The mobile applications space is projected to grow to a $35-billion market globally by 2014. Indian product companies in this space, trying to expand their footprint, globally and locally, have been witnessing a surge in interest from investors, with several small-to-large deals going through in quick succession in the past quarter or so.
Late last month, mobile social networking platform SMS GupShup secured an investment of $10 million from Tenaya Capital, which it plans to use for global expansion, product development and marketing.
According to data from PE/VC intelligence firm Venture Intelligence, some of the recent top deals include the $10-million funding of third-party mobile device applications developer Sourcebits by IDG Ventures and Sequoia Capital in June, which, the firm will use to set up engineering and sales centres in the United States, as well as to augment a design engineering team in India and Europe.
IndoUS Venture Partners and Qualcomm Ventures invested R18 crore in Mumbai-based developers and offline retailer of mobile applications, Onward Mobility, last month. IDG had also invested $3 million in mobile advertising applications company Vserve in July. Adepto Solutions, a Mumbai-based social commerce platform developer, raised $300,000 from Blume Ventures in June. FunStar Studios had also raised funds from Accel India in March this year.
Says TC Meenakshisundaram, founder & managing director, IDG Ventures India Advisors, ?In the next 3-4 years, 3G adoption is likely to reach 100 million users in India. A very large percentage of the next 200 million Internet users will access the web through the mobile phone first. Smart phone sales are also projected to grow phenomenally. The applications market is going to become very interesting henceforth, and we wanted to leverage that opportunity,?
Typically, service providers, who are increasingly dependent on non-voice services for revenue generation, depend on other companies in the eco-system for the various products on offer, which, investors feel, gives great scope to startups. ?There is a lot of space for startups available in this area, and it will be so for a long time to come. Voice-based services are not going to be a great revenue generator for operators, and non-voice offerings is the way forward, which is where the opportunity lies for developers,? says Ashwin Raguraman, vice-president, India Innovation Fund. ?We are aggressively evaluating 2-3 companies in the space right now,? he adds.
While there is already a plethora of mobile applications in the market, products for commerce through mobile, delivery of personalised content based on ?usage history?, and mobile advertising, are likely to be the big winners going forward. Generating local content across the number of platforms and products for rural markets would also attract a fair bit of attention. The challenge in the space, feel investors, is finding a team that not just has a good product which is not easily commoditised, but also the capability to build a company around it, with a clear view into sustained revenue generation.
?One of the issues is that a majority of developers in India look at the short-term value of developing a product. What we would typically look at is not just a good idea, but also a horizon-defining product, the value of which can be sustained and developed into a long-lasting company,? says Harshall Shah, chief executive officer, Reliance Ventures. ?This attitude is, however, slowly starting to change as senior managers with global experience take an entrepreneurial interest here,? he adds.
The ability of these product companies to negotiate the right kind of deal with mobile operators, who distribute these products on a revenue-sharing model, also defines their ability to survive.
?Most investors are worried about the reduced returns as the margins are squeezed for the application/product companies due to reduced ARPUs (average revenue per user). Telcos, which are struggling with low ARPUs, end up eating 80-90% of the margins. This is a space where visualising the lifecycle of an application is not easy,? says Abhishek Chauhan, senior consultant, ICT Practice, Frost & Sullivan, South Asia & Middle East. ?Thereby, forecasting revenues for the particular application is really a dicey job and any VC or PE would not invest before looking at the returns closely,? he adds.