Author Archives: Udita Gulati

The ever growing power of SpaceX in today’s space race

The space race has one clear dominator: SpaceX. Elon Musk’s competitor, Jeff Bezos, makes the claim that they “could end up with monopolistic control of US deep space exploration.” It is impressive how quickly the company has risen to the top, launching its own rocket into orbit only 13 years ago. Elon Musk has the ultimate goal of giving humans the means to live on other planets, with the current focus being Mars. The soaring cost of such a venture is what led Musk to found SpaceX and develop a “low-cost, reusable rocket capable of making multiple trips.” Falcon 9 now regularly commutes to the International Space Station, transporting both people and cargo. The focus now lies on developing and gaining clearance for Starship, the rocket that will be used to fulfil Musk’s goal of one day “establishing a human colony on Mars.”

How did SpaceX reach its Current Position?

The company’s financial plan, along with the reusable Falcon 9 rocket, have both been key to the success of SpaceX and its Starship venture. 

The intensive prioritisation of the low-cost and reusable criteria are the foundation of Falcon 9’s success. One of the most expensive parts of the rocket, its engine, is efficiently designed and created using 3-D printing and its boosts are made to be reused – which are both critical cost saving factors. It is estimated that SpaceX was able to decrease its costs tenfold by taking an alternative route from traditional government contracting. Instead, the company designed and manufactured its own rocket components, rather than outsourcing from suppliers, and took on testing risks itself, rather than relying on payments from NASA. SpaceX’s finance plan, in conjunction with Tesla, of having access to cheap capital has allowed the company to raise over $6.5bn from the private equity market due to the high valuation investors have given to Musk’s business.

SpaceX against Blue Origin

This funding advantage has become the source of some competitors’ complaints; they lack access to similar financial benefits, which they claim has stifled scaling and pushed them out of the market. One of SpaceX’s main competitors is Jeff Bezos’ Blue Origin. In 2012 – around the same time that Musk was still solving issues with his Tesla launch, and before he could concentrate on SpaceX- Bezos had grand plans for Blue Origin.

So how has SpaceX so quickly and indubitably outperformed Blue Origin? 

The most obvious and widely discussed answer to this question is SpaceX’s strict cost minimising objective. Any company purchase exceeding $10,000 has to be personally approved by Musk, whereas Blue Origin is “riddled with poor cost estimating.” Management consultants discovered that the two companies had very differing cultures and leadership styles. SpaceX has a highly motivated workforce with “relentless 24/7 operation with 80-hour workweeks.” The engineers do not complain about these conditions, but rather are inspired and result-focused. They may earn lower salaries than those at Blue Origin, but are rewarded with stock options for top performance. In contrast, Blue Origin is a “ghost town on weekends,” and engineers complain about the “rigid hierarchy,” which does not favour innovative ideas. There is also an unsustainable focus on speed, which prevents the company from properly addressing problems and finding the best solutions. The high involvement of Musk with his engineers and openness to unorthodox ideas has been a catalyst to the firm’s success.

There is clear rivalry between Bezos and Musk. In the race to bring Internet connection from space to Earth, Blue Origin recently challenged SpaceX’s application to modify its plan. SpaceX responded to this challenge by stating that the competitor’s track record “amply demonstrates that as it falls behind competitors, it is more than willing to use regulatory and legal processes to create obstacles designed to delay those competitors from leaving Amazon even further behind.” Amazon condemned Musk’s attitude towards regulations, asserting their perspective as: “rules are for other people, and those who insist upon or even simply request compliance are deserving of derision and ad hominem attacks.” 

The race to extend life on and explore space continues to advance, but also appears to be developing into a personal competition between two billionaires.

The Rise of Software as a Service (SaaS) – with a Focus on the Indian Industry

As businesses were forced to incorporate remote working in their business models due to pandemic-induced lockdowns, they needed to invest in softwares that supported this move to online operation. SaaS (software as a service) companies have been able to provide businesses with the tools to assist in this transition. While the pandemic has disrupted multiple industries, SaaS has advanced as organisations espoused digital solutions to make the move from in-person to online. Some of the biggest SaaS companies that have benefited from the pandemic include Zoom, Box, Slack, Okta, and Salesforce. These software and cloud service providers have provided businesses with tools to not only continue their business operations, but also with security to conduct work in a confidential manner.

In India alone, it is predicted that its SaaS industry could be worth $1 trillion in value by 2030 and create nearly half a million new jobs. In addition, this momentum could lead the Indian SaaS industry to win 4-6% of the global SaaS market by 2030. There are already close to 1,000 SaaS companies in India – with 10 already becoming unicorns (a company valued at over $1 billion). In fact, Indian SaaS startups have raised $4.3 billion since 2020. Although India is currently only a small contender in the global market, there is scope for the country to dominate due to the predominance of English speaking developers and the relatively low cost of hiring them. It is estimated that India could have more than 100,000 SaaS developers and more technical talent at a third of the cost available in the US, making India a hotspot for international corporations to invest in. 

