanomics, so let me start with supply and demand equations.

Uncontrolled Inelastic Supply: Web services are structured around creating seemingly infinite supply, e.g. “Unlimited Storage with email account”, “Unlimited connections in a social network”, “Unlimited Blogs”, “Long tail @ Online App Store, Music Store, Books Store, etc…” In reality the supply is never unlimited. There are sufficient checks to ensure that unlimited supply has limited shelf-space or shelf-life.

Example 1: Only 2% users of MSN Live visit skydrive (25GB free storage on MSN Live). MSN is fairly safe to take the bet that the doomsday of reaching the storage capacity of thousands of petabytes for its hundred million users, will never happen.

Example 2: Amazon has millions of items to sell. The way Amazon builds its inventory is by creating virtual shelf space on its website. The real world seller’s chances of making millions by selling “12mm washers” using Amazon platform is less than winning Australian Lotto. Amazon can charge a small fee for virtual space; Amazon gets rich by charging few cents for lending virtual shelves. It is the ability to create a platform which seemingly provides unlimited supply that differentiates web from real world. However when the rubber meets the road, FedEx wins! Think about it, typical IT cost for any enterprise is ~4% of its revenue, what is a better option, create your own online store or rent space on Amazon, you decide! Blockbuster realized this and was quick to respond with its own online store to fight back the Netflix onslaught. So it isn’t the perceived long-tail of inventory which gives Netflix the competitive advantage.

Controlled Elastic Demand: Theoretically, free-service generates infinite demand. However web service providers are protected/limited by total users with internet access, bandwidth price, network throttling of traffic and deadweight loss (marginal gain from “reading my free blog” vs. “completing your project on time”.) Dead weight loss is caused by “people who would have more marginal cost than marginal benefit are buying the product”.

A Simple Supply-Demand curve of an Ad-Based Web Service

First Law of Enanomics: If everything in the micro-economic or macro-economic world remained constant, the web service provider revenue is a function of internet traffic.

The question that still remains to be answered is that why at zero prices there is no deadweight loss? Web service providers understand the value of “Time”. Any end-user who is not able to find an item on-line in two clicks (assuming average bounce rate of 45% for any given website) will lose the customer resulting in deadweight loss. The web tools like search engines, recommendation engines, folksonomy etc help in building a commercial model which can be tapped by industry. These web tools drive ecommerce and fall under the “Free Institution”, free to user billed to supplier.

Second Law of Enanomics: When the price of a service falls to zero, the demand is proportional to marginal benefit.

There are more laws to come!!

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Beware of an Anti Salesman

Why Sales?

Driving in Delhi, I once came across beggar woman selling tissue papers boxes on a busy traffic signal. Tissue paper is a symbol of vanity and hygiene. Why would anyone in their right senses buy these items from a roadside beggar? Ability to create need for a product and to be able to serve it to customer's delight is what Sales People do. Only a Reformist will come up with an idea of selling tissue papers at traffic lights. Reformists are concerned about uplifting bottom-of-the-pyramid and sustainable-growth models. Though reformists have good intentions they are perfect examples of anti-salesmanship.

If you ever come to Gurgaon watch out for Sales folks lurking around every corner. You are more likely to encounter a Sales Person taking you for a ride than a Rickshaw Puller. I can say it with complete certainty that there are more Sales People packed in 1 kilometer wide strip distributed equally on both sides of Gurgaon's lifeline NH8 starting from Ambience Mall to Hero Honda Chowk than there are in Manhattan, NY. Apparently during the global meltdown every company has been advised by their investors to focus on global economies, Hints: India and China.

Pre-Qualification?

There are two simple questions one need to ask (a) did you cry watching cupid SRK and Kajol in the movie DDLJ and (b) did you feel remorse killing-the-lady-with-money in GTA: San Andreas on Playstation3? If the answer to both these questions is “No” you can apply for Sales job. Having cleared the simple test you need to give yourself a suitable title. The best thing about Sales is that there are no hierarchies; you are either Head of Sales or an Account Director. If you do not like air-travel and prefer to use your own driver you are better off as an Account Director. Head of Sales is more dependent on company provided transportation. If your company has a policy to give a title like “Sales Executive”, please change your job or consider moving to Noida. Even Eureka Forbes has stopped sending door-to-door sales executives in Gurgaon. Having said that remember that your growth is determined by “target” and not by “title”.

