The App Ecosystem Story in India

[Contributed by Guest author, Anubha Jayaswal – She keenly tracks telecom space, works for a telecommunications company and is a Wharton MBA ‘09]

The Apple App store or the Android Marketplace is a decision driver for the smartphone purchaser in the Western world. Is the App store concept aka mobile value added services and ecosystem catch like wild fire in India or will it be a Western model that doesn’t quite meet the thriving needs of the Indian mobile user? According to Strategic Analytics Report, mobile value added services is 10% of the revenue of mobile service telecom providers and is predicted to grow at a CAGR of 20%. In the Indian context the MVAS includes person to person SMS, ringtones, ringback tones, games and other mRadio and mCommerce applications.

Companies invest and cite reasons like sales of low priced rich handsets by Nokia and ZTE and commercialization of 3G networks as catalysts for app store growth. As 3G networks get deployed in India, the demand for video and rich media content is expected to grow. 2.5G/ 3G handsets content providers can drive innovative games, apps, and rich graphic 3D inventories and thus grow the ecosystem. Also, Indian operators are not isolated from the world wide trend of declining ARPU in voice plan services. This is highly accentuated by the price wars and ever falling voice plan rates in India. To mitigate the declining ARPU, Indian operators will want to enhance the app ecosystem and cash cow the app stores.

The challenges for the growth of app stores ecosystem in India are non trivial. RadioMirchi, Saregama, other entertainment companies, cricket fans have driven non- voice traffic. However, app developers will have to move beyond the urban mobile user and target unique needs of the rural guy to achieve scale. Agricultural apps, weather apps and apps targeting vocation people like farmers, fishermen etc. will have to overcome the challenges of low spend, literacy and diversity of languages etc. As new subscribers are increasingly drawn from rural India, the lack of uniformity of the Indian consumer makes scale challenging.

Existing revenue share arrangements is the biggest challenge in Indian mobile landscape. The bargaining power of the smaller content providers is minimal. The operator dominates the value chain of the app ecosystem and retains as much as 60%-80% of total revenue. The balance gets divided amongst other stakeholders like app developers, technology enablers, content aggregators. The ROI of app developers is too less for them to encourage capital investments. This revenue share dynamics doesn’t create compelling incentive to the content maker to produce innovative content. This lack of creation of good content will kill the app store concept prematurely in India.

Let’s compare the Indian revenue share dynamics with that in US and how it has evolved there. BREW appstore was the first app store to be launched in US. It white labeled it’s services to carriers like Verizon and AT&T. With Apple launching the walled garden with the iPhone platform, the whole business dynamics changed in the US. The breadth and success of a mobile platform heavily leans on the number of apps attracted to the ecosystem. Apple gives 70% of the net revenue and Android 60% of revenue to the content developer. The carriers have been forced to cede control and have a revenue share of 0%-15%. This revenue sharing arrangement attracts developers to the platform. The game developer makes enough money over the life cycle of the app. He can also have an ad supported app and as he gets a healthy share of the revenue. The operator cannot be a choke point in the ecosystem. In India with the operator taking away 60%-80% of the total revenue, there isn’t much skin in the game for the app developer.

The app ecosystem can grow if there is compelling content development with unique branding and marketing. Consolidation of content providers and aggregators is required to create growth. Content developer conducting their own marketing should enable increased distribution of app stores.

Do you agree that a pull effect because of better targeted content is a better strategy to untangle the developer from the operators strangle and grow the ecosystem?

After all, Apple is successful not only because of its product design but because it has a healthy growing community of more than 100K apps and 2billion+ app downloads enticing the mobile owner to revisit the Appstore and download something new.

What’s your opinion?