App Business in India -Businessworld

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SOCIAL MEDIA 07 Jan 2012

App. App And AwayThere is an app for every reason. But will the app economy support $1 billion pluscompanies?

Venkatesha Babu with VishalKrishna

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In Bangalore, Kavya Madiah, 17, spends at least a couple of hours everyday playing Ra.One Genesis on her Nokia N8

smartphone. Kavya, a die-hard Shahrukh Khan fan, lost no time downloading the game application on the superstar’s

sci-fi movie the moment it became available. Vishal Gondal, CEO of Indiagames, which developed Ra.One Genesis,

says the app has seen over 2.5 million downloads so far from the Nokia Ovi app store. Indiagames, now a part of

Disney, says the app has been downloaded several million times already on different platforms. It is available on

iPhone/iPad and Android versions as well.

In Chennai, P.R. Rajendran, director of Nextwave Multimedia, is trying to build a business around mobile apps. Before

he joined the apps bandwagon, Rajendran worked for a decade trying to create a successful software services

company. He changed course when he came to the conclusion that the software services business had become a “scale

game.” Clients wanted to know how many thousand eng ineers an IT services firm employed, before giving an order.

Rajendran says the app market is far better for small, but nimble firms such as his. He has a catalogue of 400-odd appson multiple mobile operating systems (OS), including games such as Chef vs Chicken, Mission Possible, Mobile Table

Tennis and Find the Word. He says several of his apps have seen million-plus downloads, and generated significant

returns. “How significant?” Rajendran smiles and says: “Significant enough to ramp up our hiring.”

In India, an estimated 100 million apps are being downloaded a month currently, even though only about 30 million of

India’s 881 million cellular phone connections are internet enabled. The global figure for monthly app downloads is

estimated to be a couple of billion currently — one billion or so being downloaded per month from Apple’s store alone.

The global app economy was estimated to be worth $4.1 billion in 2009, and is projected to grow to $17.5 billion by end

of 2012, according to a study commissioned by mobile apps store GetJar.

(from left) ABHINAV MATHUR, SPICE LABS PORTFOLIO: More than 400 apps such as Hangman and

Bollywood Tweets (Sanjay Sakaria)

S. PARTHASARATHY, NU STREET PORTFOLIO: Focussing on enterprise apps, targeting textile industry

(Jagadeesh NV)

RANJIT SINGH, MANTHAN STUDIO PORTFOLIO: More than 30 games. Focuses primarily on gaming

applications (Photo Hub/ D. Anirudh)

Across the globe, hundreds of millions of consumers like Kavya are providing the fuel for the app economy. And

hundreds of thousands of entrepreneurs and developers are trying to make their fortunes from this wave. App

entrepreneurs across the world take inspiration from Rovio, which was an obscure Finnish game maker until it p roduced

Angry Birds — a game in which players use slingshots to send angry birds to destroy smirking pigs and their dwellings.

At last count, Angry Birds has seen over 500 million downloads, and it had even given rise to copycats. Rival game-

maker Zynga (of FarmVille fame) launched an unsuccessful $2.25 billion bid for Rovio just to get its hands on the Angry

Birds franchise.

WHAT’S IT ALL ABOUT

A mobile app is a piece of application software that executes a specific task. They are preinstalled

on phones or can be downloaded from distribution platforms. Apps have always existed. Ever

since Netscape debuted with Navigator, the browser had become the entrepot to the digital world.

Lowpowered devices with flaky connections and low-specs hardware meant dedicated apps

became popular. So there is an app to check weather, play chess etc. While independent third-

party platforms such as GetJar, MobiHand and Pocket-Gear have existed for years, the launch of

Apple’s App Store in July 2008 with carefully curated apps triggered an avalanche of interest in

app development. Companies quickly realised that more the number of apps and more popular

apps available on a platform meant it would help lock in customers. Those who successfully

catered to the exploding demand, such as Rovio, have had multibillion dollar valuations.



The app economy did not even exist a few years ago. Sure, there were a few third party apps — calculators, currency

converters, a few games — that came bundled with mid- and high- end mobile phones. There were also a few

standalone app stores — but they did not do any huge business either.

It all changed in July 2008 when Apple launched its app store with a mere 500 third-party apps, some free and others

priced, with many of the priced apps costing less than a dollar each to complement its iPhone. There were multiple app

options for almost any task — whether they were related to productivity, news, entertainment or games. You could

download clocks in different shapes and sizes, games of every kind, news aggregators, photo manipulators, free digital

book libraries, exercise apps, calculator apps, medical apps, and dozens of other fun things. iPhone consumers could

not get enough of it. Suddenly, the app economy took off.

