Having observed the Mobile value-added services ecosystem over past many years, and having been on board of companies in that space, it has been my firm belief that the issue that dogs VAS entrepreneurs is not the often-touted “low revenue share” issue. Perhaps the working capital cycles impose an overhead that startups find hard to finance; however, the large scale reconciliation issues that existed till a couple of years back have largely been addressed. Operator economics, then, is an element that can be improved upon, but provides a reasonably robust base today for startups to build businesses.

The real issue in my mind is that operators, as gatekeepers of innovation, have not had an incentive to invest in services that may prove useful for consumers in long term. And with the presence of the gatekeeper, startups have not had a mechanism to invest themselves – essentially due to lack of alternate go-to-market vehicles. While larger VAS players promised to provide such alternate go-to-market mechanisms couple of years back, they have largely been ineffectual in creating innovation activity around Mobile VAS. Operators and Mobile VAS players have instead been driven by immediate revenues – this has reflected in the kind of services being promoted, as well as promotional mechanisms such as SMS spam, and not the least dubious billing practices to consumers.

There are changes in the offing – with impending blockage of SMS spam from 27th September, and requirement of reconfirmation of subscription at every renewal, there is a potential for large scale shift in Mobile VAS. As described above, these two “facilities” have led to a VAS business model driven by push and dubious billing. The owner of customer databases land up being the king – service innovation is only as valuable as the marketing push one can provide behind it, in competition to every other service. As custodians of customer data, operators have focused on what works best in short term. Due to lack of alternate go-to-market mechanism, VAS providers have built what operators will feed into the pipe. Value has not been in services but in customers, and operators have singularly owned the customers.

If VAS was truly be transformed into a pull based business, as the above initiatives promise to do, the focus of operators and VAS providers will have to shift back to innovation. It will become important that the customer “buys into” a value proposition and then continues to value it, rather than “falling for” a silver bullet and not knowing when he is auto-renewed for the same. Creation of such services will also require VAS providers to act as owners of customers – essentially offering service experiences that may combine mobile with other means such as internet, but also span a longer period of service experience than downloading a wallpaper or sending an SMS. Also, with appropriate checks in place, differential charging becomes practical – which will allow of segmentation of customer base to offer relevant services, rather than looking at a market of 700 million customers as a relatively homogeneous one. In essence, distribution will follow marketing and not lead it – which, in my view, is the real shortcoming of Mobile VAS today. Interestingly, I think operators will win in the new scenario of open innovation – in a rush not to be the pipe, operators have perhaps forgotten how valuable it can be to be just a pipe.

Whether these promises will be fulfilled or not remains to be seen. As a consumer, I look forward to real value-added services. Are the providers listening?

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Alok Mittal is the Managing Director of Canaan India, and focuses on investments in digital media and mobile companies. Prior to joining the venture industry, Alok co-founded JobsAhead.com, a leading web-based recruitment business, which was acquired by Monster.com. He also has experience in Telecom, having worked for Hughes Software Systems.