M Powered India

As this story is being assimilated on a crowded office floor, there are
countless noises in the background. The human ones apart, the next most regular
feature is the famous SMS beep. While all of those who are reading this must
have replayed the sound in their minds, they might not have till date pondered
upon the reasons which have made this beep music to some ears and dismay to
others.

And what else, most of us would never even have imagined the economies that
this SMS (along with its new age variations) supports, the heads that it rolls
and the money that sits behind every advertising message that our phone
receives. Every application you download on your smartphone is built by a
company, provided content by another, supplied with ads, if any, by names well
known, with those ads created by some others.

That is a whole lot of players, with more joining in everyday, doing newer
and newer things. If you have followed the online wave of the late 90s, it is
not entirely new to you.

Two differences though: the ubiquitous e is replaced by a more ubiquitous m.
And while that time around, the users for whom those e-everythings were designed
themselves were not e-enabled, the situation is vastly different now seeing that
India has close to 350 mn mobile phones. In fact, many are being forced to use
this option, because it reaches a significant number of users to whom nothing
else reaches.

So, the m wave, if we can call it that, is far more real. So is the
opportunity for the set of players who build and enable these applications.
Commonly, but somewhat not so aptly, called value added services (VAS)
companies, they are today the hottest firms in the scheme of things of venture
capital firms. In 2007-08, they are easily the largest single category within
technology where venture money has gone.

We will simply call them players in mobile applications, not value added
services, unless we refer to some secondary sources. And here is our
proposition. The phrase value added services inherently assumes that there is
something else and they do value-add to that. Historically, that is not entirely
incorrect. For the mobile operators, traditionally and even today, the biggest
share of revenues come from voice. So the phrase was designed to denote
everything that was not voice.

Two things have changed. While voice is still the biggest thing for the
operators, share of mobile data is increasing. But, more importantly, there are
now mobile applications that work and help people do business fairly
independently of the mobile operators, like say mobile advertising or mobile CRM
in an enterprise. The latter still provide the pipes; but that is it.

According to a survey conducted by the Internet and Mobile Association of
India (IAMAI), the mobile Value Added Services industry was estimated to be
around Rs 5,780 crore at the end of June 2008. It is expected to grow steadily
at 70% over the next two years and touch Rs 9,760 crore by end of June 2009, and
Rs 16,520 crore by the end of June 2010.

While the scene is dominated by the ringtone segment (40%), peer to peer SMS
(P2P) grabs the next sizable chunk (37%). However these figures, like the whole
mobility set up, have the operators as their central point. These are mostly
indicative of what the operators earn through VAS. How the flow of revenues
takes place beyond the operators depends largely on the commercial agreements
and the complex revenue sharing models.

However, all these still do not address areas where the consumer does not
have to pay. In that sense, it is a subset of the entire m-opportunity. That is
far more, often complex.

It is these complexities that we try to unfurl as we go beyond the operator
and explore the non-voice mobility landscape. We try to make some sense out of
the chaos as we classify the players who make the mobile applications landscape,
analyze the current trends and project the future directions, and present
profiles of important pure-play players in each/multiple of the sub-categories
in the mobility space.

Mobility Value Chain

Much of the initial research time for this story was spent on trying to get
a tap on the elusive mobile applications value chain. Talking to players in this
industry and other stakeholders only made it more confusing, because each was
drawing a circle keeping itself at the center. Analysts too did not agree on a
single model.

And then we realized where we were getting struck: we realized that something
like a mobile value chain that could encapsulate the entire set of players just
does not exist. So, we were trying to find something that is non-existent.

Sure there is the traditional mobililty ecosystem, with the operator at the
center and some of the mobile applications players very much a part of that. But
there are an equal number of them who are outside that ecosystem. That is when
we chose to use a more generic term landscape rather than ecosystem, to
describe the entire set of players. In fact, there are several ecosystems that
overlap this landscape.

Some of them are age-old ecosystems with mobile being just a new component of
those ecosystems. For our analysis, what we could finally agree on is to
classify them into five categories, based on who these players target as their
ultimate customer. The basic question on which we based this classification is:
who pays?

These customers are

• The consumers
• The enterprises IT
• The brands/agencies
• The operators
• The phone makers

While the enterprise IT and brands are part of their own ecosystems, IT and
media respectively, the operators and phone makers along with consumers who pay
for this service belong roughly to what is the newest ecosystem to emerge. Let
us call it simply the mobility ecosystem, in the rest of the story. This is what
we take on in this story. We have a separate one on mobile marketing that
analyzes the trends in the ecosystem corresponding to the brands/agencies: the
media ecosystem. The enterprise IT constitutes most of the content of
Dataquests regular mobility section.

When the Consumer Pays

The operators still form the locus of all that for which the consumer pays.
Whether as the pipe between the content developers and the customers or as the
channel of delivery for the application developers, they play a very important
role of billing. It is the operators who deliver the end services to the user,
and thats what makes their role central to the whole system.

