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Making money from mobiles

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Broken In
Once the intermediaries between telecom and media companies, mobile aggregators are now an industry by themselves

Namitha Jagadeesh in Businessworld

Next time you watch a film, read the credits to look for the words ‘mobile partner’. That is how you will see the names of the companies that form the unknown backbone of a booming Rs 2,300-crore market.

These could be Mauj, OnMobile, IMI Mobile, Nazara, Cellebrum or Phoneytunes among several others. They provide the back-end or put together value-added-services (VAS) for a dozen-odd telecom operators and hundreds of marketers. If you have ever sent an SMS to a TV show, downloaded a song, taken part in a contest among dozens of other things on offer, you have added to their revenues.

Now, about five years after they came into being, mobile aggregators, the ‘middlemen’ between telecom and media companies, have moved from being a telecom spin-off into an industry of their own. Each of these players range anywhere between Rs 25 crore and Rs 250 crore in revenues, and claim an EBITDA (earnings before interest, tax, depreciation and amortisation) of 15-35 per cent.

On the back of a growing mobile population, they too are growing, though estimates are hard to calculate. They are scaling up operations, doubling workforce and building technology platforms aggressively. The simplest way of sniffing out the promising players is to ‘follow the money’. This year alone, six key investments were made in the mobile VAS space — into Mauj, Nazara, IMI Mobile, JiGrahak, Paymate and OnMobile — with more in the offing.

“We are bullish about this sector. It is a relatively young industry, but the growth is very promising,” says Sandeep Singhal, manager, Sequoia Capital. It invested close to $25 million in telecom software and VAS in 2006. This includes $11.5 million into the People Group that owns Mauj and Nazara. IMI Mobile recently closed its second round of funding from New York-based Pequot Ventures, which “had been looking at India for some years”, says Amish Jani, senior vice-president, Pequot Ventures. It has made many investments in the wireless space worldwide, including Flarion and Netgear. IMI is its first Indian investment. IMI had earlier raised £3.7 million ($7 million) from UK-based NewMedia Spark.

OnMobile has just closed a $35-million funding from Goldman Sachs and other investors. It plans to roll out many new services, including an interactive voice response system (IVRS)-based one over the next 18 months. Mobile2win is also currently in negotiations to seal a second round of funding. Its first round came from three investors: Siemens, Softbank China and Contest2win India. Cellebrum is looking at an IPO next year. There is an oversupply of capital for this business now, says a player.

The reasons are simple. At over 100 million subscribers, India is one of the fastest-growing mobile phone markets in the world. However, it is also the one where voice commoditisation has taken place the fastest. So, much like Europe, Indian telecom operators are finding the solution in VAS.

Unlike voice calls at 80 paise per minute, a subscriber pays anywhere between Rs 6 and Rs 30 for a VAS. Both voice and ringtone calls run at the same operational costs. So, margins for a Rs 6 ringtone call will be more than six times that for a voice call. In their quest for entertainment and fun, millions of young Indian consumers, across cities and towns, have taken to VAS faster than many other markets in the world and, more importantly, are willing to pay for them. So, at Rs 2,300 crore (this includes the share of operators, content creators and aggregators) the market is growing at 80-100 per cent every year.

I wonder why the cost of "value added services" is between 6 and 30 rupees, while for calls it's only 80 paise???

These companies are ripping us off!
Second part of:

Mobile Partners Come of Age

Namitha Jagadeesh

Many of these companies, founded by people with an Internet/technology background, saw the party long before it began. OnMobile, for instance, was founded at the Infosys campus in Bangalore by two Infosysians and Arvind Rao, a VC dealing chiefly in the wireless and Internet space. Mauj was founded by the People Group, which had developed portals such as Shaadi.com and Fropper. IMI Mobile was branched out of IMI Software, which designed and deployed mobile transmission towers for telecom operators. So, the pedigree is, strictly speaking, telecom savvy.

Playing To Strength

What could spoil this party are low entry barriers and a very low share of the total revenues. While we are talking about 8-10 companies, the fact is that there are scores of them out there offering to undercut the next guy. So, margins are already getting hit. Some VAS products such as film songs are already becoming commodities. Therefore, scale, differentiated products and a distinct (read specialised) business model are imperative, a fact most players have already caught on to. Each is finding its own way out.

