INNOVATION SPECIAL ....DISRUPTIVE Phone or PHONEY?

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.

Rajiv Singh

ETM28FEB16