Doing business in Asia is not always easy, especially if one is pursuing an internet-based venture in a region where access and penetration rates remain uneven. Access to finance for tech-related startups is also a challenge, but those with true entrepreneurial zeal and drive always seem to find a way.
Among them is Azran Osman-Rani, the man who got the long-haul low-cost carrier AirAsia X off the ground and is now building a market for iflix, a video-on-demand application that is making inroads in the Philippines and Thailand after a successful launch in Malaysia earlier this year.
The iflix venture marks a return to the media field in which Mr Azran worked earlier, when he helped lead the expansion of the Malaysia-based Astro group, before he took his detour into the skies.
The iflix model is similar to that of the hugely popular US-based Netflix, which has been talking about entering Asia but has been slow to act. Iflix has moved in to fill the gap and offers pricing more in line with what Southeast Asian consumers can afford in hopes of rapidly scaling up its audience.
Mr Azran said that although he enjoyed building the airline while he was with AirAsia X, starting from the drawing board all the way to its initial public offering, he could not persuade his board of directors to undertake the moves he thought were necessary for the airline. As a result, they parted ways last year.
"I really enjoyed building up the business, and especially a business that was going against the trend, a business that started from a PowerPoint presentation to an Excel spreadsheet, to a business that got the planes, to the licence and then the IPO stage six years later," he said during a recent interview with Asia Focus.
But once AirAsia X went public, it became too conservative, in his view, and lost its entrepreneurial and disruptive style of doing business.
Mr Azran took on the role of CEO of AirAsia X at age 36 and started with a dozen employees. By the time he left the carrier had 2,500 employees.
The Stanford alumnus is an outspoken believer in disruptive ways of doing business, and that was one of the reasons why he started with a team that was separate from AirAsia.
"We took a very disruptive approach with AirAsia X as we started as a very separate team and independent from AirAsia, and from day one, we had to fend for ourselves, raise financing for our own planes, with any parental guarantee from AirAsia and on top of that we had to pay AirAsia a royalty fee to license the brand and the website," he said with pride.
As well, the new long-haul subsidiary had to build its own market in countries such as Japan, South Korea and others.
"We had to innovate to grow. People think that the low-cost carriers (LCCs) are the disruptors but we thought there were many things within the LCC world that needed to be disrupted," he said. "We took a surgical knife and looked at what is the best way to do business."
But once it became a public company, he admits the AirAsia X lost some of the sense of challenge that had driven it to be a successful business, as being a public company tends to result in a more risk-averse organisation.
"You have the whole institutional process of audits and risk management committees and ultimately you start to be more interested in preserving the status quo, but startups are all about disrupting the status quo," said Mr Azran.
He wanted to radically change the way AirAsia X was operating after the sudden drop in tourism numbers in 2014 and the continued slide in the Malaysian ringgit.
"I felt that after the rapid growth of AirAsia X and given what happened to the industry in 2014, it needed a radical reconstruction of its business model. I had very firm ideas but I did not succeed in convincing the board because the board may have felt that it was too radical a departure so we parted ways," he said.
Tourist numbers to the region began to fall sharply last year following the twin tragedies involving Malaysia Airlines, as well as political unrest in Thailand. Chinese tourists in particular became wary of visiting all of Southeast Asia.
This resulted in a structural mismatch, said Mr Azran, adding that to make matters worse, many airlines had ordered a lot of new capacity that was being underutilised. "So I felt that AirAsia X needed radical surgery to take out a lot of capacity."
His proposal was to redeploy nearly 30% of the airline's capacity in other regions. This would be done via wet leases, in which one airline provides an aircraft, crew, maintenance and insurance to another, which pays in terms of hours operated.
Doing so would kill two birds with one stone: taking out excess capacity while also earning US dollars at a time when the ringgit was weakening, making it a profitable proposition for AirAsia X.
Leasing the aircraft would give AirAsia X a natural hedge against both currency fluctuations and volatile oil prices, as about 30% of the revenues would come in US dollars. At the same time the wet lease would give the airline the option to bring back the aircraft if and when the market rebounded.
"But the board felt that this short-term business of leasing planes was not part of the core business, or maybe it was too radical a move," he said. "So I felt that I could not stand and run a business that had real issues that were not being addressed."
Since then the airline industry continues to reel from overcapacity and the ringgit is down by more than 20% this year alone, but Mr Azran has moved on. Today at iflix, he plans to use the skills he learned from AirAsia X and revolutionise the television industry, as he puts it.
The media sector, he says, is full of opportunities and ripe for disruption. Newcomers can really shake up the industry balance because the timing is right. Data connectivity and broadband are improving and global players such as Netflix have yet to make inroads into the region so the field remains fragmented.
Iflix offers users access to thousands of movies and TV programmes on demand across a variety of platforms from smartphones, tablets and PCs to television sets.
Most global players tend to offer the same platform to all their customers all across the world but Mr Azran feels that Asia is different and needs a lot of local content if a company wants to be relevant to each region or country.
THE IFLIX MODEL
A good way to explain, Mr Azran says, is to look at Uber and Grab Taxi, the former a giant Silicon Valley company and the latter a more agile regional player
"In our industry we feel there is room for multiple players and we think that the price point needs to be much lower because the difference between a US$9-10 [monthly] subscription rate versus $2 or $2.50 means that your addressable market size triples, because in emerging markets the whole point of consumption is very strong price elasticity to discretionary spending such as entertainment," he said.
The second most important aspect, he says, is the content to cater to the local market. While Hollywood content sells, local dubbing and subtitles in multiple languages are needed in this part of the world, which adds to costs.
The number of English speakers among the 600 million people in Southeast Asia is relatively small. As a result, iflix believes it needs a ratio of about 60% Hollywood products to 40% local and regional content, including popular Korean soap operas.
Payment is also an issue in Asia, where credit-card penetration is low and many people do not like to use cards for online purchases in any case. This has promoted iflix to tie up with mobile phone operators to offer services that would be billed to a customer's mobile account.
Iflix, he said, was also linking up with mobile providers to offer free downloads during off-peak hours.
Since its launch in May, iflix has signed up 200,000 customers in Malaysia, the Philippines and Thailand, but Mr Azran admits the venture will need huge scale -- between 5 million and 10 million customers -- to break even.
Achieving this level will take a while as the newly launched business is only starting to get a foothold. After raising a reported US$30 million in May this year, iflix is looking to raise more funds in the months ahead with the parent Catcha Group likely to participate in the next $100-million funding round.
The company hopes that by offering discounts for annual subscriptions, it will be able to attract more subscribers. It also believes its sales pitch -- a subscription is "cheaper than a cup of Starbucks" -- will encourage people to stop using pirated products and to watch legitimate licensed movies and series on its platform.
To give customers better access and add value, he says, iflix also allows users to have access on two devices at any given time, because viewership trends are changing from being television-focused to being evenly divided between mobile devices and television screens.