It has been a while since I have started this blog. It has been enriching being more disciplined in creating original content (while curating some). Looking back over these 49 blog post entries, I thought it might be a good time to take a pause – and collate in the 50th entry some of the original content I created in the process. So here it follows …
There is a lot of discussion and hype around Smart Cities. Analysts use different criteria to define Smart Cities as an aggregation of different types of services. While the obvious Smart Players exist, several companies also aspire to grab a big chunk of this pie. With this mind, they are all busy charting out plans to be Smart City players – trying to tie together individual services & technologies under their umbrella and assessing what more can be done to close the gap.
Typically ‘Smart’ Transportation vendors are looking to fill the gaps and hoping to be a dominant player. I decided to take an alternate view to this approach. Trying to map out the value curve of what I believe are the main factors of competition in the industry and then reversing this value curve to explore other opportunities. The merits of the approach may be questioned; nevertheless it was an interesting exercise to delve in.
Resorting once again to the value curve, I have attempted to devise an alternate entry strategy into the Smart Cities. Being aware that Blue Ocean Strategy creates uncontested market space, this one is an attempt to create a sneak-in-entry strategy.
In an attempt to better understand and apply the blue-ocean strategy, I decided to test the framework on a rapidly evolving market – the payment’s industry.
The solutions in the payments industry can be broadly classified into categories: those addressing emerging economies and those addressing developed economies. It naturally follows that the value propositions of the payments solutions in these two segments are quite apart and hence the associated value networks differ as well.
Here, I take a look at the developed economy market and specifically into a trend that has attracted several firms – mobile point of sale (mPOS).
In its simplest form, mPOS can be described as a payment-terminal (like the traditional credit card terminal) on your phone! Well it literally is that – pay using a mobile device (Smartphone/Tablet) and use funds from the traditional card accounts (magnetic stripe cards and the chip & pin EMV cards). Vendors like SumUp and Square Inc. are good examples.
The surge of companies in this space indicate a rapidly evolving technology area wherein there is yet to be a dominant technology. But it has seen innovative business models and new value propositions.
The key elements of the traditional credit card terminal used at retail outlets have the following characteristics:
Value to customer
A significant fixed cost is involved to procure such a device (Anything between $150 to $1000 per terminal depending on product specifications)
Enrollment processing time
This involves enrolling with payment solution providers and fulfilling a barrage of legal requirements to get the process started.
Pricing structure complexity
In addition to an initial fixed cost, there are monthly maintenance charges that could be accompanied with long term agreement charges and other complex pricing structure.
The high fixed cost and complex pricing structure necessitate a certain number of transactions to break even.
End users that swipe their cards through these terminals feel secure due to pin-entry provision.
It follows that both front-end and back-end systems must complement to avoid fraudster from abusing the payment systems.
CRM software and other middleware solutions can enable merchants to pull out relevant sales information transacted through the payment terminal
The value curve for the traditional credit-card terminal industry would look as below:
Vendors likes SumUp and Square Inc. have however reversed this curve, and brought to the fore the mPOS dongle that extends the ubiquitous Smartphone (& tablet) into a payment terminal. Taking advantage of the app-store eco-system it provides merchants with a basic application for usage and also allows merchants to create customized apps to exploit the backend services. Merchants can take this a step ahead to analyze the sales data & customer preferences and thus derive business intelligence. All this comes at zero additional charges – the dongle comes for free – and in short turnaround time.
The grid below indicates the application of the Four-Action Framework (ERRC) – depicting a change in priorities of the key elements identified before, in addition to additional elements provided by the new offering.
Eliminating the high fixed investment and cutting down the enrolment process drastically, these vendors have been able to attract a new customer segment – micro-merchants – those that traditionally stayed away from the card-terminal and primarily dealt in cash.
mPOS vendors maintain a simple revenue model – charging a fixed percentage of sales revenue (typically 2.75% as of today). mPOS thus met the unmet need of a previously ignored segment of customer. An analogy I can think of here is text-based mobile banking (like M-PESA) in emerging economies – it met the banking needs of the un-banked customers in such geographies.
The value curve of the mPOS solution is overlay-ed on the previous chart as shown below:
Clearly mPOS is an interesting proposition for the payments industry. While the use of this ‘cool’ gadget may sync with the brand image of some merchants, there is need for caution. mPOS vendors must seek to address concerns, if any, of consumers reluctant to type in their PINS into a merchant’s phone or tablet!
I choose again to write this post about DxOLabs! My passion for photography keeps bringing me back here. DxOLabs – a company with interesting products (B2B and B2C)! They have three existing lines of businesses with good synergy. I had tried once before to visualize their business model & suggest two possible opportunities in this previous post (Business Model Canvas – validating a reading – DxOLabs.com).
I write again about DxOLabs (hereon referred to as DxO) as I noticed a job post on their website – which particularly drew my attention – “Product Manager – Consumer Devices”. A snapshot of the job post is here below
Although it looked an interesting opportunity to venture into, I decided– for my own sake – to analyze this move towards ‘Consumer Devices’!
The starting point: ‘what exactly are they trying to make’? With little public information available about DxO, the best starting point is the company itself – the job-description (JD) to start with.
“Consumer devices leveraging the connectivity of a mobile phone to create a stunning camera fitting in your pocket” – that helps me draw a mental picture about this consumer device.
