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In India, There's a Reason Apple Inc. Can't Beat Google

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The former chairman of Microsoft India offers a few secrets for CEOs seeking success in emerging markets -- plus, the key to earning Bill Gates's respect.

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TFT: With Apple (NASDAQ:AAPL) or perhaps Toyota (NYSE:TM), companies that you cite as examples that haven't done well in India – to some extent they would have to shift their business model, shift their brand. Apple has been the most prominent example that has been reluctant to do that.

RV: They're dead if they don't. If they don't do it, you've got plenty of guys like Samsung (OTCMKTS:SSNLF) who are happy to do it and are already doing it and are running away with the market. Last October Tim Cook, on the analysts' call, said, "I love India, but this is a difficult place, and its distribution is massively inefficient; it is not our belief that we should come up with low-priced versions." People in India are like people everywhere. They aspire to the same beautiful products. Samsung gains a massive leadership position in India, [Cook] retracts it. So they haven't come up with new models, but they've discounted their pricing by 36%. They've got cash-back offers, they give you three years interest-free payment mechanisms, they are investing massively in distribution. They've stopped short of coming up with models for these markets, a low-cost iPhone, but they're doing much better. So even proud Apple has gotten off its high horse.

This is exactly the risk. Microsoft – I took it to a billion dollars, which meant that we had captured that top end pretty well. But then [Steve] Ballmer was unwilling to go down to the middle, because to go down to the middle, Microsoft has to operate radically differently. The middle is a mobile phone first market. It's not a PC first market. Nobody is buying a PC out there.

Shopkeepers, consumers, everyone is bypassing PCs to a post-PC world, which Ballmer could not accept. We wanted to create a new model that was completely smartphone centric and using the mobile Internet, which is what Google (NASDAQ:GOOG) is doing. So that's the threat for Microsoft: that they're going to lose this beautiful 15-year lead to Google, which gets it.

Make Sure You Understand Globalization

TFT: In your book, are you speaking to the Steve Ballmers and other CEOs who are making these decisions?

RV: Absolutely, yes. There is a lot at stake. American companies have this unprecedented opportunity in emerging markets and they're busy squandering it. That's a problem. It's also a problem for these countries. India needs these companies to come and bring in investments, technology, capability, jobs. And we're busy scaring them away. I want to see if we can at least get people thinking a little bit differently…. What passes for globalization in emerging market strategy today is skimming the cream off 100 countries. That's a great strategy, but one day there's going to be no cream. And you're going to be really screwed.

TFT: What is Google is doing in India? Is it essentially the same products and service they're promoting here?

RV: They are tailoring it. Google has a couple of huge advantages. Their pricing model is free, at least to the consumer and the user. "Free" has enormous appeal in emerging markets. The second thing is phones. It's Android everywhere. The big issue in India for Google is that the broadband infrastructure is just pathetic. So they're doing everything possible to just get broadband going, working with telecom providers, the regulators and so forth. I think they're a couple of years away from the big breakthrough. When that happens, they're going to be an unstoppable force in their business. Unstoppable.

Go Up Against Bill Gates … If You Dare

TFT: One last thing: We heard you won a bet against Bill Gates?

RV: With Bill, at some point you have to go head to head, toe to toe with him, and then you get respect. Until then, you're just a flunky. And most people find that an intimidating experience. So it was about 2006, Melinda [Gates] had come as well, and we were flying on his plane from Delhi to Chennai. And it was late at night, he was tired and irritated, and we got into an argument. I refused to back down. After about 10 minutes he said, "Well, gee, I guess you're right." He was beginning to sulk about it a bit, and then Melinda sort of looks to him and says, "So Bill, what do you do?" He ignores her. "Bill, what do you do?" And then she passed him a dollar bill and he wrote on it, "I was wrong – Bill Gates," and I framed it. It was a dollar – but it's a valuable dollar.

Editor's Note: This article by Yuval Rosenberg originally appeared on The Fiscal Times.

For more from The Fiscal Times:

The Biggest Threat to Apple: Samsung or Google?

Is Google Losing Its Innovative Edge?

India's Economy: On the Cusp of Big Change


Follow The Fiscal Times on Twitter @TheFiscalTimes.
No positions in stocks mentioned.
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