Mobile rush spurs on small firms

Despite unfair revenue sharing, start-ups foresee a successful 2008.

Nitish Mittersain survived the dotcom meltdown way back in 2000. His company, Nazara Technologies, which started as an online gaming firm, had to seek refuge in wireless technologies as Internet business models went kaput.

Today, the CEO and promoter of Nazara is not only on a much solid ground in the mobile value-added services (VAS) space but also boasts of private equity players falling over to fund the firm.

The firm got its first round of funding of Rs 7 crore from Sequoia Capital in 2005, which picked up 25 per cent equity stake. A profitable company that clocked Rs 32 crore in revenues this year, Mittersain added a second round of VC funding of nearly Rs 28 crore.

Betting heavily on cricket- crazy Indians, Nazara has obtained exclusive rights to create games and applications around sports stars like Sachin Tendulkar, Virender Sehwag and MS Dhoni.

"We are planning to launch a Nazara cricket club on the mobile platform that will allow consumers to download games and other mobile applications built around these heroes," says Mittersain.

In the Asia Pacific region alone, mobile gaming is expected to generate nearly $5 billion in revenues by 2007-08, and Nazara is all poised to demand its share.

Numerous small players have sprung into action in the mobile VAS market, which is around Rs 4,950 crore, as estimated by the Associated Chambers of Commerce & Industry of India. Everyone wants a slice of the wireless pie.

Although partial revenue sharing that the Indian operators command "" estimated at 60:25:15 between the operator, the content provider and the copyright owner "" hurts mobile VAS start-ups. But players insist that the situation is still promising.

Unlike Mittersain, who got lucky with mobile entertainment applications, Debasis Chatterji, director of Hyderabad-based mobile applications service provider NetXcell, believes his company would benefit from services like pre-recorded outbound dialers (voice-based promotional calls that a mobile consumer receives) and intuitive missed call alerts.

"We realise that there is more money in selling content-based applications but, our relationships with carriers like Airtel, Idea and Aircel have been extremely fruitful with existing services," he says.

NetXcell, despite claiming a great carrier relationship, manages only 5-7 per cent revenue share from its operator partners.

The saving grace is the VC funding that helps companies tide over tough times. NetXcell raised nearly Rs 4 crore in its first round of funding from Ike Lee, a venture partner at Ignition Partners and Ruderman Capital.

NetXcell plans to raise a total of Rs 12 crore to fund its expansion activities. Looking to close the year with double the revenues, at Rs 7 crore, as compared to last year, NetXcell will be ready with a new GPRS billing activation service in 2008. It also nurtures plans to become a value-added services player not only for telecom firms but also for media companies.

While pure entertainment services would continue to appeal to the younger consumers, the overall focus for mobile VAS is shifting to utility-based services like location-based information and mobile transactions.

Naveen Tewari, CEO, mkhoj, has launched a deal platform enabling customers to search for the best deals and discounts on a particular product in one's locality.

Tewari, who gave up a Silicon Valley job to set up shop in India 15 months ago, says: "The journey has been choppy with the first 6 months being the most decisive period for mKhoj."

mKhoj, which began with SMS-based advertising, has now evolved into Internet-based advertising and search applications, and hopes to spread its wings in the US, the UK, Germany, South Africa and China in 2008. Why? "Operators squeeze the margins so tight that in order to survive in the Indian market, we need to look for a steady stream of revenues which at this moment seems to be in the markets outside India," quips Tewari.

Soundbuzz, a digital music content provider, is hopeful of a reinvigorated VAS market in 2008. The online and mobile music retailer operates stores in 13 markets in Asia, in addition to the Soundbuzz Online Music Store in the US. It feels that with Nokia launching its Internet services the market balance would tilt in favour of content providers and aggregators.

Mandar Thakur, general manager, SoundBuzz (India), says: "Operators have long commanded an unfair share in revenues and with device makers like Nokia coming in the picture, it encourages third party providers like us to partner with them and wield some power in the overcrowded VAS space."