“There is very little difference between what is there in a bottle of Pepsi and a bottle of Coca Cola. Yet there is fierce loyalty between the Coca Cola drinkers and the Pepsi drinkers,” he says. I find myself sitting face to face with the man who isn’t only one of the greatest marketers the world has ever seen but was also the CEO of Apple during Steve Jobs’ wilderness years. John Sculley is in town to talk about his latest venture – Obi Mobiles – where he is looking at selling smartphones in India and eventually other emerging markets. With over two dozen smartphone brands operating in India, I’m curious to understand Sculley’s play with Obi Mobiles and he is willing to oblige.
Sculley believes that the smartphone space in India is a commodity market. “I was in Shenzhen earlier this week, and all the mobile devices look the same. They had different features, different price points, but for all intents and purposes it is a commodity industry,” he says.
“I have spent a lot of time in my life selling in the commodities industry. We actually like the industry because it is all about brands. There is very little difference between what is there in a bottle of Pepsi and a bottle of Coca Cola. Yet there is fierce loyalty between the Coca Cola drinkers and the Pepsi drinkers. So in a commodity industry it is all about the brand,” Sculley adds.
Rather than being a trendsetter in the smartphone space and setting new benchmarks in hardware, Obi Mobiles would take advantage of achieving lower pricing but would be looking at offering software differentiation, customer experience and of course, Sculley’s strength – branding.
“The advantage of a new company like Obi is that we don’t have to invent new technology. We can accept the technology, and typically in a commodity industry you trail the innovators by some period of time. So we can sell at lower price points. People are comfortable if we are trailing by some number of months behind the big innovator. We are not in competition with Apple at all. Apple can be innovating premium priced products and doing what they do best, but we are in the commodity end of the business. So how do you succeed here? You succeed with branding and you succeed with focus. So we are focused on a youth consumer, we are focused on the customers helping us build the brand, so it is about the marketing,” Sculley explains.
Obi Mobiles is gearing up for a big push around Diwali when it plans to have half-a-dozen smartphones in the market. For those, the company has already set up an industrial design and styling team in Silicon Valley. It has also already set up an after sales service network of 95 centres in the country. Eventually, it all boils down to whether Obi Mobiles will be able to connect with customers who are already spoilt for choice of similar specced hardware from established local brands.
“The reality is who do you trust? You trust the manufacturer who says how great they are, or you trust the advise from another user, even if you don’t know them? So I’m a big believer that in a commodity industry, it is far more important what the users have to say about you, than what you try to tell about yourself,” Sculley says, feeling convinced they can do it better than the rest.
Read on for the edited excerpts from the interview where we talk about how Obi Mobiles plans to take on homegrown Indian brands and what he will do differently.
So how did Obi Mobiles begin?
First of all, we were already in India with business with Inflexionpoint, we acquired Iris in India. We have been very pleased with the acquisition, which is growing very fast now. Our investments in South Asia, India and Asean countries will be around a billion dollars in turnover by the end of the fiscal year in March. So that is an IT supply chain, and our special skills are in credit finance. It is very difficult to get growth working capital for things other than infrastructure, real estate, oil and gas and so we are focused on credit finance particularly for middle class products and services. So that was our first reason to begin to look at opportunities for other types of related businesses in India.
For India, one of the largest mobile device businesses has been the feature phones up until now. There may be around 25 percent share for smartphones, but it is growing at around 180 percent year-over-year. If you estimate, by the end of 2015 it could be 70 percent of the sales and 80 percent of those products are sold for less than $200 without any subsidy from wireless carriers.
We see companies like Apple with iPhones, but we see them in an entirely different market to which we are interested in. They are selling a premium priced product, but when it is not subsidized as it is in the States, it is too expensive for the market we are targeting, and that is the youth. Most of them don’t have $800 to spend on a phone. So if we had tried to start this business even two years ago, it would have been the wrong timing, because the technology had not commoditized enough.
I was in Shenzhen earlier this week, and all the mobile devices look the same. They had different features, different price points, but for all intents and purposes it is a commodity industry. Lots of people are looking at India and saying, “there is an opportunity to come in with these commodities in this huge market, so let’s go build a business there.” So I suspect there will be more competitors soon.
