India Knowledge@Wharton | A Scrabulous economy

India Knowledge@Wharton | A Scrabulous economy
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First Published: Mon, Feb 18 2008. 12 04 AM IST
Updated: Mon, Feb 18 2008. 12 04 AM IST
On 24 May, Facebook Inc. CEO Mark Zuckerberg announced that the privately held social networking site would open to third-party developers, transforming itself into a platform on which other businesses can operate. Eight months later, what some have dubbed “the Facebook economy” has emerged: More than 14,000 applications from third-party developers are live on Facebook, allowing users to do everything from flirt, to browse for books. The most successful are raking in profits from ad revenues.
Jayant and Rajat Agarwalla are typical, in many ways, of Facebook entrepreneurs. The Kolkata-based brothers first created a website for playing an online version of the word game Scrabble several years ago “just for the love of the game”, says Jayant, 21, who also runs an offshore Internet development firm with his brother. The website attracted about 3,000 regular players.
When an American user suggested the brothers launch a Facebook version of the game, they spent 10 days cooking up the application and then launched it in July.
With this small investment, the brothers were suddenly owners of one of Facebook’s biggest hits: Scrabulous. As of late January, more than a half-million Facebook users play Scrabulous daily, with four times that number having added the application to their Facebook profiles.
Because third-party developers can keep all the revenue they generate, the Agarwallas are currently pulling in about $25,000 (around Rs10 lakh) a month from advertising, according to Jayant.
The Agarwallas’ entrée into viral superstardom demonstrates the business opportunities inherent in the Facebook platform, according to Kendall Whitehouse, senior director of information technology for Wharton. Launching an online application is “not like cranking up a manufacturing plant”, he says. “The barriers to entry, while not trivial, are relatively low—basically the cost of a clever programmer’s time.”
But the Agarwalla brothers may become victims of their own success: In mid-January, Rhode Island-based Hasbro Inc., which holds the Scrabble trademark in the US and Canada, asked Facebook to remove Scrabulous because of copyright infringement.
In August, the company sold the digital rights to Scrabble and other games to the Redwood City, California-based online gaming giant Electronic Arts Inc. (EA). The following month, EA launched a version of Scrabble for mobile phones. Technology reviewers gave the game a thumbs up, except for one potentially fatal flaw: Users can only play with one another by physically passing the phone back and forth between them.
Scrabulous filled a niche by drawing on Facebook’s greatest asset, what Zuckerberg calls “the social graph”, the links between users and their friends. Scrabulous makes it possible, for example, to recreate a big family game of Scrabble, even when family members are scattered around the world (assuming, of course, that all family members are tech-savvy enough to maintain a Facebook account).
“Scrabulous has created value for the product in a way Hasbro would have never thought of doing,” says Wharton marketing professor Peter Fader. “Hasbro’s challenge is to call off the lawyers, do better business development and come up with an online version of the game people will like even better. If people are playing more Scrabble, they should figure out how to tap into that.”
Connecting the poor with world-class health care
C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid; Eradicating Poverty through Profit, has long championed the notion that business, rather than government hand-outs, represents the most effective solutionto poverty.
At the recent TiE Entrepreneurship Summit in New Delhi, Devi Prasad Shetty, chairman of Narayana Hrudayalaya, a paediatric heart hospital in Bangalore, offered an example of Prahalad’s principles at work in health care. The hospital operates a low-cost health insurance programme for farmers in the southern state of Karnataka. Each farmer contributes Rs5 a month to the programme, while the government contributes another Rs2.50 a month per farmer. The premiums from this pool of beneficiaries have permitted Narayana Hrudayalaya to operate upon 25,000 farmers and to offer free medical consultation to 85,000 more.
“This year, we have increased the monthly contribution by farmers to Rs10 a month, but we still hope to cover 13 million individuals using the world’s largest telemedicine network to deliver critical health services to rural areas,” Shetty says.
The network permits Narayana Hrudayalaya to provide cardiac services to villages in India’s hinterland that have few doctors and little medical coverage.
“We have started placing ECG (electrocardiograph) machines in general practitioners’ clinics, where (cardiac) tests can be administered. The reports are sent to us over custom-built software,” Shetty says. Narayana Hrudayalaya gets the results over phone lines, allowing cardiologists at the hospital to diagnose the problem and prescribe treatment. As a result, Shetty says, the hospital was able to deliver “world-class quality service to the doorstep of rural Indians.”
Narayana Hrudayalaya saw an opportunity in the genetic proclivity of Indians to heart attacks—three times the European average. By adopting a so-called “portfolio approach”, the hospital was able to fund the delivery of health services that individual farmers could not afford.
Shetty says the hospital is now using its clinics to partner with retailers who want to set up village outlets. Retailers have the opportunity to sell their products taking advantage of the health facility’s position in the community.
“The retailers will share profits with us, which will allow us to make our free clinics self-reliant,” says Shetty.
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First Published: Mon, Feb 18 2008. 12 04 AM IST