The war has begun !

And the next level war has begun. Yes, I am referring to the intellectual property war where companies are targeting others who are patent poor, where companies are acquiring others, not for economies of scale, but for their intellectual properties.

The recent $12.5 billion acquisition of Motorola by Google and the $4.5 bn auction of Nortel’s patents by Apple,Microsoft and RIM are the signs of the upcoming IP war. Now, the interesting point as why does a company like Google with $39 bn in cash pay such a huge premium to Motorola? Well, though a company has money, it is not easy to create IP.  Putting it in other way – Investing 10x more money in research doesn’t increase assure me of any quick success of 10x results?

Also, companies like Google who are relatively new kids in the industry will require more time to create own IP. Companies like Apple, Motorola and Microsoft have a clear advantage over Google here. Their decades of research have created a rich patent portfolio where they can exercise muscle over relatively newer players. Many companies even cause troubles for others by suing them over patent copying. Hence, Google had cleverly acquired the 17000 patents portfolio, though at a huge premium.

It is time to witness some interesting moves in the industry and how truly can Google leverage the IP wealth it has acquired.

Is it time for another round of reforms?

Twenty years have passed by since the last set of reforms by Dr Manmohan Singh (the then Finance minister under Shri P V Narasimha Rao's government). The economy we see and read today has transformed in ways many would have not even thought of, thanks to the daringness of the eminent leaders quoted above. But, it is time to contemplate on such a set of reforms again. I have been reading quite a number of articles across various media about the need of another round of reforms – this time in other sectors like infrastructure, education, supply chain and warehousing, land and labour reforms etc. And I presume there are staunch supporters for the same, considering the awful infrastructure facilities we have. In addition to this, I believe that we need some administrative reforms in the way the government (read as bureaucracy) functions. Large/Small projects take months to get the clearances, which has been a deterring factor for large organizations to invest in India.

But, the main point I would like to discuss is whether the government is in a state to at least think of any reforms? Considering the number of issues it is tackling – ranging from corruption charges, handling regional coalition partners, black money issues, terrorism et al, I am afraid there is enough bandwidth for the govt to think of any reforms. Pranab da's populist budgets contain no signs of any major structural changes, barring the implementation of GST, for which the whole nation has been awaiting for more than two years. The top leadership of the Congress is busy in attracting voters rather than giving them anything. Certain exceptions can still be observed, thanks to the dynamic leadership of Kapil Sibal and Jairam Ramesh, who have set a benchmark. But, the task ahead for them is still large and I wish they stay in power to finish the job (bringing structural reforms, bringing efficiency and transparency to work) they have started.

I wait in anticipation to see how the government can pass these tough times and are there any surprises, in the form of reforms, for the nation.

What lies ahead for Greece?

Greek’s Debt crisis solution beats both commonsense and economics. I feel totally perplexed with the way things are turning out in EU. Though Greece’s PM won a majority in the parliament recently for a new austerity plan and EU and IMF’s bailout plan, taking a huge amount of $110 bn, in addition to its earlier bailout of about $120 bn, makes me surprise by the basic fact that where is the source of revenue for it to return back to normalcy. Also there were very few takers to its new bond issue and the total debt is almost equal to its GDP.

The economic activity in Greece is not improving, unemployment is low, trust in its government is at its lowest levels, they need heavy spend cuts, raise taxes to garner money to repay its debt. When the sentiment in Greece is at such low levels, can the government raise taxes to increase its revenues? With such stagnant economy, government needs to improve the situation with new projects to generate more economic activity rather than announce spend cuts which can deteriorate the situation. In fact, many nations fall prey to the idea of strict austerity measures which can be counterproductive.

When politics interfere with economics, it will surely beat commonsense and the EU crisis will turn out to be a classical case. It will be very interesting to see how these measures turn out for Greece and what lies in store for the remaining nations in PIIGS.

It is not important to merely get into the best college, but to make the best of your college life

When I read the line ‘It is not important to merely get into the best college, but to make the best of your college life’ in the book Stay Hungry Stay Foolish by Rashmi Bansal, I felt very happy that she shared the same thoughts as mine. And from that day onwards, this line has become my signature in my e-mail address.

Today, I was reading the article by Chetan Bhagat who had penned similar thoughts in Hindustan Times. But this article had a different dimension to the same point, where the father, whose son scored 92% in board exams and is expecting an admission in SRCC or St Stephens, has changed his views from admitting his college into the top brands in India to making him a better individual. And this change in attitude in the father came after observing that his son was under huge pressure about the admissions and is unable to handle it.

And it was a good feeling to know that such a famous personality is having the view that it is important to turn into better individuals that joining top schools. Such a change in mindset bodes well for the country’s future.

Tenacity is the keyword!

I had recently attended the IIT Delhi's Golden Jubilee lecture by Steve Ballmer, Microsoft CEO. Microsoft had really tested our patience with their hour long demo of their latest technologies, until Mr Ballmer came to our respite. Oh boy! I liked his energy levels. He was in a CII session earlier that day and with a guarenteed busy life, he has very energetic at 5 PM.

The most important take away from his lecture was one word: 'tenacity'. Suddently, so many faces came to my mind ranging from Richard Branson (Founder of Virgin group) to Sanjeev Bikhchandani (naukri.com) to Deep Kalra (makemytrip.com). Each one of them had a business idea, sometimes ahead of their times, and stuck to it till success met them, and they were hugely successful. And only Mr Ballmer knows that better as he has his company create technologies and products for the future and wait for their success. Without such persistence a company like Microsoft cant bet their future. They need to invent new products and technologies, forecasting and even foreboding customer requirements. Mr Ballmer and his one word saved that evening.

