Spunky start-up

How do companies offering value-added services such as ringtones and SMS-based services on mobile devices make money? Most sign up with telecom companies to reach their huge base of subscribers. This is primarily because of the ease of billing consumers through the operator. For instance, Vodafone deducts the amount from the balance of a prepaid customer and charges post-paid customers in their bills. The vendor behind the service gets 30 to 40 per cent of the overall subscription fee consumers pay.

At the back end, however, small companies or start-ups face an uphill task reaching billing terms with operators. Mumbai-based Spunk Media, which recently launched its brand Cube Cell, has developed a business model to ease this process for such companies. Backed by venture firms Kae Capital and Blume Ventures, it began operations in April 2011. The company works like a payment gateway for mobile start-ups, helping them integrate their billing with the operator. "It takes more than nine months to get the billing agreement working in all the circles. A start-up needs to cut down time to market," says Ranjan Reddy, Founder of Spunk Media, who claims billing integration can be completed in three days with the operators it has tied up with. Reddy earlier worked with Italy-based NeoMobile, a value added services company.

Currently, Spunk Media works with Vodafone, Airtel and Tata Docomo and has integrated its systems with these operators. It lets these operators know which vendors are getting integrated with its billing systems. The operators have the option of dropping the value-added service if it fails to meet revenue targets within the time frame fixed.

Spunk, which has global ambitions, works with companies such as Opera, Sony Entertainment Television, Filmfare magazine and Linguistic. The biggest chunk comprises gaming companies or companies offering music downloads on mobiles.

In general, consumers are charged Rs 30 to Rs 50 per transaction. Spunk Media, in turn, charges vendors anywhere between five per cent to nine per cent per transaction.

Telecom operators are still indispensable for most companies as credit or debit card penetration is low. However, Reddy wants to work only with direct-to-consumer companies, who need the operator only for their billing, and not to market the service or acquire customers. "The revenue share is also fairer if you work on your own marketing and customer acquisition. It can go up to 35 to 70 per cent in favour of the vendor," says Reddy. Vodafone is now sharing a bigger slice of the revenue pie with vendors, offering them up to 70 per cent if they meet a monthly topline target.

The company is in talks with Facebook and EA, the largest gaming company in Europe, who want to come to India and integrate their billing with Indian operators without investing too much in building a physical presence. "It makes sense for them to get it done by us unless they see a big market here already," says Reddy.

The main challenge for Spunk Media is to find small companies with big potential. "Once a company is big, it will go and talk to the operator on its own," says Reddy. Another challenge will be to convince more Indian entrepreneurs, who will have to shell out an additional amount to Spunk, to sign up.

Other big companies with similar business models include two US based companies: BOKU, a $55 million plus company, and Zong, which was acquired by Paypal for $240 million in 2011. Germany-based, Mopay, and Bango, a listed company in UK, are two others.