If it were a school debate, the subject of the topic would be ‘Sodexo coupons – A boon or a curse. Discuss’.

Fortunately most of us are past that stage of life where we need to debate such issues in front of other school kids. Unfortunately though, unless we discuss and debate, we would lose money on a transaction like this. Let us look at the bare bone facts of the Sodexo business and try to draw some conclusions.

The perquisite valuation rule (Sodexo/Food coupon is a perk) (Fringe Benefit tax) governing the issuance of Food coupons states (Rule 3(7)(iii)) -

(iii) The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:

Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.

If you didn’t have the patience to go through the rule, here’s what it states in summary. The Employer cannot pay more than Rs. 50/- per meal during working hours. Assuming a reasonable 2 meals per day and 22 working days in a month, it works out to Rs. 2200/- p.m food coupons (which is the limit that most of us get) (the max. anyone can get is Rs. 3000/-). Of course, since the Employer cannot pay more than Rs. 50/- per meal, the maximum value of any one Sodexho coupon cannot exceed Rs. 50/-. Hence the denominations are always Rs. 50/- or lower (usually they are Rs. 50/-, Rs. 35/-, Rs. 20/- and Rs. 10/-).

These coupons are useful for different parties in multiple ways. There are four parties involved in any food coupon transaction as illustrated below (along with Sodexo’s business model):

Employee: The Employee is usually very excited with any prospect that saves him a little tax. And so is the case with Sodexo coupons too, where availing the Sodexo coupon opportunity will make the food coupon amount tax free. For employees in the highest tax bracket (30%), this would save tax of Rs. 660/- p.m (or Rs. 7920/- per year). Of course, if you didn’t opt for the coupons, you would get Rs. 1540 as deposit in your bank account (Rs.2200/- after tax deduction). But did the food coupon craze take off in huge numbers just because an Employee could save some tax and buy food from his office canteen? Absolutely not. The reason it took off was because the retail chains (FoodWorld, Spencers, Foodbazaar, Big Bazaar, MK Retail, Total, Reliance etc.) started accepting the coupons for anything and everything that you purchase at their store. Employees jumped at the opportunity (and most people mentally classify these coupons as free money than hard cash – look at some stuff they buy using the coupons. They would never buy it with hard cash).

Company: Most companies started this perk out as a differentiator to employees (and marketed it as ‘it’s actually extra money in your pocket since it’s tax-free). And then all companies started offering it. From a nice-to-have feature, it has now turned into a must-have feature in the pay package. Companies don’t make or lose any money on this transaction (apart from the administrative headache).

Retail Store: Initially, the retail store used to accept Sodexo coupons only for pure food item purchases. It was a pure sales/marketing tactic from thereon – to attract more customers and to wean away customers from other competing chains, they started accepting Sodexo coupons for anything and sundry (which apart from increased sales, also increased customer loyalty). Eventually, competitive destruction happened and the retail chains till Dec 31st, 2011 accepted Sodexo coupons for all purchases. They redeemed their Sodexo coupons with Sodexo for a 5% discount (and they used to receive cash only after 20-30 days after submitting the coupon; credit card companies credit the retail store within 24 hours usually). It’s almost become mandatory for retail chains to accept Sodexo, else they risked losing customers to other retail chains and very fast (the cornershop marwariwala lost his business this way, till of course he also started accepting Sodexo!). Of course, to cover up the lost 5%, people usually concur on the fact that retail stores usually mark up the prices of certain items (although this cannot be corroborated with any data available).