As per Sanjay Goyal, CEO, ACL the mobility landscape can be classified into
horizontal and vertical companies. There were only 4-5 horizontal players
offering a variety of services back in 2000 when the industry started, he says.
Gradually the vertical companies came into existence. These were the companies,
says Goyal, that boasted of a single line offering. And while the growth story
lay on the horizontal side initially, Goyal thinks that its time for the
vertical companies now.

Shantanu K Dash, CEO, MosPay segments the market in terms of types of
applications: games (low-end entertainment), corporate/enterprise market,
utility applications, and other high-end applications

Dr Subho Ray, president, Internet and Mobile Association of India, says that
pronouncing this industry as the mobility landscape is not justified. This is
because the mobility landscape has to be inclusive of voice. You cant ignore
voice if you have to talk about the mobility landscape, he asserts. He chooses
to call it the VAS industry and classifies it into: Mobile Entertainment, Mobile
Marketing (though this is beyond the ecosystem in our classification), Mobile
Payment, Mobile Technology

It is the operator who emerges as the clear winner in this mobility
ecosystem. Since the time of the inception of this industry (around 1999-2000)
the role of the operator has been a matter of perpetual scrutiny. While some
argue that the operators take away the major chunk of the moolah, others debate
the value additions that the operator brings on the table.

This system cant run smoothly without the operator being in the driving
seat. The reasons are simple. We dont yet have an independent business model
which can function without bending towards the operator. Although it has been
seen emerging for some time, it is yet to arrive. Also, right now, most of the
pure play players do not have the requisite infrastructure to approach the
consumer directly. The brands are not well established in the market and dont
evoke the same recognition factor with the consumers as the service providers
do.

However, coming to the role of the operators, following are the three basic
functions (or value adds) that they perform even as they sit comfortably at the
loci of the operational chain:

• Branding (adding brand value for the content aggregators and application
  developers)
• Acting as a pipeline (as a channel of delivery to the end customer, this
  is specially valid for mobile advertising)
• Billing (the most important function. The operator becomes the central
  point of billing, since it is the one who establishes the direct contact with
  the consumer)

The Revenue Sharing Models

Its nothing new to hear about the unfairness of the revenue distribution
that takes place in the mobility setup. Neither is it unusual to see the pure
play players talking bitterly about the adamant operators. It is often said
that the operators pocket a good deal of the revenue generated through value
added services. And these business models have been a subject of discussion
since years now. But nothing constructive seems to have emerged so far.

Notes Sanjay Goyal of ACL wireless, The biggest problem is that of billing,
which has to be done by the operator. And thus operators are most adamant on the
revenue share that they will keep. The reality of this system is that at the
center of every act lies the operator. Shantanu Dash of Mospay adds to that by
saying, There is a huge dependency on the operators because the market hasnt
been receptive of any other player till now. The acceptance here has been very
slow.

Another substantial reason for this market bend towards the service providers
is that they are the only link on the ecosystem who can boast of direct contact
with the consumer. The penetration of the operator is the deepest in any market
set up. Since it is the operators who are responsible for the ultimate delivery
and sale of the product, they, like anybody else, want to cash in on their
strengths. Other reasons given for taking a majority revenue share are
infrastructure deployment, product distribution and marketing, etc.

Subho Ray of IAMAI adds more insight into the matter. He notes that as of
now, voice is the basic focus of the mobility market. Operators are still
generating close to 90% of their revenue from the voice service. This is because
of the market here where most of the users are low-end users who only use the
mobile for regular calls. The fact that around 92% of the mobile users in India
have a prepaid subscription substantiates the claim that we are still a voice
oriented country.

As an IAMAI research points outVAS currently contributes only 9% to the
total operators revenue. That hardly translates into a sizable portion. Given
the paltry role that is attributed to VAS right now, operators dont see it as
an investment opportunity, rather as a cost addition. However, things might
change soon, and for the better. The MVAS study by IAMAI expects VAS to
contribute around 12% to operators revenue by June 2010. The indications are
clearas the share of VAS increases in the operators accounts, they shall start
paying more serious thought to it. And gradually, market dynamics might force
the business models to change or normalize.

Says Subho Ray, Operators are not perceiving any value in VAS as of now.
Thus they are not too keen on it. But that doesnt diminish the importance of
this segment in any aspect. The ARPUs (Average revenue per user) are already on
a decline. So is the average call time. The scope of expansion in the voice
market, though nowhere close to saturation, is gradually diminishing. We shall
also soon face a situation, which is common in the developed mobile markets,
wherein the voice market alone will be close to its saturation and thus not
enough food for any operator to survive upon.

And this is the situation, say experts, that shall shift all the focus to
alternate ways of earning revenue. This is when the real time of VAS shall
arrive. According to Subho Ray, right now the players are approaching the
operators as independent vendors. This is because the services that are being
provided are on-deck services. If you go as a vendor, you shall be treated as
one, he emphasizes. However, once more emphasis is given to VAS and it assumes
a more significant role, then players will approach the operators as clients
rather than vendors. That is when, thinks Ray, the market shall undergo a marked
change.

