Automakers are getting creative. Gone are the days of just waiting for buyers to upgrade their cars to make money. Now they offer “over-the-air” features. Want to switch on a new feature? You gotta subscribe to it first. And it’s not just automakers who want you to ‘pay extra’ these days.
India’s UPI just got confusing. It moves to limit third-party apps’ share of all UPI transactions to 30%… Then allows certain exemptions that will entitle players to a six-month compliance grace period. Talk about creating a loophole in your own rules.
Finally, India and the Philippines have begun to bond over their territorial disputes with China.
Let’s dive in.
Would you like to pay extra for that?
Imagine you’re driving down a dark road in your car. Now, if you’re one of the drivers accustomed to driving with your high beams on all the time, nothing changes for you. But if you’re one of us who does care about not blinding drivers coming from the other side, you’d switch your high beams on and off.
Unless you were driving, say, a BMW 5-Series sedan. The car has this nifty feature called “High Beam Assistant” that uses light sensors to automatically switch your high beams on or off depending on traffic coming from the other direction or ambient lighting. It’s a feature BMW launched in 2005.
Now though, if you try to switch on the feature and your car tells you that you… gotta buy it first.
What’s going on?
Many things that have been quietly taking place in the background are now coming together to create the golden age of “feature unbundling” and “paying extra for everything”.
Let’s stick with car makers for now. Here’s what’s changed for them over the last five years.
- Ease of targeting—thanks to virtually all cars being internet-connected these days, carmakers can now reach and target customers in real-time with offers. Instead of having to wait for that once-in-six/12-months servicing visits. Having larger and larger touch screens in cars makes things even easier. Ask yourself, are you more likely to pay extra for BMW’s High Beam Assist at the showroom or on a dark road?
- Ease of payment—as customers have gotten more comfortable with online payments, payment gateways have become adept at handling virtually all sorts of payment instruments.
- The rise of subscriptions—this is the biggie. Across product categories, customers are moving towards subscriptions and rentals. You can subscribe to drinking water, appliances, furniture, vegetables and fruit, juices, and even top-of-the-line Porsche electric sports cars (“as little as US$2,500 a month”). As a result, every product today wants to fully or partially become a service.
Carmakers see these trends as vital to their survival and future. They realise that the days of any business that makes, stocks, and sells products costing tens of thousands of dollars and weighing hundreds of kilos and with a lifespan of five to 10 years are… limited.
Which is why they’re all racing to shorten the time it takes to innovate and launch features.
But what’s the point of faster features if a customer is unlikely to upgrade their vehicles for years?
Thus, over-the-air features.
With cars increasingly not just run but also differentiated with software, carmakers find it cheaper to build physical features into all the car models they sell instead of creating and managing an inventory of different models. It’s easier and more profitable for them to use software to lock, price, and unlock specific features on a customer-by-customer basis.
Tesla has been doing this for years now, and is now even fighting customers who unlock advanced features without paying it.
Of course, this begs the question: how can it be illegal for you to extract whatever functionality you can from a car that you fully own? The fight to “repair and hack” products you own is just starting to play out.
But, would you like to pay extra for that too?
On the other end of the “paying extra for a feature” is this fascinating tweet. I felt it represents a Rorschach Test on the evolution of consumer subscriptions in India.
Hotstar, the Disney owned video subscription platform that’s also India’s largest one, is apparently reserving native English audio from Hollywood movies as a premium offering only for their highest tier of subscribers.
Which means, per the screenshot, even premium “VIP” subscribers would be forced to listen to Hollywood movies in dubbed local languages.
What’s happening here is very different from the carmakers. I think we’re seeing multiple inversions of value pyramids.
We’re seeing features that used to be “basic” till a decade ago become “extra”, and vice-versa.
For instance, English subtitles or dubbing in local languages used to be “extra” features when the primary audience were urban, English-speaking audiences. But as platforms like Netflix, Amazon Prime, and Hotstar have aggressively dropped prices and added local content and languages, their adoption has gone up in India’s smaller towns and cities. In its newer markets and among its newer subscribers, English subtitles for English movies or local language dubbing are “basic” features (because audiences aren’t as comfortable understanding international accents or fast spoken English).
These new customers that Netflix acquire are lower in revenue value due to really cheap entry-level pricing. Which leads to this.
The statistics are likely to be similar for Hotstar too.
In a competitive market, it can’t afford to charge newer users too much. So will it do its best to charge its older, urban users more to make up on the revenue side?
This response to the original tweet best summarised the argument.
I’d like to leave you with this Change.org petition with a mere six votes as a sign of what we may see coming.
