DISRUPTIVE Phone or PHONEY?
How Ringing Bells, founded by
the husband-wife duo of Mohit and Dhaarna Goel, plans to make the cheapest
smartphone in the world
Talk can be cheap. Especially
when you audaciously claim to be hatching a plan to make a smartphone for `251.
From being accused of relabelling an existing brand (Adcom Ikon) to plotting a
Ponzi scam, Mohit and Dhaarna Goel heard it all over the past week. The
cynicism and suspicions were perhaps justified the company the Goels have
founded, Ringing Bells, and the handset they tom-tom as the world's cheapest,
Freedom 251, is an outrageous gambit. The cheapest smartphones in the world
today -Chinese handsets, of course -are priced at `2,200-2,500. Selling one for
almost a tenth of that price is either a lie, a delusion -or dazzlingly
disruptive.
Talk can be cheap, but it
may well be the Goels' mantra -or, more precisely, the handset that you talk
into. The husband-wife duo who got married in January this year allude to their
lack of pedigree and profile for the dollops of scepticism directed at them.
“Jisne Nano banayi uske
paas achha support thaa, maine `251 mein smartphone banayi, mere paas support
nahin hai (The one who made the Nano had ample support, but I am making a
smartphone for `251 and have no support),“ rues 29-yearold Mohit, who was born
in Uttar Pradesh's Shamli district and comes from a family of dry-fruit
traders. “I am with my husband and support his dream,“ pipes in Dhaarna.
He'll need more than that.
After all, the man who, at different phases in his youth, contemplated
cricketing and acting careers, is now talking about “bridging the digital
divide in India by making smartphones accessible to all“. A recent PEW research
report placed India at the bottom in smartphone ownership, at 17% of the
country's adults; Brazil is at 41%, China at 58% and South Korea is on top with
88%.
On Saturday, PTI reported
that the Enforcement Directorate had begun a probe into Ringing Bells'
financials, although company officials told ET Magazine that no summons or
notices had reached them at the time of writing. The company has also come
under the scanner of the Income-Tax department, and the Telecom Ministry had
sought a clarification from the firm for marketing the Freedom 251 smartphone
without the Bureau of Indian Standards (BIS) certification. The Goels say they
have replied to the ministry's queries, although they did not share the details
of those replies.
Where's the Office?
To send a message that
they're not fly-by-night operators, on Saturday Ringing Bells said that the
company would refund the online payments for some 30,000 orders that poured in
on the first pre-booking date (after which the company's website crashed). The
mode of payment now will be only cash on delivery. The Goels hope to begin
deliveries of Freedom 251 by April, and keep at it till the end of June.
Keeping the Goels and their
dream unlikely company is a 65-yearold astrophysicist Ashok K Chadha, who has been
busy doing the rounds of ministries to convince bureaucrats that they are
indeed serious players, also takes out a fair bit of time to convince ET
Magazine of the same in a freewheeling chat with the trio at Ringing Bells'
corporate office earlier this week.
B44, Sector 63, Noida. The
Uber cab driver is unable to locate the address. “Aapne sahi address daala tha
booking karte (Did you enter the right address while booking)?“ he asks.
Reports of a “fake address“ in sections of the media flash before this writer's
eyes, until a tea vendor by the roadside offers: “Wo 251 waale? Paas main hi
hai. Aagey se seedhe haath ko (The 251 guy? It's nearby, take a right).“
In a double-storey
building, the top floor is occupied by Ringing Bells. As we take a spiral staircase
to the office, we are greeted with a flurry of motivational quotes plastered on
the walls. “An error doesn't become a mistake until you refuse to correct it,“
says one. Another one reads: “You are not responsible for the past, but you are
for the future.“ A third goes: “Self-control is knowing you can, but deciding
you won't.“
The office is sparsely
populated. A Tricolour flag, a statue of Lord Ganesha and a receptionist
constitute the welcome committee. There is a coffee machine on the extreme end
of the floor, a few cubicles with executives working on their laptops and a
conference room.
Around 5.30 pm, Mohit,
Dhaarna and Chadha arrive. Mohit checks his mail and messages on his Samsung
Galaxy S Duos mobile. “Do you know how much I paid for this handset,“ he asks.
“`28,000 a year back. And now it's available for `17,000.“
His short point: Margins in
the handset business are mind-boggling.
Sure, you agree, but that
doesn't mean a smartphone can be put together at the cost of a pizza. “We are
not making it for `251, but selling it for `251,“ clarifies Mohit.
One Crore Phones
And therein hangs an
audacious business model that takes shape only after a huge assumption: that
Ringing Bells will be flooded with demand that will justify placing an order
for one crore handsets.
The cost of assembling a
smartphone with the specs offered by Ringing Bells is `1,584. If 10 lakh of
those handsets are made, the cost of assembling per unit falls to `1,495. And
at 1 crore handsets, the economies of scale kick in big time, with the cost
falling to `1,165.
Bagging one crore orders,
feel the founders, isn't unreasonable at all in the light of the 7.5 crore
registrations on the Freedom 251 website in the first two days after it was
opened to the public.
