Mobile services developers will try to reach consumers directly in future

In 2013, and the years to come, convergence of all sorts of services on mobile phones is expected to take off. With these handsets turning out to be the first screen for millions, everyone will need to have a 'mobile strategy' in place, whether it is brands vying to connect with consumers or telecom operators counting on the mobile internet to drive their future growth. "Data will be a critical part of our growth strategy," says N. Rajaram, the Chief Marketing Officer for Consumer Business at Bharti Airtel, India's largest operator.

The action will be driven by entrepreneurs, who will be the enablers behind internet-supported services ranging from entertainment and payments to advertising on phones.

So, will power move out of the hands of the operators, who control a majority of the revenue share (over 70 per cent) in most services offered on mobile phones? "It has to, if the industry is to grow," says R. Chandrashekhar, Secretary, Ministry of Communications and Information Technology. "That is one of the main reasons the industry has not grown to the size that was desired. Entrepreneurs are the creative brains in the entire mobile ecosystem and they must get their fair share."

Business models will have to change if the 'mobile ecosystem' is to explode. For entrepreneurs, reaching consumers directly and billing them still remains difficult. But newer mobile entrepreneurs want to bypass operators by depending on application stores, such as Nokia's Ovi Store or Apple's App Store, to distribute or launch their products. Many would want to go slow and make money through in-app advertising, keeping the app free for the user rather than having them pay a subscription fee through the operator. Many other money-making models will emerge.

As far as India is concerned, the limited penetration of smartphones and usage of debit/credit cards to pay for applications has made operators indispensable, at least for billing, if not marketing and distribution. Consumers don't know how to pay directly. There are 250 million plastic cards in India, of which 230 million are debit cards. People are not used to swiping or entering their card information on the mobile web.

Entrepreneurs and experts believe power is slowly moving out of the hands of operators, as with increasing adoption of the mobile internet, more and more consumers will discover mobile services on their own, rather than through an operator push.

More and more app developers are doing all the marketing and reaching consumers directly. At the same time, they have also been boosting operators' revenues through data charges. "There is value-add for them anyways. Unless they understand this, they will become dumb. Because people will start finding ways to avoid them and they will be dead," says B. Vamshi Krishna, Founder and CEO of Apalya Technologies , which works with most Indian mobile operators to offer mobile TV services. Apalya has also launched its mobile TV app on app stores.

Most small companies face relationship issues with the operator. "Circle-wise sales are a huge pain. It takes a long time, maybe months, to build relationships with carriers," says Amit Zaveri, founder of mobile learning company EnableM. Zaveri has also launched 'Magic Pencil' a software product targeting management colleges and distance-learning institutes. "Small companies cannot afford that. They need to get to the market faster," says Dev Khare, Partner at Lightspeed Ventures, who wants to invest only in 'direct-to-consumer' mobile companies that don't have to depend on operators for anything.

Khare adds that there is also the issue of transparency with the operator. Often, there are discrepancies in the data the carrier has on the number of downloads and what the entrepreneur will have. "A value-added services player may say there were 20 downloads, but the operator says you have 10," he says.

Companies such as Zenga TV, which is a direct-to-consumer mobile TV application, are trying to avoid the operator because working with the operator means losing brand value. "Working with the operator means you have to white-label your product and the consumer doesn't know you at all. That will not be the way to go for us," says Abhishek Joshi, CEO of Zenga TV. White labelling happens when a product or service produced by one company is sold by another company under the latter's brand name. For example, Innoz Technologies produces a product called SMS Gyan, which is sold by Airtel as Airtel Gyan.

The new breed of VAS entrepreneurs will do whatever it takes to avoid the operator and revenue share will be the major reason for the shift. Will operators be missing the data opportunity if they cannot encourage more mobile apps to come on board through them?

Why does the operator command the lion's share of VAS revenues? "Since operators have already made huge investments in licences, towers etc, it makes sense for them to command the upper hand in the business model," says Ranjan Reddy, founder of Spunk Media, which helps small companies integrate their billing systems with operators. Further, it takes time for them to see if partnering with hundreds of small companies makes economic sense. "Why will they bother with you if you only add a small amount of revenues," says Mohammad Imthiaz of Hoppr, a location-based reward and coupons service that works with mobile operators. "You have to let them see value in your product. It should be able to help them retain their subscribers," he says.

India ranks the lowest globally on the count of non-voice services, which contribute just 10 per cent of operators' revenues. The global average is 23 per cent and Singapore, with 32 per cent, is the highest. A recent report by IAMAI and IMRB says that while the per-user spend on voice has declined from Rs 98 in 2009 to Rs 64 in 2012, the per-user spend on value added services has gradually increased from Rs 15 to Rs 24 over the same time period. This indicates the growing preference people have for mobile devices for an increasing range of services, from SMS-based updates to bill payments to watching videos.

Vodafone is the frontrunner in realising the potential of applications as the next source of revenue growth. The company is offering vendors who generate revenues of Rs 1 crore per month a 70 per cent share of those revenues for direct-to-consumer apps. The mobile operator will have no role in marketing or branding the service. Will others follow suit?