Dash of Mospay is also optimistic. Revenue sharing models are set to change
soon. There are some big names entering the market and pure play players will
become more visible now. The operators role cant be erased but it will
certainly take a backseat. We shall see a massive change in the next two years,
he says.

Thus, most of the industry is hopeful at present. They see some kind of a
mixed model emerging in the coming years. The coming of 3G services is also good
news in that regard. Ray gives the example of mobile tower business. It took off
slowly but is big now. The same he thinks shall happen with non-voice mobility
as well. Till then we can be hopeful and anticipate a better tomorrow.

The foundations of thisnew era have already been laid. We can already see
some parallel business models mushrooming, though they havent yet registered
any path breaking success. Ventures like Oxicash and some partnerships with huge
retail chains are a few examples. We can expect to see an increased popularity
curve for more such innovative ideas.

Mdot.com

Google on SMS. Yahoo One Search. Rediff on mobile. Names we are all familiar
with. Internet on mobile is something which has become the dream come true for
most busy executives. The mobility factor apart, it gives you the luxury of all
time connectivity and saves you from the trouble of opening the laptop every
time you need to check your mail. Simply put, its your world in the palm of
your hand.

As Shantanu Dash puts it: People dont use phone as a phone now. The
concept of Internet on mobile has its inception as long back as 2003. Then came
the high-end phones, capable of supporting good amounts of data, and further
down the lane, blackberrys changed the course of human history.

But Internet on mobile is much more than searching air-ticket and weather
details on the phone. It supports a huge industry at the back-end. No wonder
then that big names like Yahoo!, Google and Rediff have dedicated mobile
departments and are taking this segment rather seriously. According to Vishal
Maheshwari, director, Mobile Business, Yahoo India, People dont consider the
PC to be the only way to reach Internet now.

And given the mobile boom, Internet on mobile is a phenomenon that has caught
up relatively fast. Almost the whole of this market revolves around the high-end
users. It the basic assumption that everyone who owns a laptop/PC must own a
mobile, and if the information is readily available on the mobile phone, it can
be much more handy than the conventional methods.

There are three core constituents of the Internet mobile industry: the
publisher, advertiser and consumer. Maheshwari says that the biggest challenge
for any Internet company operating on mobile is to achieve a harmony in the
ecosystem which appeals to all parties. Moreover, on mobile there is a more
urgent need to provide a consumer relevant experience.

Vinay Goel, head of products, Google India, says their aim is to organize
the world info and make it universally accessible. And what better way to do it
than the mobile phone. This is especially relevant for India, where we have a
base of 3 mn plus mobile users. But reaching this base is not as simple as it
appears. There are many strings attached. Be it bandwidth issues or regulation
hassles, it hasnt been a smooth ride so far. But that hasnt hindered the
Internet companies from entering this space and making a mark.

One of the major factors that flow in favor of mobile Internet is that it is
relatively independent of the operator. Or as Goel puts it, it is operator
agnostic. While some partnership with the operator is necessary, it doesnt
imply complete dependency. This is because of the model of openness that
prevails in the Internet domain. Once a consumer has taken a data plan he is
free to choose the sites he wants to visit or widgets he wants to downloaded. In
such a scenario, the role of the operator is restricted to providing data plans
and the end billing.

Says Uday Sodhi, SVP, interactive services, Rediff.com, Web on mobile is
just like Web on PC. What is different is the consumer experience, nothing
else. He says that the need of the hour is to make the overall user experience
more easy and comfortable and thats what their focus is. Vinay Goyal agrees,
The model on the Web is the same as the model on mobile, it all depends on the
openness of the system. However, Maheshwari differs on this point. He says,
Mobile Internet is different from PC because for us to reach our customers on
mobile we have to form a number of relationships. Be it telcos, equipment
manufacturers or advertisers.

All that Ends Well...

Yes. There are countless overlaps in the system. The roles arent well
defined and the operator seems like the happiest link in the chain. But there is
still enough reason to be hopeful. The content providers, the application
developers and the media companies, are all flooded with optimism. Mobile is one
genre that isnt engulfed in pessimism even in times like these.

No one pronounces 2009 to be a landmark year in terms of mobility. But
everyone expects robust activity. Nobody is looking at explosions and a complete
dismantling of the system that appears harmonized, at least from the outside.
All they are looking at is some kind of change. The change which is indeed
taking place, bit by bit, in every part of the country.

This change is just a sigma of the slow revolution that the mobile is
bringing about. Some of it is happening in every village in the country, every
single day. Be it a racing game or a romantic ring tone. Be it weather forecasts
or marriage invitations... mobiles are indeed transforming the communication
scenario.

And it is never a bad thing to be a part of a revolution. Is it?

Mehak Chawla

mehakc@cybermedia.co.in