Archive for January, 2009

When I wrote yesterday about the Satyam saga being potentially motivated by an acquirer, there was a reaction that who would want to buy a tainted Satyam? In fact a friend asked me in so many words, on Twitter, and I had responded that it could potentially even be Reliance-ADAG group, who have been working towards setting up their own software company!

Well, the same thought is pursued by the media, once again a day after I speculated about the same! The Times of India writes today, that the Satyam shares might be purchased by a Mumbai based corporate house having interests in telecom, financial services, power and infrastructure and entertainment.

That description covers how many corporate houses?? Exactly ONE!!

And that corporate house has potentially all the characteristics to have stage managed this entire show!!

Think about it… !

I got my earliest introduction to the pleasures of reading, from my father. He was an avid reader, and consumed a lot of books. He was very diligent with some of his self-development and management boos reading. He would make notes, re-read the chapters, and in short, ensure that he absorbs the book to the max.

I picked up the habit and would read a reasonable amount of books and magazines, when I could. I used to read fiction as a student, but have more or less stopped reading fiction for last 10-15 years. I get all my fixes of fiction from movies!

But I have tried to keep pace with non-fictional reading all these years.

During the period of 9-10 years when we were nurturing our Internet startup, Homeindia.com, time was really sparse. And the reading volumes fell significantly. I used to miss reading, and used to feel miserable when I did not read a book for 4-5 months sometimes.

But then, I discovered audio books! They were a God sent. I had long commutes to work, and I managed to use these well, while devouring one audio book after another. It was a great habit to form again.

While a printed book is always a preference, as you can stay on a page, ponder over the thought, think about how it fits your own situation, before turning the page over, the same is not possible in an audio book. The audio book keeps moving ahead, and you have to strive to ensure that you keep the concentration. But this one disadvantage aside, I value the fact that I can at least manage to cover books, rather than not doing so at all!

I graduated further, after a couple of years, to the iPod. And this opened up so many more avenues. For one, the audiobooks came on the iPod, so I did not need to carry CDs around.

But more importantly, with the iPod, I got introduced to the world of Podcasts. I have over time, subscribed to so many different topics of podcasts, and these have enriched me across a wide variety of subjects, and I have enjoyed them tremendously.

I continue to listen to podcasts and read audio books, regularly, now, on the iPod.

What saddens me as I look around me – to my friends, family, colleagues – is that they all read so litle these days. In fact I see a drastic reduction also in the newspaper reading habits.

How will these people enhance their knowledge, their skills? The knowledge on any subject stays so superficial without the accompanied reading support?!

I am so glad for my interest to read, and for having hit upon audio books and the iPod, which have been able to keep my reading habit going strong!

The mind does not stop working on possible reasons why Ramalinga Raju made this big confession. I am not going to believe that suddenly he got a call on conscience. That is utter nonsense.

Yes, there was the angle of DSP Merril Lynch going to SEBI to let SEBI know that they are withdrawing from the mandate due to specific reasons. But that still prompts the question – why did DSP Merril Lynch wake up suddenly? They have been associated with the larger Satyam group including with Raju in his individual capacity, for long now. And if they are so close, could they have not known the wrong doings for so long?

So I keep fishing for ‘yet another angle’ 🙂

Me and my investigative mind.. 🙂

In criminal investigation style, we start with “who could have the motivation” for conjuring this up?

Consider the scenario:

  • Satyam was already looking for merger / acquirer opportunities,
  • Several must have already checked them out (many names were coming in the press, in the days preceding),
  • Say, one of them got serious and was working towards a closure, and doing due diligence at that stage,
  • And at which point, the cracks were visible,
  • Even so, the acquirer was interested, but at a far lower valuation,
  • Which if it had gone through, there would have been huge uproar from the markets, as to why Satyam was sold at such a low valuation,
  • Without reducing valuation, the acquired would have not been interested,
  • The deal needed to happen, as Satyam cash flows were precarious,
  • Raju and family were owning very small equity now,
  • If Raju went beserk in the manner that he did, the stock would collapse,
  • Nobody would touch it,
  • The core assets, be it customers, employees, real estate owned, would not disappear overnight; they had nowhere to go that easily,
  • And at those low valuations, the interested acquirer picks up the company,
  • And passes back to Raju and family, off-record, some benefit, for having orchestrated the event,
  • Also leaving enough room to put out money into political patrons, who would ensure that after all the uproar, not much damage is caused to Raju and family.

