Venture capitalists bullish on mobile VAS segment

Rohit Mathur - Televisionpoint.com | Mumbai
The first wave of mobile value-added service (VAS) companies offering regular ringtone and music downloads seems to be over. Venture capitalists like Canaan Partners, Draper Fisher Juvertson, Helion Ventures, Nexus India, etc are more interested in innovative product offerings such as payment options, advertising, voice-based SMS and satellite video streaming.

According to Venture Intelligence, 2007 saw nine deals, worth $ 41 million, in the mobile VAS space, while the first nine months of the current year have already seen seven deals worth $ 91 million. VCs, appeared bullish on the segment, considering the 20 % year-on-year growth. The $ 700 million mobile VAS market in India is expected to hit $ 3 billion by 2012.

"Ringtones and ringbacktones offer low revenues. VCs today are looking at applications that are independent third party innovations and are not dictated by operators," said Pramod Saxena, managing director, Oxigen, a mobile commerce player in which Microsoft had picked a 36% equity investment earlier this year.

The more niche the service, the better are the chances of it being noticed. One97 Communications is doing just that. "We are looking at innovations and intelligent applications compatible with 3G in India," Vijay Shekhar Sharma, managing director, One97 Communications, said.

The government will auction 3G spectrum later this year and it is set to trigger a new war in the mobile VAS segment with newer players eager to join the fray to offer high-end content. Looking at the future potential, Helion Partners and Silicon Valley Bank have already invested in One97.

Draper Fisher Jurvetson (DFJ) has considerable experience in VAS because of their investments in the US. In India, they had invested in two mobile VAS companies, mGinger and mChek, in late 2007. An on-demand solution for mobile payments is provided by mChek.

"We are looking at companies with some differentiation. We need to see if the model is scalable even without a mobile operator and the monetisation aspect," said Sachin Maheshwari, principal, DFJ.

In Korea and Japan, mobile VAS contribute around 40% of the total telecom revenue, while in India, the figure stands at a paltry 10-12%. The mobile VAS space in Korea and Japan is growing on the back of gaming and betting with financial implications. But both of these are not legal in India.

"Indian VAS companies haven't yet developed quality content around areas such as superstition, religion and patriotism, which have a huge appeal in the country," said Prashant Singhal, national telecom industry leader, Ernst & Young.

Canaan Partners has led an investment of $ 5.25 million in Cellcast Asia, a digital content provider and has plans to invest in several other innovate VAS providers in the future. One97 received Series A funding of $ 10 million from SAIF Partners late last year and OnMobile raised $ 27.8 million in a second round from a clutch of investors like Goldman Sachs, Deutsche Bank and Polygon Investment Partners.