Indian media has had the good fortune of being in a market reality that is different from the ones we see in the west. Empowered by our third world status, we have a market that is still far from being saturated and playing on potential than actuals, we have had it good for a while now. The past five years has been a time of extreme prosperity in the segment, with everyone and their uncle (or aunt) starting a publication or a television channel because the uncle (or aunt) next-door has one.

Quite a few of these entities were built on the 'invest-now-reap-the-benefits-later' school of thought that is the cornerstone of a bullish market. When the industry as a whole is trending upwards in its vitals, almost everyone wants in on a piece of the action. Losses are glossed over, since at least some money is coming in and 'it is just a matter of time' before the huge chunk of change comes in. Which is all fine when the going is good. Trouble is that the going is not that good anymore.

In a three part series, I'll try and take a swipe at the problems and the possible solutions for the segments: internet, print and television.

Internet

If there is one thing that has marked the eight-plus years that I have had the good fortune of being a part of this industry, it is the perpetual promise of a better and bigger tomorrow. The number of times you hear "when the market opens up" at any industry event is always greater than the sightings of companies actually having a clue about what they are trying to accomplish in the long run. I have written at length on this topic before, so i won't subject you to more of the same torture and we'll look at the possible solutions:

The end of June saw the launch of the latest product from NDTV Convergence's stable, which, for some odd reason has been called 'No Gyan." Ostensibly, the name is the conveyor of some cool quotient that is lacking in others. Maybe it is even a take on the famous Sprite campaign that said "Sprite bujhaye pyaas, baaki sab bakwaas." The mysterious reasons behind the branding of the site notwithstanding, the one thing that stands out in the product is the thinking (rather, the lack of it) is an unambiguous sad reflection and continuation of the scourge of using users/readers nothing but page view fodder.

While I am singling out the website for the lack of a specific purpose for its existence beyond attracting the leering clickstanders of the Internet as an easy shortcut to advertising-driven profit, the malaise is an industry-wide one, where product development is a cursory visit in the morning to Techcrunch and Mashable to find the latest horizontally transitioned, dissolved and blended JQuery-driven web 2.0 shiny-bells-and-whistles product as the essential amount of 'thought' that gets screen-captured and copy-pasted wantonly into the waiting arms of a Photoshop layer.

Platform Plays: Platforms are the best enablers of our times. From Blogger to Wordpress to Twitter -- the landscape is littered with products that are more platforms than being just products by themselves. Monetization is a bit of an issue here, especially in the case of a product like Twitter, but platform plays are gradually getting to be the number one way to make rapid inroads into new and existing markets. The Indian innovation landscape badly lacks any sort of platform worth mentioning. There is considerable scope on this front, be it something online or mobile, in India.

Openness: Both products and platforms in India are tremendously closed to any kinder of wider-participation. This is quite a chicken and egg problem, with products not enabling participation from outside the walled gardens due to a lack of participation and participation being restricted as as a result of a lack of products that enable it being there. There is a huge opportunity for open platforms (not to be mistaken with Open Source), that enable content, participation and ranking from outside the expected quarters.

Original Content: Imagine this: a vast majority of content on the Indian internet properties that would generate most of the traffic is pretty much the same thing regurgitated in 1500 different ways. Which has an interesting angle to it that, even when it is common, the content is pretty expensive to acquire and create. So, at least in theory, you should be able to sell (ads on) original content at a premium. How much of a premium can you derive out of it is worth a discussion that can spawn another post, but I do think there can be a premium which can be gained.

I won't try and predict what is to come this year. I have always sucked at making predictions and I think it is a silly business anyway. So I'll write about things I'd like to see in the year 2008.

First, a bit of background. It is no great secret that the US economy is progressively slowing down to a level where it is no longer possible to get a whopping rate of returns on most forms of investments. What this means is that there is money to be invested in the country, but there are no decent investment destinations where it can be plonked into.

