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Spice Mobility Plans Modular Structure For Services Business; Company Of Companies

Changes are taking place at Spice Mobility, as it reorganizes its services business into a company of companies, as a precursor to the listing of Spice Digital on Indian bourses. Samir Gulve, Joint Managing Director, Spice Mobility, explained to MediaNama the restructuring of the companies as follows:

After the sale of Spice Communications to Idea Cellular, the Spice Group had two public listed mobile entities – Spice Mobile, which is listed in India, and MediaRing (now called Spice i2i), a Singapore listed company that they acquired in 2009. In India, Spice reverse merged all their mobility pieces, and rechristened Spice Mobiles as Spice Mobility.

Spice Mobility now includes the devices based business (Spice Mobiles), device retail (Hotspot, now called Spice Retail) and Mobile Value Added Services – Spice Digital (previously Cellebrum) and Spice Labs. International devices and retail businesses – for example, CSL in Malaysia – were put under Spice i2i. “To make mobility really happen”, Gulve says, “you need devices, services and experience touch points for the consumers – to explain them and guide them. For the bottom of the pyramid segment, don’t to look at retail as classic retail, but more as a physical portal to mobility. You can even distribute value added services through that – create bluetooth zones, and try and buy experiences. At the top of the pyramid, the discovery and consumption can happen virtually, but as you go down to the masses, physical presence becomes important.”

The group is taking a separate approach to retail, devices and services: since the retail and devices business is highly localized, it is split between Spice i2i (International) and Spice Mobility (Indian). The value added services business, which the group believes needs a global approach, is being consolidated under a services division under Spice Mobility, with Spice Digital as the operative arm. “Further, it was decided that the market for Services is India and emerging geographies, and we had a critical mass here with Spice Digital, and value added services are valued better in India than other emerging markets.” Thus, Spice i2i will not have a services business, and its Internet Telephony Business, though the assets are owned by Spice i2i, is licensed exclusively to Spice Digital.

Structuring Of The Services Business

Gulve (in pic, right) said that for the group to realize the value in the services domain, it’s better to treat various businesses independently, and take a modular approach. “We’re about to enter the third generation of VAS. The first generation, around 1999-2003, was about Roaming, SMS etc; once it got commoditised, the operator insourced it, and the VAS industry moved to entertainment. From 2003, that has been dominated by CRBT and Mobile Radio. If you start looking at the macro trends, the revenue share and the differentiation, pricing, Minutes of Use, you reach the conclusion that this particular phase of the VAS industry has already peaked and started to flatten. The only way you can grow now is consolidation and stealing business from one another, which doesn’t leave any room for anybody. That is yesterdays war, and there is a much bigger opportunity.”

The Spice Group will organize the Services business (with Gulve as Managing Director) into a company of companies, “into three broad buckets”: Channel (sales) companies, Direct to Consumer or Product Companies, and an Enterprise arm:

1. Channel Companies: A channel company’s will be to sell products and services, and not necessarily create them. It will outsource product and service development to separate product companies. There will be, broadly, three channels:
– Device VAS Channel: The Spice Group acquired a Malaysia based company called Beoworld, which will operate as its global arm for Device VAS, with a focus on monetization on platforms like the Blackberry, Nokia, Android among others. Part of the business of what is under Spice Labs will fit in here. This arm will also focus on the MediaTek* platform, to target a growing segment of the middle to the bottom of the pyramid.
– Operator VAS Channel: “Under that, we’ve divided the business by geographies, into the Indian sub continent, South East Asia, Africa, Middle East etc. I have a CEO in Africa, will have a CEO in Middle East and South East Asia.” The team at Spice Digital, with Saket Agarwal as CEO, will look at Operator VAS in India, but it as an entity (once it lists), it will represent the global Spice Services business, including all the channels, product companies and geographies.
– Retail VAS Channel: This is purely India focused for now, and it will not just at distributing services to shops, but in trains, at airports, coffee shops, and multiple retail chains etc. (ED: Spice has a deal with IRCTC). This will also include the government programme (ED: Spice has a tie up with Zoom Developers for the Indian government’s Common Service Centers).

2. Product Companies: The opportunity in mobile utility services, according to Gulve, is bigger than the Internet opportunity: in bringing utility services like banking for the unbanked, e-governance, healthcare, education services etc to the unbanked. The companies in the product bucked will look at developing consumer centric products and services on the handset or the cloud, and will need domain specialization.

Product companies will look at mobile health, mobile money, and entertainment, including music, video, social networking and gaming. “Within a product company, we’ll start focusing on services by geographies, and consumer profile; the service you bring to farmers under M-Money would be different from what you provide to professionals in metro areas.” The product companies, according to Gulve, will be like FMCG companies, with an understanding of the consumer and the industry, doing test and trials, consumer intelligence.

3. Enterprise Business: Gulve says that the enterprise business will be a separate entity, “because it is a very different beast: while the other companies focus on the consumer, the enterprise focuses on the employee and the employee businesses processes within vertical industries, so it has to be separate from the consumer products business.”

Rationale Behind Services Structuring

But with several companies under the Spice Services business, won’t there be areas of overlap? How does one ensure collaboration in such a complicated structure? “Channel companies,” Gulve explains,”will take services from product companies to the market, but they can also take services from outside the company, as long as you have justifiable returns. You focus on the channel as a retail company and worry about moving goods; the operator channel manages the relationships, the technology, provide the managed service required and source and provide products and services. The Product company only worries about making useful products. The healthcare company can build services and it doesn’t need to build out and invest in a separate channel for delivery and infrastructure – it can leverage existing channels, and quickly bring products to market, because the entire stack doesn’t need to be replicated..”

Impact On Impending Listing Of Spice Digital

When it comes to a listing for Spice Digital, Gulve doesn’t believe that this complicated structure will deter investors: “Companies like GE and Reliance have operated like that. The investors don’t get caught up in legal structures. Anything that we own as subsidiaries above 50%, there is financial integration.”

But what’s the rationale behind listing Spice Digital separately from Spice Mobility? “Investors have two choices,” Gulve says. “If they believe in the holistic mobility story (including retail and devices), they would invest in Spice Mobility, and get automatically Spice Digital. When Spice Digital is listed, there might be investors interested only in the services subset.”

Impact On Incubation Unit Spice Labs

Some parts of the business being reorganized were a part of Spice Labs, the incubation unit that was previously Mobisoc, and was looking at apps for kids, as well as gaming, personalization and the enterprise business. Lokesh Gupta, former CEO of Spice Labs has moved to a corporate role, and is looking at M&A for a few verticals. Spice Labs is currently reporting to Dr. Abhinav Mathur, previously CTO and Head of Strategy at Spice Digital, now heading M&A. Some of Spice Labs’ businesses – apps for kids and gaming will fit into the product companies stack, the enterprise business will move to the enterprise stack, and the Cellz (mobile WAP) will fit into the device VAS stack, which was integrated into Beoworld. These are currently being held in Spice labs, but will eventually move.

Will Look To Acquire Many Of The Missing Pieces

Gulve agrees that many of the pieces in the overall services plan are missing: “If they’re in the domain of pioneering, can choose to buy or build. However, if they’re in the domain of established markets and businesses, then I don’t want to build – I want to buy. We have a list of things that we’re going to acquire,” Gulve says, “Within operator VAS, we’re looking to broaden our geographic reach. Within Device VAS, we’re looking to scale up our capability and broaden our competence. Within product companies, we’re looking at gaming etc. In the utilities domains like health, money, education, we’re looking at interesting opportunities, inorganically.”

What do you think of modular approach that Spice Mobility is taking to services? Do leave a comment.

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