Mauj, for instance, focusses on rich media content. So, Mauj will make the most when full-song downloads and mobile TV takes off. Hungama specialises in film content for mobiles. OnMobile has developed its in-house IVRS, accumulating a vast database of voice inputs over the years. For OnMobile, its voice-based applications may find greater use as operators penetrate the rural markets more. That is where voice-based VAS will work better.

Mobile2win is focusing on what it calls ‘lifestyle applications’. It has developed offerings like mobile yoga instructions, recipes by Tarla Dalal and preachings by Sri Sri Ravishankar. “For the market to grow, we have to tap the traditionally non-downloading audience and get them to use our products on a daily basis,” says Rajiv Hiranandani, country head, Mobile2win. It is an idea that seems to be working for the company. One of its strangest products, the ‘mobile pet’ (a virtual pet like a fish, which one has to ‘feed’ daily and ‘take care of’) has been downloaded 18,000 times in the last eight months.

Along with content aggregation, these firms are also involved in content creation, developing mobile technology and managed services (data and voice). Mauj, Phoneytunes and Mobile2win —all develop their own content for some applications, while tying up with content providers for others. OnMobile and IMI do not create content, but are into mobile technology development and research. Cellebrum’s focus has been on mobile-enabled enterprise messaging services and roaming solutions.

This allows them to think beyond just basic products and India. About a third of IMI Mobile’s total revenues come from operators outside India. It is now setting up a $5-million research lab in Mauritius dedicated to 3G. It will develop mobile video portals and other applications on the 3G platform here (in Mauritius). That means a better deal with international operators for whom it is already handling 3G applications. IMI is also looking at tapping markets like Bangladesh, Middle East, Africa and Latin America where, “operators are trying to start services”, says A.R. Vishwanath, CEO, IMI Mobile.

Mobile2win makes 30 per cent of its revenues from operators outside India. It has already worked with OmanTel and Saudi Telecom, and is exploring other West Asian markets. Its US operations should kick-start by end of the year. “There is an untapped market there,” says Hiranandani. If you are wondering why, here is his answer: “Although it is a mature market, they have a legacy of very old systems. They lack services like caller ID.” OnMobile also makes about 10 per cent of its $50 million annual revenues from international operators.

So, is India becoming the global back-end for value-added services? Not exactly. Most of these companies still consider India as their primary focus area, which will see a lot of action over the next few years. The international market is more about hedging their bets. Especially since aggregators get a bigger cut from what the user pays.

That brings us to the second party pooper: revenue share. In Europe and Japan, the content provider gets a large cut of the revenues that a telecom operator charges users.

Sometimes, the telecom operator gets as little as10 per cent. In India, the operator keeps the lion’s share: roughly 60 per cent. The rest is split between the mobile aggregator and the content provider (usually 50:50), if any. Most content creators and aggregators in India are not even a fraction of the size of telecom operators. Plus, they operate in a fragmented industry, so, their negotiating power is zilch. Also, a consumer wanting to download a ringtone, can bypass the telecom operator (in the US, for example). In India, telecom operators control the channel through which these services reach the consumer. So, if you are a Hutch subscriber, you can buy a song only from Hutch.

These, however, are issues that will get sorted out as the market evolves. The main issue is the payment gateway. Right now, only telcos can bill the user directly for the services provided. So, unless there is a secure external payment mechanism, VAS players cannot offer downloads in an operator-agnostic environment. However, most see this as a short-term challenge. Already, players like Phoneytunes are making efforts to offer services independent of operators. As the market grows, it is inevitable that operators should make way for new avenues. That is, as operators face external competition, the revenue share for mobile aggregators will also increase, like it has in other markets.

If the operator monopoly is lifted, it will be interesting to note if mobile aggregators will want to be a brand unto themselves or continue to be the back-enders. Mauj wants to be known as a brand among subscribers. It has its own WAP portal and is allowed access to Hutch, Idea and BSNL subscribers. OnMobile just wants to be the back-end for operators. “We supply the technology, we don’t make the content,” says OnMobile CEO Arvind Rao.

Those, however, are questions that VAS operators will face some time later. For now, the party continues.
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