Sodexo: Who exactly is Sodexo? This link gives more information (and this one in more juicier detail), but in summary, Sodexo is a French multinational corporation Sodexo is one of the largest food services and facilities management companies in the world, with 380,000 employees, representing 130 nationalities, present on 34,000 sites in 80 countries. They are the biggest beneficiary in this transaction. Since this is almost like a parallel currency, they have to invest a lot of money upfront to get the govt. machinery working in passing certain laws. They make money in three ways:

a) They receive Rs.100/- worth of coupons, while give back only Rs. 95/- in cash, netting a straight 5% gain.

b) Sodexo coupons usually come with an expiry date (think of it as a currency with expiry date *shudder*). Once its expired, no retail store would accept it and it becomes null and void. However, Sodexo had already received the money from your Company when they issued the coupon (and hence a 100% profit!). There is a complex process through which you can get new coupons issued, but most people would not have the time or the patience to go through the process for getting the new coupons.

c) The biggest of them all. They get money at 0% interest. Have a look at the diagram once again. Day 1, they receive Rs. 100/-. Day 24-34, they give back Rs. 95/-. That is, they have had the money for a full 20-30 days without paying any interest. In fact, till the coupon is used, it is practically free money (and they can lend this money at interest, thereby making money).

So, if this was a win-win-win-win arrangement for all the folks involved, why did the retail store chains suddenly stop taking Sodexo coupons in lieu of items?

There is no clarity on what exactly happened, but here are the news items floating around -

a) They have increased the brokerage from 5% to 9%. That is, the retail chains used to get back Rs. 95/- of their money, but in the revised scenario, would get back Rs. 91/-. Already under pressure for margins, this was not acceptable by retail chains. Presumably, they formed a clique and stopped taking the coupons across the table.

b) The number of days in which cash conversion happens has gone up from 20 days to close to 60 days, thereby impacting the cash cycle of organizations

thereby, resulting in a clique where the retail chains have closed ranks and have decided to put up a fight with Sodexo – to i) reduce the brokerage rate below 5% (and they’ll eventually settle to the original 5% figure) and ii) reduce the cash conversion cycle (and settle back on the 20-30 day figure).

Sodexo certainly has to negotiate and accede to the demands of the retail chains, simply because without them, Sodexo ceases to exist. Retail chains will also join the negotiating table because they will have too much to lose (the corner stone marwariwallah is still accepting Sodexos, and more probably, there is always a possibility that one retail chain breaks away from the clique to grab customers quickly). All in all, this is bound to be a temporary situation (max of 1-2 months), and as usual, the employee is being inconvenienced for the greater good of the mankind or some such.

My personal opinion is that the entire Sodexo tamasha is not worth the administrative hassle that most companies undergo (the big IT firms have everything automated, but all other firms are not). Why not give Rs. 2200/- as a food perk straightaway as cash instead of this circuitous food coupon route? Or tax it at the minimum rate? This whole hassle could have been avoided. But then again, there are vested interests at play here and I am not even a micro-bit player in the rational minority.  (As an aside, I always wondered about an active secondary market. For example, you get Rs. 2200/- worth of coupons and you save Rs. 600/- in tax. Which essentially means, you would be willing to sell the coupons for cash for anything above Rs. 1600/- thereby making a neat, tidy profit. I am almost sure this is illegal, but I just wonder!). Also, Sodexo coupons involve a lot of paper. They can shift to card based system (if at all this system has to exist) and save a lot of money (IT firms usually give out cards, but try using a card in any retail chain – nada for now!).

Disclosure: I don’t subscribe to Sodexo coupons. My wife does and hence have a vested interest liquidating the Sodexo vouchers

P.S: I can also see a govt. conspiracy here Sodexo coupons out of circulation means Employees will not subscribe to them January end (or future months). Which means, more taxable income and which means, more taxes. Government #FTW

P.P.S: I explained a scenario above where a Employee can technically make a profit by selling the coupons at a discount. One enterprising person actually tried to sell these coupons at a premium on an internet site. Why would anyone pay hard cash (say, Rs. 105/-) in exchange for Sodexo coupons (worth Rs. 100/-). Beats me. Not too sure what the guy who posted this was thinking though

However, looking at this issue and understanding it through the lens of Hindu Mythology is a little unique (and hopefully enlightening!).

Let me explain.

