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Why Did Micromax Fail?

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The ocean is widely known as an untamed force that cannot be controlled. Many a sailor will attest to the wildness and the unpredictability of the great seas. It can twist and turn in the blink of an eye. So too is true about the market. Companies rise and fall in the blink of an eye. One moment, they are performing well and have captured a significant market share. And then suddenly, they have disappeared. They dwindle into oblivion.

Such is the story of Micromax.

You have all heard about Micromax.

A decade ago, they were a huge name in the Indian smartphone market. Today, however, we hardly hear of them.

What happened? What went wrong?

How did Micromax go from popular to non-existence in the span of a few years?

That, dear friends, is why I am here. I am going to tell you the story of how Micromax failed in the Indian smartphone market.

Let us start at the beginning.

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Micromax was founded in the year 1991 by Rajesh Agarwal. It was originally formed to supply computer hardware to companies like Dell, HP and Sony. In 1999, Rajesh Agarwal was joined by Rahul Sharma, Sumeet Kumar and Vikas Jain.

Perched at the dawn of the dot com boom, the four entrepreneurs found themselves surrounded by opportunities. The software business was blossoming and Micromax ventured into this sphere. In fact, they originally went under the name, Micromax Softwares.

One of their first contracts was a partnership with Nokia. Here, they were introduced to the concept of fixed wireless terminals. Micromax started manufacturing wireless public phones which used SIM cards. This allowed accessibility even in areas with no landline connectivity and revolutionised the telecom sector. Soon afterwards, Nokia departed from this business. Micromax continued to milk these profits for a while, and grew several-fold.

It is a necessity for any successful business to adapt to the changes in its surroundings and identify opportunities before they become obvious to everyone around. The founders of Micromax were staunch believers in this fact and continued to search for ways to increase their business.

The chance soon presented itself to Rahul Sharma. While passing through rural Bengal, he witnessed a public telephone office which had been powered by using the battery from a truck. Sharma could not understand how the villagers managed to charge the battery without access to any electricity. The truck driver later revealed that he actually earned his living by driving the battery to another nearby village, charging it overnight and then bringing it back again the next morning.

Sharma was amazed at this astonishingly clever arrangement and started to understand the benefits of a battery-powered portable phone. He convinced his partners that it was the right time for Micromax to venture into the mobile phone industry. This sector was already populated by giants like Nokia, Samsung and others. Sharma, however, had understood the power presented by a long-life portable battery. He realised that what the market really needed was a low budget phone which had a long battery life.

Micromax launched its first mobile phone, the Micromax X1i. Priced modestly, this phone offered a 30-day battery life and became a huge hit across the country in 2008. Sharma’s instinct paid off and this phone proved to be very popular in rural India where people did not have regular access to electricity.

Succeeding with a startup is very risky. Because the company is small and does not have a strong basis on which to fall back upon, oftentimes, when the new product fails, startups go out of business. One of Rahul Sharma’s principles was to identify gaps in the market, and to then ensure that your products fit into those gaps. This philosophy paid off and within two years, Micromax had increased its market share from 0.6% to over 5%.

The entrée into the mobile phone industry proved to be a turning point for Micromax. From 2008 onwards, the company increased exponentially. From a 10 crore yearly business, it grew to a 100 crore yearly business in the span of a few months.

In 2010, the company introduced a line of tablets, namely, the Funbook series. Soon after, with the advent of the android software, Micromax launched its android powered smartphone, the Micromax A60.

There are several reasons behind the popularity experienced by Micromax. The founders of the company had identified a few key secrets to have a successful startup. They realised that while most people have staggering desires, it does not take much to satisfy the necessities. Micromax made quite a niche for itself as a company which understands its consumers. By focussing on the needs of its target group of consumers, the company came to be known as the one-stop destination for innovation for the masses.

Micromax went all out at the beginning of the decade in order to establish itself as a serious competitor in the mobile phone industry. In fact, they even got Hugh Jackman, the Hollywood star to advertise their brand, thus becoming the first Indian smartphone company to sign an international brand ambassador. They launched a number of advertisement campaigns with prominent Bollywood stars like Akshay Khanna and Twinkle Khanna.