A SERIOUS WIN-WIN PROPOSITION, WHAT SAY??

To illustrate with numbers, for better understanding:

  • Say, Satyam valued itself earlier at 100,
  • On due diligence, acquirer figured that Satyam was not worth more than 60,
  • Deal could not happen as market would not accept Satyam value of 60,
  • Raju writes letter and lights the bomb,
  • Now the acquirer can potentially pick  up Satyam at 5,
  • In the madness, Satyam value might have gone down to 40 from 60,
  • That still gives a neat discount of 35 to the acquirer,
  • He shares 10 with Raju and family, leaves 10 for political helpers, and keeps the rest for himself,
  • Not bad, eh??!

Yes.. the investigative mind working overtime…!

🙂

Okay, so “satyam” was trending on Twitter, and news channels and newspapers have been filled a plenty with all persepctives on the Satyam story.

Amongst other things, the two most asked questions have been:

– Why did Ramalinga Raju confess to his crimes, at this time?

– How did PWC allow such nonsense to be going on for so many years, even as they were the auditors who signed off the balance sheets?

So here is a contrarian thought – at least I have not read this view point so far.

What if PWC was not really wrong? What if they actually did the verification of the cash and bank accounts before confirming the balances?

What if the said balances were TAKEN OUT recently??

Rs. 5000+ crores is a large enough booty for any fraudster to make a major conspiracy for. Take out the money, invest in property, expect the property to appreciate even more than the kind of money that Satyam could make in it’s core business?

If he did that, PWC did not know about it, till the last annual balance sheet that they might haev signed off. And in which case, they were on the right path till that point. If Raju siphoned off this case more recently, this big confession, and dragging down of an asset where he had only 3.14% equity left – that too pledged out and borrowed against – was an easy way out to explain all his sordid crimes. And with a kitty like Rs. 5000 crores, plus the cash he would have stashed away earlier, there was enough money to keep prolonging the legal case, till it falls off public memory.

And in between, if he needs to go and spend a few nights in jail, it may not exactly be a bad price to pay.. Think about it…

On the other hand, as far as the Indian stock exchange is concerned, its jinxed out at this time.

First the global economic crisis hit. And the markets fell.

Once investors started realizing that India was not that bad off, they started picking up the stocks again. And the market was making small recovery.

Then the Mumbai terrorist strike happened. And the house came crashing down again.

Once again after about a month, the markets were gradually making their way up.

When Ramalinga Raju, the other “terrorist” struck!! And the free fall happened once more..

As I said.. markets are jinxed! 😦

Read this new audio book by Malcolm Gladwell, whose earlier two books, The Tipping Point and Blink have been enormously succcessful.

Outliers – The Story of Success is a new perspective at explaining success. Or even the lack of it. That success is not just about ability, but also about circumstances, its not just about skill, but also about cultute and background, or in short, that a large number of factors, not entirely in the hands of a person, impact the success of an individual.

For example, how advantageous it is, for a kid to have been born in the months of January or February or March, to have a far better chance to be a successful hockey player in Canada. Astrology? No way! The simple explanation is that from an early age, there is competitive classification of players, and in a class, there are kids born in months from January upto December, but at the early age, the older kids, born in the early months of the year (January / February, etc.) are bigger than those born towards the later part of the year. And this physical difference early one, gets those ‘older’ kids to do better, and get picked for more training, and more practise, and better coaching. And then get even better! So by the time the kids reach ages 17-18 and are playing the Memorial Cup say, if one looked at the roster of players, there is a huge skew of birthdates, towards the early part of the year! Its almost like half of the country, is counting itself out of contention simply because of their date of birth!

Gladwell explains the book in his own way at his website.  And I would recommend you to go over the excerpt there.

The example of Bill Gates and his good fortune in his formative years is mind boggling. That the richest man in the world might not have been the richest man in the world, if not for a string of coincidences, is scary. To get a computer in his school during those early days of the computer, in 1968. Then to get unlimited time sharing, from a mainframe computer in Seattle. Then to have a series of events related to the University of Washington, which enabled him to visit the University and work on the computers there, for long hours, is an amazing story.