I’ve been reading “7 Secrets from Hindu Calendar Art” by Devdutt Pattnaik (btw, brilliant book) where he lucidly explain the mysteries behind the myriad calendar arts that we see on a daily basis of atleast 100 or so Hindu Gods. Some of his explanations can be used to understand why men will never understand women.

Here are a few excerpts from the book -

The right side in Indian art represents the soul and intellect while the left side, with the beating heart, represents movement, hence matter and emotions. The left side represents change while the right side represents soul. Since change is undesirable, the left side became the inauspicious part (inauspicious in the sense of attaining Nirvana) and the still right became the auspicious part of the body.

(In the Ardhanari-eshwara image, Parvati merges to the left of Shiva. I am also given to understand that the wives are advised to sleep to the left of their husbands).

Shiva dancing in the Nataraja pose. In this dance pose, he raised his left foot above the ground and pointed to the moving left foot with his left hand, while standing firm on his right foot. The left side is that of the material world, while the right side represents the spiritual world. Shiva stands on his right foot because he is firm in spiritual reality. Shiva indicates (through his left hand) that our fears and insecurities emerge because we do not understand the nature of material reality – that it is transient, that it arouses and it depresses amongst stormy waves of positive and negative emotions.

The Sanskrit word for measurement is ‘maya’ – that is why the Goddess is called Mahamaya, the great one who can be measured and evaluated. She is classified using words, limited by thoughts, and measured with scales. Suddenly, she is evaluated and judged. These forms, names and evaluations enchant us, entrap us, delude us, stir our passions, make us happy and sad because they are never still. That is why this material world of changing forms is often referred to as maya, the embodiment of delusion. She is the world that we experience. As she keeps changing, we struggle to control her, hold her still and make her permanent, but we fail, for her essential nature is to transform.

As you would gather and deduce from the above excerpts, women change all the time. This has been reaffirmed through Hindu Mythology. That is the reason we men can never understand them. We are still and serene. The women change every second – enchanting us, entrapping us, deluding us, stirring our passions and making us happy and sad in weird sinusoidal curves we can never begin to understand. We men, just can’t seem to catch up with change. It’s like the Heisenberg Uncertainty Principle. If you can determine her emotion correctly, you can’t be sure of her action and vice-versa (For the uninitiated, Uncertainty Principle states our inability of not being able to determine the speed and position of the particle at the same time).

P.S -

1) This is probably the reason why eating/writing with the left hand is forbidden by our parents during our young age. Not because it was dirty to do so, but because the right side implied stillness and the left, never ending change (which is obviously undesirable). But then the wisdom got twisted during the ages, and now it is just dirty. That’s it – no questions.

2) The book is absolutely brilliant. Here are some other excerpts which relate tangentially to the topic at hand -

Shiva represents spiritual aspiration, the desire to focus on the soul within. Parvati represents material aspiration, the desire to focus on the family and the world around. Hindus have always sensed a tension between the two goals.

By holding the right toe with the left hand (Baby Krishna’s image usually), God is connecting the spiritual with the material, the intellectual with the emotional.

Why is the male form used for the spiritual subject while the female form is used for the material object? Material reality is that which is contained within space and time. That which cannot be contained by space and time is spiritual reality. Material reality has form’; hence, it is measurable and is ‘contained’ within a ‘container’. Spiritual reality is formless and immeasurable; hence it is not containable. The human male physiology, for example, creates life outside itself. On the other hand, life is created within the human female’s body. Thus, the female form best represents the container, the source of all things material. The woman becomes the symbol of material reality, making man the symbol of spiritual reality.

The Upanishads, ancient Hindu scriptures dating to 500 BC, constantly refer to these two truths: a truth which changes and a truth which does not change. The existence of one, points to the existence of the other. In change, we seek permanence. In restlessness, we seek restfulness. In movement, we seek stillness. In sound, we seek silence.