Mohit reckons he needs to
earn around `1,000 per handset to be comfortably profitable. And he's chalked
out multiple revenue streams, from pre-installed apps to a marketplace model,
to bring home that bacon. Also, Freedom 251 is just one of the four models
Ringing Bells plans to launch; the other three will be priced at `2,999, `999
and `799. It also has a power bank for `399. Deliveries of the `2,999 phone
(called Smart 101) are expected to begin in a week.
Investment? A Measly Rs 17 crore
“The business model is
disruptive, unique and radically different from the trodden path,“ says Chadha.
There are four mantras he swears by: low marketing costs, economies of scale,
use of technology and roping in partners to help subsidise the product cost. A
reasonable margin, according to him? “`30 or so per phone.“
Chadha claims the company
has invested `17 crore so far -peanuts considering that handset makers are
spending over six times that amount to put up a single factory (in December, Micromax
reportedly had committed to invest `300 crore in three factories).
But then make in India -or
anywhere else -is the last thing on the minds of the founders. Rather, the game
plan is to ally with assembling units, which will put together components imported
from Taiwan. Mohit claims to have tied up with a handset assembly unit in an
industrial zone in Greater Noida, and takes this writer to the factory that's
an hour's drive from the corporate of fice. “You will see it (the `251
smartphone) soon,“ grins Chadha.
Impossible, Say Experts
Tech analysts don't share
that optimism.“We don't think it is possible to breach such a low price point,“
says Tarun Pathak, senior analyst at Counterpoint Research, a global tech
research firm. There is no doubt that the smartphone hardware ecosystem in now
mature and scaling down to lower price points, but it's still not mature enough
to breach the sub $20 price point.
Pathak explains that there
are several costs attached to a product from the production stage to the end-channel
level, which are quite complex to understand.Moreover, there are many variables
that can impact the cost advantage, a few of which even the manufacturer can't
control; these include currency fluctuations, change in policies, duties,
certifications and royalties. So different sourcing operations, whether
importing entirely or assembling in India, may not offer as significant a cost
advantage as the one envisaged by Ringing Bells.
The Ryanair Model
The tech view is
circumspect, but those who swear by low-end disruption may be willing to give
Ringing Bells a chance. And there are precedents of low-cost innovators
thriving on the purchasing power of those at the bottom of the pyramid of their
respective markets with a cut-throat price offering. Example: Ryanair, which
created an entire new market of budget travellers by pinching customers from
the full-service carriers. It not only offered fares that competed with trains
and buses but also flew routes no other airline did.
All market disruptors are
viewed with disbelief at the start, says brand strategist Harish Bijoor. “In
the beginning, you distrust them, then you criticise them, then you hope to
scuttle their idea altogether, and then you hope to push them into depression.
But eventually, if they actually make it happen, you will praise them to the
skies,“ he says, adding that the lobbies love to raise the decibel of debate
even before action has begun.
“Guys, wake up and smell
the coffee of a whole new world of possibility. This is not predatory pricing,“
adds Bijoor. This price point can create a tectonic shift in handset makers'
mindsets, profits, margins and more. “If they do deliver, the tel ecom sector
will have a Baba Ramdev (with his Patanjali range of ayurve dic products) of
its own,“ he con tends. Deepak Kumar, a former ana lyst at global market
research agency IDC, points out that the buzz -even the negative vibes -has
done Ringing Bells a huge favour on the marketing front. With the message
having gone viral and millions of potential buyers now aware of the brand,
Ringing Bells has saved itself millions in advertising money, adds Kumar, who
has founded the research firm B&M Nxt. “The `251 pricing is a brilliant
marketing move.“ He, however, does concede that advertising will have to be a significant
revenue stream for Ringing Bells, which could end up compromising on user
experience.
The buzz factor
notwithstanding, the entire process of assembling millions of handsets,
delivering them across the country -and then contending with after-sales service
-is enough to give even the most plucky of entrepreneurs sleepless
nights.Alongside, Ringing Bells will also need to focus on earning revenues
from other streams. The marketplace model that it aims to pursue, for instance,
is a highly competitive one with all the big ecommerce players jostling in that
space.
Another potential risk can
be termed the disruptor's curse: even if Ringing Bells is able to pull off what
most believe is im possible, what's stopping a deep-pocketed rival from copying
the business model, wreaking havoc on its economies of scale and putting it out
of business?
To be sure, disruptors getting disrupted isn't unheard of. In the mid-2000s,
the Flip video camera was hailed as a case study in product innovation, as it
disrupted other brands with its size, simplicity (footage could be uploaded
into one's YouTube account after plugging in a USB key), features and
resolution.Then Flip itself was disrupted by smartphones led by the iPhone,
which offered everything that Flip did and more. By 2011, Cisco, which had
acquired Flip just two years ago, decided to pull the plug on it.
What Freedom 251 has in
common with the Flip, perhaps, is the simplicity of the strategy. And it is
simplicity combined with a jaw-dropping price tag that is often the key to mass
adoption. Mohit, who reckons he can “still play Test cricket for my country“
and had in the past enrolled in Ekta Kapoor's Balaji Telefilms' acting academy
in Mumbai, has always been looking for that “one chance“. This may be it. But,
unlike in cricket or on the silver screen, Freedom 251 may be an all-ornothing
spin of the wheel.
ETM28FEB16
