Daily Tech Snippet: Tuesday January 20

Hi,

Here are some interesting topical snippets culled from various sources. Archived snippets are here, and a large database of links is here.

• How can Xiaomi be so aggressive with its pricing? A small portfolio and longer average selling time. Many theories have been put forward, including claims that Xiaomi sells at cost and makes money from other services. Hugo Barra, the company’s VP of International, lifted the lid on some of the company’s secret sauce in an interview with TechCrunch in Beijing last week. Barra explained that Xiaomi is able to make price concessions thanks to the combination of a small portfolio and longer average selling time per device. Importantly, Xiaomi continues to sell older devices (and tweaked versions of them) at reduced prices even after it releases newer models. “A product that stays on the shelf for 18-24 months — which is most of our products — goes through three or four price cuts. The Mi2 and Mi2s are essentially the same device, for example,” Barra explained. “The Mi2/Mi2s were on sale for 26 months. The Redmi 1 was first launched in September 2013, and we just announced the Redmi 2 this month, that’s 16 months later.” That’s important because the longer runway for devices gives Xiaomi leverage to secure better component deals with its suppliers. “The reason we do these price cuts is because we’ve managed to negotiate component cost decreases [with our suppliers] over time, which ends up leaving us with a bigger margin than we’d like to have, so we do a price cut,” Barra added. “The vast majority of the components [in our devices] are still the same, so in terms of supply chain and component sourcing, we’re on the same supply contracts as Redmi 1, which means we’re still getting the same discounts on components,” he explained. “We can continue to ride the cost curve, so the importance of having a very small portfolio is significant — the fact that we only launch a few products each year, and (the fact that) we only have two product families.” There are other factors that contribute to the cost structure, including Xiaomi’s lean, online-only marketing focus and its location close to manufacturing plants in China , but the management of components and supply chain partnerships is a crucial element. The company sells its phone using an online-only model in most markets, but it has recently begun testing operator partnerships outside of China. It is running a limited trial with Airtel in India, and has found partners in Taiwan, Malaysia and Singapore. Barra explained that operator partnerships are difficult in markets where the majority of consumers are on pre-paid tariffs — such as India — but it seems clear that Xiaomi is looking into ways to expand its retail footprint. It sold one million devices in its first five months in India using its flash sales model. If it can move beyond that and better meet demand for its phones in India and other emerging markets, it could vastly increase its sales figures in 2015.

• Indian e-com marketplace ShopClues raises $100M in Series D led by Tiger Global; despite turbulent history,ShopClues is now valued $450-500M: Clues Network Inc, the US-based parent of Clues Network Pvt Ltd that runs the horizontal e-commerce marketplace ShopClues, has raised $100 million (Rs 620 crore) in Series D funding led by Tiger Global besides two of its existing investors, the firm said on Monday. This values the company at around $450-500 million, a company executive privy to the development said on the condition of anonymity. The money will be used in product development and roping in more merchants on board, the firm said. The company had previously raised money from Helion Venture Partners, Nexus Partners and Beenos (formerly Netprice, a Japanese incubation cum investment group). It scooped $10 million in Series B round in March 2013. Prior to that it had raised around $5 million in Series A. It also raised an undisclosed amount—which is believed to be around $15-20 million— in Series C in April-May 2014 from Nexus and Helion. “So far we have brought 100,000 sellers and 10 million products online and the next three years will be focused on bringing 10 million sellers and 1 billion products to the online domain. We will continue to build technologies and services to enable and empower retailers to participate in the e-commerce revolution that is happening in India,” said Sanjay Sethi, CEO and co-founder, ShopClues. Lee Fixel from Tiger Global said, “Shopclues has emerged as the leading marketplace of choice for the millions of small and local businesses seeking to reach mass consumers in India’s tier 2 and tier 3 cities. Sanjay, Radhika and the team have done a great job aggregating the country’s largest online catalogue of regional and local brands and we are excited to partner with ShopClues as it expands its offerings.” The Gurgaon-based startup was founded by former Wall Street tech analyst Sandeep Aggarwal and a former eBay executive Sanjay Sethi in July 2011. The company went through a tumultuous period over the last two years after Aggarwal (then CEO) was found to have indulged in insider trading in the US in his past job and he later pleaded guilty to the charges. He has disassociated himself with his executive role at ShopClues. His wife Radhika Ghai Aggarwal has taken over more a direct role and is handling marketing at the firm and listed as a co-founder now. Meanwhile, Sethi became CEO after Sandeep Aggarwal was arrested in the US. A few months back ShopClues was again in news when one of the merchants selling through its platform was found to be allegedly selling counterfeit products under the L’Oreal brand. The Delhi High Court had restrained it from using the name of L’Oreal to sell or supply any goods. Currently, ShopClues claims to be doing 1.5 million transactions per month with 70 per cent of it coming from tier II & III cities. It claims to have 40 million monthly visitors. The firm had clocked net revenues of around Rs 30 crore with net loss of Rs 38 crore for the year ended March 31, 2014.

