Ad based business model for Operating System

After reading the wsj article about Microsoft gets revenue from China that amounts to about only 5% as that of U.S revenues, I got an idea for a new business model that Microsoft should consider(See Ballmer Bares China Travails). The abysmal revenues from China is mainly due to the high piracy rate. The windows and any other software could be found sold in the streets for $2-$3.

Microsoft Windows Home premium for 1 PC costs about $70 in U.S. Per capita income of China is about $4900 while that of U.S is about $46000. With about 1/10 th of the per capita income of U.S, can Chinese people afford Windows at the same price. With about 1/10 the purchasing capacity, Chinese people would buy the product only if the price is also 1/10th that of the price at U.S. In other words, the price of Microsoft Windows should be $7. Even though this is not the accurate way to think about it as other factors are being neglected, this comparable approach atleast makes the problem evident.

Now how to sell Windows for $7 and make a profit?
A hybrid business model could be considered.
Implement a hybrid of subscription based model and an Ads based model.Desktop wallpaper and Folder backgrounds are premium Ad-real estate that could bring in high ad revenue. May be you could even offer a free OS just based on Ads. Steve Ballmer, Think about it!! It is not the innate nature of people to cheat if the price is right.

Update to the post: 4/26/2012
Today I saw the article on how Steve Jobs was considering an Ads based business model for Mac OS 9.0 and that it was a viable one.  It is worth mentioning this, given the context of this post. An excerpt from the article:
"In his new book, Ken Segall says that Steve Jobs and his team at Apple explored the possibility of shipping a free, ad-supported version of Mac OS 9."
http://www.theverge.com/2012/4/26/2977478/steve-jobs-ad-OS

Toyota Production System - Just In Time System

Toyota Production System(TPS) - Toyota's management philosophy and practices that was developed by Taiichi Ohno, Shigeo Shingo and Eiji Toyoda between 1948 and 1975. The main goal is to design processes to avoid overburden (muri) and inconsistency (mura), and to eliminate waste (muda)

Muri - Over utilization of systems
Mura - Inconsistency or deviation from the desired specs.
Muda - waste - Inefficient use of the resources(raw materials and human resources)

These three can be reduced or eliminated using the following concepts.

Kaizen - Continuous Improvement - innovate and evolve
Genchi Genbutsu - (Go and see) go to source of the problem to find the facts and make correct decision. - similar to "Management by Wandering around" idea of Peters and Waterman
Jidoka or Autonomation(automation with human intelligence).It is a quality control process that involves following principles
Detect the abnormality.
Stop.
Fix or correct the immediate condition.
Investigate the root cause and install a countermeasure.
It is different from full automation - which does not involve human intervention as pure automation would be able to detect and correct its own problems - which might be expensive.

Andon - a system to notify a quality or process problem - part of Jidoka

Poka-Yoke - originates from Baka-Yoke - meaning Fool proofing or fail safing

Kanban - a scheduling system that tells you what to produce, when to produce it, and how much to produce. One of the ways to achieve Just-In-Time production.

Toyota Production System is considered to be the Just-In-Time production system.

Drishtee - Social Entrepreneurship

Drishtee - Final Paper

Leapfrog Enterprises - Technology Audit

LeapFrog Enterprises Innovative Capabilities Audit

Polycom - Unified Communications Analysis

Polycom Case Analysis

Funeral to the business model of Television channels and Broadcasting companies.

