M Powered India

DQI Bureau
New Update

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



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.

Reaching the Unreached
So far, all of us have played up

the convenience part of the mobile phone. Perhaps more important in the

Indian context is the reach. Today, India has close to 350 mobile phone

subscribers. There is hardly any medium that reaches so many people, not

even television. Comparison with PCs do not even make sense.

Can this aspect of mobile phonesits

ubiquitybe leveraged better? There is no reason why a farmer in a village

should not have access to information about the best seed, weather

predictions, the crop harvest, etc. That too with utmost ease and in his own

language, says Vinay Goel, head of products, Google India.

Agrees Nihar Das, regional managing partner

for Mediacom Asia Pacific. Das says that the mobile may not be the best

medium to market the packaged goods, as the medium suits the more high value

transaction services such as insurance. But he informs that his client,

Procter & Gamble, the worlds largest advertiser, had to seriously take up

this medium when it realized that in certain markets in the APAC region,

such as India and Philippines, this may be the only medium that is available

to reach out to a large section of people.

Now even mobile payment companies are

exploring if payment services can reach people without a bank account. There

are estimations that about 25 mn people in India have access to mobile

phones but do not have a bank account.

From payments to sales, from invites to ads,

The m word has made everything possible via the device in your palm. But the

real challenge is: can you deliver? The question applies to every link in

the ecosystem. Everyone acknowledges the tremendous potential that the

untapped part holds in this country, but they are yet to reach them. One of

the major reasons for this is that the prowess of the mobile has gone

unnoticed till now. It has surfaced and caught attention only very recently.

As is obvious, in its nascent stages the

mobile is, and will be surviving on the metropolitan wires. But that doesnt

in any way underestimate the massive opportunity that lies below the tier-3

down cities. And its gradually being uncoveredthis all new face of the


One recent initiative by Airtel is to sell

the idea of m-governance to state governments. This assumes that the citizen

services will be made available on the mobile phone.

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.

Some New m-Opportunities
With so much activity around the

whole mobility scenario, the industry is hopeful of it taking off in a big

way soon. A look at the prominent trends that are expected to emerge in the

near future.
  • M-Healthcare: The penetration of the

    device will ensure more utility based applications. Healthcare seems to be

    gaining the top slot already.
  • Social Networking on Mobile: As the

    Internet on mobile will gain popularity, social networking will naturally

    follow. There is no reason to believe that if an employee cant access

    Facebook on the office network, he wont want to check his messages on his

  • M-Payment: Although this field was watched

    with a great interest, it didnt perform as was expected. That is because

    of the regulatory hindrances. With the RBI guidelines in place, the

    apparatus for m-payment is already rolling. RBI guidelines are the right

    step in a positive direction. 2009 will not see any explosion on the

    mobile payment scene, but it is going to be a good year.
  • M-Learning: Says Shantanu of MosPay, the

    first company to introduce learning programs through mobile, I want to

    educate everyone in the country who has a mobile phone. M-learning is

    going to take off as more people begin to say what the Idea ads have

    already laid a foundation for.
  • M-Governance: Another concept which is

    rapidly gaining popularity. Dr SMS project is only one such example of

    m-governance. The reach of the mobile will make it the most effective

    channel of interaction between the government and the citizens.

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


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

  • 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


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


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.

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,, 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


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

Mehak Chawla