This pile of cash sitting in the hands of VCs, hedge funds and investment bankers need to be invested somewhere for it to bring in the returns that justify their existence (and huge commissions). So it is likely that eventually a fair chunk of this will end up in China, India and other emerging markets.

Now, everyone loves the China story, but China has a major weakness that is not there with India. The Chinese economy is propped up largely by exports. Exports to the US, to be more specific. Any slowdown in the US economy eventually spills over to China, cutting down their own prospects for 2008 and the years to follow after that. This is the reason why you see interesting things like a Chinese bailout of an American institution, which would have been unimaginable a couple of years ago.

India, compared to that, has a degree of exposure which is considerably lower than China to the American (mis)fortunes? This is where we have actually benefited from not having a whopping trade surplus like what China has with the US. The coming couple of years will be entirely about companies who have limited or dynamically fixable exposure to the US markets doing well compared to companies that are dependent on the US economy for their daily bread and butter.

Most of India's exports are service-oriented: basically software and a bunch of other trades like garments. Software will primarily take a hit on margins on existing contracts due to the exchange rate equation and an even bigger hit on margins on newer contracts. They still can afford, though, to look at ways to make through a couple of years of this slowdown. The garment trade, though, has been decimated by the downturn and the weak dollar, with many players raking up crores in losses just over a couple of months. Then again, of the entire garment segment, India still does not account for much.

Which brings us to the important point: India's economic activity is largely internal. We can't seem to produce enough of stuff for ourselves and with time all this economic activity is bringing an increasing number of new participants to the middle class segment that did not exist before. Of course, the trickle down is not happening fast enough, but if you consider how huge and how varied our nation is, this would come as no surprise.

But, essentially, we have a market that is looking good to grow well for the next decade (or even further), a vibrant democracy and a strong enough country that has been able to withstand and easily overcome terrorist attacks. Of course, there is much wrong with the country too at the same time, but that won't disappear overnight. Such changes take time and we won't see spittle-free walls or even marginally better politicians for a long time. But what we do need to appreciate is that it is improbable that even with any party coming into power, the development and economic agenda will be changed much. We will see sops and instances where politicians will play to their favourite gallery, but the larger economic agenda will keep going.

Now to the list:

Innovation: India will be one of the hottest destinations for investment in 2008, which will again be only the start of something much bigger. That said, investable properties in India are far and few, especially in the digital sphere. VCs and other players in the innovation ecosystem will need to find newer ways of finding companies and products that are worth investing into.

A lot of our products these days come from the copy-paste school of doing products. "It worked there in the west, so it must work here!" as a product peg needs to disappear. Use cases have to be considered as a must-have, alongside projections that are valid and current usage levels which is not inflated. It would be nice to see a bit of honesty within the system, just to begin with.

We have holes in our entrepreneurial system that have to be plugged. Instances like this won't happen if the VCs step more into a mentoring role and help them along. I know the norm is that VCs like to limit their meddling in the company to the board meetings, but at least short term funding in this heavily commoditized times is not a major issue for people, VCs have to change the way they approach the business and their portfolios. If they play it right, there is a considerable amount of leverage they can exercise in terms of scale and in a scenario where the cost of replicating is product is peanuts, compared to the cost of finding a differentiator, that could be a killer point which makes all the difference to their portfolio.

You can make a decent killing in any segment by being lucky, being there first or by being plain smart a few times. Longer term profits and sustainable product lines, though, are derived from one thing: innovation. The kind of money that will flow into India will need a thought process and a product development stream that is better than what we have now.

This, mind you, is a long term change. It is something that will take years to precipitate. It is a habit that is acquired, one that needs to be forced upon ourselves before it becomes a force of habit. I think that soon enough we will be forced along that path because the volume of investment will demand that kind of effort. 2008 could be the year when we see the start of that process.