With the increasing popularity of online video, broadcasting companies and television channels seem to be based on an outdated business model. The delivery of the videos by the broadcasting companies with a fixed time and schedule for the programs gave advent to the DVRs and Tivo. These companies were fretting about the lost revenues and copyright issues when DVRs were introduced. Well, they are still fretting about it when the customers are moving away from DVRs to online streaming. Videos on demand, whenever and wherever you need is the new model and it would be the future. Televisions will no more be used in the same sense as it used to be but they would become an intelligent display(more like a computer  monitor with a TV tuner card, wifi chip and an application processor inbuilt)

The basic change in the customer behaviour - to watch whatever you want, whenever you want and wherever you want - has come forth with rapidly growing mobile devices, 3G-4G infrastructure and user generated content. The web exclusive minisodes are webisodes have become very popular. A 5 minute clip gets a 2 minute ad - not just ads but interactive ads - that is more economically efficient - allows more revenue for content provider and better understanding of customers for advertisers. No more software - "Apps"(applications) - a word mostly popularized by Apple mainly through iphone is the new "word". Loaded with Netflix, Hulu, Youtube, Crackle, Vudu and other video Apps right in your television, only two new business models can work in the future - 1) subscription based model followed by Netflix and Hulu. - this is not that different from the current subscription for TV channels except you can watch the video that you want when you want 2) Pay per Video aka the "Itunes" model - this is the model followed by Youtube.

This is a major threat to the broadcasting companies - as the new media companies like Netflix,
and Hulu are getting prominent and might displace the broadcasting companies. The studios can
directly sell their content to these new High tech media companies. Broadcasting companies and
cable companies might soon become obsolete. It is difficult to say how long it would take for them
to go obsolete but soon it would happen for sure.

The industry paradigm would be totally changed. The only industry players would be
1) Studios - content providers
2) Data Center providers for content - Think Amazon
3) Video service providers - Netflix - Youtube- Crackle
4) Internet service providers
5) Ad delivery service providers

There is also an interesting factor - the vertical integration
Data center provider becoming video service provider - Amazon being a data center provider
launched its own on demand video service.
Internet service provider becoming video service provider - Comcast is trying out its on demand service.
Content providers becoming video service provider - Sony owns crackle.

Comcast can strangle other players as it controls the ultimate delivery of content and that is exactly
why net neutrality is important and why the other players are making a huge noise about it.

Netflix might seem like an unrivaled player but it uses Amazon's data centers and Amazon is already a
competitor. Netflix's strategy to increase its presence in the sheer number of devices has been working
out well. But it won't be soon when other players catchup.

Given this new paradigm, you could also see why Netflix, Hulu, Youtube and Crackle are trying come up
with original content. Crackle has access to older content - movies from Sony that owns it and it is
ahead of others in original content. One mentionable player is Blip.tv that is only concentrating on
original content and no user generated content.

The broadcasting company and the network will soon become a relic surviving on royalties from older content.

The video entertainment industry is going through a phenomenal change with new business models,
delivery models and changing user behavior.

Why Microsoft acquired Skype?

The acquisition of Skype by Ebay a couple of years for $2.6Billion was thought to be a bad move and was thought to be overvalued. What changed in a couple of years that made Skype increase in valuation? Is the $8.5Billion valuation of Skype justified?

Few years back Skype was just another messenger connecting people over the internet. Then it introduced video chat and then it introduces call to any phone. But this is not why Skype is valued so high. Skype is now capable of conference video call - mass video conference and twitter and facebook are embedded in. It also supports multiple third party applications within Skype to collaborate more efficiently. Skype is also one of the most used applications in iphone and Android that allows video chat over 3G.

Now how does Microsoft benefit to the tune of 8.5 Billion?
1) Skype is a Unified Communications play. Microsoft was lacking in Video conferencing and Skype would fill this major hole. The mass video conferencing is a great value add for Microsoft. Skype is a decent collaborative tool with screen sharing capability that could rival Cisco's Webex. Microsoft might use Skype's technology in its Lync, Microsoft's UC software.
2) Skype is also a major mobile play with Skype enabling free video chat over wifi and  3G. With Microsoft collaborating with Nokia, Skype could be used innovatively to increase the value of Windows Phone. (Think T mobile's free phone call over wi-fi feature)
3) Skype is also a social play with Facebook and twitter embedded within it. Could it be leveraged as a CRM tool? Possibly.
4) Finally, Microsoft can deliver more ads through Skype - ads on video chat - why not? I could also suggest a neat idea here - the software that analyzes the real time voice and suggest ads (privacy concerns?! whatever..)

