VAS and APPs: Are We There Yet?

Reena Rathi is Head of VAS at Aircel

By Reena Rathi

The mobile now commands two out of every three minutes that we spend on digital media. The last three years witnessed a growth of 53 percent of the digital time spent on our mobile phones, thanks to the proliferation of the mobile apps and easy access to mobile data. The usage is steeper for youngsters in the age bracket of 18-24 years, who on an average are spending nearly 93 hours a month on their smartphones – which is almost 20 percent of their waking hours!

From consumers wary of making a phone call on their mobile phone due to high cost, to consumers today, who are inseparable from their mobile phones at all times. What started as an alternate revenue stream called VAS with a simple texting feature of SMS has today become full blown communication, interaction and commerce on Apps.
Fast mobile broadband networks, well-designed mobile devices and the increasing supply of content, applications and services have unleashed an unprecedented consumer demand for more. The ever-increasing data subscribers have led operators to unearth new opportunities to increase their monetization levels through innovative provisioning of this new Value Added Services (VAS).

Telecom operators are rushing to meet the growing data demand that is almost doubling every year. 4G is now available in over 100 + networks around the world and is expected has overtaken 3G subscriptions in 2016. Revenue from 4G is expected to be almost 80% of overall access revenue.

The heart of this is the consumer and his hunger to demand and absorb it all – faster access speed, intuitive applications, content, seeking information and services that makes his digital life simple, connected and available at fingertips.

They value convenience in content services – readily accessible across devices, easy to pay for and easy to find and they prefer to pay for access than for premium services. They have therefore moved to device based native multimedia Apps that offer a seamless experience for all of such services, thriving on community and even invading into the very core communication services offered by the operator. On offer is a whole canvas of free content and services in lieu of advertising/videos.

Social Networking, Instant Messaging, Movie & Music Apps, Digital Wallets, Mobile Gaming, M-Commerce and Mobile Videos have emerged as the new direction of consumer demand in content services, and potential revenue of VAS for telecom operators.

The Big Opportunity

Six years ago, at its peak, the VAS industry contributed to almost 12 percent of operator revenue. The App economy on the other hand has jumped by 80 percent and it is expected to hit $1.1 billion by 2020. The question to be answered by the operator diaspora is to work out ways of monetizing these new VAS channels rather than being just a means of driving data access revenue.

India is the third highest country for number of App downloads from Google Play store. Top it with India being the second highest country after the US on Android App developers. Game downloads in India have already earned us the #5 spot for top countries by game downloads, with low-cost smartphones powering the surge.
The statistics that App usage throws up are staggering and it all indicates to further growth in 2017.

By the end of December 2016, the gross consumer spends on Mobile App stores would be $52 billion and a staggering $77 billion in gross spend on mobile in-app advertising – this is predicted to grow to $166 bn in 2017. Mobile is more mainstream than ever before and businesses from all industries are relying on this channel to bolster existing revenue streams and unlock new ones.

2016 recorded a 63% growth in time spent on Apps with Media and Video Apps on Google play growing at a staggering 93%.
Games remain the primary driver and will remain so but subscription revenue from dating and media streaming Apps will grow faster. Tools, Communication Apps, Entertainment and Social Network follow, both in Downloads and Revenue, with few differences between IoS and Android Play store.

Video and Music Apps are predicted to grow at CAGR of 44% (US$ 1 bn 2015 to US $ 6 bn in 2020). China, Germany and India drive the curve – aided by the likes of Netflix, YouTube and HBO Now. Almost 70% of mobile traffic in India is slated to be videos, currently limited only by network speeds.

Data Consumption from top Music Apps increased by 25% and revenue from In-App purchases doubled. Saavn and Gaana are now among the Top 10 streaming Apps on Android across the world.

Time spent in shopping Apps was up by 52% on Android phones worldwide (excluding China) during 2016 largely due to the growth in mobile commerce. In 2017 – the strongest growth is expected from brick and mortar retailer and banking businesses as mobile Apps reinvent the in-store experience.

The changing face of consumer behavior impacts the business models, revenue streams and value chain structures. The need of the hour is the sync between multiple stakeholders like operators (overlap with IT), Internet Services, OTT Apps – Media/Others and OEMs, to drive a digital convergence that creates a complex new sector. For all the entities - this is translating to both - challenges in redefining its role within this sector and estimating & capitalizing on the opportunities it presents. Anyone can be a disruptor with a new model.

The App model has many advantages over Native.

It is available on any smartphone and secondary devices (tablets, TVs, watches, PCs).
It evolves and updates more frequently than native or standard based services.
Allows an autonomous strategy with no difficult agreements with the ecosystem (web, telcos, OEMs).
Favors virality via address book access and usage of the phone number.
They are agile, disruptive and can address any niche with a low cost structure. However, the challenge for Apps is to have a unique consumer proposition, reaching the right customer, secure authentication and identity management and smart digital investments to be at the top of the store or there are many Apps that get lost in the store layers.

With Voice ARPU challenged, SMS facing the fall vs. communication Apps and access prices for data falling steeply, alternative revenue streams are critical. The complexity lies in choosing the mix, model and timing of partnerships and investments that drive profitability in the medium and long term, navigating through content & App ecosystems.

There are interesting changes and trends that define the new VAS Ecosystem –

Operator Digital Ecosystems: Some operators are creating digital ecosystems for themselves, building many relevant Apps, which will hopefully build a habit that will drive a consumer change in communication and content viewing. Not only is that a departure from their core capabilities and business, it also commands new skillset, and consumes time and effort.

Digital Partnerships: Digital Partnerships is very important and can benefit all - operators, OEMs and App developers. For Network Operators it would translate into higher mobile data revenue, capitalizing on brand awareness for partner Apps to sell more data packs and mutual areas of marketing co-operation. Apps in turn, can increase reach into targeted operator subscriber base with a potential to generate additional direct/indirect revenue. OEMs could ride on the App brands and potentially increase the attractiveness of devices.

Sharing of Operator Assets: Operators have a number of different commercial and technical capabilities and assets to offer their OTT partners. Distribution to reach the customer, connectivity and smart APIs for selection of customer with right attributes, authentication of the right user, quality of service, direct billing to monetize subscriptions, marketing/advertising and expansion of footprint across devices and geography. Recently operators across the world and in India, under the umbrella of GSMA, have collaborated to offer Mobile Connect – a mobile number based authentication service for addressing the requirement for OTT players across devices. This extends security and privacy offered by mobile networks to its customers to those of the digital services.

M2M services - Operators will build opportunities beyond communications into M2M, Advertising, Financial services, Cloud, Security, m-Health, Distribution. Given their scale, each of them can make an impact with solutions and services. They can do it as a new entrant to the service, or they could partner with existing App/OTT solutions.

Evolution of IMS services - The flood of Apps is paving the requirement for IP-based networks that are gearing up for IMS services - VoLTE, RCS & enriched calling, VoWifi that have global connectivity and are ubiquitous across devices. This will be the 4th curve for the ecosystem where Apps & Operator services would merge to offer customer a seamless experience.

The transformation from pure Data Pipe to Smart Pipe that provides services and maintains a valuable customer relationship beyond providing bandwidth and network speed will put the operator back to where it always was – the ‘Service Provider’ at heart of communication services for the consumer.
We have come far, but there is still a long way to go.