How and Why To Work with Telecos As a Startup - A PixSense story
Osama Hashmi at Green & White on the relationship of startups and Telcos. Telcos are always looking for interesting value-added services to drive up their ARPU and will partner with anyone who can offer such mobile apps. Of course telcos are also known for their control obsession over content & partners.
This is part of a conversation that started in a Startup Insiders session - should a young fledgling firm with a good idea think about building products around the mobile telecom space?
If you have a nice brilliant consumer-focused idea today, you’ll also have a number of options available to implement it. You could realize your idea as a web-2.0 implementation, as a widget, as a facebook / open-social application, as a web-M solution (mobile-focus website), as a handset-only application, or as a specialized value-added service built and offered in close partnership with a telecom operator.
The question is - where and why would you want to work with a telco, when some of the other options (particularly facebook) can offer a much higher potential audience-base and much lower total development costs.
Adnan from PixSense had the best answer I’ve heard about this - and as a backdrop I’ll point to a recent interview by the Mobile Marketing Magazine of the CEO of PixSense, Paul Singh.
The answer, according to Adnan, lies not in what telecos in general are doing with service vendors, but in what they could do in terms of pricing of the service.
Telecos start with heavy investment in building pipes that isn’t entirely affected by the specific services that are introduced on those pipes later - they will only consider their cost for providing a particular service as an amortized portion of the total initial investment.
It is possible then, for telecos to look at data transfer in a different light from, say, ISPs, who typically rent those pipes for providing an end-user service to their customers.
Lets put this in light of a service such as PixSense which allows people to share photos with their friends. If this service was offered as a Web-M solution or over on top of facebook, each person would have to pay standard internet-data-rates to transfer photos to their friends…. if a typical photo is 1Mb, then you’ll be paying Rs.15 by current standards.
Telecos, however, can choose to offer that particular photo-upload service as a fixed-monthly subscription, and choose to not charge extra for data transfer per photo. If that is done, then a service provided by the carrier itself would be much more attractive to consumers compared to a similar service available on the mobile-web.
There are thus certain services that only make sense when put in perspective of a close partnership with the people who own the pipes.
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Its not as simple as Adnan puts it. While it is true that certain services only make sense when put in perspective of a close partnership with the people who own the pipes, the key problem here is the partnership establishment with these people.
If you have a service which makes sense to be launched in partnership with an operator, and you do not have any prior relationship with any operator then you are bound to fall in either of these situations.
1) You will ask the operator to purchase service licenses from you and offer it to your subscribers - Operator will consider your price too much considering you do not have a reference case, no matter how cool or attractive your product is. It will take you considerable time to convince the operator that its the best price possible for you to offer. Therefore you should be ready to spend a long time doing nothing, trying to reach presales team on their cell phones, while they are able to reach a decision in half a year or so.
2) You will ask the operator to revenue share the proceeds while you will invest in the installation / integration of the product / service yourself. Operator would want to keep the majority share of the revenue and will not assist you in marketing of the product. If it takes off, well and good, if it doesn’t, bad for you. While you work in a revenue share model with an operator, most likely operator will push you for an exclusivity for within that country at least. An operator would not be comfortable in sharing their revenue stats of a particular service with another operator :) And this option, again has to go through the long delay being created by the presales team of the operators.
3) The product / service could be very cool / attractive with a strong business case, but unless you are ready to be able to swing your hand under the table, it will be very hard to hit a bargain. Unless ofcourse, you have a relationship in higher management of the operator; which by the way, at times keep their elevators separate and do not allow anyone else to use them by making a security guard sit in them. ( Some of you would have already figured out the personality I am talking about ;)
4) Either way, unless you are in partnership with a big vendor, you’ll have a hard time convincing operators about your competance.
I can go on with some more possible avenues here, but the point I was trying to make here is that while it does make the most common sense for a service to be launched in close partnership with an operator, it might not make the most business sense. You would be willing to use a Web 2.0 platform to launch your service in a very short amount of time and being able to generate some revenue at lease, where on the other hand you have the option of keeping yourself alive for a long time without any revenue, till you are able to convince an operator to share their pipe with you.