The integration of SaaS within business models also appears to stand long term – past its mere necessity due to the pandemic. This is because the success of remote working has pushed companies to decide to permanently implement working-from-home. For example, TCS (Tata Consultancy Services) in India was a company that was sceptical about working remotely and rarely administered the practice due to concerns about productivity. However, its endorsement throughout the pandemic demonstrated a highly positive impact on the corporation. Such benefits included efficiency, a greater diversity in the workforce, an increase in the number of women in leadership roles, and increased productivity due to enhanced labour flexibility. TCS believes this is because remote work offers better work-life balance. The happier employees met all company objectives and even “added nearly 60 new clients and hired 45,000 people.” 

Evidently, the pandemic has created a long-lasting effect on businesses in terms of running their operations technologically. The post pandemic landscape shows evidence that SaaS could potentially even take over the IT industry in terms of valuation by 2030, such that SaaS will cross $1.8 trillion compared to IT services at $1.6 trillion. India’s mark on the SaaS industry has been quick and large. However, while there are challenges, such as the industry needing to boost funding at three to four percent of the current level to reach their potential over the next 10 years, it will be interesting to see how SaaS firms in India use their native competitive advantages to further launch themselves into the global market.

Disney+: Is a Netflix streaming war on the way?

The pandemic’s impact on Disney can be seen through the closing of Disneyland parks, its cruise lines, productions, and delays in its upcoming movies. It has also resulted in thousands of redundancies at Disneyland Resort, Walt Disney World, and its retail stores. For the 2020 fiscal year, Disney reported a net loss of $2.8 billion. Its profits decreased by 99% at $29 million this quarter, from $2.1 billion last year. Its costs will also increase by $1 billion this coming year due to the increased spendings on safety precautionary measures to prevent the spread of the virus as parks are slowly beginning to open again in limited capacity, such as the company’s resort in Florida. Overall, its operating income decreased by 67% to $1.3 billion, and could have been $2.6 billion higher had the effects of the pandemic not hit the company. 

Nevertheless, Disney has focused its efforts on its streaming business, Disney+, which uses a subscription model of $7 per month by itself, or $13 a month in conjunction with Hulu and ESPN+ as a package. Disney+ has acquired roughly 95 million subscribers, an increase of 9 million from just December. In fact, the streaming service in conglomeration with Hulu, Hotstar, and ESPN+, has gathered 146 million subscriptions. The company’s fast growth as individuals increasingly indulged in its services during lockdown has solidified its position as a strong Netflix competitor. This positive news of Disney’s progression sent its stock up by 3% in after-hours trading as investors “focused on the promise of streaming instead of the billions of dollars lost to the pandemic.”

The company is now being treated like a tech company as investment in its streaming business continues to rise. However, investors and analysts have raised concerns, wherein they question how the company plans to grow beyond its current “diehard fans.” As a response, Disney plans to invest in and push out more content. Streaming is a very costly business and the company requires high funding to finance new series and movies that are necessary to not only maintain its current subscriber base, but also to lure new subscribers. 

Disney’s future looks bright as it harnesses and further develops its Disney+ platform by doubling investment for its annual content to $15 billion by 2024, at which point its streaming business would begin turning over profit. 

The company forecasts 300-350 million total subscribers worldwide in its streaming services by the end of 2024. On one hand, Bob Iger, executive chairman, said Disney will focus on releasing quality content over quantity. It plans to release around 100 new titles annually across its brands, with attention to its Disney+ library. Disney has revealed its plans to release 10 Marvel series, 10 Star Wars series, and 15 Disney and Pixar series. On the other hand, as Disney competes with Netflix, there is a pressure to increase its volume of content. Netflix was able to release more than 370 shows and movies last year, which roughly equalled a new show everyday! Kareem Daniel, who is in charge of Disney’s creative content, now says Disney’s goal is to release new content to Disney Plus every week. It will be interesting to watch and analyse the strategy Disney uses to continue flourishing its streaming services this year.

The pandemic’s effect on food delivery services

The impact of the pandemic has affected companies in various industries differently. However, food delivery companies, have been on the receiving end of better performance unlike their hospitality peers. In fact, the pandemic completely turned around the situation for certain companies. 

Billions of dollars worth of losses for the food delivery sector were forecasted at the beginning of the year. One of the most notable food delivery businesses, Grubhub, was actually contemplating “putting itself up for sale after losing its foothold on the market.” 

