Why will Operator application store in India- Airtel-App Central, Aircel-PocketApps, Vodafone, Idea - IdeaMall, BSNL, Reliance-R apps-FAIL?

There has been a slew of activity in the last few months, wherein all the big operators have launched application stores in India. Airtel launched App Central in partnership with CellMania, Aircel launched PocketApps based on Infosys Flypp platform, BSNL has partnered with CellMania, Vodafone with Arvato and Idea and Reliance have launched IdeaMall and RApps respectively on Ericsson.

There are certain fundamental errors in the execution of these application stores that are impeding success

1) Operators, internally are not geared operationally to run these services. The thought process at the highest level and all the supporting processes laid out for application stores and VAS services are all adopted, inherited or used directly from the Voice business. For example ROIs in terms of actual revenues and profitability start to get measured, as soon as a couple of quarters from the launch. Most of the data related VAS services have long gestation period and business models during the initial years are supported more from a valuation perspective wherein valuation models build actual positive cash flows and profitability at least 3 to 4 years ahead. In direct contrast these application stores and similar VAS services lose internal interest as soon as it doesn’t impact the revenue and profitability KPIs in the first few quarters / years

2) Revenue share agreements for most of the content contracts are unfavorable to content providers and are now killing the ecosystem. Operator keeps anywhere from 60%-70% of the revenues. The only value operator adds is billing relationship with the customer. For 30%-40% revenue share content provider is expected to provide technology and operations, spend on promotions, do back to back payment to content developers and most importantly run the risk of competition. This is killing the ecosystem. No wonder Over-the-top players like Google Android, and Getjar, and original equipment manufacturers, like Nokia, Samsung and Apple which provide credit card based billing are increasingly taking revenues away from operators. Content providers can’t spend money to build operator branded property, pay the developers and be profitable at the same time.

3) As has happened with many services in the past Operators will have to pay through their nose for some of these mistakes in future. For example in the past operators had to launch Facebook zero and make data free for facebook access to subscribers because of its popularity. Operators did have the chance to launch their own social networks, but they were unwilling to let go of the data revenues or free access. Same is the case now with operator application stores, wherein they are unwilling to promote them even though it is their own property. And even unwilling to let go of some revenue share though application store revenues are a miniscule part of the voice revenues.

4) Operators in general don’t understand the business philosophy behind VAS or internet ventures. Most of the operations and ecosystem in this business is backed by huge amount of venture fund or by very large public companies. The key metric in these businesses at least for the initial years is valuation wherein positive cash flows are multiple years ahead. Operators will have to develop completely different business skills wherein they are not dependent on vendors to develop technology and should not focus only on marketing activities. They should hone some of their skills on financing, and divesting these new age business. Internet companies are ambitious and believe in talking to the consumers directly, unlike Nokia or Ericsson that operators are used to working with. Imagine when Google, or Facebook will start bidding for the license. If Google acquisition of Motorola mobility is successful, operators will definitely see some competition from over the top players.

5) India traditionally uses low end feature phones. Surprisingly, most of the data gets consumed by phones that are 128 and 176 pixel size-phones such as Nokia 2690, 2727 and Xpressmusic. The trends show that new entrants like micromax, spice and lava are seeing high growth in sales of their feature phones that also support java. What this means is that an ecosystem that creates content other than wallpaper and ring tone for feature phones has to get developed for most of the 30M+ active mobile internet subscribers. Looking at it from a developer perspective he will create an app and provide that to multiple platforms including that of operator. The question is who will create the ecosystem to create india specific content. The one who creates that will be in the best position to capitalize on this market. With india specific developer programs run by OEMs languishing, it seems that aggregators such as indiagames, nazara and hungama are in a best position to capitalize on the opportunity. But then with only 30%-40% revenue share they don’t have the budgets. What is going to happen is that android phones will become very popular. Android market place will offer credit card billing to begin with. And when the adoption of android phones becomes very high they will arm twist operators to give operator billing at a more favorable revenue share to google. Currently nokia does have operator billing for Reliance. The moot point is that operator will let this opportunity go away once again by not helping create a flourishing eco system.