In symbolic language, the male half represents the formless divine known in Vedas as Purusha, in Vaishnava manuscripts as Narayan and in Shaiva manuscripts as Shiva. The female half represents the divine that has form. The female form in Vedas is known as Prakriti, in Vaishnava manuscripts as Maya and in Shaiva manuscripts as Shakti.

In image after image, we will find the continuous discourse between the left and right side of images, which in effect is the discourse between the material and spiritual halves of reality. Krishna will always be shown sucking his right toe or placing his right foot over the left leg, reminding us that our life is a continuous dialogue between the divine within and the divine without, between God and Goddess, for without either there is neither.

Make a prediction about anything. Just about anything. The trick lies in making an outrageous prediction and not just a normal prediction. For example, you can predict that Bangladesh is going to win this year’s World Cup. Or the stock market is going to touch 25000/12000 by this year end. Or Manmohan Singh will actually clamp down on corruption. At this stage, you may or may not state reasons for your prediction. If you are a well-known person, publish your prediction is some journal/magazine/newsletter. If you are not, there is always the workplace-colleagues group, family etc. But someone other than you should clearly and loudly hear that you’ve made a prediction, an outrageous one at that.

There are two results which can happen from the instance you’ve made the prediction. The prediction might actually turn out to be true in which case you are a celebrity and the person with crystal-ball gazing ability. Of course, now that your prediction has come true, you can always state reasons (hindsight vision 20/20) as to why you thought this was the only outcome possible. Again, if you had published your prediction, more offers in terms of articles, op-eds, seminar talks would come your way. If you are not, you’ll atleast be held in high-esteem by your colleagues/family.

On the other hand, your prediction may not come true (most cases!). The advantage here is that almost noone will remember your outrageous prediction. In a world where there is a lot of information overload, who is going to remember things which have failed? Almost noone.

You don’t believe me, do you? Let me state some examples –

a)      On the eve of the 1996 cricket world cup, different ex-cricketers were asked about the probable winner. Richard Hadlee said Sri Lanka. I don’t remember which other ex-cricketer said which team would win. Sri Lanka went on to win the World Cup. Richard Hadlee subsequently was asked before almost every World Cup (TV shows, Marketing events etc. – making him a lot of money!) since 1996 about the probable winner and we are reminded of his crystal ball gazing ability since then. He went on to say India, England, South Africa for the next 3 world cups and each of those predictions turned out to be false (Australia won all 3). Did anyone chide Richard Hadlee for his stupid prediction? Absolutely not. He was recently reminded of his prediction of the 1996 world cup winner, and was asked the probable winner of the 2011 World Cup.

b)      Arjun Murti, a Goldman Sachs banker had predicted Oil would touch $100 when it was languishing around $40 a few years back. It was an outrageous prediction. Oil subsequently went on to hit $140 and is back to $90 levels now. Once Oil crossed $100, Arjun Murti was hailed as one of the most prolific commodities banker and was probably given a ton of bonus for his prediction. He went to predict that Oil would hit $200 very soon. Till date, Oil hasn’t (and this prediction was 3 years back). Did anyone notice? Did anyone care? Did anyone say ‘Yo Arjun, what’s with the foolish prediction?’ Absolutely not.

c)      Closer home, Rakesh Jhunjhunwala predicted that Sensex would touch 20000 by 2008 in 2003. Sensex did cross 20000 in 2007 itself. Rakesh was hailed as a visionary who could predict markets at will. Rakesh was subsequently asked of the next target. He said 40000 by 2011. We are nowhere close to that (in fact, as of today, not even half of that). Did anyone question the sanity of Rakesh Jhunjhunwala of his prediction? You know the answer by now.

That in summary, is the effect of the Theory of Outrageous Prediction. Limited to zero downside and unlimited upside.

