Wednesday, 22 February 2012

Brave new world...

Think about what role the mobile operator has been playing to-date:
  1. They own a pipe to transmit information (voice + data)
  2. They own a touch point to the customer (and hence impact the choices I make)
  3. They own a mechanism to charge the customer - either stored value or monthly billing
Long-term which of these will be critical? The pipe is a commodity - as I mentioned in the last post, we have 5-10 such "pipes" floating around at any given location in the country. The touch point is critical, to establish the connect between customers and the network - however once customers are connected, there is a resentment toward anyone limiting their choices...customers prefer the "chaos of choice" over a "curated calmness".
#3 here is the most critical, and in my mind, the lasting value-add of operator -- enabling me to pay. Why is this one lasting? Because customers themselves need someone to play this role, and who better than someone who already has a billing relationship with me, someone who has thousands of retail points across the country. Add to that the fact that customers are unwilling to use plastic, and I think operators are all set as the mobile payment enablers.

Now think of a new world where the operator magically accepts their new role, and transforms a broken industry. For the app creator, their side on the revenue share equation switches to give them majority ownership of the value created. With this new viability, the pace of innovation on mobile apps accelerates...leaving CBRT far behind :). Operators start providing open access to all apps created instead of this sorry excuse for an app store! ("Spicy Jokes", anyone?!). And while we're at it, all of Gurgaon's roads get repaired and Delhi doesn't flood during the monsoon!

But seriously, the reality might be something like this - starting from the current single player VAS world, 3 different providers emerge:

  • Traditional VAS: The legacy players hum along, supported by their legacy (but declining) businesses, while searching for new stream of revenue - both new products and new geographies. Smaller one die out as they're unable to cross the unexpected chasm. If you look at one of the public VAS player's quarterly revenues, the entire focus is on International, while India continues to decline due to "lower quality of users and reliance on the operator". Tough times!

  • App Economy: With 10+ million smartphone shipped in 2011, there are enough app hungry users today to dream of building a viable apps-based business. So everything from music and videos to location services and mcommerce will see action this year. Payments remains a roadblock, so while that piece gets figured out, businesses will focus on driving adoption and engagement - monetization to hopefully follow soon.

  • Hybrid Player: How do you (mildly) twist the operators arm and force them to share? Build a direct connect to the customer and effective remove them from the coveted middle-man position. App developers create and the user votes with his downloads. Continue to use the operators infrastructure, but since the operator no longer markets, they are relegated to a payment providers role and corresponding revenue share. Undoubtedly this is non-trivial - so companies with some kind of existing customer connect, either offline or through other media like TV, will be able to play here. But for the near future, this might be the most exciting mobile space...

Comments welcome...


  1. The amaziNg thing about mobile networks is interactivity, Alok. Those who can generate a dialogue are the ones who offer more fundamental utility.This is going to be(meant to be) a two-way medium. The customer if passive, is not very exciting. The engaged customer designs products, gives feedback, expresses disgust..a fast paced and dynamic world, with the customer truly at the centre of it
    Subodh Pandit

  2. Agree, the customers votes with his clicks and indirectly helps "design" the winners. However even the poster child of customer centricity - Apple - applies some filters on this interactivity (reviewing all apps before they hit the AppStore). there are many shades of grey, and hopefully we can get to full interactivity one step at a time!

    PS: this is not Alok's blog, but will let him know!

  3. I think that the kind of rev share operators are keeping is already forcing many people to look for alternative payment collection mechanisms. None has been hugely successful till now but I am sure something is bound to arise out of this dire need. But contrary to that, will that solution bring in the desired revenues considering the fact that ~ 50% of the VAS revenue is not out of user choice but due to the services being forced upon the user.

    PS: You must start using NLPCaptcha to start monetizing the comments. :-)

    Amit Mittal

  4. Agree rev shares suck today, but there are a couple of early example of companies that seem to have made the jump to a billing-only operator relationship...the declining arpu should eventually wake them up. The billing would also get sorted out at that time - when you get 60% share the motivation to cheat can be high :). In the meantime Trai's VAS confirmation requirements might clean this up a bit.

  5. PS: let me get to the right traffic levels first ;-)

  6. In the short term, I don't see operators changing either their revenue-shares or undertaking any kind of disruptive innovation. Though, with the new TRAI regulations in place where they can no longer keep billing customers without their explicit consent for VAS, 2012 should be the year where mobile operators at least start experimenting with new 'VAS' (though calling billable content VAS is a misnomer, in my opinion).

    Had I been the mobile operator, I'd:
    Think outside the walled garden approach.
    Seriously start looking at investing in building a video content ecosystem.
    And worry everyday about being relegated to becoming a dumb pipe :)

  7. Hi,

    For whatever it's worth, it's heartening to be inside the telco ecosystem and see that the seeds of change are being sown. Senior management mentality, aided by some prodding from TRAI, is slowly becoming customer centric. In fact, one of the leading players recently incurred substantial losses as they migrated to a double confirmation for VAS Subscription billing.
    But there are some TRAI mandates that need to be taken with a pinch of salt like asking for an SMS Confirmation in some instances. When SMS usage and comprehension rates are at 40%, that is disadvantaging the consumer as well.

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