Emergic

I wrote an article for Outlook Business as part of their Independence Day special issue (August 23 issue, page 96). The title given is “Waking Up to a Digital Dawn.” The first part is a small story set in the future.

Pooja lives in with her parents in a modest two-bedroom apartment in a middle-class neighborhood in Mumbai. She is studying in class V. It is early in the evening. Entering the living room, she switches on a light and then pushes a button on a little blue box the size of a shoe-box sitting next to a monitor. The monitor lights up immediately displays what looks like a PC desktop. A little dialog box blinks, “Who is it?” She types her login name “pooja101”. “What is our secret word, Pooja?” She responds.In a flash the desktop changes to resume where she had left off earlier that day when she had accessed “MyComputer” at the school computing center. An ad appears in a little window. It lasts for about 10 seconds informing her of a sale on school supplies going on in her neighborhood supermarket. She clicks on the “ToDo List” and makes a note in there to buy some stationery and dismisses the ad window.

Pooja is in a hurry to get to her assignment from the biology class done. On the desktop, that file sits exactly as she had left it. She “googles” for some more information on ‘platypus‘, collates a few images and videos together, and adds a voice-over commentary. Satisfied, she mails it off to the teacher, well before the 9 pm deadline.Now comes the part she really enjoys. She is learning French. She clicks an icon and a streaming video resumes from where she had left off a few days ago. It is a multimedia course and it is world-class and on top of it all, it is free. She takes a little test in the end and is happy with the results. Later her father, Ashok, logs in and balances his checkbook, pays a few bills, and makes a call to his brother in the US. After Pooja and Ashok have gone to sleep, their mother, Lata, logs in via the NetPC. For the past year, she has been working as a Tutor for a local education company. She likes it because she can work the hours she wants – without ever having to leave home. More than the extra income, she is glad that her teaching skills now are helping students the world over.

Next morning, Ashok , who is an executive with a media company handling their international operations, has a weekly international business review meeting at the office. He logs in to the video conference and talks with each of the seven region heads. He still remembers the time a few years ago when he had to travel country by country and be away from his family for long periods of time. This is now a thing of the past with live interactions via video with anyone he desires as often as he wants.Ashok’s thoughts were interrupted with a message from his assistant who informed him that he could check the latest episodes. Ashok now views the episodes online directly from the producer’s studio before they are transferred to Hong Kong for uplinking to all international channels. With the big data pipes, Ashok has been also able to save on huge tape costs. Ashok is a happy man as he winds up his work and goes to sleep. He has not only been able to save time, but was also recently promoted because his was the most profitable department. He was able to this because he grew the business and managed his costs well across travel, tapes and other operations.

(Part 2 is here.)

Recently, TRAI (Telecom Regulatory Authority of India) had published a consultation paper on Value-Added Services. My company submitted a response to the questions they had asked. Here is the response we submitted.

After that, TRAI had an open-house, in which I participated. Nikhil Pahwa captured the discussion that took place.

More recently, we submitted a brief paper articulating the need for licencing of VAS in India and detailing the specific proposal we had. Here it is.

I have submitted a proposal to speak at GSMA Mobile Asia Congress later this year. Let’s see if I get selected! Here is the abstract that I wrote with a couple of my colleagues.

Monetising the Mobile Millions as Value Shifts Away from Voice: The Coming Age of VAS Operators

World over, VAS services are synonymous with the ‘subscriber pays’ paradigm. The list of services is also limited- Ringtones, Wallpapers, Games, CRBT, SMS Subscriptions, Pull services, GPRS Data, on-demand Music & (bandwidth permitting) on-demand video. Innovation is stymied as the control still rests with the Telcos & revenue shares are not attractive in many countries including India.

Netcore has succeeded in creating a unique new model of VAS through its award-winning product portfolio ‘MyToday’ (GSMA Mobile Innovation Global awards 2008, Runner-up, ‘True Mobile Startup’ Category). It has created a phenomenally successful direct-to-consumer service, MyToday SMS dailies, building up a subscriber base of over 3.5 million users in less than 2 years. This new ‘digital mass media’ service is currently ad-supported & free to user, demonstrating for the first time that VAS services need not always be paid for by subscribers. Businesses can contribute to generating revenue as well. This new model needs to evolve to a broader definition of VAS wherein a Right of Way is created to a subscriber & businesses pay for that right of way. We believe that subscriptions will be key driver in this ‘VAS 2.0’ paradigm.