You might say, ‘Hold on, why not just make any prediction? Why do I have to make an outrageous prediction?’ Well, the answer to that is, noone would care to remember your normal prediction. Worst case, they might just boil it down to sheer luck than anything else (For example, let’s say you predict Obama is going to win 2012 elections. Well, noone cares about your prediction because that is an expected outcome (or most probable outcome). However, if you predict Sarah Palin is probably going to sweep the 2012 election, you are onto something. Imagine if that event turns out to be true (god forbid!). You can state reasons ranging from disgruntled-US-employees to sweeping-demographic-changes-influenced-by-social-media or some such!).

One caution though. You need to use this theory sparingly. Else, people might just ignore you for silly talk and posturing (the success ratio of outrageous predictions is abysmally low. If you predict every other day, you are bound to be branded a failure).

P.S:  Any attempt to copy the name of my theory will lead to a trademark violation. You’ll hear from my lawyers almost immediately

In this post, I attempt to demystify the reasoning behind valuations of each of the IPL players that will go under hammer tomorrow. Before that, a brief of some basic rules are in order –

• Each franchise needs a squad of players, with 11 playing at any one time.

• Only 4 players at any time are allowed to be non-Indian.

• The franchises bid on the basis of the salary they are prepared to offer the player.

• The salary offer is valid for three years, although there is the possibility of player transfers in future years.

• Each team must also have four under 22 players.

• Each bid starts with the base fee fixed by the IPL (based on the band), and there is no upper limit.

• Players were grouped into different bands (5 bands) within the auction based on the  expectations of the organisers that they were of similar experience and  ability.

• Each of the IPL franchises can retain up to 4 players in advance of the player auction. Out of these, 3 could be Indian.

• A franchise can bid for up to 10 overseas players. However, during a game, only 4 of these can be on the field while the rest have to be Indian cricketers only.

• There is a maximum limit of $9 million for each franchise to spend at the IPL 4 auction. This means that a franchise which retains 4 players will have less spending money ($4.5million) for other players.

• The maximum size of a franchise team is 30 players.

• Sahara Pune Warriors and the Kochi teams were allowed to sign up to 4 players prior to the auction from a list of players who were not on any team during the previous IPL seasons.

The auction of IPL players is a classic English auction where the franchisee with the highest bid for the player gets the player. It is a simple auction process, with no complications and slimy strategies. However, we cannot just keep bidding for all players. So, what can be a strategy?

The strategy is essentially to have a list of 50 players (the maximum size of a franchise is 30 players, and on average over the past 3 IPL seasons, teams have had 18-24 players in their squad), classify them depending on various factors like batting, bowling, all-rounder etc and then rank them. After the ranking is done, we need to set the minimum and maximum prices that we can pay for each player and move down the list depending on the cash remaining (unless of course, the owner wants a particular player at any cost – in that case, all calculations go out of the window and the remaining players get short changed).

Classification based on batting, bowling or all-rounder is very basic. We all know who ‘bats only’, ‘bowls only’, ‘bats but also bowls’, ‘bowls but also bats’ and ‘genuine-all-rounder’. This requires no further elaboration.

Ranking them though is the challenge. How do you rank one player above the other in each of the classifications? What are the factors that can lead you to quantitatively rank one player over the other? Here is where I think Statistics and Regression models play a large part (in determining which variable is significant towards calculation of a value, what variables to-gether contribute towards the valuation etc.). However, as stated earlier, I will skip this part and probably go for a guesstimate of these variables. More quantitatively inclined folks can compare if these variables were indeed significant over the valuation in the previous auction (seasons). The variables, in no particular order are (as you would observe in the variables, we consider a split within variables: one for ODIs and the other for T20s. This is because of a lack of statistically significant player history for T20s. As we go along in T20 matches, only the T20 variable can be considered) –

a)      Experience – Quite a basic variable, in the sense that a great Test player may not be a fantastic T20 player. The number of T20s that a player has played is one of the variables. Here, Experience consists of two variables – one for T20s and the other for ODIs

b)      Batting Strike Rate – This is for ‘Batters’ classification. Many players across the world might not have played a lot of T20s (domestic/international). Therefore, this Batting Strike Rate variable needs to be split into two. We need to consider the Batting Strike Rate1 of T20s and also consider the Batting Strike 2 of ODIs.

