What could spoil this party are low entry barriers and a very low share of the total revenues. While we are talking about 8-10 companies, the fact is that there are scores of them out there offering to undercut the next guy. So, margins are already getting hit. Some VAS products such as film songs are already becoming commodities. Therefore, scale, differentiated products and a distinct (read specialised) business model are imperative, a fact most players have already caught on to. Each is finding its own way out.
...That brings us to the second party pooper: revenue share. In Europe and Japan, the content provider gets a large cut of the revenues that a telecom operator charges users. Sometimes, the telecom operator gets as little as10 per cent. In India, the operator keeps the lion’s share: roughly 60 per cent. The rest is split between the mobile aggregator and the content provider (usually 50:50), if any. Most content creators and aggregators in India are not even a fraction of the size of telecom operators. Plus, they operate in a fragmented industry, so, their negotiating power is zilch. Also, a consumer wanting to download a ringtone, can bypass the telecom operator (in the US, for example). In India, telecom operators control the channel through which these services reach the consumer. So, if you are a Hutch subscriber, you can buy a song only from Hutch.
In another section, the magazine describes an initiative by Phoneytunes to create a network of kiosks where mobile users can download VAS applications directly
What is different about the PhoneyTune kiosks is that they are independent of the service provider. Payment is made by dropping cash into the money slots at the kiosk. A ringtone, for instance, costs Rs 10 while a full song costs Rs 50. For GPRS-enabled handsets, the applications are transferred via Bluetooth or IR, for other it is through SMS.
Arun Natarajan is the Founder of Venture Intelligence, which tracks private equity and venture capital in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.