Ajjay Agarwal's Maxx Mobiles is among the clutch of upstarts that used off-the-shelf technology to erode Nokia's dominance in India's mobile phone market. Will the tribe survive the perils of scale?
In 1992, Nokia — already a $3.4-billion company with over 26,000 employees — launched the world’s first GSM phone and made Olli-Pekka Kallasvuo executive vice-president and chief financial officer (He become its CEO later).
The same year, 6,000 kilometers away in Mumbai, the Children’s Academy school decided to fail 14-year-old Ajay in 9th standard. His marks were too poor and Ajay’s teachers wanted him to repeat a year in the same class.
But the boy had other plans. He simply dropped out.
“I knew I was average at studies and didn’t see the point in continuing. But I was very fast in calculations and was passionate about large volumes,” he says.
Soon, he joined his father’s electronics trading business, diving headlong into a world filled with cordless phones, calculators, air-conditioners and televisions on the one hand, and duties, taxes, commissions and profit margins on the other.
“I would sell off entire consignments meant for retailers to wholesalers, just because I wanted to earn back the money quickly. My father would scold me for that,” he says.
In 2006, he added a second J to his name following the advice of a numerologist, becoming “Ajjay”. Today the 33-year-old with two Js is giving hell to the company led by the man with two Ls in the world’s fastest growing mobile market.
Ajjay Agarwal’s Maxx Mobiles is now the fifth largest mobile brand in India with a 4.7 percent market share.
And he’s just getting started. “When we do the things we plan, people will be shocked,” he says.
The Band of Upstarts
The rise of local brands like Maxx, Micromax, Spice and Karbonn is arguably one of the fastest shake-ups the world has seen in a category that was both mature and dominated by well-entrenched brands like Nokia, Samsung and BlackBerry. In about two years, these newcomers have gone from under 1 percent of the Indian mobile handset market to 17.5 percent, collectively selling over 2 million phones every month.
Their rise was facilitated by a combination of domestic factors: The reduction in custom duties on imported phones to almost zero, the Indian government banning cheaper grey market phones from China that did not have IMEI numbers and the rapid addition of new mobile connections in India brought on by the entry of newer mobile operators.
But an equally important factor was the growth of a Taiwanese firm MediaTek that offers a platform for these brands to create ever cheaper mobile phones crammed with features. In China, MediaTek’s software is known as the platform of choice for hundreds of electronics companies that sell cheap-yet-functional knock-offs of well-known products, or Shanzhai.
MediaTek realised quite early that the huge difference between manufacturing costs and selling prices for well-known phone brands — like Nokia — was not sustainable. So it cobbled together an integrated design-plus-hardware offering that allowed upstart entrepreneurs to literally dream up their own phone designs by mixing and matching off-the-shelf components.
Overnight, mobile phone technology went from being a differentiator for the Nokias, BlackBerrys and Samsungs of the world to a commodity available to anyone with a ticket to Beijing and a cheque. “We’ve moved away from a world in which the global phone companies romanticised their technology edge over smaller or domestic competitors. Today, it’s very hard to find a feature that can’t be replicated by the domestic guys,” says Naveen Wadhera of private equity firm TA Associates that has invested $45 million in Micromax – the largest of the domestic brands.
In fact, the pendulum swung so far that innovation began to be led by the newer players. Unrestricted by global supply chain, brand or regulatory requirements, they could create phones for customer needs that a big company like Nokia would consider too niche or transient. Dual- and triple-SIMs, phones claiming 30-day standby or AAA-batteries, GSM-CDMA combos, 12 megapixel cameras, alphabetically-arranged full keypads… Name it and some entrepreneur has already launched it.
“Buying a phone today is almost like buying a disposable razor,” says Ajay Relan, founder of the $500 million private equity fund CX Partners that is now studying a few of the new Indian players. “Why should I buy a higher-priced Nokia if I know in 1-1.5 years it will become obsolete and something newer, sleeker and with better features will come around? Why do I make an investment in an expensive product?”
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"Though in the short term the market may keep growing in leaps and bounds, there may not be as many players in the future. You will need to evolve,” says Naveen Mishra, analyst with IDC India.
(This story appears in the 10 September, 2010 issue of Forbes India. To visit our Archives, click here.)