By 2015, Micromax was the second-largest smartphone company in India, after Samsung. For a humble little startup, it was quite a feat to beat all the large names in the market, such as Nokia and LG. By this time, the company had captured over 16% of the market.

Unfortunately, Micromax’s hard-earned fame was not there to last. Over the second half of the decade, the company was slowly pushed out of the limelight and into oblivion.

What are the main reasons behind the failure of this bright star?

There are several factors because of which Micromax failed to last. One of the major reasons for its downfall is the launch of the Reliance Jio 4G.

The smartphone market is highly competitive and is subject to rapid developments in short spans of time. In order to stay ahead of the curve, it is imperative to keep updated with all the newer technologies which are being developed and to upgrade your existing products in response to that.

Micromax primarily operated in the 3G sphere. They had about 40 different mobile phones, all based on the 2G and 3G technology. Their primary mistake was that they did not venture into the 4G market at the right time.

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With the advent of Reliance Jio, the mobile data industry in India was completely revolutionised. Before Jio, the majority of the population either did not have access to mobile data or had very limited access to mobile data. Not only that, but the internet data that was available was also charged at a premium. Only a certain class of the population had access to this.

When Jio first launched, Reliance provided free 4G internet and calls to the entire population. From not having access to the internet, people were given free 4G data for months on end. The entire approach to the use of mobile data changed. Within a very short period of time, most people shifted to Jio.

This is where the game changed for Micromax.

You see, the technology is such that you cannot run 4G data on a phone which is meant for 3G. As a result, Micromax users started shifting to other companies which offered 4G phones in the same price range. By the time Micromax realised what the problem was, they already had a significant inventory of the older 3G phones. They missed the signs of the upgrade to 4G and lagged behind. It was not possible to dump the entire inventory and newly manufacture 4G phones. Thus Micromax started losing its market share. By 2016, the market share had fallen to 9% and by 2018, they only had 3.4% of the market.

The second major factor which played a role in deciding Micromax’s fate was the advent of Chinese smartphones into the market.

Micromax took inspiration from Chinese companies to manufacture their designs and equipment. Soon, however, Chinese companies like Oppo, Gionee, Vivo and Xiaomi realised the opportunity presented by the huge consumer base in India and decided that it was time to enter into this market. These companies studied the market and identified the point of entry as the offline retailers across the country. They used this opening and entered into the Indian market. Backed by superior financial power, these companies provided incentives to retailers in order to promote their products.

Micromax managed to hold on against its Chinese competitors on account of its network in India. They used to manufacture domestically and had existing factories and assembly lines across the country. This is where they found an edge over the other companies.

Once the Make in India campaign came into force, the Chinese companies like Oppo, Gionee, Xiaomi and Vivo took inspiration and started assembling their products in India too. This annihilated the comparative advantage that Micromax enjoyed and put them on equal grounds again.

The third reason for Micromax’s downfall was the fact that it did not focus on innovation and development of technology.

As a technology company, the primary focus should always be on the development of products so that you can give your customers the most advanced technology available on the market. In order to do this, you need to invest in research and development, rather than just focusing on production and marketing.

The Chinese companies were experts in both hardware and software. They proved that it is indeed possible to provide a high-quality product with all the latest features at an affordable price. These companies focused on innovation and product development along with marketing, and produced superior products.

Micromax, on the other hand, always focused on quantity over quality. Most of their smartphones were of average quality. They also compromised on memory space and performance in order to maintain a low price. Once people realised that there were other options out there which offered them a better product at the same price, they switched over to those companies. Micromax thus lost out on market share.

The fact remains that a successful business has to have a significant comparative advantage in order to survive in the long run. Micromax’s only comparative advantage was its low price. Without any real advantage in terms of product quality and innovation, Micromax’s short-lived flame of success had soon been extinguished.

Let this be a tale of caution. The story of Micromax proves that no matter how smartly you market your products, quality always wins in the long run. By 2019, the annual revenue earned by Micromax was below Rs. 3000 crore.

Today, the company exists in name only. Its founders have realised that the ship is sinking and have started looking into other industries to break into. These days, the mastermind Rahul Sharma is focussed on his startup in the two-wheeler electric vehicle market and wishes to revolutionise it with his products. As for Micromax, it is all but gone.

Happy investing!

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author

Adrija