In emerging markets like India, mobile growth continues to explode because of new users who are coming in from the bottom of pyramid. They have limited ability to spend and 45% of mobile users have low cost handsets. Given some of the other unique qualities of India’s mobile users -80% or more prepaid subscribers, speaking numerous languages, mainly youth, heavy rural spread, with little or no exposure to the Internet – the possibilities for new innovative VAS services are limitless.

These services will drive the emergence of a different class of companies from the VAS 1.0 companies we see now. The positioning of VAS 2.0 companies will shift from being at the Telco’s back-end to directly facing the end consumer. We propose to name this new entity – ‘A VAS Operator’ – one who will manage their own consumer relationships & generate multiple monetisation streams. These can be significantly larger than the current industry revenues and can include advertising, invertising, mCommerce & subscriber-paid services with alternate billing options. MyToday permission-based marketing platform already supports multiple monetisation models including a) Subscriber pays – for premium & PULL services, b) Advertiser pays – for SMS ads, WAP ads & lead generation, c) Merchants pay – for transactions & Enterprises pay- for mobile business solutions.

Netcore’s success with the disruptive MyToday SMS Dailies service only underlines the fact that many more innovative ideas for new VAS services can come from non-Telcos & smaller players provided the right environment can be created. In the presentation we will share key learnings from our experience which have helped us flesh out what the ‘right environment’ and the VAS Operator concept could be.

Our experience with running MyToday SMS Dailies has also provided us with valuable insights into the support required from regulatory authorities on redefining & supporting VAS 2.0 which we will also share in the presentation. For VAS 2.0 to flourish, Telcos need to play a different role, that of enabling smaller players. This role needs to be defined & regulated since it is in direct conflict with their more prominent role as VAS provider. The emergence of VAS Operators can be complemented and enhanced by a shift in the Telco’s mindset from a one-sided business model towards becoming a platform facilitating the interactions between VAS Operators & users. Telcos will of course benefit from data charges, billing relationship & more network usage.

While MVNO is a proven & well-known concept, VAS operator is a new & original concept that Netcore is seeking to establish. We will share many ideas in this regard which can also be implemented elsewhere in the world.

I have tried to put together some numbers to give a better perspective of India’s MVAS industry. Would love to get feedback on the numbers. These have been assembled from multiple sources, and are not completely accurate but they give an idea of the revenue streams. The key point: what is touted as a $1+ billion industry (what subscribers pay) is in reality only a $200 million industry from the VAS providers point of view, thanks to the skewed revenue shares between the operators and the VAS players.

Key Numbers as of March 2008

Mobile Subscribers	250 million
Avg. ARPU	Rs 250 / $6
Industry Revenue	$ 1.5 billion per month
Annual Revenue	$ 20 billion
Market Cap	$ 120 billion
VAS Providers Revenue	$ 0.18 billion
VASPs Market Cap	$ 1.5 billion

 
ARPU Split of Rs 250

Voice + Rentals	90%	Rs 225	Includes Rentals, Activation Charges, etc.
P2P SMS (primarily) Also: GPRS Data, Call Roaming, CLI	5%	Rs 12.50	None of this flows through to the VAS Providers
Other VAS	5%	Rs 12.50	Rs 4,300 cr / $1 billion annualised revenue
Revenue for VASPs	17% of the 5% above	Rs 2	Rs 750 cr cr / $180 million annualised revenue

VAS Revenues by Category

 

Category	Penetration	Numbers (million)	Revenue (Rs / mo)	ARPU	Total Revenue (Rs / mo)	VAS Revenue (Rs / mo)	Annual VAS Revenue	Key Players
P2P SMS	35%	80 m	Rs 30	Rs 11	Rs 250 cr	Rs 3,500 cr
CRBT	25%	65 m	Rs 25	Rs 5.50	Rs 165 cr	Rs 30 cr	Rs 350 cr	OnMobile BhartiTele Hungama
IVR / Voice Portal	15%	30 m	Rs 20	Rs 3	Rs 60 cr	Rs 10 cr	Rs 125 cr	OnMobile One97 Cellebrum
Downloads (Ringtones, Wallpapers, Games)	10%	25 m	Rs 10	Re 1	Rs 25 cr	Rs 6 cr	Rs 75 cr	Hungama
SMS Subs.	5%	15 m	Rs 20	Re 1	Rs 30 cr	Rs 6 cr	Rs 75 cr	One97
P2A SMS	15%	30 m	Rs 6	Re 1	Rs 30 cr	Rs 6 cr	Rs 75 cr	IndiaTimes
Misc				Re 1	Rs 50 cr	Rs 5 cr	Rs 50 cr
TOTAL (ex-P2P SMS)		250 m		Rs 12.50	Rs 360 cr	Rs 63 cr	Rs 750 cr

