Bangalore: For most of 2005 and 2006, there was a flurry of venture capital deals in India backing start-ups that called themselves providers of value-added services, or VAS, to mobile phone firms. Services ranged from ring back tones to voice-based short messages to music downloads.
The proposition to VC firms was the same: India is the world’s fastest growing mobile phone services market and anything built around it would gain from the benefits of scale as the industry grows. But that trend soon slowed as venture backers saw some firms for what they were: little more than ideas.
Today, when the industry is within sighting distance of the 300 million-customer mark, mobile VAS firms seem back in vogue. VCs have invested $76 million, or Rs322 crore, in five VAS firms in the first half of this year, says deal tracking firm Venture Intelligence, up from $15 million in three deals in the year-ago period.
“Increasingly more sophisticated customers are coming up and are asking for more refined services than mere downloading ring tones,” says Rahul Khanna, director, Clearstone Venture Advisors.
With India opening its markets to telecom firms offering services on 3G, or third generation, a technology that enables high data speeds, and Apple Inc.’s iPhone launch slated for September, VC firms say the thrust is now beyond the vanilla. Applications extending online social networking services to mobile phones, mobile gaming, mobile advertising, location based services and mobile payment would see significant traction, investors say.
With researcher Gartner Inc. projecting that the number of mobile phone customers could top 720 million by 2012, the VAS market could be worth billions. Already, says consultant Pricewaterhouse Coopers, India’s VAS industry is expected to generate revenues of Rs20,000 crore by 2015, up from Rs5,000 crore today.
“Mobile VAS (continues to be) a highly attractive sector for us. The number of mobile phone subscribers is huge and each one of them is a potential client for VAS,” says Kanwaljit Singh, managing director,Helion Venture Partners, which is backing two VAS firms:JiGrahak Mobility Solutions Pvt. Ltd and New Jersey, US-based Kirusa Inc.
IDG Ventures India’s managing director T.C. Meenakshisundaram says given the revenue skew between VAS firms and phone firms, those applications that need minimum billing support from operators will be sought after. “Applications where the mobile VAS firm can bill the customer directly will be more lucrative for the investors.” Typically, phone firms keep up to 70% of VAS revenues, with the rest shared by content owners and aggregators.
Of interest to VC firms is that Indian VAS firms are expanding overseas.
“We are keen to expand our services in other countries and have been approached also,” says Sourabh Jain, chief executive, JiGrahak Mobility, that counts some 175,000 customers for an application that allows customers to buy products and services through cellphones. OnMobile Global Ltd, which went public earlier this year, has VAS customers in Malaysia, the UAE, Sri Lanka and Bangladesh.