So what will be Obi’s play over here, considering the count keeps changing depending upon whom you ask. But there are 50 or 60 brands at least in some part of the country. So what does Obi do?
I have spent a lot of time in my life selling in the commodities industry. We actually like the industry because it is all about brands. There is very little difference between what is there in a bottle of Pepsi and a bottle of Coca Cola. Yet there is fierce loyalty between the Coca Cola drinkers and the Pepsi drinkers. So in a commodity industry it is all about the brand and the way brands were built when i was growing up in Pepsi, Apple and other industries, brands were always built by large companies that had the scale or budget to spend and build quality products, and they became successful over a long period of time.
That model is completely changing now, because now we are in the era of big data, smart data and it is making customers smarter. So customers know more than ever before, and they listen to other customers. So brands are built today by customers and not just by large companies, and many of the largest companies that built successful brands in the past have discovered that their huge scale is actually a liability because they have too many people.
For example, Microsoft acquired Nokia and got 25,000 people, and Satya Nadella recently announced that he is laying off 12,000 people out of Nokia. But that still leaves 13,000. I can’t imagine the challenge of running a mobile device company with 13,000 people, much less 25,000 people. Then there the choice of how much you want to spend on R&D, how much do you spend on marketing, and how much do you spend on overheads.
So the advantage of a new company like Obi, is that we don’t have to do all these things. We don’t have invent new technology. We can accept the technology, and typically in a commodity industry you trail the innovators by some period of time. So we can sell at lower price points. People are comfortable if we are trailing by some number of months behind the big innovator.
We are not in competition with Apple at all. Apple can be innovating premium priced products and doing what they do best, but we are in the commodity end of the business. So how do you succeed here? You succeed with branding and you succeed with focus. So we are focused on a youth consumer, we are focused on the customers helping us build the brand, so it is about the marketing.
When I was here in May, I announced that we were going into the mobile device business, and announced the name Obi. Since then we have put together our entire distribution network together, we had our distributors at Singapore with us this past week. We put together 95 customer support centres across India as after market support is very important. We have chosen not to go into all channels, but instead go into direct channels, where we will be going through distributors and brick and mortar retailers, as opposed to Xiaomi who only sell through the Internet. They have done that brilliantly in China, so it would be the logical way for them to do the same here as well.
So we are being very focused, and what I have been working on revealing is our consumer branding and marketing. We are developing all our consumer creatives here in India. We are doing our next-gen industrial design and styling is being done in Silicon Valley. All our manufacturing is being done in Shenzhen in China. So we are very virtual, so unlike other competitors like say HTC. The HTC One is considered as one of the best devices in the market. It has a very beautiful design, is innovative, and it is always in the top-three. Yet the company is being hemorrhaging money. We like the idea of being very virtual, as well as the idea of making our bet on consumer marketing. By Diwali you will get to see our consumer marketing, so it is not that far away. We think it is marketing that will not only work in India, but it has the potential to be successful all over the world.
The sense I’m getting here is that there will be a lot of marketing push, considering the products are more or less going to be similar. So why would one buy an Obi mobile and not a competitor that might have been established for a long time like a homegrown player like say a Micromax, or Lava or Karbonn, which also offer similar products?
Well first of all, there is an opportunity to up the game for everybody, and that could include the brands that you mentioned who have been successful, and also include other international brands who have not yet come to this market yet. I think this will result in the quality of the product going up. Some of the regional brands that you mentioned, a majority of their business is still in the features phones, so they are moving into the smartphones as the market grows and they still have that transition to make. I would rather be in a position of building from scratch a new smartphone family of product, than having to protect the market share I already have.
I have a lot of respect for what these companies have done, they have been very successful. But the reality is if you look at other industries, the businesses that are sustainable are the ones that build a loyal customer following and a loyal brand. So let’s take the airline industry, when Virgin went into the industry, it knew nothing about airlines, but it knew everything about customers and consumer marketing and it has always been profitable. Singapore Air, very good airline but they are losing a lot of money. So just because you are an established player in one era, doesn’t mean that in another era you will still have the same advantages. So in this era, it is more about marketing.