c)       Batting Average – Again for ‘Batters classification’. Again, there is a Batting Average 1 for T20s and Batting Average 2 for ODIs.

d)      Composite Batting Variable – This may or may not work, and can be tested for statistical significance. The hypothesis is that Batting Strike Rate 1 * Batting Average 1 = Batting Composite Variable 1 along with Batting Composite Variable 2 should be easier to rank than each of variables mentioned in b) and c) and then reclassifying them.

e)      Bowling Strike Rate – Same as Batting strike rate, but for Bowling.

f)       Bowling Average – Same as Bowling average, but for Bowling.

g)      Composite Bowling Variable – Same as Batting variable, but for Bowling

h)      Indian Player – Hypothesis here is that an Indian player will fetch more value than an overseas player although the ratio of available positions in the side to the number of overseas players is low. I believe this variable is significant only because the Indian players can be used for extensive marketing within the franchisees across India hence bring in more revenue rather than the overseas players.

i)        Controversy-ridden – Hypothesis here is that the audience is more interested in the drama of a player rather than just the player value per se. For example, an affair with a film actress, the slap-scandal, monkey business and various other characters in the player community would fetch a better price than a normal staid player (a normal staid player but oozing with talent is a different issue which will be taken care by variables b-g).

j)        Players under 22 years – These players will get a premium over players with similar performances (variables b-g) but with age > 22 due to the simple reason that demand outstrips supply. There are only so many eligible and good players < 22 years of age and the demand is of atleast 4 years under 22 (with 10 teams, you need 40 players under 22. Do we have so many decent players at all?)

k)      Popularity – Popular/exciting players are bound to get a higher price than players who have similar performance (variables b-g). For example, a player like a Sachin/Dhoni (both of them have been retained by their franchisees though) are bound to fetch a higher price just because of more avenues for marketing and pulling in the crowds.

l)        All-rounder capability – I am not really sure how we can model this variable. As I thought through all these variables, this is probably the most difficult variable to model. How do we blend the batting composite and bowling composite variables and in what proportion? Do we need to blend them with different weights for a batting all-rounder versus a bowling all-rounder? Anyway, I do think all-rounders would add a great deal of value to all the IPL teams and they would be bid at a premium.

Those are probably the 12 important variables to fit into a regression equation,

Price of player = f(12 variables)

The only remaining valuation variable is the range that we’d like to come up with. That’s easier said than done and probably can be commented on once we solve the regression equation (probably attaching different level of confidences to each price would solve the problem – not too sure, haven’t thought this through).

End of analysis.

Do let me know if this analysis made any sense at all (or was helpful in anyway), and if there was any variable that I left out. Also, kindly shower brickbats on this blogpost (and demand that I don’t write such posts in the future if it doesn’t suit your tastes).

P.S: Oh yes. Happy New Year and all. May the farce..er…force be with in 2011 (Vulcan sign)

]]> http://kirandhanwada.com/2011/01/07/ipl-2011-player-valuation-and-analysis/feed/ 3 http://kirandhanwada.com/2010/11/28/corporate-jargons-video-time/ http://kirandhanwada.com/2010/11/28/corporate-jargons-video-time/#comments Sun, 28 Nov 2010 19:03:03 +0000 Kiran http://kirandhanwada.com/?p=474 I came across this recent movie making service (free) called Xtranormal very recently and I have already become a huge fan of it. In this post, I tried to experiment movie making with a topic that is so widespread that the UN is planning to list it as one of the world’s most dangerous viruses. It’s called Jargon.

Most of us in the corporate world must have gone through an appraisal cycle. We all know how frustrating it can be when someone tells us ‘to be more proactive’, ‘to take ownership’ and some such. I have tried to combine these jargons used during the appraisal with my elementary movie making ability in this video. I could not find an exact corporate setting (and characters) in Xtranormal. This was the best one I could get. Let me know how this went (and how I could improve).

