VAS is perceived as a premium service by a majority of the subscriber base. But this is not true as SMS services started way back in 1999-00 were conceptualized as a value added service that has today become a bare necessity for every mobile device. There has been a lot of technical innovations/roll-outs post SMS launch at consistent intervals and the commercial launch of CDMA in 2003. What I am hinting at is VAS being a part of our routine life and being an integral part of the mobile services in the time to come.
This post is not focused on when and where the services started but to discuss the effect of evolution of VAS value chain for various players in the business.
The VAS industry in India is dominated by the revenue sharing agreements between various players. The subscriber pays out to the mobile operator irrespective of the application used and who is the owner. The mobile operator in turn pays out an amount, agreed upon, that varies between 20-40% of the complete earnings from those services. Out of this minimal amount, a fair share is also paid out to the content copyright owner which may vary up-to 12% of EUP (this is what subscriber pays to avail of service). So looking at it from the content owner’s perspective he is receiving a minimal amount whereas the operator keeps the major share. What I am talking about can be easily understood in the below example:
Example:
I am putting across the linear model where subscriber pays operator for the services and operator pays out to application provider. Application providers pay out the royalty for content to copyright owner.
I have taken a scenario when a subscriber dials a premium short-code number to download a ring-tone and the entities involved are kept to bare minimum i.e. the operator, application provider and the content owner. As more and more entities come into picture, the shares gets further squeezed.
*I have assumed the IVR browsing charges at INR 6/min.
So the content owner gets Rs 1.44 out of Rs 12 that the subscriber pays for downloading a ring-tone. It is just a bare percentage of money that the subscriber is actually paying out for the content.
We also should not overlook the important fact that the application provider is in a tighter spot by earning on 96 paisa out of Rs 12. And generally this is the entity that bears the cost of infrastructure for providing the services and application development.
And just in case a fourth player enters the picture this gets a lot tighter for the players to earn. I would try and showcase that with the same example:
The Application provider has to shell out more money as he is getting the convenience of getting more content from the same place and the Content Owner has to further forgo a percentage of his share to the aggregator.
The reality is far away from this picture as well since we know there is more than these four players in most of the transactions thereby everyone scratching for every penny available in the market. This gets to chaotic situations when the mushrooming companies would start firming up the grip on the market and they join the rat race as well.
So the margins of the existing players get shrunk by 20-25% with the introduction of just an additional player and operator retaining the same share. One can easily imagine if the chain gets more complicated and operators share does not come down, what would be the players fighting for?
This is very evidently, one of the main reasons for so much movement, making it a happening market? Every player is trying to act in multiple domains as I had discussed in my previous post on the value chain proceedings so as to maximize their Revenue Share.
Though I presume, these squeezing margins would be taken care of by additional revenue streams of Mobile Advertising and Retail Business Model for content and application providers, which is now becoming a critical factor for the Indian VAS Industry Value chain.
These players would also be supported positively by growth in the VAS usage – thanks to the increasing spare income with the Indian youth 
Jatin Madan
jatinmadan@aol.in
