Genuine Money Spinners

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tried, and failed. Compaq tried…failed. Zenith tried…did not succeed. The big names
and the big bucks could finally never really capture this segment. The small users and the
home users stayed resolutely away from buying machines in the face of marketing
blitzkriegs by the big names. The market was there. The market needed these machines. But
the market was just not responding. That was till a year ago. That was the time when a
chip manufacturer decided to lend its name to the informal sector. Gray market suddenly
became the Genuine Intel Dealers (GIDs) market. And the SME and SOHO sectors realized the
importance of automation. The home market suddenly came out of its slumber. And these
segments spearheaded the growth of the domestic PC market. That in a year when corporates
were not buying. When the government was also not spending and the rupee was on a major
tailspin, heading straight down.

Stroke of marketing genius on the part of Intel? Or did the
SME/SOHO/home markets finally lose patience and decide to lap up everything on offer?
Neither, actually. Timing and a bit of marketing astuteness on the part of Intel. Yes, the
market was restless, but what was also important was the re-creation of the gray market.

Under the new avatar of the GIDs this market had something
it never had before-credibility. Credibility of quality and credibility of options.

And what did we have! The informal sector grew by 72
percent in terms of units sold, thus hiking its share of the desktop market by a good
percentage-from 20 percent in 1996-97 to 26 percent in 1997-98. This 72 percent compared
to 31 percent growth of the total desktop market and 15 percent growth of the formal
sector. At this rate, the informal sector is pretty much on the road to crossing the
50-percent share mark by the year 2000.

Informal Nuts & Bolts (1997-98)

PC Configuration TypeNumbersValue
Pentium Pro/Pentium II35,000116.45
Pentium/Pentium MMX85,000253.06
48635,000100.00
Total Market Size155,000469.51

GIDdy Growth
The Genuine Intel Dealer (GID) scheme of Intel solved one very critical issue-the issue of
availability. The non-availability of the PC microprocessor was not only a big deterrent
to the growth of the informal sector, but it also used to encourage smuggling. Similar
strategies by some of the other vendors also aided in legalizing many of the operations of
this sector. But it was Intel all the way and other vendors just went along with the
drift.

The vendors broke open a market, by appointing dealers at
the right places at the right time. Local players in the Nehru Places and Lamington Roads
of the country were identified and cajoled to use and resell the branded PC components at
a time when the Custom duties on import of components were coming down. But what took the
cake was the marketing support from Intel. The chip major came out with the concepts of
joint advertising and joint exhibitions targeting the home and SOHO segments.

Informal Value (Rs Crore)

YearTotal MarketInformal Share (%)
1996-971956.30400.0019
1997-982145.17469.5122
1998-992360.00560.0024
(Projections)
Note: The informal market estimates discussed above are synonymous with previous gray
market estimates published till DATAQUEST Top 20 1997. The informal sector market
classification, used from this issue of DQ Top 20, refers to the combination of gray and
the GID market.

This helped the informal sector gain recognition from
the vendors as a formidable segment, and respectability in the eyes of the customer
because of the association with the Intel brand. Initially considered to be of little
significance by the IT industry, the ripple gained momentum, and the sector gained
attributes that were, till now, the prerogative of the large branded vendors alone.

The GID scheme is considered to be the single most
important factor in galloping the rate of PC adoption among the price-sensitive, yet
brand-conscious, space of the market spectrum. Intel currently has about 1,000 dealers in
the country, who approximately sold an average of about 100 systems in 1997-98 each. While
Intel was accused of propagating the gray market by the Indian manufacturers, for the
now-respectable small vendors, the chip major was like a messiah of salvation.

Small And Medium Challenge
Remember Economist JB Say’s theory, ‘Supply creates its own demand’? Or, rather, supply
stimulates the demand, as Philip Kotler would say? In the current context, if the GID
scheme was a boon from the supply side, then the profile of buyers for this segment was
the blessing from the demand side. The buyers for the informal sector mainly consist of
the small and medium enterprises and the SOHO segment. These segments have proved to be
virtually Attila the Hun for the branded vendors for a long time. The informal sector,
consisting of the GIDs and the assemblers, clearly outran the biggies to capture the SME
segment and the near-virgin SOHO segment.

The SME segment has the characteristic of cash ‘n carry.
This goes well with the requirement of immediate cash by the small vendors. Not obsessed
with brands, but operating on a shoestring budget, the SMEs fulfill their various needs
from the informal sector. This was coupled with the realization of the fact that IT is
critical in the business process of their organizations last year. The low end needs of
the SME sector are taken care of by the informal sector in totality. Now the SME sector is
completely in the hands of the informal sector, as far as the desktops are concerned.

One might argue that the needs of the SME segment are going
to increase as a result of the growth experienced by them. But the players in the informal
sector are also expected to grow in tandem and will come out with offerings which will
take care of those needs at that instant. Hence, the brand vendors have already lost the
battle as regards the SME sector.

The small office/home office is one market which is always
in the throes of price fixation. Last year, SOHO segment was completely straddled by the
GIDs. The informal sector has one big advantage. While the large vendors partner amongst
themselves and are selling bundled products, the informal sector has been into the
bundling paradigm for eons. And this bundling was given the much-needed push in the
carnivals and exhibitions. One saw the offerings of a printer free with the purchase of a
computer from a GID. These obviously attracted the price-conscious SOHO buyer.