That reminds me of my own case. I chucked a rank at IIT, and joined VJTI instead. Which was a 5 minutes walking distance from my home. During our years, the first course in computer programming would happen in the VI semester, i.e. in the third year of our engineering program. Coincidentally though, during our year, just for the one single batch of ours, and that too, only for the Electrical Engg students, which we were, there was a special extra curricular programming course that was conducted by one of our senior students, Poras Balsara. He did this in our Second Year of Engineering. I also had an earlier good fortune of having got a ZX Spectrum, one of the early compact home computers made by Sinclair, and working on the Zilog Z80 chip. Owning one of those computers at an early age was a privilege. On top of that, getting this opportunity of a special course, conducted only that one time, and being part of it, was my second piece of good fortune. Further, those were the days of punch cards computing, and long queues to get your progams executed. And which is what I went through, while doing that special course in the Second Year of Engineering. It was painful, but there was no other way, and I learnt to get it right the first time, so that I did not have to do it ‘all over again’. Between the Second and the Third Years of the Engineering program, is a long vacation at college. Just before we broke for vacation, the college acquired its first microcomputer. Finally a desktop, where programming happened right there, and execution happened right there, and there were no cards to be punched, and no big tapes and nothing of that sort. As I said, this computer came to the institute just a little before we broke for the vacation. Ordinarily, in an institute of this size, the one computer could have got a lot of users vying for time. But now when the vacation happened, there were not too many who had got the programming training from that course, and who were living close by, to visit the institute and queue up for time, and grab all the opportunities that were available for using that computer. I grabbed that chance. I remember making some fun programs, including a simplistic Scrabble kind of word making program. Besides Poras who initiated that special course for us, it was Prof. K. M. Kulkarni, then the head of the computers department, who was hugely responsible, for making it happen. As was Waghmare, the computer operator, who gamely punched our data cards and ran our programs for us, and cooperated big time!

I owe my fascination and accompanied business interest in the space, to that early extended exposure to computers. Of course, that is where the similarity with Bill Gates ends 🙂

Back to Outliers, few other interesting points that the book makes are:

1. That it takes roughly 10,000 hours to acquire expertise in any field. Be it music, computer programming or anything. That the so-called child prodiges are actually just good talent, but they become experts only after putting in those roughly 10,000 hours of hard work. The Beatles were invited to Hamburg, where there used to be 24 hours clubs having live bands. And they got to play  8 hours at a stretch, each day, for say, 100 days in a row. And they did this for 3-4 years. The kind of hours they put in, and the kind of practise and innovation that they could generate, led to their 10,000 hours, expertise and ultimate success!

2. That as far as IQ or other such measures are concerned, its important only to be ‘good enough’ and not necessarily the best. Amongst the many good-enough candidates, anyone can finally achieve the most success. Which explains why the Nobel Prize winners, besides coming from Harvards and MITs and UC Berkeleys, have also come from other lesser acclaimed, but still pretty decent Universities.

3. The most amazing connection to cultural background and adult behaviour is brought about in talking of air safety. About how Korean Air had one of the worst safety records and why. Gladwell explains that for an air crash to happen, there are nearly seven different things that need to all go wrong, one after another. And usually, if a captain due to whatever reason, is slipping on some points, it needs the first officer or the engineer inside the cockpit, to point out the error of his ways, and ensure that the correction happens. In that respect, in spite of the designation of the Captain being the highest, during emergencies, the other officers need to assert themselves and point out the faults. But where the Korean culture of deep respect and awe of a senior, came in the way. The first officer and the engineer would not assert themselves, even when they knew that errors were happening, and that more than anything else, resulted in a few crashes, for the airlines. That went back to the cultural background of the Koreans!

4. To support the prowess of the Asians at Mathematics, Gladwell digs deep into the culture of the rice paddy farming, in Asia. Which demanded early rising, long hours of hard work, meticulous effort, and leading to prosperity, as the drivers. The same demands exist in academics and in Mathematics, and it is that background, that enables Asian students to excel compared to their western counterparts.

5. Of the all-time wealthiest people in the world, 20% are a batch of Americans born within a 9 years span. The reason for their success and wealth amassing is the fact that by the time they got to working ages, America went to its biggest ever infrastructure development program with railroads and freeways, coming up across the country. The kind of opportunities this presented, was unlike any other, and they were fortunate to have been born at the time they were born.