Is a camera for sure
Will have an integrated connectivity-module
Like WiFi, to communicate with PCs/Laptops/Phones
Like (mobile-telephony) radio capabilities
Has to be compact – either that or there is a trend of increasing size of the pocket!
Will be sourced from white-label ODMs in China (given that Chinese language skills will help)
Might be sold in French(& English) speaking regions (say Europe to start with) or US & Canada (unlikely given the large geographic spread) – as the JD necessitates exceptional French/English speaking abilities
In short, my hypothesis: It is a fantastic “point & shoot camera” with advanced capabilities, to be sold in the European market! I might be wildly off-target – but I believe it’s my best guess.
Starting with evaluating the target market – is this an interesting market to venture into?
The growth rate in this segment has not been encouraging. A measure I thought of using was the trend of possession of camera in households. I could pull this figure out for various regions, at various units of aggregation – country level or region level – using two examples, say Western Europe to depict region-level trend and Germany to depict a country level trend. (See two figures below. Source: Euromonitor)
Germany for instance shows a rather alarming trend of the forecast-ed growth rate being less than half of that in the recent past (0.4% vs 0.9%). While the absolute numbers may be less relevant directly, the relative figures are not encouraging. On a larger scale, even the Western European region shows minor slowdown in adoption (0.3% forecast vs 0.4% past CAGR). I believe this figure would be cumulative of ‘point & shoot’ and higher segment cameras like DSLR (which are witnessing higher growth). That is ascertained by some disheartening statistics about the point & shoot segment. Research here suggests that back in 2011 sales in this segment dropped by 30% in a year! That’s a sharp drop indicative of tough times ahead.
That leads me to talk about the most probable cause of this drop – pervasiveness of Smartphones & Tablets. The increasing computing power available in handheld devices and the fall in size & price of camera parts are added reasons for consumers to rely more on their phones than on yet another camera. The emergence of Compact Digital SLRs might be a good sign, but it remains to be seen how long before this segment reaches its maturity level? It also raises questions on my first hypothesis – is this ‘consumer device’ a Compact DLSR?
The most obvious substitute to a Camera is a Camera-phone. The threat from this substitute is extremely high – especially because Smartphones/Tablets allow instant social-media connectivity! I have personally on several occasions within Europe seen people holding up the Tablet to click a snap where I am fumbling with a bulky DSLR (albeit I love my DSLR for reasons of my own beyond the scope of this postJ ). There also is ample evidence to suggest that Smartphone vendors are upping the ante w.r.t photography capabilities.
The large variety of consumer devices at various price points from these several vendors raises questions about price-competition. An already crowded market with several established players is a tough one to crack into – and stay in profitably.
There is also a need for an appropriate distribution channel to market consumer devices. Retailers are a major sales channel for camera manufacturers, complementing their own direct & online sales channels. Each country (or region) has a set of dominant distributors & retailers.
Camera makers are thus facing competition not only from their industry peers, but also from Smartphone makers. For instance while Nikon & Canon might be players in camera industry, Samsung also leverages its camera capabilities into its Smartphone offerings. Others like Apple and HTC are the unexpected competition these camera makers now face.
Where does DxO Labs fit in this scheme of things?
Brand recognition! This is the most important challenge to overcome – while DxO’s software products are used by a set of professional photographers – this device is targeted at a different segment.
The increasing consumer inclination to use Smartphones as their compact photography companion is a trend that should keep DxO on its toes during this market entry
Increased investments by Smartphone vendors in camera technology embedded in the phones will be a challenge to match – a case of asymmetric resources
Multi-point competition is an aspect to be managed cleverly, particularly because DxO is a technology supplier to some of the consumer electronics vendors; introducing its own device will pitch DxO as a direct competitor to their current partners
DxO will have to build its B2C and distribution-channel capabilities; it is quite different licensing hardware ISP to businesses vs. selling a consumer device to an end consumer
DxO will have to deal with margin pressures when dealing with consumer electronics retailers – else focus majorly on going the online-sales channel
Why would DxO want to enter this space?
A few reasons I can think of are below:
With its imaging-hardware capabilities, perhaps DxO believes it can market their own consumer device and grab a piece of the current pie
DxO’s online presence through DxOMark.com and its photography software could help build some brand recognition – but addressing the right segment is crucial! Scaling down their imaging software capability and plugging it onto this device can help it mimic Instagram or Vine… but there are miles to go before DxO can leverage social media to gain traction.
That makes me wonder – how about tying up with its regional brethren Fotopedia.com and provide some interesting effects to the vast pool of images, or maybe explore options with Flickr to gain traction in Europe.
Nevertheless, the choice of target market is extremely tricky – unless DxO has a bag of tricks in place already that is deeply concealed from the public domain, it will be tough ride in the long run!
Amazon discreetly enters the Indian e-Commerce space – starts with the online marketplace business. (Click Here for the article – via “The Next Web”)
In an attempt to bypass foreign direct investment (FDI) restrictions in India, Amazon has entered in an head-on competition with eBay – one small step behind Flipkart. Investing in Snapdeal empowers Amazon to localize the offering, complementing junglee.com – thus saving it time in this respect.
Can Amazon leverage is renowned supply chain expertise through its Fulfillment business? While marketplace is an exciting opportunity to leverage, Amazon would sure hope that the FDI restrictions are relaxed for e-commerce vendors allowing it sell directly to end consumers!