7 characteristics that signal an early winner in mobile space

Feb 15 2013, 20:16   |   By Entrepreneur

By Mohit Bhatnagar

Mobile phones are fascina ting. Within a few seconds, I can be speaking to someone a million miles away whenever and wherever I want. My children are, however, not overawed. With a few clicks and taps they expect and demand the mobile device to morph into a music player, a gaming console, a camera, an encyclopedia or a movie screen. My father still thinks the mobile device is ineffective because it doesn't recognize his voice commands, despite his best efforts to mimic a Californian accent. My wife is upset that no one talks to each other anymore and detests the 'mobile addiction' on the dinner table.

Love it or hate it, there is no other technology in the last decade that has changed our lives like the mobile phone. It's no wonder then that there are over 3,500 new mobile phones being bought every minute across the globe. Forty-five percent of them work on smart operating systems. This ensures that millions of people will have their first taste of the Internet from a mobile device.

There are four large opportunities we are seeing with Indian entrepreneurs innovating around:

-> Going Global: Launching a mobile application on global app stores and hoping to break through
the clutter.

-> Mobilizing India: Given smartphone prices of $70 (and falling), sectors like education and healthcare are adopting mobile phones and tablets like never before.

-> Payments: The mobile phone provides computing power and connectivity at a new price point that is disrupting the payments industry.

-> Mobile Enterprise: Helping corporate IT deal with the challenges and opportunities, which arise with the proliferation of mobile devices in the workplace.

As an active investor in the mobile ecosystem, we are constantly learning and honing our skills at picking winners who seem to have that spark of potential.

Sometimes we get it right, other times we get an expensive education. Here are seven clear characteristics that signal an early winner in the mobile space (luck is, of course, the eighth).

Be a pioneer, create a new category
When you are first in your category, you get to define the rules (value chain, margin structure etc.). The benefits are obvious and also, huge.

For example, when AdMob started in the year 2007, mobile marketing was barely a $50 million industry (largely dominated by SMS promotions) while today it is worth $5 billion globally.

AdMob created a pure play mobile marketplace where mobile advertisers and mobile publishers could do business in an automated way.

AdMob thus became synonymous with the new category it had created. It eventually became a prime candidate for acquisition by tech giant Google.

Build network effects into your business model

Network effect: When the value derived from a system increases with the number of people that use it.

Once you are first in the game, it is imperative that you should look for various ways to quickly scale up with even limited resources.

There is no better way to do this than by building network effects into your business model.

We learnt this firsthand through our investment in Airbnb.

The company has grown from an idea to become the world's largest network for booking room nights at bed and breakfasts/home stays. They have helped book five million room nights within three years of getting started.

Solve a big enough problem
One of the most common mistakes Indian tech entrepreneurs make is that they get too focused on features (inside-out thinking) rather than solving a specific customer pain point. The customer pain point they are trying to solve has to be large enough to be able to build a larger company.

Micromax Mobile has built its business (8 percent market share in four years) in a large $10 billion market on the back of unique product customization.

They introduced long battery life on all their phones, recognizing that access to reliable electricity in small-town India was limited.

The second customer insight they built on was dual SIM phones. Indian mobile users have one SIM card for incoming calls but keep changing their SIM card for making outgoing calls.

They launched dual SIM phones at compelling price points and grabbed market share from the incumbent brands. Micromax is currently using Android to make sure Indian consumers migrate from feature phones to Android smartphones and tablets.

Build a community of users
There are more than 7,00,000 apps on Google Play (the largest Android apps store) where the customer is spoilt for choice. The applications that get quick adoption, and more importantly, get loyal engagement are the ones that are likely to win. The two metrics we use to gauge engagement for mobile businesses are the following:

-> Frequency of Usage: Active users as a percent of registered users and;

-> Cohort Analysis: Quality of users being added over time (churn and monetization levels tracked over multiple quarters).

A company that has enjoyed global adoption, but more importantly very high usage is WhatsApp. Given the nature of messaging (viral), WhatsApp has grown quickly-millions of users sending billions of messages every month. A large percentage of users have made WhatsApp their daily inbox to keep up with friends, and family across the world.

Show a path to make money

All successful businesses will eventually make large revenues and profits. However, early stage mobile startups in India do not need to be overly burdened early in their lifecycle. The good news is various monetization models are getting clearer and can prove to be well-defined paths for Indian startups in the future. Most global smartphone app developers prefer the Freemium or the advertising model. Companies like Evernote and Dropbox are beginning to see good conversion to Paid from their Freemium models. Corporate-oriented apps tend to be priced on premium subscription price plans.

Build entry barriers
Typically, early leaders that have network effects tend to become monopolies over time.

Brand and distribution expertise also provide moats in the business.

Tech companies like Justdial and Naukri have made themselves difficult to beat because of the large productive field force they have painstakingly built over the years. The physical sales force along with an online and mobile customer front end creates an unbeatable combination.

Demonstrate grit and determination
Finally, every process and product differentiation could get copied but people are irreplaceable. The sheer persistence of an entrepreneur and founding team who "do what it takes" forms the glue that makes a startup into a company.

As VSS Mani, Founder and CEO, Justdial says, "Remember, entrepreneurship is different. It's not like a regular job. It's a calling. So don't do it unless you have it in you. It has to come from inside, not because someone told you. Remember, there will be lots of failures. Learn from them. Don't do minor, incremental things that copy someone else's idea. Do something disruptive."

© Entrepreneur India January 2013
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