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Bits and Atoms

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DQI Bureau
New Update

Just about a year ago, I attended an Asia Pacific boondoggle of an enterprise software vendor in Melbourne. In that seminar, Professor Nicholas Negroponte expounded on his now-famous taxonomy of ‘atoms’ and ‘bits’. A toaster, he said, was a physical thing–an atom. It can be sold across the net but must be delivered physically. On the other hand, software fits the description of ‘bits’. It can be sold and bought across the net. It can also be delivered across the net. The business models of ‘atoms’ are bound to be very different from that of ‘bits’. This powerful way of analyzing whether we are in the ‘bits’ business or the ‘atoms’ business is critical to crafting our competitive business model.

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If you think deeply, even in the world of ‘atoms’ and ‘bits’, you need business models that are dynamic and quickly adaptable. Because of rapidly changing and disruptive technologies, the world of atoms is converging on bits. When you buy Bob Marley’s reggae numbers in the form of a CD or a record, you are buying ‘atoms’. If someone converts it into MP3 format what are clearly ‘atoms’ become bits, as if by black magic. A photograph taken with a conventional camera and printed on photographic paper is, doubtlessly, atoms. However, if you choose to record the same moment and frame on a digital camera in JPEG format it is no longer atoms, it is bits. Motion pictures, video-on-demand, talking books, even money can be electronic impulses traveling across the net at furious speeds.

We are clearly living in interesting times. And if the Indian software industry wishes to create a great future for itself, thereby creating a great future for the Indian economy, completely different strategies and tactics must be adopted.



Thus far the software and knowledge industries have largely played the atoms game very successfully.

Our programming resources have earned a great reputation not just because of the unbeatable price and performance but also because of the high quality that we have demonstrated. But we have sent resources beyond our border to work onsite. This model, although derisively called ‘bodyshopping’ or ‘techno-coolie’ business, has laid the foundations for a robust future. We now move to the era of offshore projects by making skills electronically fungible but much more needs to be done and business models need to be re-invented.

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India’s advantage lies in its vast pool of trained and trainable human resources and its ability to manage complex technology infrastructure in a 7×24 environment. The challenge ahead is to scale up and ride north in the food chain.

To leverage our strengths and sit at the global table of the networked knowledge economy, we need to understand the game of branding. We also need to be smart enough to own and protect intellectual assets that we create and play the IPR (international property rights) game with finesse and from a position of prowess.

In the atoms game our revenue streams are man-hour based. Even when we are doing offshore projects we are not breaking away from the paradigm of hour-based revenues. Some Indian software houses have gone to venture capital funds or alliance partners who have really short-changed their Indian partners. While claiming to be angel funds, these outfits are in reality bankers and investors looking for pre-IPO investment opportunities, taking little risks but raking enormous returns in a short time-span. In essence, these venture capital funds are sharks, who are bargain-hunting. They are on the look-out for companies which have already created value but do not have the financial vision or capability of unlocking this value. Venture capital funds swoop in to assist in unlocking value and in the process usurp the lion’s share.

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If knowledge and intellectual assets are going to be the source of wealth in the new networked economy, then skills in creating, preserving, owning and leveraging these assets will be the key to India’s prosperity.

Here are my proposals for moving ahead:

  • Learn how to own and protect IPR: I do not propose that Indian companies adopt a parochial ‘swadeshi’ approach. On the contrary our ability to form networks and alliances will be critical to success. We must learn not to sell these assets cheaply. We must begin to take ‘sweat equity’ and real equity in products. Revenue streams should be delinked from hours invested. We should begin to share in the risks and returns. We need to tap real angel funds and network with the Indian diaspora in the Silicon Valley and elsewhere.







  • New age entrepreneurship will be the key: Technology people have been rather averse to risk and we have lacked in entrepreneurship skills. It has a history. While we have world-class entrepreneurs who have global-scale enterprises in manufacturing, many of the post-independence entrepreneurs have thrived by bribing politicians, corrupting the bureaucracy, neglecting professionals employed in their organizations and swindling customers. As tariff barriers fall, the global market forces hand these entrepreneurs a one-way ticket to doom. In a world where the worship of Goddess Laxmi cannot be performed without a devotion towards Goddess Saraswati a whole new approach to governance, a completely new mindset to customer service and a radically different philosophy to wealth-sharing with the talents that create wealth will be critical. 






    The war now is for the customer-base and for talent. In this war, the old weapons that created yesterday’s success will spell today’s debacle. We need to build a new generation of entrepreneurs with a high standard of ethics, professionalism and business philosophy that will succeed in tomorrow’s world. This new generation must be willing to spare time, share experience and mentor budding
    techno-preneurs.









  • IT-enabled industries will fuel a boom: As services become ‘digitized’ or transformed into bits, we will see a huge explosion of IT-enabled industries–whether it is voice, data or information. While electronic business will eliminate intermediaries and ruthlessly liquidate the entire business process, global companies will move to countries like India. As the world of bits asserts itself in the services segment of the economy, because of advances in telecommunication and the impact of the internet, back offices and back office jobs can be performed in India with the same reliability at a fraction of the cost.