There are usually few pre-sales folks in the team. You need to remember that pre-sales has nothing to do with “Sales”. Primarily due to in-depth technical bend of mind these folks are around to satisfy the deep sense of knowledge gathering in the customer organization. In fact you can take the pre-sales person from competition by signing a simple NDA, without any difference to the eventual outcome. Some pre-sales folks prematurely lose technical enquiring attitude and move to Sales, in case the company’s flawed HR policy supports such moves. You need to be extremely careful of crossover Sales people; they are not the pure breed. They cry watching TV serials and they buy stock of paper napkins at traffic signals!

Need Target Practice?

It is likely that one may not achieve targets due to certain unfortunate events usually attributed to everyone but oneself in a given Sales Cycle. This is not a tragedy. A good Salesperson keeps a log of all the opportunities created in the market and has an anti-thesis for why his company should not spend resources chasing point-deals which is efficiently done by channels. I must quickly add that managing channel is a procurement function which is most likely running from company’s Noida office. With this explanation you do run the risk of promoting yourself to higher Sales target. Let me introduce the first mantra of Sales here – “all future targets are achievable, the problem always lies with the current target.”

No one ever moves out of Sales, not even a speeding BPO van ever hits a Salesman crossing the chaotic DLF Cyber City roads. I always wondered why the richest real-estate tycoon could not afford to build a sub-way for pedestrians across the most expensive landscaped buildings in DLF Phase III, Gurgaon. No sir, this is not a design overlook. It is based on deliberate HR request for live battlefield training for Sales People. The customers and vendors are separated by these busy roads. The first test of a Sales Person is to find a parking lot, then cross these streets without getting killed. This is followed by 2 levels of frisking if you enter any DLF premises. Remember I told you about starched shirt at the very beginning. I am told that the metal detector does not beep for a successful Salesman. Sales People usually achieve zero gravity when entering into the overloaded lift. On arrival at customer premises a security questionnaire, laptop serial numbers and a fake encounter with front desk person who feigns complete ignorance to the fact that their company has a procurement department. Only after solving these three hurdles one gets past the Pearly Gates. Sales is not for the faint hearted.

Competition, what competition?

Speaking about competition there is none amongst the Salespeople who have long been with the “industry”. The competition, if at all, is superficial. This is hard lesson to learn for a new bee, however after going through a few job changes, acquisitions and mergers the loyalty to brand, product and country fades. Everyone talks to everyone else about the opportunity. Two drags of Wills Light and out comes the Sales Strategy. This may appear to be a bad move to novice, but this is the ultimate test of Sales Networking Skills. It works two ways if decoyed properly, you get to know the competition strategy and when the customer finds holes in your offering, you know exactly who is feeding the customer. Hopefully you have back-pocket full of alternatives. Time for the second Mantra: “every mistake is deliberate and no one can surprise more than your own misadventures”. I could have said “believe in yourself”; but would you switch to Sales with that slogan?

Cycle of Sales

In my business the Sales Cycle is 12-18 months. There are usually 4-5 companies shortlisted from 500 odd potentials for any given opportunity. This makes anywhere between 250 to 2500 people actively working on the opportunity and equal number of people in the headquarters updating status. It is almost certain that 90% of people will be disappointed at the end of this exercise. Sales people are born with skills to create and combat Fear, Uncertainty and Doubt. A good Sales Person uses this skill for creating mindshare. An Anti Sales Person can get the RFP cancelled or worse create Fear, Uncertainty and Jobloss (FUJ) in his own organization.

In either case the chances of disappointment exceeds the chances of success by a factor of magnitude. One out of 5 is a good chance when compared with an insurance telemarketer or Sales Exec at Merc showroom. However this is not good enough to be successful Sales Person stationed at Gurgaon. This inherently faulty structure is unsustainable and soon the business fraternity reorganizes itself to correct the situation by going into a process of consolidation. There are a few outsourcing deals announced. The Market sees value in companies who outsource core services to product vendors and the product companies who outsource core product development to service vendors. Of course the customer care is carved out as separate business and outsourced to far out land, safe distance from customers. This creates tight coupling between technology producers, provider and consumers. A Sales Person understands this cycle best. They know winner “never” takes it all. You never lose a deal; you always get some part of the deal, just by hanging-in there!

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