Tab on costs

It’s a company that made waves after introducing the world’s cheapest tablets in India in 2011 — a time when tabs were just getting noticed. It introduced a better one a year later, after the first series was panned. And before anyone could anticipate its next move, it rolled out an ultra low-cost five-inch-screen smartphone. For its disruptive technology, Datawind has now made it to 2014’s 50 Smartest Companies in MIT Technology Review’s annual list of the world’s most innovative technology companies.

So far, the biggest strength of the Canada-based Datawind, almost synonymous with Aakash tablets, has been its ability to keep costs low. And that has helped it take the number three slot in the Indian tablet market behind Samsung (15 per cent) and Lenovo (13.3 per cent), according to research firm IDC. Datawind had 12.4 per cent of the market (in the September 2013 quarter) excluding sales to the government as part of the Aakash project.

Datawind CEO and co-founder, Suneet Tuli, says the company has managed to keep a tab on cost by focusing on every cost head — hardware, software, marketing and distribution. “Because we manufacture our own screens (in Amritsar and Montreal), we are able to cut a substantial part of hardware costs,” he says. A touch screen is about 25 to 30 per cent of the cost of a device (tablet or smartphone) and due to high demand, manufacturers charge a premium. Datawind has eliminated the suppliers’ margin, cutting costs to one-fourth of the market price. “We have a number of patents around this technology,” Tuli adds.

Another reason behind high prices is what he calls “features overkill”. Since most users don’t end up using all the features in a smartphone, Datawind is focusing on specific needs for a customer segment. “The most important feature while making a decision is affordability. Designing products as per the price is a good enough disruption,” he says.

Vishal Tripathi, principal analyst at Gartner India, agrees that affordability is a big consideration. “The crux is that India is a price conscious market. That’s why you don’t see premium tabs resonating well here,” he says.

Around 80 per cent of tab users are consumers while 20 per cent are enterprises, which prefer top-end features in tablets. Due to the sheer size of the consumer segment, low-cost tablets will always find buyers.

However, Alok Shende, principal analyst at Ascentius Consulting has a word of caution: “Low price is certainly an advantage in a market like India. But as consumers educate themselves, they will realise the trade-offs on the usability that come with a low price are not worth it.”

For now, Tuli continues to believe that customers should not be burdened with profit expectations at the time of purchase. “We realised that a significant amount of revenue comes in after customers have bought the product. We realised that apps, network services and advertising create significant sources of revenues.” So he is relying on offsetting lower hardware margins by higher recurring revenues. Datawind has relationships with partners, who provide content for devices and customers pay for that. It also sells ad space on pre-loaded apps on its tabs, where it splits the revenue with app developers.

For long, Datawind managed to keep distribution and marketing expenses negligible by only selling online. It has now partnered with Flipkart and Snapdeal as well. “Even though a significant part of our sales comes from online and through call centres, we are expanding to other channels,” says Tuli.

Datawind is now reaching out to customers through tele-shopping. “We have started selling our products through 200 mobile retailers in Delhi and Mumbai,” Tuli says. In the next six months, that number should go up to 2,000 across India.

India apart, Datawind is selling tablets in 15 countries including Mexico, Zambia, Tanzania, Uruguay, Nepal, Bangladesh, Sri Lanka and Canada. “Latin America and Africa are a big focus area for us as these are developing economies where affordability is a key requirement. The response has been overwhelming,” he adds.

With these strategies in place, Datawind turned profitable in FY13. “We are not heavily profitable but we are definitely not making losses,” Tuli says. As Datawind looks to expand beyond India, the country’s share in its overall revenues is reducing annually. From 90 per cent of revenues from India in 2012, it went down to 70 per cent in 2013. “In the current year, only about half of our revenues will come from India,” he says.

While Tuli is happy with increasing sales, Shende believes the low-cost strategy might change in the near future. “Over time, Datawind will give up its ultra low-cost proposition and move to devices that deliver a good user experience,” says Shende. Tuli, for now, disagrees. He says he wants to take this low-cost “India revolution global”. Only time will tell who is right.

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