    While some technology gurus may derisively label this work as those
    of ‘techno-coolies’ or ‘techno-babus’ we would be stupid not to embrace business process outsourcing work with energy, vigor and leadership. With every back office of an airline, a bank, an insurance company or a multinational moving into India, there would not only be a huge employment potential, but also a multiplier effect on India’s software and IT industry.









  • Distance learning: Brick and mortar institutions will be supplemented by distance learning. From school education to higher learning, the internet will change everything. Today, foreign universities provide distance learning opportunities to Indian students using innovative technologies like streaming video. If one wanted to turn this model on its head, centers of excellence like IITs and IIMs that have produced many Silicon Valley start-up entrepreneurs can not only expand its reach in India but also provide education beyond its borders. Where we lack in building physical infrastructure, we can deploy internet-based

    models to augment our social infrastructure at all levels of

    education.







  • Learn to build brands and alliances:

    To succeed in tomorrow’s world, software companies must not only act at the speed of internet, they must also acquire skills to build brands, networks and alliances.

    Brands will be important. Even websites will be branded. In the initial years, Indian companies may go for co-branding or umbrella branding. For instance, an Indian company may strike an alliance with a well-established company with a market presence and channel in the US to sell. The umbrella branding can be provided by the US partner while the product brand could remain with the Indian company.

    Some other Indian companies could travel the tough route of establishing their own brand. Whichever route one pursues, building networks, alliances and partnerships will be crucial to our success.

  • It’s not just the click, stupid!: In the network economy where knowledge, flexibility and speed will differentiate the winner from the also rans, the battle lines will not be drawn simply between the efficient producer and the inefficient one. The battle will be between the slow and the fast, the rigid and the flexible, and the wise and the ignorant. In essence, the battle will be between different business models.







    Too much of hype has been created about Dell and Amazon.com

    and other dot coms. The trap that India must not walk into is to believe that the days of atoms are over and all you need is a smart piece of real estate in cyberspace to which all eyeballs are glued.






    Take the example of webvan.com–an online grocer. It is sending chills down the spines of supermarkets and shopping malls. The business model of webvan is simple. You shop groceries on the web and designate a time-window within which you require home delivery. If your bill is above a threshold, then home delivery is free. If you are cash-rich and time-poor, you can spend time with your family. You do not have to drive to a shopping mall. You do not have to find space in a crowded parking lot. You do not need to carry heavy packages, and you get a competitive price and free home delivery. 





    But a critical part of the business model is advanced logistics. How do you handle or optimize the supply chain? How do you have efficient warehousing? How do you manage the cold chain such that the ice-cream does not melt on the way? How do you ensure a just-in-time home delivery?





    The ‘brick’ is as important a component of the webvan business model as is the ‘click’. If you peel the amazon.com onion or for that matter any dot.com onion many of them have a critical brick component.


    In web banking you may deploy the smartest technology but if you lose touch with your customer, you may be driving your customers into the arms of your competitors. Sometimes your customer would need to meet or talk to a human being and that is why John Naisbitt, who makes a living out of predicting the future, said that those who will survive will have both ‘high tech’ and ‘high touch’.





    Therefore, in the euphoria over establishing dot coms, one should not take one’s eyes off the physical business opportunities. There will be huge opportunities in extended supply chain optimization. As the customer assumes center-stage, customer relationship management, data warehousing and business intelligence applications will offer large opportunities. As connected and networked appliances begin to outnumber personal computers, new opportunities will emerge.















  • We must understand the law of increasing returns: The world of ‘bits’ follows the law of increasing returns. Take the case of a printed newspaper and a cyber newspaper.

    In case of a printed newspaper, not only is there a cost of creating the copy and the content but also the variable cost of paper, printing, logistics, distribution, agency commissions, back-office costs and so on, that vary with volume. In cyberworld, once the content is created and served, even a phenomenal increase in readership does not result in proportionate increase in costs. True, if the hits are in millions there will be a need to scale up the infrastructure but the costs do not rise even a fraction of what it does in the physical world. Thus the so-called law of increasing returns if you consider the market cap and ad revenue of millions of pairs of eyeballs attracted by a cybernews site.






    To create, preserve and augment wealth we must learn to share it generously with those who participate in its creation. This may sound like a paradox but it is not. In the ancient times in India our forefathers had the wisdom to recognize that by imparting and sharing knowledge we increased our own knowledge. They taught us that knowledge was like a flame. If you light many lamps or candles your own flame will not be diminished. But the illumination increases manifold.





    I would like to suggest that if a company created wealth out of knowledge and intellectual assets, it must share wealth in order create more wealth. The old philosophy of ‘financial capital takes all’ must be given a decent burial. Today finance and capital are competing for the greatest talents that will translate the best ideas into sound businesses to create wealth.








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