Points to note:

• P2P SMS Penetration is about 35-40%, while VAS Penetration is at best 25-30% of all users
• SMS in all its forms (P2P, P2A, Subscriptions, A2P) is the biggest revenue generator after voice
• Music (as part of a broader Entertainment category) is the bedrock of the VAS Industry accounting for over 50% of non-Voice/SMS revenues (CRBT, Ringtones)
• Voice Portals are the other big revenue generator, as they are the gateway to a wide variety of content

I had made a presentation entitled “Emerging Technologies, Emerging Markets and Entrepreneurship” in mid-June at Singapore’s Nanyang Business School, thanks to an invitation by the Dean, Prof. Jitendra Singh. Here is the presentation.

Netcore is the company I spend most of my time at. As a company, Netcore has been around for 10 years. We have two verticals in Netcore – a Managed Services business for enterprises primarily focused around mailing and security services (under the Emergic brand), and a Mobile VAS (Value-Added Services) business focused on direct-to-consumer services (under the MyToday brand). MyToday is relatively a more recent creation. Our vision: make the Emergic vertical into an IT Operator offering computing-as-a-service for SMEs, and make MyToday into a VAS Operator making the mobile into a magic lamp for consumers.

Yes, it is hard making one business succeed, and here we are trying to make two seemingly disparate businesses work! The good thing going for us is that we have good traction on both fronts with dedicated management to make it happen. And there are synergies across both verticals. For example, we have just launched Email2SMS, dubbed as the “Poor Man’s Blackberry.” It combines our strength in handling email for enterprises with our capability to deliver SMSes in large numbers. We also are leveraging MyToday’s underlying technology platform to enterprises to build relationships with their customers and employees via SMS. I will elaborate on all of these ideas and services in the coming weeks.

The opportunities that we see ahead in India are immense. For Emergic, there are 25-30 million inforoworkers in SMEs who would be willing to pay upto $10 a month for a managed computing (hardware and software). For MyToday, there are 60-75 million mobile subscribers who can generate a VAS ARPU (average revenue per user) of $2-3. [What I mean here by VAS is actually VAS 2.0 – advertising, invertising, mCommerce, etc. This contrasts with VAS 1.0 which is about ringtones, ringback tones, voice portals, etc.]

We are at an exciting time for both our business verticals. The foundation has been laid – in terms of proving that there are substantial monetisation opportunities. Much of what we are doing is in “blue ocean” territory – and that’s what I have always liked. It is not as much about competition as much as it about creating pioneering, breakthrough ideas and business models.

Entrepreneurship is what I have always liked. Success and failure have been part of the journey in my 16 years as an entrepreneur in India. Along the way, I have made about a dozen investments in mostly early stage companies in the mobile and broadband space. But for me, the excitement has always been in building a business. And that is what Netcore is all about. India can deliver the next big companies in the SME software and mobile data services spaces. Hopefully, we can be a key player in that ecosystem in the years to come.

In my fifteen years as an entrepreneur, I have never managed to raise venture capital for my own company. (Some of the companies I have invested in over the past three years have been very successful with their own fund-raising efforts.) Very recently, a deal that I was negotiating with for Netcore fell through as it neared its closing. And that made me think through the years since I started IndiaWorld about the ten failed efforts to raise venture capital. Most of these endeavours were from 1995-99 while I was growing IndiaWorld. In Netcore, I said No a couple years to an investment offer, and this time around, a set of cascading efforts led the prospective investors to withdraw. Given the string of fruitless efforts, I can only conclude that VCs and I are not made-for-each-other!While the reasons for these aborted attempts to raise funding are many, I can distill them into two key areas: valuation not being right, and deep disagreement on issues on which neither of us would compromise. A relationship with a VC is like a marriage – and one in which divorce is not a possibility. So, both sides have to be absolutely sure before entering into the relationship. It is better not to enter into a relationship if either party has doubts.

In my case, two things have helped me be more choosy. In IndiaWorld, we were profitable from the early days so I was never in a situation where I had to take capital for survival. In Netcore, I have the ability to invest my own capital – which I have done over the past 5+ years. Maybe, this makes us a most unlikely target for venture capital going ahead!

There have been more than a few VCs whom I would have liked to have got on board – and in all cases, it was for the person at the firm who I believed could add tremendous value (beyond money) to help build the business. At the end, this is perhaps the most important criteria. If the value is not in the person (VC), then it becomes a pure financial investment – which, depending on the situation, may or may not be the right thing to do.