The pandemic has proved to entirely reverse situations like these as more and more restaurants shut down during lockdown periods. As a result, people who were forced to stay indoors turned to food delivery. 

How did Uber respond?

As Uber’s core ride business drastically declined, it heavily focused on its delivery services. Sales for meal delivery increased by 135% in the US alone. With positive trends like this, Uber has planned a $2.65 billion acquisition of Postmates to increase its market share and reduce competition. This will allow Uber to control 37% of the food delivery sector in the United States, second behind DoorDash. The company also tried to merge with Grubhub but JustEatTakeaway beat the company to it, now allowing JustEat an entrance into the US market. Uber has also been focusing on diversifying its service portfolio by launching a grocery delivery service in the US. The idea is to create services that consumers form habits off of, to ultimately continue its boom growth trajectory post-pandemic.

How did DoorDash respond?

DoorDash has been taking full advantage of the soaring appetite of customers for its services and has secured an opportunity for an initial public offering. It was able to secure $2.5 billion in capital to expand from its original food delivery service to offer convenience and grocery store products as well. DoorDash also expanded its product portfolio to create Storefront to support restaurants in listing their stores on DoorDash without the charge of commission on items sold. It also set up Self-Delivery which allows restaurants to be listed on the app but use their own delivery services. DoorDash is aware of the benefits it is receiving from current circumstances and is not ignoring the possibility of its soaring demand potentially decreasing once the pandemic starts to settle. “Warnings in its IPO paperwork [that]… the circumstances that have accelerated the growth of our business stemming from the effects of the Covid-19 pandemic may not continue in the future.” Nevertheless, consumer dependence on such services continues to grow the longer the pandemic prevails, which is why DoorDash is now valued at $38 billion.

The holiday season

Food delivery services are now increasingly focusing on speed of delivery as a key source of competitive advantage – especially as orders increased during the holiday season. For example, Postmates is launching a new business model for retail that allows customers to get “instant delivery from clothing, home, beauty and wellness retailers, and allowing the delivery company to broaden its reach.” It seems as though companies that initially started off in the food delivery sector are now beginning to dip their feet in offering services similar to that of Amazon. Mike Buckley, the senior vice president of Postmates, notes that there has been a shift in consumer habits as they increasingly transition to online shopping. Companies are allowing faster provision of these products as they work to increase the speed of their deliveries.

This shows the new opportunities the pandemic has created for the food delivery industry. The use of digital marketplaces is now being broadened to provide a bridge for customers to virtually shop for both household essentials and recreational products from retailers.

Airbnb Facing Strict Regulations From The EU

The go-to holiday rental company, Airbnb, is under scrutiny as the EU is expected to release a draft of a new Digital Markets Act this December.

What is the Digital Markets Act?

Since 2000, this is the first time an act like this is being revised. It is “expected to overhaul the management of content on platforms like Google and Facebook with its Digital Services Act.” Representatives, from Amsterdam, Barcelona, Florence, had a meeting with the EU Competition Commissioner, Margrethe Vestager, to discuss the implications of the current legal framework being outdated and inhibiting officials from addressing concerns created by online platforms. As Big Tech companies grow increasingly powerful in the marketplace, the aim of this act is to enforce stronger regulations that promote fair competition in the EU market. 

How will this affect Airbnb?

One of the current issues at hand regarding the Digital Markets Act is deciding whether or not Airbnb will be among the companies that will have to comply with the new rules. Officials are still in the process of deciding whether the rules should apply only to tech giants such as Google and Amazon, or to also include 20 other companies.

22 European cities have come together to persuade the EU to impose stricter regulations on Airbnb (and other short-term holiday rental platforms) because they are squeezing out domestic competition. The Dutch government indicated that the short-term holiday rental industry creates negative externalities for the “house market, liveability, social cohesion, safety, and the level playing field for other providers of such accommodation.”

Without regulations directly from the EU, Airbnb is permitted to continue its operations with great freedom by affirming “it is simply a platform to put people in touch with renters.” Airbnb definitely has a chance of being targeted because of “its large share of short-term rentals market.”  If the EU does decide to include Airbnb, the company will be expected to share their research and data with smaller rivals and local authorities. The Digital Markets Act would impose a ban on pushing out their own products and services stronger than those of third party sellers. There will also be additional rules that prevent unfair competition to allow markets to function better. Officials will have greater power to “intervene in digital markets to address structural problems before they become… baked-in internet monopolies.”

Industry impact

This will significantly affect the dynamics of competition as tech firms spend a great amount of time and money on capital developing systems that collect and analyse consumer and market data. This gives them a strong competitive edge which is why these companies have declined to reveal their algorithms for years. The regulation will especially impact Airbnb as it is preparing for its multibillion dollar public listing in 2021.

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