Mobile: We need to get over our fascination for SMS and the slew of value added services as the conduit through which the amazing growth is going to come. Of course, the market is constantly expanding, but with the dismal average revenue per user, the margins are not exactly mouth watering. This, in turn, will affect the telcos' ability to move into the relatively unexplored rural markets. What they need for 2008 is a new product. They need to push out the first sub INR 5000 mobile internet access device out into the market.

As my friends know only too well, such a device is one of my pet themes and this is how it works. A Nokia E50 phone costs around INR 8500 in the market these days. This is a phone that does EDGE, has the lovely Series 60 browser that works on pretty much every website that I use on a regular basis and is rugged enough to survive India. Slap on to it the unlimited GPRS deal from Airtel (INR 500 per month) and you get a mobile internet device that has an initial cost of INR 9000 and a recurring cost of INR 500 per month.

Now, if a telco were to order this handset in bulk from Nokia, it would get them a significant discount and if they subsidize the cost further themselves, it could even be brought down to INR 5000 to start off with. You could also make it even easier by spreading out the start up cost in terms of installments (INR 50, 100 or any other amount), that could be added on to your monthly bill to beef up adoption.

It should ideally be a win-win deal for Nokia, since there is no additional development to be done on the device and they will get to move such vast numbers that the volume itself should bring in decent margins. Or, we could take the harder route, re-engineer the device, strip it down and change the orientation to bring more width than length to the screen and give it a full QWERTY keyboard.

The bottom line is that a pervasive internet experience is the thing that will save the telco soul. This will also allow them to price services and content that are not limited by what SMS and IVR currently limits you to. And if you consider how restrictive and artificial the interactivity are on those services, offering the internet experience on your handheld device can only be a winner, whichever angle you want to look at it.

And, before I forget it, did I say that it breaks the entire penetration issue?

I think this is a long enough post for now. I will post the second part a day or so later.

Seems like the slowdown in revenue for mobile operators from existing services is not just an India-specific problem. Jupiter Research has recently done a correction for its forecast for Western Europe to 910M euros in 2011 as far as ringtones go.

It has been a known fact (keep hearing that at the various conferences and industry meets) for a while that the average revenue per user in terms of calls had been on the decline for a long time and services like SMS, ringtones and other downloads were meant to keep it booming for a long time to come.

And that is the reason why Vodafone is hitting the consumers hard with their new and lovely advertisements for services that stay within the network. All the things they are pushing at you -- astrology, news alerts, Art of Living updates -- are nothing new, they have been around for a while, but the way they have recast it says a story in itself.

Each of the new Vodafone service is priced at INR 30 per month to the subscriber. The costs that the company incurs in getting the service online is acquiring the content to support it, the management of the same content and the billing parts of it.

Content acquisition costs are normally never tied to the subscriber base, unless they happen to be be a ringtone or a download. Which would mean that their margins would go up with every new subscriber they add on for a service. The other cost point for them would be the billing and content management services, which I don't think (okay, sue me for the blanket guessing here) is again based on volumes, leaving the service provider with decent margins all over again.

That leaves us with distribution, which is one factor that costs pretty much nothing to the company. Most of the services (maybe, even all of them?) are SMS based. These services are available only to the service provider's subscribers, meaning that the traffic stays well within the service provider's network, leaving all the interconnect and revenue sharing problems out of the window and a larger chunk of the revenue for the company to keep for itself.

That leaves us with an interesting set of projections. Even 20% of Vodafone's subscribers singing up for at least one such service would earn the company truckloads of money. Current estimates are that by the end of 2007 Vodafone would have around 38 million subscribers in its network. Take 20% of that and multiply it by 30 and you'll get the point that I am getting at.

Going forward, a smaller percentage of that 20% will probably subscribe to multiples of these services, kicking up the revenue per user even higher. And all of this is happening at near-zero or minimal cost to Vodafone. So, next time you wonder why Vodafone is going bonkers pummeling you with all the nifty ads that should be costing them a pretty penny, remember that some sucker somewhere is actually signing up for that service and giving plenty of reasons for Mr Sarin to smile about.