(Source: Andrew Bolin)
I attended the Founders Forum event in Mumbai, organized by Rajesh Sawhney, Brent Hoberman and Jonathan Goodwin, as well as the Nokia Growth Partners Mobile Internet event.
Jonathan Bill of Vodafone spoke at both these events about upcoming changes in Vodafone's offdeck rev-share regime in India. This change, along with a potential broadband data plan price war and growth in smartphone users could result in a real transition in mobile data usage over the remainder of this year, charting a way out of the slump that I discussed in my last post .
Vodafone will start to offer more favorable rev-share deals to those direct-to-consumer mobile apps/services companies that will not rely on Vodafone for promotion and customer acquistion. In other words, developers will keep 70% of the revenue from their applications (at a scale of Rs 1 cr+ in billings; 60% below that), as opposed to the 25-30% currently prevalent here. 70% is more in line with what Apple and Google offer to developers for iOS and Android apps respectively as well as what operators are offering in the US, Europe, China and Japan.
The bet here is that the smaller operators like Aircel and Tata DoCoMo follow relatively quickly and then the larger ones like Airtel and Reliance may be compelled to follow suit - in aggregate, these greater offdeck rev-shares will drive more innovation and more revenue for developers. Nokia, among others, is citing a 3-5x jump in conversation rates when operator billing is enabled for paid apps and in-app purchases.
I don't think mobile operators are risking much in the short- to medium-term by tring this since this change in rev-share would only apply to offdeck billing and not to the majority of revenue that these operators get through whitelabeled services, data plans and p2p SMS that they already offer. In the long-term, though, whitelabel services will suffer from competition from D2C apps/services - also, ARPU from data plans will come down in price wars although overall data plan revenue should go up with significantly higher numbers of data subscriptions.
I don't expect these changes to break open the eco-system overnight. 70% rev-share to developers was offered in the US for several years prior to the iPhone being introduced in 2007, yet the eco-system there did not break-out. Why? Because there is lots of other friction in the eco-system as well, including multi-step transaction flows for consumers, 4-6 month payout periods for developers, reconciliation issues, no standard app discovery methodology (although app stores are starting to be offered by most operators today), no offdeck billing aggregator in India, fragmented platforms, lack of customer trust, and limited success/availability of multiple business models like paid apps, in-app billing, in-app advertising etc.
However, assuming this change from Vodafone comes through in the next couple of months, here's some of what could ensue:
- In anticipation of other operators following through with the same model, I expect to see the formation of many new teams with strong consumer acquisition, engagement and retention DNA. Hopefully, with funds freed up for product and marketing, there should be a greater focus on building brand and acquiring customers directly on what will be the leading platforms in India in the next few years: mobile Web and Android (in my opinion, not SMS, USSD, J2ME or iOS). I am bullish about the prospects of some of these D2C categories, especially related to entertainment.
- Mobile ad networks (e.g. Google, InMobi, Appia, Getjar) will benefit from some increased performance-based ad spend from developers. As we have seen in other countries, mobile content providers (music, ringtones, apps) with direct revenue models have been the earliest adopters of mobile advertising because they have been able to tie marketing spend directly to revenue.
- Existing whitelabel MVAS vendors will launch consumer brands or start pushing their nascent consumer brands more aggressively. In other geographies where the D2C eco-system opened up, whitelabel vendors have struggled tremendously with building consumer brands and have mostly failed. Impediments include trying to maintain relationships with their mobile operator customers while competing with them in their D2C business and not having the consumer DNA in the team for user acquisition and retention.
- Other mobile operators might slowly start offering similar rev-shares although I think they will wait to see the results of Vodafone's new initiative before risking their arguably miniscule offdeck billing revenue streams.
- We may see a carrier payments aggregator emerge once enough operators have changed their offdeck rev-share percentages. InMobi (with Smartpay) and Opera are already moving this way in India as announced at MWC. Boku, Zong, Paypal may come this way over time. There should be a space for a standalone Indian carrier payments aggregator, along the lines of what Qpass did in the US a decade ago.
So, I see a much more vibrant and larger MVAS eco-system emerging over the next few years. Now is a right time to start direct-to-consumer companies in mobile - we are seeing a ton of founders with exciting new ideas. Bring it on!