UPI flips, UPI flops
The history of the now-ubiquitous Unified Payments Interface—it currently does over two billion transactions a month—is dotted with contradictions. Last week, it rolled out the mechanics with which third party UPI apps that ride on other banks (Like PhonePe, GooglePay) can stop onboarding new users after they reach the limit of processing 30% of all UPI transactions.
The move is meant to make sure no one UPI app is a runaway success.
This, after the National Payments Corporation of India (the entity that runs UPI) made sure that these apps can be a runaway success.
Circa 2016, when UPI was launched, the backers of UPI were disenchanted with how banks were not pushing the payments system enough. So NPCI relied on startups like PhonePe and large tech platforms to be its proponents.
NPCI even redesigned its backed systems to make it easy for those like Google Pay (Initially called Google Tez) to scale.
And scale it did. GooglePay had over 35% market share by 2019.
NPCI, by then, had gotten uncomfortable with just how dominant Google Pay and the Flipkart-owned PhonePe had become. It became a matter of national security that US-based companies like Google held so much sway on India’s payments systems. So it said it will institute market caps on the volume of transactions each platform can process.
In its rollout of the plan last week, NPCI said the market share caps are effective for all UPI apps from Jan 2021, but it gave PhonePe and Google Pay two years to comply with this as they are already above the 30% limit.
But a reading of these rules shows that they are, at best, passive ways to implement market caps.
Then in a flip flop, it adds:
I was chatting with Deepak Abbot, a former senior executive at Paytm*, about these rules, and he said this type of mechanism allows companies to circumvent compliance.
For one, since there is little to distinguish between genuinely failed user onboarding and deliberate halt of user onboarding by companies, there is a risk that companies can still selectively allow quality users to sign up based on data intelligence. And that alone is enough to get the apps a six-month extension as NPCI allows for an exemption.
If NPCI wanted to truly implement the market cap, there were other ways.
Abbot says NPCI could have restricted users to do limited transactions a day per app if market share breaches the 30% mark. The other measure could have been to stop transactions made just to earn cashbacks.
So, NPCI has left enough loopholes for the third-party apps to navigate the new set of rules. It needs to give them this leeway because, parallelly, competition is brewing for NPCI. (We spoke about this in our podcast Unofficial Sources)
As companies figure out how to “manage” the rules, be prepared to see more of this message: Dear user, as per NPCI rules any UPI app with more than 30% market share cannot onboard new customers until their market share goes down. Currently, <App name’s> UPI market share is <XYZ>% so unfortunately, you’ll have to wait a while before you can access our UPI services. We apologise for the inconvenience and promise to notify you as soon as NPCI allows us to onboard you again.”
*Paytm founder Vijay Shekhar Sharma is an investor in The Ken.
The enemy of my enemy is my friend
The Philippines and India have maintained diplomatic relations since the 1940s, but the two countries never explored the relationship much. Until now.
China’s territorial aggression has brought them closer. And the Philippines stands to benefit in terms of fortifying its national defence against the rising global superpower and its fight against Covid-19.
The India-China border dispute reached a boiling point after deadly clashes last year, prompting India to ban Chinese apps and impose stricter rules on imports.
Over in the Philippines, Chinese flotilla has swarmed around a disputed reef near the Philippine province of Palawan. The Philippines has asked that the more than 200 Chinese militia boats in the area leave. But China ignored the calls, insisting that it owns the reef and that the vessels were sheltering from rough seas.
While Philippine President Rodrigo Duterte has largely kept a pro-Beijing stance, this month, the country signed a deal to buy the world’s fastest cruise missile, the BrahMos PJ-10, from India.
Duterte’s camp publicly maintained that they were talking to China—as a “friend”—about the boats, but political analysts believe the deal with India was in preparation for any potential threat.
Meanwhile, the Philippines is also in talks to secure eight million doses of the Covaxin vaccine from India’s Bharat Biotech, on top of the 30 million doses of Covovax (co-developed by the Serum Institute of India) it had previously secured. The deals are a lifeline for the Philippines’ snail-paced programme, aimed at vaccinating 73.5 million people against Covid-19. The country needs to vaccinate more than 200,000 people a day to hit that target this year, but so far, only about 510,000 have been inoculated.
It’s too early to say if the Philippines-India defence relations will go very far. The Philippines, after all, has little to offer India in terms of military capabilities—its own air and naval platforms are in desperate need of modernisation.
But in the brutal Asian territorial disputes, the baseline for friendship among China’s targets becomes simple: the enemy of my enemy is my friend.
That’s a wrap for today.
Don’t forget to write in with your thoughts and observations on how this pandemic is reshaping businesses, societies, and economies. We will be back tomorrow.