How often have we looked at past events, somehow saw/derived a pattern from these connected events and concluded that the final eventuality had to happen? Many a time, we indulge in this process known as retrospective determinism.

Let me explain.

 a)      The US govt. looked at all the events leading up to 9/11, post 9/11. All agencies in the govt. started seeing patterns in the information available(the terrorists taking airplane training, certain phone calls to the Middle East etc) and concluded it 9/11 could have been prevented, if not for the intelligence failure. At home, back in India – the 11/26 attacks in Mumbai. Charges have been leveled across agencies that information was not shared and hence attacks which could have been prevented were not.

 These are classic cases of retrospective determinism. Consider an intelligence agency’s information pile, every single day. Every day, a ton of information from all parts of the world flows through an agency. Multiple events happen on a daily basis and no one sees a pattern, unless another 9/11 or a 11/26 takes place – and everyone starts seeing them again to assign blame. These were not cases of ‘could have been prevented if such and such was followed’; the odds of such an attack could just not have been predicted, nor could a pattern seen.

 b)      The Stock Market – Seemingly, everyone and their uncle’s grandson predicted the economic collapse. In India, by the looks of experts on media, almost everyone seemed to have predicted the stock market top out at 21k in 2008. Subsequently, when the collapse did happen and retail investors were languishing with stock market at 8000, the same experts started offering reasons why the stock market fell thereafter (retrospective determinism alert) and will fall further. Yet, the same experts are predicting all sorts of nonsense (30k in a year, 5k in a year and so on and so forth) when the time has come when the stock market has inched towards 21k again this time. Somehow, nobody wants to indulge in prospective determinism. Looking at the past and expounding on a pattern and foresight has indeed become a national past time.

c) Multiple cases in corporate life. CEOs of most companies proclaim to have seen the future when a product of their company becomes a runaway success. They list out major factors which contributed to their product’s success. However, what is usually not said is this one particular product might be a part of a portfolio of 10 products, 6 of them which spectacularly failed. Somehow, the CEOs couldn’t see the future in these failed products.

Another example – The success of Google as a company seems to be a story every publisher wants to publish. Authors write eloquently on factors which contributed to Google success – precocious entrepreneurs, loads of talent, hardwork etc. Yet, these are the same factors that were a part of Altavista (the best search engine of the 90s), Excite.com and approx. 10 other search engines in the 90s. So, why did Google succeed and all other search engines with similar factors fail? Derving reasons from hindsight and proclaiming them to be success factors is the worst case of retrospective determinism.

Cases of retrospective determinism abound in personal life. You only have to look at different stages in your life and we all would have exhibited this behavior multiple times. (Update: Just browsed a book titled ‘Double life of Ramalinga Raju’. The author seems to point out that the case of fraud was evident from the beginning of Raju’s meteoric rise from 1997. I wonder why this outrageous insight didn’t occur to the author before 2008, the year of Raju’s arrest? Retrospective determinism is a harmful being – stay away!)

The question though is, what is wrong with retrospective determinism? What is wrong in seeing patterns and learning from them? Learning from the past is very useful, and maybe necessary in most cases. However, indulging in searching for patterns in cases of pure randomness would lead to dangerous conclusions and leading to yet more hazardous measures to prevent a random occurrence (like structuring yet another agency to overlook other intelligence agencies (a case of who will audit the auditor arises again!), getting in more experts who were right last time to predict stock markets instead of avoiding prediction altogether etc, writing about success factors that the naive ones might lap up). A case to avoid retrospective determinism is an easy sell and we would do better to refrain from it as much as possible.

The genesis of this ‘Free ISD’ idea was in a conversation with a friend of mine (Arvind).  As the conversation progressed about some other business idea that we were trying to brainstorm, I had this brainwave of offering Free ISD calls. For starters, I certainly thought it was a crazy idea. However, the more I thought about it, the more it made sense. Nothing revolutionary, Nothing iPhonish – it’s just a simple idea borrowed from the ‘Search’ and ‘Movies’ world.

