In February, India’s largest telecom operator, Bharti Airtel, launched an app store, giving its consumers access to 1,250 applications. Vodafone followed, offering around 800 applications.

As telecom companies play the numbers game with the applications they offer, they have now started outsourcing this to specialised application developers. “There are hundreds and thousands of applications in the market. It is not possible for telecom companies to develop all these apps in-house,” said Neeraj Roy, managing director and CEO of Hungama Digital Entertainment.

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If an application is developed in-house, a telecom company can earn from a licence fee charged when an app is downloaded. However, many companies (such as Reliance) are not focusing on that revenue. Instead, they are banking on the data usage generated as subscribers consume more data to download and use these applications.

“RCoM’s application store strategy is directly linked to increase in data traffic, increase in data plan adoption and sale of other services through the use of free applications. This strategy will help achieve mass mobile data plan adoption and mobile internet use," the company said.

Loop Mobile has recently launched a mobile application developed by SMS Gupshup. Called ‘Reply all’, this allows consumers to SMS to a group of seven people at the cost of one SMS. If one of the consumers in the group replies, the response will be sent to all the users, allowing a chat conversation in a group, giving the same utility as a reply-all e-mail.

“Applications are not great technologically innovative products. Application development is all about generating good ideas and telecom companies can never aggregate as many ideas. This has to be driven by market forces and should come from a wider community,” said Alok Shende, principal analyst and co-founder, Ascentius Consulting.

‘Not our expertise’
Outsourcing also helps telecom companies convert fixed costs into variable costs. While most telecom companies have an in-house team which work on applications, this is not the core business of a company. “Engaging a team takes up a lot of bandwidth. Besides, so many app developers are working independently and our aim is to launch a product as quickly as possible. We always get better developed products from outside,” said Surya Mahadevan, COO, Loop Mobile.

Telcos that have to cater to a wide range of tastes also look at niche value-added services (VAS). This could be better achieved by sourcing from specialised developers. CanvasM, a subsidiary of Tech Mahindra, focuses on utility-based, VAS-like, commercial transactions and mobile banking. SMS Gupshup specialises in social networking-based applications. A telecom company can pick and choose different types of applications across categories from each of these developers.

“We can get different kinds of content-based apps as well. Some offer jokes and some offer beauty tips. Adding these apps happens on a continuous basis as we keep offering different kind of products to our customers,” said Mahadevan.

Experts also note that exclusivity in apps is also reducing, as companies have stopped developing these in-house and developers license these to many operators. A lot of revenue models are followed by companies with regards to apps, the most popular being revenue share, where the developer gets a part of the revenue. There is also a minimum guarantee model, where a telecom operator pays an upfront amount, even if the application does not generate any revenue. The telecom company will enjoy all the upside if the application becomes successful.

Currently, telecom companies prefer to take the lesser risk of a failure and share the rewards. A telecom company also invests in the success of a value-added service by spending on promotion and advertising the application. But the focus is to decrease churn and increase consumer stickiness to their network, which they attempt by regularly offering innovative products.

“Once consumers are tied to an application, they are tied to a network. This is one of the many reasons why telecom companies need to build an ecosystem of applications,” said Shende.

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