Bangalore: Arvind Rao never fancied himself as an entrepreneur. When he completed his MBA (master of business administration programme) from the Wharton School at the University of Pennsylvania in 1986, he walked straight into the portals of the consulting world at McKinsey and Co.
Straddling consulting and private equity for two decades in the US, Rao always felt “one step removed” from the thrill of creating something.
Nine years ago, Rao got together with Mouli Raman, then head of the Internet products group at Infosys Technologies Ltd, India’s second biggest software firm, to start an Internet-based alert service.
Growth path: OnMobile co-founder Arvind Rao says that in 10 years, the mobile VAS industry will surpass the Internet industry worldwide.
Infosys incubated OnMobile Global Ltd, then called Onscan Inc., which soon switched over from online to the telecom sphere.
OnMobile also shifted its focus from the US to India, “where telecom operators were more ready to experiment”, says the jet-setting Rao who spends half the year overseas meeting clients and expanding OnMobile’s footprint.
Today, it is India’s largest mobile value-added services (VAS) company with revenue of at least Rs400 crore and the only one to be listed.
Prior to the public offer, the company had received two major rounds of funding from a suite of investors including US-based Argo Capital Management Ltd, Deutsche Bank AG and Goldman Sachs.
OnMobile sells unbranded products such as ringtones and phone backup services to telecom operators. The approach seems to have worked, drawing in 92 telecom customers across 22 countries.
“There are few success stories in VAS other than OnMobile,” says M. Thiyagarajan, an entrepreneur and co-founder trustee of the Bangalore chapter of Mobile Monday, a global grouping of mobile enthusiasts. “It is usually considered a tough space.”
The world’s fastest growing telecom market has an expansive VAS space pegged at Rs9,760 crore as of June and growing at a fast clip of 70% year-on-year, according to research firm IMRB International. But the space is crowded, few applications have clicked and telecom operators drive a hard bargain pocketing as much as 60-80% of mobile VAS revenues.
But for an early mover such as OnMobile, the world is its oyster. According to Macquarie Research, the analytical arm of the international brokerage, OnMobile is making the leap from India’s premier VAS company to a global premier VAS company.
This follows deals with some of the world’s largest telecom operators, including Vodafone Group Plc. in April, followed by Spanish operator Telefonica SA in July, giving it access to numerous emerging markets. Overseas business now constitutes 25% of OnMobile’s revenue; this is set to touch 50% in three-four years.
It wasn’t always as smooth for the Bangalore-based company. It ran out of money in 2002; the promoters lived off their savings till they got their first break in 2003 with Hutchison Essar, now Vodafone Essar Ltd, in Mumbai.
“Customer referrals work well in this business,” says Rao. “We got the Vodafone global deal based on the work we did for Vodafone India.”
Over the years, Rao has seen a sea change in his dynamics with customers—from no customers to customers calling at his office for new products.
“Early on, we decided to be a mass-market player, focusing on voice and in 13 Indian languages,” says Raman, chief technology officer and co-founder. Rao and Raman have their tasks carved out—Rao deals with strategy and business; Raman, with technology.
OnMobile’s voice products include cricket scores, ringtone downloads, classifieds and ticketing.
“OnMobile pioneered voice-based services. It became very popular due to the ease of use,” says Ashish Basil, partner, transaction advisory services, at audit and consulting firm Ernst and Young India. “This helped give them a platform to offer other products.”
Acquiring French speech recognition company Telisma SA in 2008, OnMobile expanded its voice services to languages as diverse as Spanish, Thai and Arabic.
Another OnMobile forte has been caller ring-back tones, which allows users to replace the regular phone ringtones with film songs. OnMobile was the first to introduce the service in India in 2004. Today, nearly one-third of mobile consumers in India use caller ring-back tones, and 45% of the company’s revenue comes from this service.
The company’s appetite for inorganic growth is far from satiated, even after its acquisitions of Telisma and Vox Mobili SA, a French mobile VAS company. With some Rs640 crore in reserves, OnMobile is scouting for acquisitions in the US and Europe to fulfil Rao’s vision for the industry: “In 10 years, the mobile VAS industry will surpass the Internet industry worldwide.”
OnMobile is trying to create an ecosystem of firms around it. It was the first company to be incubated in the VAS space in India. In early 2007 it returned the favour, incubating Bangalore-based start-up Ver Se Innovation Pvt. Ltd, which specializes in mobile classifieds.
“Incubation helps create a pipeline of ideas which can be executed faster,” says Virendra Gupta, chief executive and co-founder of Ver Se.
OnMobile gave Ver Se seed capital, brought in a venture capital investor, with Rao sitting on the board. He hopes to incubate more such firms.
Rao, who enjoys sailing and gifted himself a private yacht last year, believes in being generous to his employees. The company says its 2008 public offer created as many as 55 crorepatis (millionaires).
Rajnikanth V., a client delivery manager at OnMobile, was one of the beneficiaries. He bought his favourite set of wheels with his employee stock options, a BMW 3 series.
“I come from a middle-class family,” says Rajnikanth. “I would have never been able to buy this car if it weren’t for the stock options.”
Rajnikanth, who bought the Rs40 lakh luxury sedan, is the envy of many. “Every time I stop at a red light, four or five people look at the car.”
Much like his swanky wheels, OnMobile, too, is the envy of many in the VAS arena.