Let me explain.

Search engines like Google are able to provide us services like search, google maps and other gamut of services – all for free. However, these services require a huge amount of processing power and lots of mathematical modeling (which in turn means, hiring a lot of smart Ph.D candidates). All these cost money. Google, however, as we all know makes it money through selling Ads for the most part.

Entertainment sites like Hulu stream movies and tv shows for free, some of them being fantastic classics. However, any person who has used Hulu.com would know that there is an advertisement for about 30 seconds every 30 minutes or so. Those ads pay for the movie itself.

I am sure, by now, the drift is very clear.

Why not, offer free ISD calls, with ads in between.

Let me explain a wee bit further.

What is the average cost of a per minute call from US to India? Some sites like Stanacard, FreeCallPlanet charge 3.3 cents per minute, while established players like Airtel charge 4 cents per minute.

For simplicity purposes, let’s just average both and conclude that the average cost of a per minute call from US to India is around 3.6 cents per minute.

A 10 minute call would cost 36 cents per minute. That’s about Rs. 17 (exchange rate taken at Rs. 48 per dollar).

The idea here is to place an ad just at the start of the call, and an ad every 10 minutes. That is basically two ads, working out to Rs. 8.5 per impression within 10 minutes.

From a customer experience perspective, restricting the ads, to say, 15 seconds duration would probably be optimum, although some tests need to be done to validate that.

So, there it is – an extremely effective way of reaching a consumer at a very low cost.

Why is it effective?

a) Low cost

b) High impression – brand recall of these ads will be very high

c) Hopefully, will lead to increased revenues.

What kind of companies might want to put their ads? Well, let it be context-specific.

a) Money – Marketing money2india.com, Western Union Money Transfer etc

b) Stock broking – NRI broking companies

c) Gifts to India – Companies which supply gifts to your loved ones back in India

d) If consumer demographics are collected well, marketing of Shaadi.com type websites might also not be a bad idea.

What are the disadvantages? And Solutions to those?

a) The consumer might be turned off by the ads – Well, no way out for this. He/She is getting ISD calls for free. Whosoever doesn’t like it, will move away to paid services.

b) The consumer might be apathetic to these ads – Here is where creative ads come into play. A 15 second, creative audio ad competition will do the trick.

c) Conversion might be low – That was always the case with Google ads, ain’t it? The right placement of ads is definitely going to be the key.

What about competition? And Solution for that?

a) Internet Messenger to Internet Messenger talk is free anyways. What is new? – Well, the pervasiveness of computers in India is not as much as in the US. Mobiles are more pervasive, hence it makes more sense to call mobiles than computers.

b) Skype to mobile – Well, this one is definitely a competitor. But then again, which company doesn’t have competition. We need to work out details to beat the competition.

c) Vonage services, VoIP to VoIP is free – Yes, it is indeed free. However, I have heard hundreds of complaints from my friends wherein the broadband in India was not proper and hence the VoIP phone couldn’t work properly.

Any other ideas in concurrence with this?

Oh yeah. If this idea takes off, we can as well extend these services to inter-city (STD) calls. Say, village to village calls might have agriculture related ads etc. Service extension ideas are plenty.

The idea is awesome. So?

Here is where I have a problem formulating my business case. I, for one do not have the capital to set up an Airtel network nor do I have the capital to borrow Fibre Optic capacity. I am definitely not a company that can advertise like money2india.com or shaadi.com. And, starting an advertising company is a far shot. So, who am I in all this idea thingy?

The only role I think I can play is bring the advertisers and the phone companies to-gether to think about this idea. However, once I do that, there is every chance that they will cut me off and strike a deal with one another. The question really is, what can I do to build a business here? Rather, is there a business case at all to this idea – for me?

Thoughts are very much welcome and would be appreciated.

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