In Part one of this two part Interview series, Rakesh Mahajan, Vice President (Marketing) and Business Head (VAS and Incubation) at Bharti Airtel, spoke with us about how the mobile value added services ecosystem needs to become more customer centric, the difference in the European and Indian approach to services, about the need for making services discoverable and viral. Part two of this two part interview:

Rakesh Mahajan: Churn on VAS is a big problem, and we don’t talk about it as an industry. Some services are north of 50%, and some in the mid teens. And some are very low…why? Because they’re interactive and sticky. A part of the churn is due to low balance, and churning out of the network. But in general, churn is too high for certain services. Quality is an issue. One SMS a friend forwarded to me was (takes his mobile out and reads it aloud) “Bollywood Alert: Katrina is awfully pleased with the alluring sensual side of hers that Farah Khan has brought out in Tees Mar Khan”. That’s what somebody has paid Rs. 1-2 for. Where’s the value in that? As a consumer, I want gossip, I need to know who is dating who. That’s interesting and fits the needs of the segment. This message doesn’t. There are jokes where the English is just wrong, and they’re not funny. These are examples from across the industry. We’re not perfect, but we know what we need to do, and we as an organization are good at execution.

My fifth point (made in his talk at VAS Asia) was on sustainable value. Where are you creating sustainable value. Don’t focus on 12 months revenue. I know you got to eat, but if you put stuff like that text out, you may get a customer on day 1, but on day 30, you have to get him again. Currently VAS as a percentage of Gross Revenue has moved up for operators from 8-10% in 2008 to 11-13% now. It’s moved slightly, with an increasing denominator.
I want to get to 25-30%. NTT Docomo crossed 50%.

MediaNama: The Docomo discussion always leads to talk of revenue share

Rakesh Mahajan: My point is not that. My point is that there is demand, there are use cases. We need to get the basics right. Focus on the consumer. Understand the context of use, introduce virality and social. With 3G, the need will move faster as percentage of gross revenue. You’ll get disproportionate amounts of spend because there is pent up demand.
Will it go from 13-30 in one month? It wont.

MediaNama: Well, my take on 3G is that the growth will be in the direction of data and Internet access, because you’re moving users from dialup to broadband. I don’t have a very strong feeling about demand for video and I doubt the capability of mobile networks to serve multiple streams of video simultaneously to hundreds of users, but the operator decks will be important for discovery of data heavy services. On-deck, I’m sceptical because of lack of standardization of revenue shares, and the scalability of the number of offerings, because of each service on-deck is a separate revenue share negotiation. That impacts on-deck scale. There needs to be greater value for service providers.

Rakesh Mahajan: There is a view that operators can just be a dumb pipe. Certain networks in the west did this. There’s an opportunity for us to create value beyond being just a pipe. We can just provide dongles, but there are customers who want to do more with devices and handsets and services beyond just consuming Internet. We can enable simplify access to services for them. It saves them the trouble of going out and searching from them. We might see the rise of video alerts where every morning at 7AM, you can be woken up with a video message with a devotional piece. It’s not OR but AND. A company might want a dongle, but you can do more with it – embed VPN, security etc.

MediaNama: What about the standardization of revenue share?

Rakesh Mahajan: There’s no standard answer. It varies, and we even have revenue shares completely skewed towards partners. It’s about value creation. The more a partner helps me create value, the more I’ll share revenue. If I’m doing the heavy lifting, the less value he creates.

MediaNama: How about a standard for each service – a standard share for billing, a standard share when you’re marketing…it can’t be formulaic?

Rakesh Mahajan: Not yet. I might get there over time. Right now we know we’re getting into a 3G world. We’ll learn a lot from it. And you don’t want to standardize in such a scenario, but when there is a steady predictable state, where you can drive more participation. I will remunerate those partners who provide more value.

MediaNama: What do you want on the Rural VAS segment?

Rakesh Mahajan: Aside from a couple of examples, name me an interesting rural service. There’s water pump, mandi pricing…my hypothesis is that someone living in a village does more than just farm. Why do we only have two or three examples? Don’t forget that 60% of my new subscribers come from Rural. Rural is not easy, and the ecosystem has to work together. The portfolio of services is skewed towards urban. I think we can do better than expect the urban services to first go to semi-urban then rural. That’ll take 3-5 years.

We’re not satisfying all the needs we are of the rural customer. Preventing churn is not the intention, but it’s a helpful byproduct.

MediaNama: What are you doing on the services front to enable virality?

Rakesh Mahajan: How about something like – Mr. Customer, you’ve just changed your hello tune, would you like to inform your top 5 friends? Some of these may not even be revenue streams, but they’ll increase user adoption. We’ve gone above the line on friend locator. The reaction from customers is – I didn’t know my mobile could do that?

MediaNama: There’s an issue with the accuracy of that. There was a circular from the DoT asking for sharper location awareness.

Rakesh Mahajan: The services will improve. Whatever the regulator says, we will comply with it without a doubt. But in this case, we would look to do it anyway. The more accurate and granular you can be, you should do it.

MediaNama: So you’re looking at behavioral targeting, personalization?

Rakesh Mahajan: Why shouldn’t we? The Internet is older than us from a VAS perspective. There is a lot of learning that can be applied it. Amazon’s recommendation engine. Showcase five other people also bought other some service. If you subscribe a service, you should get cross promotion, which looks at you, and tell you that some of your friends have subscribed to a service. We have the information, but how we do it is about building the technical capability. There’s a lot of investment that we’re making in business intelligence.

We continue to need to innovate. Nowhere in here, have I said I need tons of new products. I’m not looking to get 500 services tomorrow. I can improve my existing services, introduce cross linkages, within and between services, and you’re already halfway through to 30%. If you can reduce churn by x%, you’re there.

MediaNama: What of the issue of users only have 10 bucks or less in their wallet for VAS?

Rakesh Mahajan: The ARPU is still 200. Even if it is going down, the affordability is going up. There is that high end segment, where there is pent up demand. Blackberry pricing is fairly pricing, north of Rs. 200. There is an appetite to spend there if the service is relevant. There is a disposable income that they’re willing to part with. So, as an industry, are we targeting them, instead of putting it out there and forcing customers to search for it.

Part 1 of this interview.