In Business Model, Internet Access, Mobile

When Reliance Jio enters the Indian mobile market, it will do so offering voice and data services at about half–or possibly less than half–of current market tariffs. Some potential competitors believe it is possible voice services could be offered free.

In a market where voice services represent 80 percent of industry revenues, that would likely satisfy anybody’s definition of a disruptive attack.

Reliance Jio will offer data and voice services at half or less than half the current rates at Rs. 300-500 a month, Ambani said in June 2015 at the Reliance Industries annual meeting.

Few would expect the price attack to last forever, however. A reasonable expectation is a year-long assault that reshapes market share, making Reliance the fourth-largest mobile service provider, and likely dooming a number of smaller firms to failure in the process.

“Disruption” has become an important concept for most businesses in the Internet age–and definitely for cable TV and telecom firms–for profound reasons.

In some ways, vigorous competition itself disrupts legacy markets, and the global telecom business has been deregulating and introducing competition almost continuously for four decades.

And most observers would agree that the advent of the Internet has been a game-changer for any number of industries ranging from media to retail and distribution.

But we might not appreciate how much more disruption could be possible in the telecom business.

To be sure, we already have experienced such disruption early in the long distance calling business, and more recently in the messaging and access businesses, with further disruption of the video entertainment business now coming.

Even when markets have not actually gotten smaller–though many have–profit margins have been slashed.

More than “mere competition” is happening, though. The application business increasingly is driven by marginal cost pricing, which is to say, pricing that is close to zero, if not actually zero.

And “zero” is a tough price against which to compete. In fact, many large companies successfully have used marginal cost pricing or even zero price to redefine whole markets.

The “zero billion dollar business” is an established business strategy for an application-based business. That strategy is simple enough: a challenger based on Internet fulfillment radically attacks legacy pricing.

If successful, the challenger rules over a smaller overall business that still is attractive.

Think about Craigslist. Because it could rely on a fraction of the revenue that newspapers needed to operate profitably, it also was able to change the retail cost of placing “classified” advertising.

Media executives have a saying about the revenue potential of their businesses in an Internet age: revenue is a matter of “analog dollars, digital dimes and mobile pennies.”

In other words, the marginal cost of many Internet-based businesses actually destroys markets, making them smaller.

That accounts for the fortunes of newspapers, magazines, travel agencies, physical forms of recorded music or video, bank branches, the postal service, long distance calling and most other products where digital substitute products are possible.

The thing about zero billion dollar business strategies is that they are highly disruptive.

Firms able to successfully use the strategy can vastly reshape wholesale costs and retail prices; features and benefits; and so capture leadership of new markets that are vastly smaller than the markets they displaced.

Reliance Jio might be aiming at something like that. If, as expected, Reliance Jio attacks market pricing, gains share, and then backs off, the result might be that revenue in the Indian mobile industry is smaller than at present, and might henceforth grow from that lower base.

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