What does Skype get out of Microsoft deal?
Skype might become ubiquitous, with presence increasing in all the devices - mobile phones, tablets, internet enabled TVs, Ford sync dashboard.

And who is the competitor for Skype? uh... None! at least none that could rival 145 million monthly user and 25 million simultaneous user!!

So now is it worth $8.5 Billion for Microsoft? Sure in the long term but I definitely think Microsoft should have bargained more over the price!

Chromebook: Will it take off?

Google recently announced the launch of Chromebook on June16. Would this be a success? Can Google pull this one off?

Even though cloud based Chromebook is a neat idea, I expect the demand for a $400-$500 cloud book(provided by Samsung and Acer) to be underwhelming. The price point seem to be too high for what they are offering. Apart from the initial cost for the Chromebook, users would have to fork out $20($20 for students and $30 for others) every month as a subscription fee.

Students can easily buy a net-book for $300 and get all the software(that are better than cloud apps) needed that are already discounted for them. I estimated the cost of software to be around $100 per student. So for $400, a person can get a net-book with all the software. So why pay for a cloud-book with a subscription fee of $20 per month.

Over a year this subscription fee amounts to about $240 for a student and $360 for others. So instead of using the cloudbook, buying a net-book is far economically efficient. If a student uses a net-book for 2 years without investing in any new software, then he would have already save $480. This $480 could be used for a brand new netbook after 2 years. From my understanding, Google offers free software and hardware upgrades but it is not the same as giving you a new netbook. Apart from that, Chromebook would also create problems if you need to work offline. Google is still working on a solution for it - I suggest, get some help from Dropbox.

The Chrome-book comes with 16GB memory.  So you might have invest on extra memory either on a local disk or on the cloud memory. Either ways you need invest more.

Even though a cloudbook is an awesome idea and it might play a great role in the future, the price point right now seems too high for the offering. The perceived value of the cloudbook from a customer's perspective would be low when there is a better substitute that is affordable is available.

From my perspective, the price for the cloudbook should not exceed $200 to be attractive.
Specifications of the Chromebooks are as below and I do not see why it is priced at $400 range.
Acer Chromebook

• 11.6" HD Widescreen CineCrystalTM LED-backlit LCD
• 2.95 lbs. | 1.34 kg.
• 6 hours of continuous usage
• Intel® AtomTM Dual Core processor
• Built in dual-band Wi-Fi and World-mode 3G (optional)
• HD Webcam with noise cancelling microphone
• High-Definition Audio Support
• 2 USB 2.0 ports
• 4-in-1 memory card slot
• HDMI port
• Fullsize Chrome keyboard
• Oversize fully-clickable trackpad

Samsung Series 5 Chromebook

• 12.1" (1280x800) Display
• 3.26 lbs / 1.48 kg
• 8.5 hours of continuous usage 1
• Intel® AtomTM Dual-Core Processor
• Built in dual-band Wi-Fi and World-mode 3G (optional)
• HD Webcam with noise cancelling microphone
• 2 USB 2.0 ports
• 4-in-1 memory card slot
• Mini-VGA port
• Fullsize Chrome keyboard
• Oversize fully-clickable trackpad

I would rather buy an ASUS Eee PC from Amazon for $250 for which the specs are below Intel Atom N455 (1.66GHz)

• 1 GB DDR3 SODIMM memory, Max Capacity 2 GB
• 250GB SATA Hard Drive (5400RPM); No optical drive
• 10.1-Inch Matte 1024X600 WSVGA LED Display; 802.11 b/g/n; 0.3MP Webcam; 2-in-1 Card Reader MMC/SD(SDHC)
• Up to 4 Hours of Battery Life; Windows 7 Starter Operating System