• Amazon is going into the film production business: After winning acclaim for one of its original television productions, Amazon announced on Monday that it would produce and acquire films for theatrical release and early distribution on its Prime Instant Video service. Amazon original movies will be available for streaming in the United States four to eight weeks after they make their debut in theaters, a significant reduction of the window of 39 to 52 weeks that films normally play in theaters before becoming available for streaming. The development is another step in Amazon’s ambitious plan to increase its entertainment offering to consumers, and an escalation in Amazon’s rivalry with Netflix. It also signals both companies’ broader ambitions to revolutionize the so-called windowing system for television and movies in the traditional entertainment industry. Amazon said it was seeking to create 12 movies a year that “focus on unique stories, voices and characters from top and up-and-coming creators.” Production will start this year. In an email, Roy Price, vice president of Amazon Studios, described the projects as “indie” movies, with budgets between $5 million and $25 million. Analysts cautioned that if the films were low-budget and of low quality, it would be difficult for them to profoundly alter the conventional system for theatrical releases.

• Online insurance sales are squeezing agents in the US as Google, other tech firms find the insurance sector ripe for disruption: Technology start-ups, and companies from the insurance industry, are introducing websites that sell or promote a range of insurance including auto, homeowners and small commercial policies. These portals, which promise savings by showing consumers many price quotes so they do not have to shop site by site, are putting pressure on insurance agents, who collect 10 percent or more of their policyholders’ payments.Online insurance comparison is still a nascent business, and it has yet to make a dent in the armies of intermediaries that are the backbone of the trade. But people in the industry and Silicon Valley say it is only a matter of time. Even Google is getting involved.“There are 40,000 agencies in the U.S., and you could absolutely imagine them shrinking by a quarter, and the ones that are left will deal with more complicated needs and more affluent customers,” said Ellen Carney, an analyst who covers insurance for Forrester Research.The idea of selling insurance online is not new. Lately, though, the boring but lucrative trade has been attracting big names. The most recent is Google.Its Google Compare auto insurance site (basically a search engine for auto insurance prices) has been operating in Britain for two years, and Google is working on something similar for the United States. Google is licensed to sell insurance in about half of the states, according to research by Ms. Carney.Google has formed a partnership with Comparenow, an American auto insurance comparison site owned by Admiral Group, a British car insurance company that has operated a European price-comparison site for more than a decade. The venture will give Google access to insurers in Comparenow’s network.Admiral Group introduced Comparenow about a year ago. Not long after, Overstock.com, a retailer, started selling auto and other forms of insurance.Then there is Walmart, which does not sell insurance but recently formed a partnership with AutoInsurance.com. The insurer leases space in Walmarts, giving it access to the 140 million people who shop there each week. “A lot of people are waking up to the fact that it’s a massive industry, it’s old-fashioned, they still use human agents and the commissions are pretty big,” said Jennifer Fitzgerald, the founder and chief executive of PolicyGenius. “It’s ripe for — I hate to use the word — disruption.” Insurance is a fat target. In 2013, insurers wrote $481 billion in premiums for property and casualty insurance, which consists of mostly auto, home and commercial insurance, according to the Insurance Information Institute, an industry group. That would place a rough estimate of agents’ commissions — including commissions to small-time agents as well as to brokers who sell large commercial policies — at $50 billion. And while it might seem like an odd match for Google, whose projects include driverless cars, delivery drones and a pill to detect cancer, the key to insurance is having lots of data about people’s backgrounds and habits, which is perhaps the company’s greatest strength. “They have a ton of data on where people drive, how people drive,” said Jon McNeill, chief executive of Enservio, a Needham, Mass., company that makes claims-processing software. “It’s the holy grail of being able to price auto insurance correctly.”

