How to create value using the Internet

I learnt of a convenient photo-printing service offered by Media Markt, a German version of Best-Buy. I know there are plenty of these services around now. But lets take the Media Markt service as an example.

This service installs an ActiveX plug-in in your (IE) browser that lets the user browse and upload pictures to Media Markt servers, along with specifying options for print photo sizes, number of copies, etc. Given that a small (10 x 15) picture costs 9 Euro cents, and also given that these sort of photo-printing services are pretty popular in Berlin, lets try to do a simple analysis of how value is created, and what is the inflection point of value at which users are willing to actually spend any real money on the Internet.

First, lets look at it from a user's point of view. Consider the "do-it-yourself" cost of printing pictures (based partly on this post on Slate)

1. Color photo printer (e.g. Canon Pixma) = €100
2. Cost per print (paper, ink) = 20 Euro cents
   

Power User
Let us amortize this over 3 years of the typical lifespan of the printer for a power user, i.e., more than the casual photo printer. So lets say the user fills up his 1GB camera memory 12 times a year (printing 12 batches of pictures) , with each fill comprising 200 pictures.

Total pictures printed of 3 years = 3 * 12 * 200 = 7200
Total cost = CAPEX + OPEX = 100 + 0.20 * 7200 = 100 + 1440 = €1540.

Causal User
For the casual user, who may print 100 pictures in a year in 2 batches, we have:

Total pictures printed of 3 years = 3 * 100 = 300
Total cost = CAPEX + OPEX = 100 + 0.20 * 300 = 100 + 60 = €160.

The biggest conclusion for the power user is - find a way to cut the OPEX, fast!

Now, lets look at the option of getting the photos printed online. Before the calculation, lets first admit that it is not as convenient to print pictures online as it is at home because

1. Pictures take time and money to ship
2. ActiveX control (Can't they do it in Javascript :-) ), in your browser, learning curve of operating the service
   
3. PrIvAcy issues for all those racy pictures of what you did at the New Year's party

So for the power user we have
Total cost = 0.09*7200 + Postage ( 36 batches @ Euro 5 each) = 648 + 180 = €828.

And for the casual user
Total cost = 0.09*300 + Postage ( 6 batches @ Euro 5 each) = 27 + 30 = € 57.

The question the user needs to ask is, is the the cost saving of online photo printing (1540-828 = €712 and 160-57 = €103, over 3 years) worth the inconveniences I listed above?

In pricing online services, companies like Media Markt need to ask, is the cost benefit for the user large enough after factoring in the inconvenienceof "online" compared to the "do-it-yourself" approach?

Let me hazard a generalization here - entrepreneurs who want to know if their web-services business idea will be successful need to do the back-of-envelope calculation such as the example above.

Services: what works in India...

I recently visited Bangalore. I enlist below a list of experiences with services

1. Cellular service - As good as I could have expected - my T-Mobile-Deutschland happily connected to Airtel's network (largest in India) and I was good to go as soon as I landed. Great reception, all over. Of fcourse, I am in a city of 10M+ people, where any mobile operator would roll out the best network for all those phones.

2. Airport baggage service - Well, that is a sad story. There was about 1 small baggage belt for a loaded 747. Took an hour to get the baggage off the belt, even though there were at least 10 attendents trying to speed up the process.

3. Roads - Bumpier than Germany's, but usable.

4. Traffic - Well, in India, never count distances by kilometers. Count in time. Moreover, traffic is particularly bad during the rush hours.

5. Broadband - Its not bad, considering you can buy a 256kbps down-link "broadband" DSL connection for just 4 Euros/month.

6. TV - I tried Tata Sky, a satellite TV system. The most interesting thing is that they have a "prepaid" system with a tariff of about 25c per day. Plus there is VoD - the money just gets debited from the "pre-paid" account. I think that Satellite TV is the most suitable Digital TV technology for India where the DSL/Cable infrastructure is very poor.

7. Banking - There are 2 banking systems - the western one with the ATMs and Internet banking, and the traditional eastern system where you visit the bank to do anything with Money. I believe that the former is slowly replacing the latter. But with the spotty telecom infrastructure and low education levels, it is going to be a while before banking makes a complete switch, especially in rural India.

8. Service - I love it. There are human beings to help you with everything. A good restaurant will spoil you with multiple people waiting on you. A complaint about broadband was quickly escalated and the ISPs engineer personally called up when it was fixed - there are plenty of ISPs to choose from now.