In the past 15 years, I have always found discussions with VCs helpful. They bring in an objectivity as outsiders which every business needs. At times, we as entrepreneurs and managers are so closely involved in the thick of the trees that it becomes easy to lose sight of the wider forest one is navigating through.

So, back to Netcore. We are at an exciting stage in our evolution. The foundation has been laid, much of the management team is in place. It will still require great execution from here on to realise the dreams we have in the coming years. Capital is only one of the raw materials. As I look back, I can only speculate on what life would have been with a VC.

I gave a presentation recently in Phuket at Red Hat’s Asia-Pacific Partner Meet. Here it is.

On Friday (August 1), I was part of a panel at an event organized by afaqs – “The Future of News.” My panel’s topic was “Who will subsidise Digital Content?” Here is a gist of what spoke:

It’s not about subsidising but about monetisation: Thinking subsidies necessarily implies that the primary source of revenue is somewhere else. How can we look at the digital world independently and see how content can be monetised? On the Internet, the only revenue stream is advertising. My belief is that the mobile is where the big action and opportunities lie. On the mobile, one can create multiple monetisation streams – from not just advertisers, but also subscribers, merchants and enterprises. For this, creating a direct-to-consumer relationship is essential. In other words, content owners need to think of themselves as “VAS (Value-Added Services) Operators” [complementing the Voice Operators] in the mobile space.

Digital will be about M3 and N3: Content in the digital space needs to focus on Mobile, Mass and My (M3) and Now, New and Near (N3). The Mobile will be where we will get our news first – before any other medium. The sheer numbers make it the biggest Mass medium in India. We will also want “My” news and other content to be personalised – things we are interested in. We want to know about things Now – as they happen. We want to also be kept updated on the New stuff – the Naya Naya. We also want to know what’s happening Near us — in our neighbourhood. Putting all this together will create the foundation for the opportunities in the Digital space. The mobile can thus provide not just instant updates, but also offer a window into reach media services (images, audio and video).

First, Create a Right of Way: The first step towards moentisation involves creating services that touch people multiple times a day. On the Internet, Search has done this very effectively and thus created the foundation for companies like Google to take that attention and convert it into cash. On the mobile, I think it will be about SMS and Subscriptions. Use free, permission-based push services on SMS to create the right of way to consumers thus building a subscriber base and creating ‘Media on Mobile’, and then leverage that attention to creating multiple monetisation streams.

Become a VAS Operator: An operator has a direct-to-consumer relationship. In the mobile world, Voice operators have done phenomenally well in using voice as the anchor service to create additional revenue streams. But their focus is still not on VAS. What India needs (and can lead the world in) are VAS Operators. Besides the direct-to-consumer relationship [starting perhaps with SMS subscription services], VAS Operators have three additional characteristics: multiple services, multiple revenue streams, and alternate payment channels. The VAS Operator opportunity in India in the next three years is to reach 50 million subscribers, generating a monthly ARPU (average revenue per user) of Rs 50-100.

Mobile can be an excellent Youth Marketing Medium: Mobiles are increasingly the centre of our lives for communications and interactions for most of us. For Young India, it is even more so. In a world of fragmenting mainstream media attention, the mobile can become the magnet for reaching out to youth – because it is personal, and always available and always on. Digital content companies need to think of strategies to use all the mobile bearer channels (SMS, Voice and WAP) to reach out to the Youth.

MyToday provides a good case study: My company, Netcore Solutions, launched MyToday’s free SMS subscription services in October 2006. Since then, 3.6 million people have subscribed to an average of 3 channels each. MyToday sends out about 12 million SMS daily – about 4% of India’s SMS traffic. While SMS advertising is the first and most significant revenue stream, the Right of Way to the subscriber base is enabling us to create innovative new revenue streams in the form of Pull services (request-reply on SMS), Email2SMS, WAP traffic to our portal (mytoday.mobi), Lead Generation and as we set up alternate payment channels, Paid Channels and Transactions. News is one of our most popular services – reaching nearly 1.5 million, twice daily.

Summary: The Digital world of Internet and Mobile offer rich opportunities because of their inherently interactive nature. What news media and digital content companies need to do is to start thinking of them as platforms in their own right, rather than simply as extensions of print or TV (which starts implying subsidisation). By building a right of way to subscribers, they can create many more monetisation streams than just advertising. The game has just begun!

DNA’s Amit Tripathi interviewed me recently. They also had a nice caricature of me.