• What's the deal? Softbank (and Alibaba) are heavily investing taxi apps that rival Uber the world over: SoftBank had no business in taxi-hailing apps until October 2014 when it led a $210 million investment in India’s Ola. That deal was announced as the first investment in SoftBank’s program to put $10 billion into startups in India. At the time, Ola appeared to be just one of a number of deals in India — while that is true, it also turned out to be the first of an expensive set of investments in companies rivals that rival Uber. SoftBank went on to invest $250 million in GrabTaxi in Southeast Asia, and last week it closed a third deal, leading a $600 million financing round for China’s Kuadi Dache. The operator, it seems is going all out for taxi apps but it may not stop in Asia. Alibaba led Lyft’s $250 million funding round in April 2014, which the U.S. company had earmarked for “international expansion”. At the time, the investment was a curious deal for Alibaba but, with the e-commerce giant backing range of other U.S. startups — including chat app Tango — it looked like an exploratory move to get some skin in promising companies in North America. However, SoftBank and Alibaba have a long history of collaboration — SoftBank is famously an early investor in Alibaba, and both companies put money into Kuadi Dache — and it could just be that Lyft forms a part of SoftBank’s taxi app focus. Perhaps the Japanese firm will put its own money in at a later date, or it will use its relationship with Alibaba to form a loose alliance to share information and tactics.

• A Korean urban logistics startup that aims to be "Uber for last-mile deliveries" is in the news and gaining traction: Seoul-based urban logistics startup Naldo is gaining some serious momentum in its home country. The company, which works sort of like an Uber for last-mile deliveries, now boasts over 500 corporate customers, tripling its client base in the last year. "We all buy more stuff online, but we are not aware that more online purchasing requires more offline delivery. That’s why this is an overseen goldrush for us," Ebner-Chung says. Among its clients are steel giant Posco, social commerce site Coupang, and investment bank Kyobo Securities. Naldo founder and CEO Ludolf Ebner-Chung says the company saw revenues grow 1,000 percent in 2014, with consistent double-digit growth every month since launching two years ago. Naldo works similar to other logistics-on-demand startups, like Gogovan and Easyvan in Hong Kong. With its mostly two-wheeled fleet, it promises delivery within 90 minutes in Seoul. The site connects clients directly to available nearby drivers with no middlemen involved. Next, Ebner-Chung says the startup will soon launch a native app and an open API, which has already been tested by popular ecommerce sites like Ticketmonster, WeMakePrice, and Ridibooks. He says this will be of significant value to online SMEs as it gives them delivery options to gain an edge on their competition. It also reduces dependency on the old call center-based logistics companies. Chung says South Korea’s B2B real-time delivery market is worth US$5 billion.

• Rocket Internet CEO: We build real companies; work for Google if you like sushi and comfy chairs: Silicon Valley hasn’t found much to love about Rocket Internet, the Berlin-based company that is often derided for simply copying everyone else’s ideas. Turns out, the disdain is mutual. Press-shy Oliver Samwer, chief executive and cofounder of Rocket, appeared on stage today at the Digital Life Design conference in Munich, Germany, for a rare interview. While he didn’t say much new about Rocket’s business, and seemed clearly uncomfortable with having to field questions, he did manage to get in a few shots at the folks in Silicon Valley. For instance, Samwer was asked about the idea that Rocket is an incubator, like the ones in a certain other high-tech regions. At first glance, that might appear reasonable. Rocket works with entrepreneurs to build Internet companies from scratch in areas like e-commerce and travel, scales them up, and then spins them out into stand-alone companies. Like an incubator, right? No, said Samwer. He said Rocket’s approach is a methodical process, repeated over and over. In what may be the greatest definition of incubators in history, Samwer explained why he thought Rocket was not an incubator. “I don’t like this word incubator. We are a platform,” he said. “An incubator sounds like you have some crazy chairs, and then there are fancy drinks and you eat free corn flakes.” Asked about the challenge of attracting talent and competing for hires against the likes of Google, Samwer sung a similar tune. He said someone could take a low-level job at Google, or they could come to Rocket where they could eventually build their own company. “The chairs might be more comfortable at Google,” he said. “And the drinks. I hear they have sushi. We are for the real people who want to build companies.”

• ZTE revenue up only 8% Y/Y in 2014, but profits up 94% Y/Y to $424M: Chinese telecom hardware company ZTE has had a banner year, according to a press release the company has issued prior to the release of its 2014 yearly report. While revenues have reportedly experienced only modest growth over 2014 (up just eight percent compared to the previous year) net profits year-on-year have grown 94.2 percent, from RMB 1.35 billion (US$217 million) in 2013 to RMB 2.64 billion (US$424 million) in 2014. ZTE’s profit growth over the past year is due to the fast growth in China’s 4G sector; ZTE has a hand in both TD-LTE and FDD-LTE hardware, so 4G growth has benefited the company. ZTE’s global 3G and 4G business, including hardware and handset sales, was also a contributor.