Cover Story: A VAST Opportunity

Of late, India's VAS (value added services) players have started getting recognition thanks to their entrepreneur spirit and innovation. It started with OnMobile, the first VAS company to be listed on the Indian stock exchanges in February 2008 and this momentum has been picking up with each passing month. In the last three months, there has been a series of investment announcements made by the VAS companies. All this is a good sign for the industry, as they can grow big by expanding their service portfolio and launching services in newer geographies. It will also enable the VAS players to think big. Not only this, there are lot of investments that are in the final stages and planned to be announced in the last quarter of 2011.

Recently, InMobi, an independent mobile advertisement network, got $200 mn from SoftBank. The funding will take place in 2 tranches-$100 mn in September 2011 followed by an equivalent tranche in April 2012. SMS GupShup, a mobile social networking platform, secured an investment of $10 mn from Tenaya Capital for global expansion, product development, and marketing. Spice Digital recently got $20 mn from MediaTek, one of the leading fabless semiconductor companies, for wireless communications and digital multimedia solutions. JiGrahak Mobility Solutions, a Bengaluru based mobile commerce company raised $10 mn through venture funding. Recently, Zenrin, a leading Japanese map publisher, has invested around $30 mn in MapmyIndia, a leader in premium quality digital map and data, GPS, location based services (LBS), GIS, and location based business intelligence solutions. So in toto, the industry has received investments to the tune of $270 mn.

All these announcements will help VAS players like InMobi, SMS GupShup, Spice Digital, JiGrahak Mobility Solutions, and MapmyIndia to increase their portfolio both in terms of product offerings and geographical reach. The above investment also gives credence that the Indian VAS market is growing and there is enough opportunity for innovation and sound business model. It seems, the Indian VAS market is on an upward trend and is bound to increase with deployment of 3G services and expected launch of BWA services in 2012. The launch of 3G and BWA services in other countries have resulted in an increase in non-voice contribution percentage by 3-4% every year for operators. All this lead to an increased revenue for the Indian VAS players, since we are at 13% in terms of non-voice revenue whereas the global average is around 25-30%.

VAS Market

As per V&D100-the annual survey of the Indian communications industry-the Indian cellular market for FY11 is estimated to be around `102,230 crore, ie, $22.3 mn and this market is growing at the rate of 16.6%. Of this total amount, VAS or non-voice revenue for mobile operators contributes around 13%, which translates to `13,026 crore. It is expected that the Indian VAS market is bound to increase to `32,000 crore in FY15. And all this will happen only when operators provide stable 3G and 4G network and quality of experience so that data services improves considerably.

The Indian VAS market is also bound to grow as operators have already invested around `100,000 crore in terms of 3G and BWA auction, and they are presently in search of a series of killer applications that will help them recover their auction money. Not only this, they are also looking at killer applications that are less bandwidth consuming and can bring a large chunk of revenue.

The Indian VAS market is a fragmented market with 20-25 large players followed by small players. If one looks at V&D Top10 VAS players' revenue contribution for FY11, it is estimated to be around `2,116 crore, which would be around 60% of the total VAS market. As per VOICE&DATA, the Indian VAS industry of FY11 would be around `3,527 crore. And this is just 27% of operators' non-voice revenue, which is to the tune of `13,026 crore. So, if one looks at these figures, one can conclude that operators are sharing on an average 27% of their revenue to the VAS players, which is just the opposite of what's happening in the Western world. These ratios are not favorable to the VAS players and they need to be changed. For example, if the ratios change to 70%, the Indian VAS market will be around `9,116 crore, which is 2.58 times the present figure. All this will make the VAS industry look more attractive.

This ratio is bound to change as establishment cost for the VAS players is increasing, manpower cost is increasing, and profits are becoming wafer thin. On top of this, there is a plan by the government to license the service and collect revenue share from the VAS players. All this is not helping new innovations for large-scale deployment, as they are short of cash reserves and even local volumes do not give them enough confidence to move in a big way. Therefore, operators in India need to think twice and change the revenue sharing ratio and make it more favorable to the VAS players, if they plan to make 3G and BWA successful.

If one recalls, mobile picked up in the Indian market only when voice tariffs were lowered to a significant extent, leading to affordable services for the masses. Presently, the Indian operators are still struggling for killer applications on data that need to be priced aggressively so that a large number of people can opt for these services. To make it big, the VAS players should start focusing on non-operator business, international market, and applications like mobile data, mobile advertising, and mobile commerce in the long run.

Catalyst for Growth

One reason why the VAS industry in India has not done well is their complete dependency on an operator. The VAS players need to delink partially from the operator and start focusing on non-operator business in a big way-be it government, enterprise, and M2M (machine to machine) applications. On the government front, with mission mode applications gaining ground, the VAS players should start looking at providing applications for both state as well as central MMPs. The players need to work closely with the state government and central government departments. It seems, there is a huge scope of enterprise applications to be deployed by the corporates, be it for their own internal efficiency or for increasing productivity or maximizing revenue. Presently, these applications are limited in nature and are deployed by technology-savvy corporates. So, one needs to expand its scope and deploy m-solutions to all types of corporates for all functions within the corporate.

VAS applications can also be useful for education and health sectors. Since in India there is an acute shortage of doctors and teachers, therefore focus should be on education and health related applications that will have lot of demand in the future. But these applications are not easy to design due to small screen size and user interface limitation of small screen. If applications are designed properly, one can see an increased usage of these utility based applications, which can be a good revenue earner for the VAS players.

To increase the size of the VAS market, the players have to look at non-Indian markets in a big way, eg, emerging economies (African countries); Saarc countries (Bangladesh, Nepal, Bhutan, Sri Lanka, and Maldives); and South East Asian countries (Vietnam, Malaysia, Singapore, Thailand, and Hong Kong); and Latin America and North American countries. Presently, very few Indian VAS players are focusing on European, US, African, South East Asian, and Saarc markets and this can be a big opportunity. The VAS players also need to focus on innovation as this will help them increase their revenue from international market. Large VAS players have started focusing on the international market and this is helping them in a big way. On the international front, the companies can also look at non-operator business that can fetch them good revenues by working with large IT outsourcing players who have done well in the international market.

On the applications side, we have not seen many innovations after ringback tones. The VAS players need to focus on innovations in upcoming areas like mobile data, mobile advertising, and mobile commerce that will help in providing additional revenue. They should also look at incorporating innovations irrespective of the device, be it feature phone, smartphone, tablets, and others, as this helps in increasing the size of the market. Also, the challenge is to make applications run on cross platform be it any mobile OS (operating system). Focus should also be on personalization or customization that makes users feel delighted.

With mobile broadband network being deployed by the operators, the VAS players can look at high bandwidth applications but need to package the services attractively. While in India mobile data is presently a small portion of operators' revenue, whereas worldwide it is around 20-25% and is increasing every year. Therefore in the Indian context, there is a big scope for mobile data services but one needs to see how these services can be packaged.

Another challenge is the penetration of smartphones in the Indian market, which needs to be increased. For this, the handset vendors and operators need to work on it and reduce the cost of smartphones in the the Indian market. Once the smartphone penetration increases, the VAS players can think of large scale deployment, which makes services look more attractive.

Pravin Prashant

pravinp@cybermedia.co.in