Likewise, some of the biggest names in the computer industry, from Bill Gates, to Steve Jobs, to Paul Allen, to Vinod Khosla, to Steve Ballmer, to Bill Joy, and others, were born in the period from 1953 to 1955. Coincidence? Not necessarily so. When they were around 20-22, in 1975, there was a first time cover story article in Popular Electronics, about the Atari Home Computer, offered at $397. Most of these guys would have dabbled on the same, and instead of going and working on the big IBM machines, they got into the microcomputer world and the rest is history.

6. There is a town in the US called Rosetta, where people die largely on account of old age. Not so much of heart disease, no other major ailments. The people there are not particularly healthy in terms of food habits or fitness regime. There is also not so much of a genetic factor, as others from the same background, but residing in other parts of the country, do not have their record. Likewise, its also not  about the place itself. Nearby neighbouring towns, with identical climate and patterns, do not have the good health and mortality record. What it went to conclude is the community lifestyle of Rosetta – joint families living happily, people meeting each other, chatting, generally a relaxed lifestyle. It was the community that gave the people there, the health that they had!

Many interesting examples fundamentally tell us that there are factors beyond the obvious that can contribute to success, and for which, one must take intuition a lot more seriously. That for success to happen, its not just the individual, but how circumstances, and other people contribute to make it happen. And that means, as Gladewell concludes, that we, as a society, have more control about who succeeds-and how many of us succeed-than we think. That’s an amazingly hopeful and uplifting idea.

In recent days, I have followed a few discussions at different forums, debating the possibilities or the lack of it, for monetizing Social Media. There has been an extended discussion on the Web 2.0 group at LinkedIn. Then there was the post by Robert Scoble, and there have been others too.

At the end of the churn, the jury remains out still. No clear answers, and anyone who emerges with a brand new monetization model will be hailed like Google was hailed for creating revenues out of search!

I posted a comment at the post of Robert Scoble, which was somewhat inspired, in as much as it related Social Networking to offline Social Clubs (known by different names in different communities), and seeing if a parallel could emerge there. I am reproducing part of that comment here:

————

1. We are looking currently at known methods of monetization. The answer will more likely emerge from methods that are unknown today. The monetization of search that Google did, was a thought out of the box. Amazon Cloud Computing is also a different direction from known methods. Twitter and others may also discover a model which will only become a new method and a new standard, thereafter.

2. I try to relate web models with similar offline businesses / models. The social media online is most similar to a social club offline. My understanding of these clubs are:
a. They are cheap – which is how large numbers find it easy to congregate there,
b. There are few expensive and more exclusive types, but they offer significant value in terms of ambience, luxury and services, and for which the elite are willing to pay the price,
c. Social clubs do not meet out their costs, from the members’ contributions; there have to be other ways to supplement their incomes,
d. What they end up doing is to run a good restaurant and give out the contract for the same, to someone who pays them a good chunk of money; or they give out the space that they have built, every once in a while, for others to use as a banquet location; or they charge a decent sum for a one time membership fee, which is usually a lifetime fee then.

Mapping some of these observations to the online social media, it might indicate that:
a. Social media sites will not be able to charge the members, especially if they are going after the mass markets,
b. A few exclusive ones, with seriously high value added offerings, might manage to keep exclusive usage, and charge a good fee for the same,
c. The typical social media property, might be able to contract their platform to the “restaurant” (some paid service equivalent, that is reasonably universally required by the users), and charge them a good fee for giving that exclusive access, for the particular vertical (“food” in case of the offline restaurants); such engagements can be for a period of time, just like the restaurant contract in an offline social club would be say, for a period of 2 years at a time,
d. Then there is the equivalent of the social club giving out its space for a one-day banquet event. The analogy here could be banner advertising on all Twitter screens, for example.
e. Finally there is the one-time fee from members, that a social club can charge. I am not sure if the analogy can be pulled off on the online social networks. But seeing that users spend $1 to send virtual gifts on Facebook, there could be an option to ask members to pay say, $10 (or $50 or whatever that makes sense) as a one-time fee for being members at Twitter. I am not sure, but its an idea again..

———

As I said earlier, the jury is still out. Whether Social Networking can be monetized and to what extent remains in the realm of inquiry at this time.