Alternate distribution channels for Mobile VAS – necessary for India

Despite all the brouhaha about the phenomenal mobile subscriber growth in India (100 million and counting), ARPU’s’ are falling steadily across all operators and non-SMS data revenues continue to be negligible; With operator strategies primarily driven by customer acquisition, falling voice plan rates and call charges are leading to lower ARPU.

Operators are all talking about increasing ARPU through mobile Value Added Services (VAS). Advertsising campaigns from operators are increasingly talking about content and services as differentiators. While SMS based infotainment services are growing rapidly (Kaun banega karorepathi alone generated more SMS traffic than any other interactive TV show in the world), the big ticket content downloads are yet to take off. Content downloads that do happen are largely mono ringtones that are delivered as part of the SMS payload and do not need GPRS connectivity. Reality is that GPRS penetration is abysmally low, at best around 2% in the major cities (Source: Netsize guide, 2006)

While everybody in the value chain, from operators to 3rd party service providers to content and media companies desperately want to drive mobile content revenue, there are 4 major factors that still impede mobile data revenues from crossing that point of inflection –

1.Complicated and confusing GPRS plans, atleast from the GSM operators, making it difficult for the lay person to configure their phone for GPRS
2.Lack of robust operator infrastructure which makes GPRS downloading an extremely frustrating experience.
3.Price sensitive consumers
4. Easy availability of pirated mobile content

Despite the roadblocks, I still believe that mobile VAS is a huge opportunity in India, not just in the long term, but also in the near term. Firstly, the large youth segment, is extremely mobile savvy, has a high penetration of data capable mobile phones, is hungry for entertainment and personalization and increasingly has disposable income. And here’s the best part, its not just youth in Mumbai, Delhi or Bangalore who have high end phones, I have seen young people in small towns all over the country carrying the fanciest and latest phone models. Secondly, media and entertainment companies are driving direct to consumer VAS. They’re spending the advertising rupees (hoardings, ad spots), they’ve tasted success with SMS services and are eager to see higher margin content downloads take off.

In the long term, media brands will influence operators to improve infrastructure and bandwidth and make sure that prices come down, both for data plans and content purchase. The interesting opportunity though is in the near term. How do you translate the opportunity that 100 million mobile subs present into money on the table today? The answer, as Dylan said , is blowin in the wind and probably lies in using “Alternate distribution channels” for mobile VAS.

This is not rocket science but simply making use of local knowledge and experience, combining it with some simple yet innovative technology solutions and packaging it all nicely for the user. The “Alternate distribution” winds are already blowing. Airtel has started music downloading service at Airtel retail stores across the country. The user experience is not great but its a start and can only get better and bigger as innovative companies partner with Airtel. A major retail chain (which I cannot name for confidentiality reasons) is already in talks with several service providers to set up point of sale mobile content kiosks which use bluetooth or some other technology to distribute content, coupons and promos at its retail stores all over India. These “Alternate distribution” chanells make use of footfalls and “trusted brand” image of major retailers, can drive down costs for the consumer by over 50% (no need for Operators network and billing charge) and also help to educate consumers about mobile VAS.

Moreover, these “branded stores” can establish themselves as bona fide mobile stores in the future, similar to web stores like amazon.com today. The physical store experience can be extended to the phone through WAP stores or device resident applications as the GPRS base in India improves and grows.

The bottom line is that “Alternate Distribution” of VAS in India appears to have tremendous potential and presents a great opportunity for any new innovative technology provider or service provider who can address the user expereince problems that physical retailers are trying to figure out.

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About Deepak
Venture Capital and M&A advisor, Entrepreneur, Startup enthusiast..

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