How and Why to work with Telecos as a startup – a PixSense story
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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 isnt 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.
Another example would be value-added services that use MPLS-level guarantees on service delivery, such as some type of niche video-on-demand or video-conferencing solution.
Read the full interview of Paul Singh to read up about everything this interesting firm is up to.
Thanks Imtiaz for pointing me to this.
9:00 am
Thanks for the story Osama.
If there are startups out there who want to know more about this space and learn from our experiences, give me a shout: agboat@gmail.com
-Adnan
Founder
PixSense
9:41 am
Great writeup Osama. I would agree with Adnan but only to some extent.
The issue I have with basing your product/service around the telco setup is the inherent pricing structure. For any common VAS (Value Added Service) the telcos keep the major share of the offered price. All Pakistani telcos start at a 70%-30% threshold when sitting for commercials negotiation. In my experience, strong negotiation skills can change that ratio to 60%-40%, albeit still in the telco’s favour.
I went for a different approach when dealing with the telcos. Pakistani telcos have had a signficant drop in ARPU (Avg. Revenue Per User) over the pase couple of years. Mobilink’s ARPU/month came down from $18 to around $4 in a matter of few years. This has lead to change in pricing and advertisement strategy. All telcos are moving towards a data-centric approach for revenue. They desperately need to set up offerings with diverse applications.
My approach has been to go for a community-driven model. I have leveraged the telco’s current requirements and signed contracts with them to put my mobile applications on their portals for free. Their subscribers will be able to download them for free and as many times as they want. I will in return share some of the advertising revenue with the telco, which I earn by putting ads within the mobile applications at appropriate places.
If you are planning to develop an idea into a mobile application, this is the right time to leverage the telco’s hunger for data specific applications and develop a community of users from the demographics which appeal to heavy spending advertisers.
Adnan Ali
10:07 am
So it really depends on the application. For applications that are not data intensive, this will work. For data intensive apps like ours, the model is a little different.
And yes, your price to the wireless operator totally depends on your negotiating power!
-Adnan
PixSense
8:40 am
Very interesting .. will share this on TelecomPk.
4:44 am
Dealing with large enterprises as a startup? It’s tricky, dangerous and risky. The returns are great though. Marc Andreessen (the father of Mosaic web browser and VC) has a great writeup about it, I’m sure many people dealing with large corps can relate to it:
http://blog.pmarca.com/2007/06/the-pmarca-gu-3.html