The rise and fall of the indigenous Indian smartphone giant, Micromax, encompasses a series of unfortunate events.
And there is no single reason for the spectacular decline of Micromax. Instead, it seems to have been a culmination of factors – both internal and external.
Series of Events
It was a sudden shift to 4G coupled with demonetisation that ran it out. With over 70 per cent of smartphones on 3G, the mobile ecosystem changed overnight when Jio rolled out its free 4G offer.
An overemphasis on the sub-Rs 10,000 price band turned out to be Micromax’s Achilles Heel as it was a predominantly cash market.
“It was our sweet spot as retailers used to sell more on cash,” he said, adding that the company started switching to a 4G portfolio from last November and it took it six months to make the transition.
So, on one hand, internal competition grew stiff with Jio entering the 4G and the smartphone space, and so did external competition from Chinese manufacturers with deep cash piles.
Then there is the fact that Micromax initially outsourced both the R&D and the manufacturing of its products to China, losing any feasible edge over its future competitors.
Add to that its funding woes which got exacerbated when Alibaba pulled out of a near billion deal to buy a fifth of the firm citing issues with the management.
Last May, Alibaba walked away from a mooted $1.2 billion purchase of a 20 per cent stake, citing a lack of clarity on growth plans, according to one executive involved in the discussion. Micromax co-founder Vikas Jain said in an interview with Reuters this week that the company and Alibaba disagreed on a future roadmap.
This might come on as a case of Deja vu, since just a year earlier, a potential deal with Softbank also came undone.
“The talks are not progressing as expected as there are differences between the promoters and the investors on the valuation. The talks have not been called off as of yet, but they were not moving,” a source privy to the development told BusinessLine.
And the troubled legal hassles and internal strife among its top management.
Towards the end of 2014, two of its co-founders were arrested by the CBI for allegedly bribing government officials.
The Central Bureau of Investigation (CBI) arrested Rajesh Agarwal and Manish Tuli co-founders of Micromax Informatics for allegedly giving a bribe of Rs 30 lakh to two junior employees of the North Delhi Municipal Corporation for clearance to a banquet hall construction.
A year later, its Chairman was ousted by the promoters citing misappropriation of funds, and in turn, threatened legal action stating that he was being framed and it was all a ploy to deprive him of his stock in the firm.
Sanjay Kapoor did not jump from Micromax but was pushed out of the chairman’s post amid allegations by the company he misappropriated fuel bills and counter-allegations by him that it had cooked up a malicious story to deny him his stock options.
All-in-all, it seems like the blame rests squarely on the founders and promoters for not having a clear vision for the company’s future, the lack of a focused, segmented approach to gain and retain market share, zero intellectual property coupled with outsourcing of the two most prominent functions for tech manufacturers, and an inability to take hard decisions to keep the company afloat.
Adding to the buildup above, there are citations where an Indian mobile phone manufacturer lost to its Chinese counterpart.
Reasons why Micromax lost to its competitors in the Indian Market
Foundation– Most Indian mobile company founders were distributors of Nokia and Samsung. Micromax was Nokia’s distributor under the brand name of Micromax Informatics; their main business was Payphone or coin-phone (were second in the world). Once Nokia sold their payphone business, Micromax started importing obsolete Chinese phones, rebranded them and sold under Micromax brand. Once Chinese vendor saw their old phones is a huge hit in India they started selling their new phones under their brand with a tight margin.
Innovation -As I said Most Indian founders are businessmen, not entrepreneurs, Micromax and other company did little innovation. They just repackaged the Chinese phones. I could have told you the exact model number of Micromax and their original Chinese model. I used three Micromax phones and their user interface sucks, had worst build quality and pathetic after sale Service. I had a problem in my canvas 4; Customer service took one month to repair. Customer service was so pathetic; one friend smashed his phone in customer care floor in frustration. During 2014–2015 CEO Sanjay Kapoor build an R&D centre in Bengaluru, hired 80–90 engineers to develop software, UI. Founders had no interest in innovating. Once he was thrown out from Micromax, God knows what happened.
Strategy– Indian brand had a whopping 48% share in the 2nd quarter of 2014, Micromax had 17% followed by Intex( 11%) and Lava(7%).
Micromax was a privately held company; four Founders owned 80% of the company. Once they face stiff competition from other Chinese vendors in India, they hired people from Airtel, Sequoia and even head of Samsung India but founders never let them a free hand to operate, denied stock options and thrown people in charge of ‘misappropriating fuel bill”. There was internal strife among founders, One of the founders Rahul Sharma started his own venture YU.
When Samsung toppled Nokia in India as the largest mobile seller, they marketed their product aggressively, reportedly paid 12% commission to the retailer, Micromax also started doing same. But OPPO and VIVO paid 18% and even incentives to put their banner in stores. Retailers started pushing these brands to customers (i think you have experience in this).
Micromax competed in 5000-10000 price category. This category has cut-throat competition, so little profit. They never tried to be in the premium phone market which is also the most profitable segment. They launched Micromax Turbo in the mid-range segment, hired Hollywood star, Hugh Jackman. When the Chinese brand was cutting cost by going online and flash sale, Micromax wasted money.
Micromax has 40 something phones in 5000–10000 segment while Xiomi had 3 or 4. Indian brands had no targeted customer base. They had little attention in building material, no update of newer software. When Chinese started using the metal body, they still used plastic. Chinese brands also offered updates regularly. Micromax has the licence of Cyanogen mod OS which was best customisable OS, sadly Micromax did not use this OS. I still use a yureka plus which I thought cyanogen sadly it was 4.4 android(KitKat).
India is a selfie crazy nation, in 2014, world’s 60% death related to selfie happened in India, OPPO and VIVO advertise their phone as selfie-phone, looks like Indian brands had no idea. I remember an interview of Samsung India CEO, where he stated that they just copy the trends and innovate.
Micromax and other Indian brands missed the JIO fever, when JIO building the optical cable network silently, Indian brands failed to predict the Jio revolution. Once Jio launched, 70% of their phone was 3G; It took months to catch up while Chinese were 4G ready. Jio brand’s Lyf got a ride with the jio wave.
Demonetization also hit them, but how founders blame it is just tip of the iceberg, Oppo, Vivo and Samsung were also hit, but they changed their strategy as such.
Micromax tried to raise money, Alibaba offered to buy 25% stakes for one billion dollars. But soon both cancelled the deal as Alibaba want controlling stakes and push it’s own AliYun os, which Micromax rejected. Earlier Softbank also walked off from a similar deal.