Informal Muscles (Units)

YearTotal DesktopsInformal SectorShare (%)
1996-974,45,42490,00020
1997-985,84,9471,55,00026
1998-997,20,0002,50,00035
(Projections)

Home And the GID
Remember the bunny people dancing to the tune of Stayin’ Alive by Bee Gees? Well, the
Intel ad definitely captured the imagination of the home market. The most finicky of all
market segments, the SOHO/home market grew by an estimated 65 percent last year. And most
of the growth went to the informal sector. If one saw the GID ads last year, it was the
multimedia PC which was being offered with freebies like CD titles, software, and
peripheral devices, bundled with them. It was as if the complete package was the computer.
This was a landmark achievement on the part of the informal sector, which takes the credit
for transforming the PC into an edutainment device from being a technology product. The
main drivers of this segment were multimedia and Internet.

The
New Informal Paradigm: Eight Steps To GIDdy Success

Price has been the main driver of the informal sector in
any industry. Not any more, at least in the IT space. Now the dynamics have changed with
the character taking the shape of an industry by itself. One interesting thing that
happened last year was the gaining importance of the drivers other than price. In fact,
the other factors not just qualify the price, but also provide the complete character to
the PCs from the informal sector.

PRICE-LOW, SO LOW IT SELLS: As
anybody would know price is the crux of the business paradigm of the informal sector. And
as such, the informal sector prices its products considerably lower than the branded
products. Playing upon the price-conscious nature of the buyer, the players, backed by
Intel, launched a Genuine Intel chip-based PC at price points 10-15 percent lower than the
Indian brands (Zenith, HCL, Wipro), and about 15-20 percent lower than the MNC brands.
Hence, the initial hurdle of having to shell out enough money for a PC purchase is
crossed.

MODEL AVAILABILITY-ABSOLUTELY THE
NEXT GENERATION
: One of the main reasons for the success of the small vendors is
the availability of the systems. In the US, Dell and Gateway make their money during the
time lag between the launch of the latest microprocessor from Intel and the launch of
systems based on it by Compaq and IBM. Similarly, here the small local players get the
systems ready, as soon as Intel ships the microprocessor, courtesy the chip major. Thus
the availability of the latest configuration is one of the main factors influencing buyer
decision in favor of the small and local players forming the informal sector.

FLEXIBILITY-BUILD YOUR OWN PC:
The configuration of the PC is virtually the prerogative of the buyer, when the informal
sector is involved. More importantly, the choice of the components of the bundle of
software and accessories with the system is again with the customer. In the case of an
Indian brand, the choice is limited to a couple of options, while in the case of the MNC
brand, the choice is virtually not there, with a particular bundle being inflexible.

DELIVERY TIME-CASH ‘N CARRY:
Even now, the average time a system is delivered by a vendor is around seven days, while a
GID promises to supply a PC to the customer in an average of three days. Delivery time is
a critical factor in keeping the customer hooked onto the bargain.

SERVICE AND SUPPORT-JUST A WALK AWAY:
Talk to a large vendor and one would get a pep talk about after-sales service and future
support to the system given by them and the small vendor not focusing on it. But if one
closely inspects, the small vendor is quick on response time and thus service. As one GID
put it, for the large vendor, large corporate/government accounts are important.
Similarly, for the GID, it is the small buyer who is important. As elucidated in the DQ
Customer Satisfaction Audit ’98, 50 percent of the SME users prefer a neighborhood TPM
guy, who is accessible any time.

BUSINESS VIABILITY-LOW IN OVERHEADS
AND LOGISTICS:
One would think that with margins plummeting at each level of the
component and product supply cycle, how does a vendor manage to sell at the price that is
quoted by the GID. This becomes possible as the small vendor has low overheads, manages
with less people, and has less logistics costs. This is primarily because of

localized operation of the vendor, which makes his business
much more viable than a large company servicing many small clients spread over a big
geographic area.

BRAND-INTEL INSIDE ‘N OUTSIDE:
With the ‘Intel Inside’ and GID brands firmly behind him, a small vendor is much more
confident in displaying his wares. This further augments the vendor in captivating his
market in a particular geographical spread. If anything, the Intel brand worked more for
the small vendors than the large vendors, who anyway had problems regarding the confusion
between the chip maker’s brand, the corporate brand, and the product brand.

BUNDLING-BUY A PC, GET GOODIES:
Bundling has been pretty central to the GID paradigm. In computer carnivals and
exhibitions held locally, one saw the offerings of various goodies with the PC. For
example, for the SOHO buyer, it is a printer, for the home buyer, it is multimedia titles.

Last year, DQ had stated that the PC was still in the
category of a technology market and will take time to become mass market. Going by the
results of 1997-98, the PC is clearly galloping in that direction to become mass-market
product. Though still not on top of the buyer shopping list, it is certainly going to be
more of a need than a luxury by the turn of the century. And India might witness the US
phenomenon of PCs selling more than TVs by the beginning of the next century. The enabler
of this change is the informal sector. And the benefactor of this change will be the
informal sector. Obviously, much to the chagrin of the big IT companies-whether MNC or
Indian.

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