It is not going to be any different in mobile devices. This is hard for people in the mobile devices industry to get their heads around, because they say well, “we have built this great product and it has these features, and this is our price and see how successful we have been.” All that is true, but when the rules of the game changes, and it happens in all industries that commoditize.
It is a different era, and it is not like winner takes all, and one doesn’t have to lose for us to win. It is just that the industry is changing and it is growing, and that is why I said that we are not interested in going to replacement markets like the US, because there the only way you can win is if someone else loses. That is not a great opportunity for a marketeer as it gets very expensive. But when you are in a growth industry, your cost of customer acquisition is very different, where customers build brands.
So right now you aren’t looking at any standout feature that will make the product standout from any other product in the same price range?
That is what we are talking about. So let’s assume that at the hardware level they are very similar. But there will be things that we doing at the software level which will be different. So for example, every Android product can run the same apps, so there is not going to be a differentiation in the mainstream apps. But there will be things that we could maybe do that will in software, but we are not ready to talk about them at the moment.
We keep talking about margins. We can see how Samsung is bleeding right now, the worst quarter they had in two years. On the other end of the spectrum there is someone like Xiaomi, which says that initially I will sell my products almost at cost, and I will take benefit of component price drops over the period of time and margins keep increasing over the product’s life cycle.
So we are much more in the Xiaomi camp. First of all we are a private company, so we are our own investors. So we can make the decisions. So we are willing to take very low profit margins and we are willing to invest in marketing, as opposed to taking a lot of profit out. We have a very low overheard so that gives us a lot of flexibility. So we will be much closer to the Xiaomi approach.
So Xiaomi says, “we look at our bill of materials based on when we are launching, but we are going to sell the same product for 18 months and the cost of those components go down, and so we will make our money at the back end of the product.” So that is a very logical thing to do. But someone like Samsung would never do that. It is investing heavily on R&D and they spend many times more than Apple does in advertising, so from our standpoint they are in an entirely different industry. Xiaomi would be a lot closer to us, but the difference is it only sells online, and we are going through traditional channels and it doesn’t mean that someday we couldn’t go online, or it doesn’t mean that someday they couldn’t move to traditional channels.
But we don’t need Xiaomi to fail for us to be successful. As I said, the market can support up to a half dozen successful brands. You can’t support 50, but you can half a dozen.
At Obi Mobiles, are there any learnings from Apple that you would like to get implemented?
Absolutely. One is it is all about customer experience, and all about brand marketing and it is all about great design. The technology is a commodity, but just like in the eye glass industry, there is a lot we can do in design. It will take us at least a year to get our unique design in place. These designs are good, but they aren’t particularly different from other people. Those are the areas which are very much Apple values that we are doing.
Customer service is not something Indian brands are known for, even international brands coming to India…
That is why I said, 95 customer service centres are one of the first things we have invested in.
But would Obi users get a different level of experience? And how would you differentiate that?
I don’t want to go into the details, but the point is if you want customers to talk about you and recommend you to their friends, then the experience has to be a positive one. Products break, screens break, so we have to have ways that will appeal to everyone. So we are going to pay attention to anything that is do with how customers experience our products.
When you announced Obi a couple of months back, you said that you will be competing in the Rs 5,000-Rs 12,000 segment. Does that remain true even today?
Yes it does. The industry will determine what the price points are, but that is essentially the market we are targeting.
Why is that? Is it because of the sheer volume?
No. First of all, it is where we can have more differentiation. It is a commodity business, and if we have a great customer experience at disruptive prices, then that is a great combination.
Anything that you would like to tell, your prospective buyers, on why they should wait for Obi?
I think that our users will get more information from other users that they will value compared to what we as an OEM can tell them. The reality is who do you trust? You trust the manufacturer who says how great they are, or you trust the advise from another user, even if you don’t know them? So I’m a big believer that in a commodity industry, it is far more important what the users have to say about you, than what you try to tell about yourself.