Baba Ramdev's marketing strategy

Decades ago, when great leaders of our soil fought the colonial rule, fought for their motherland, fought for their rights, fought for their independence and similar issues, they just had only one thought - fight for their demands till the last breath and never cared about the sun or rain. Hardly they had a cloth tent set up to give the minimal protection. Infact they didn't have enough money to take any care of the people who supported them. It was the unprecedented faith their followers had in them which drove them in thousands supporting them in every walk of their life.

Come today, as Ramdev Baba plans for a fasting, crores of money is being spent for ACs, RO water plants, large LCD screens, renting the venue for lakhs of rupees, private flights, water proof tents and costly cars. What an irony dear! Crores of money is being collected, albiet as donations, for this mass gathering. Even a major news site reported that the donations are in the denominations of Rs 1 lakh to 11 lakhs. Baba has some really 'rich' disciples. He has got businesses worth crores of rupees. Some nice publicity surely for Baba at the global level. Thats a wonderful strategy for him and his institutions. Hats off to his marketing strategy.

And finally, I hope he does something for the poverty at grassroot level. And I definitely do not mean Yoga or ayurveda medicine for the poor.

The return of the bubble

I am not going to question whether we are witnessing another ‘tech bubble’ or not. Because, we certainly are and the recent spate of valuations merely proves this fact. LinkedIn has gone public today morning (May 21’ 11) and its share price shot up by a massive 109%, from $45 to $94.25. What do the calculations tell us – a P/E ratio is 554. Does it command such humungous premium? I seriously doubt it.

There is certainly a difference between the tech bubble of the 1990’s and the one we are witnessing today. Today, the companies have successfully proved their business models and are not just mere start-ups. Let us consider the popular examples of Facebook, Twitter, Groupon (www.groupon.com), Zynga (www.zynga.com), whose premium valuations are under the scanner now. Each one of them has a successful business model for the last couple of years. They have got a subscriber base in hundreds of millions. They have reported positive returns of millions of dollars, in the last year. But the companies in the 90s were either start-ups or in their initial phases, with no proven track record. Some of them were bought out by larger players, and the larger ones absorbed huge losses later – e.g., Yahoo’s purchase of Geocities. And many of them died of bankruptcy.

But, do the companies of contemporary times command these huge premiums? I feel that rather the companies demanding such premiums, it’s the investors who are queuing up madly for such companies. And the interesting question is why these ‘tech companies’? A few reasons are – Firstly, lack of choice. The US is still reeling under the tragedy of the recession and with lacklustre growth. Even though the results of certain sectors like autos, retail are looking optimistic, they are not guaranteed. And the housing sector is yet to rebound and could take its own sweet time to show any signals of coming back to life. Secondly, it is the valuations of these tech companies by some financial majors, without any supporting fundamentals. And it is the classic cycle which starts all over again. HNIs start to buy these stocks privately, followed by hedge funds (or could be vice-versa) and finally the company goes public with unimaginable valuations, only at the loss of the retail investor. Also called the ‘Bandwagon effect ‘by management graduates like me!

And this time I wish a healthy correction happens soon and bring back to meaningful and deserving valuations, rather than waiting for more tech companies to join the bandwagon, only to burst the bubble finally.

Who gains when crude prices go up?

Oil marketing companies (OMCs) in red - A common statement in today's news. But why are they in Red?

Let us say international crude oil prices are hovering around US$ 110 per barrel. That translates to about Rs 4,950 per barrel. Each barrel contains about 158.76 litres. So, effectively crude oil costs Rs 31.2 per litre. Now, add the cost of refining it to petrol or diesel. According to an oil company official, the refining cost is about 52 paise per litre. Add about Rs 6 as capital costs for the refinery. Then there's the cost of transportation (Rs 6) and dealer's commission (Rs 1.05). So, adding all that, the price of petrol comes to about Rs 44.77 per litre. But how much are we actually paying for petrol? With the recent hike in petrol prices, we are paying almost Rs 65-70 per litre. Who is the culprit - government. Government (both centre and state) charge huge levies on petrol, diesel etc and gains a lot when the prices of international crude go up, because they tax these products with a percentage of basic price and not a fixed price per litre.

So, while the common man is feeling the pinch of hiked prices every time, the government has the last laugh, with their coffers filled from these levies!

PS: above numbers may not be accurate, but an idea of the various components that are added to the cost of petrol.

Leadership Deficit

I have seen the I.O.U.S.A videos on youtube.com. They are nice videos to explain "the economics of the US problems" to a common man. And the most striking point it made is the Leadership deficit, which is the larger problem than the Savings or Trade deficits of US.

So, I was rewinding the last few years in my mind and the leaders who presided the White House. Each one of them is just a politician and the actual person who heads Treasury is a former Wall Street honcho. So, there is a clear gap of leadership to steer the massive US economy safely. Comparing with only India may be a narrow argument, but has a logic to it. Our central banks were headed by economists who held their primary duty of economic stability, improving the standards our financial system and who have written hard rules, which only proved to save us when the whole world was sinking in 2008.

Why US employment scenario doesn’t seem to be optimistic?

Over the decades we have all seen a significant shift in the manufacturing activities of United States to China. This can be for various reasons like availability of cheaper labor, lowering of total cost of production and (may be) a deliberate shift of industries from US to reduce its carbon footprint. These changes are so large that it is not easy for a nation to bring back these manufacturing facilities back to US.

Now, after the recession, the US employment picture is so bleak and the unemployment rates are hovering around 9-10%. It suddenly cannot increase the employment opportunities of its citizens, one of the major reasons being that it cannot shift its manufacturing bases back to US. It can prove detrimental in two ways – 1) The amount of investment needed for this is very large and 2) This can increase the cost of production significantly and the sales will fall.

The United States, typically, is between the devil and the dead sea.