FAST FACTS ON THE BURGEONING INDIAN APP INDUSTRY

100 million apps being downloaded in India every month*

Nokia India alone claims 48 million app downloads from its Ovi store each month

The global app market is at $4.1 billion in 2009; set to hit $17.5 billion by the end of 2012**

Most of the Indian domestic app market follows freemium model

India's app developer base is estimated at 250,000#

The 30 million mobile Internet user base in India is projected to go up to 237 million by

2015##

Total mobile connection user base stands at 881.4 million^

97 per cent of Indian phone market still is prepaid by volume^^

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Apple’s competitors — Android, Research In Motion (of BlackBerry fame), Samsung (Bada OS) and Nokia (Symbian andWindows Phone 7), all rushed to open their own app stores and provide support to app developers. Third-party app

stores — such as Getjar — also opened shop. The fortunes of new smartphones became dependent not only on the

slickness of the hardware and the sophistication of the software, but also on the number of apps in the stores supporting

those phones. Today, it is a given that even an exceptional mobile handset with a wonderful new OS cannot succeed if it

does not start off with 50,000 plus apps available from day one. Currently, Apple is the app champion with more than

500,000 apps in its store, while Android has about 400,000 apps available on its platform. RIM and Windows Mobile are

far behind in the race, but both offer incentives and support to developers to build thousands of apps for their platforms.

The App Entrepreneurs

As the smartphone population increased and app downloads grew exponentially, so did the number of app developers

and entrepreneurs. One great attraction for entrepreneurs is the relatively low entry barrier. Though only a few players

have managed to attract angel or venture capital/private equity funding, many people have got in because the initial

capital requirements are just a few lakh rupees. You need a few people with good coding skills, creative spark and some

basic hardware and software to start with — and players such as RIM and Microsoft are quite ready to handhold you and

provide support in many ways. You also do not have to be near any of the big software hubs such as Silicon Valley,Bangalore, Pune or Gurgaon to become an app entrepreneur.

That is why hundreds of thousands of app entrepreneurs have popped up across the world. While there are no hard

numbers available on the number of Indian app entrepreneurs, it is estimated that they number in thousands. An

estimated 250,000 developers in the country are employed in this nascent industry.

(from left) ARUN BENTY, TRELLISYS PORTFOLIO: Started off with converting

HarperCollins’ book SAS Survival Guide into app. Now working with several

publishers on similar apps (BW pics by Jagadeesh NV)

SRIRAM KANNAN, NIVAATA PORTFOLIO: Apps such as Verayu (location

intelligence), sureLock (mobile security)

Virat Singh Khutal from Indore is an app entrepreneur. He is the CEO of Twist Mobile. The two-year-old company has

20-plus apps on various platforms including iOS , Android and Symbian. Khutal says he started with a staff of eight and

clocked revenues of Rs 1 crore in the first year. Today, he has 35 people and counts the number of app downloads at 30

million. He likes working out of Indore — software developers are cheaper there and also more loyal.

Ranjit Singh, CEO of Manthan Studio of Nagpur is another app entrepreneur who has opted to build a business away



from a traditional software hub. He has 30 odd games in his portfolio. While Manthan focuses on gaming apps, he says

that apps on bhakti sangeet and astrology have a big demand in India. Ranjit says players such as RIM provide more

hand-holding than Google or Apple. Also, it is easier to get noticed in RIM’s app shop as there are fewer apps in the

store.

App entrepreneurs come in all shapes and sizes, and not all

of them even have a software background. Take Rohit

Singal, founder of Bangalore-based Sourcebits, which has

attracted investments worth $10 million from venture

capitalists IDG Ventures and Sequoia Capital. A doctor by

training, Singal studied and practised medicine for 11 years

before he turned his attention to apps. Contrary to

expectations, he did not focus on medical related apps. His

first app — Fun Booth — was on photography. It allowed

people to manipulate their portraits with an assortment of

masks, fake moustaches and other such stuff. He priced it at

99 cents a download on the Apple store. It was a moderate

success, but another app — the Night Stand, an electronic

clock for the iPhone — was the one that actually provided

him with the much needed traction. Night Stand, also priced at 99 cents, was downloaded 3 million times.

There were times when Singal felt he was going to have to close shop. “I remember in the first year my sales just

touched Rs 6 lakh and I was paying a developer Rs 3 lakh a month to make the best apps,” he says. But slowly,

downloads increased. Apps such as RoboKill, DailyDeeds and Periscope gave his firm the reputation of a professional

app developer. Apart from apps sold under his own brand, he also started getting orders from big corporations to

custom-build apps for them.

More entrepreneurs come in because they had already started a web-based business earlier. Arun Benty, Rohit Rego

and Anil Garg — three classmates who started a cybercafe while they were still students 11 years ago, and then moved

into web designing — have set up Trellisys. They got into the business when publishing house HarperCollins asked

them if they could convert one of the publishing firm’s best-selling survival guides into an app .

(from left) P.R. RAJENDRAN, NEXTWAVE MULTIMEDIA PORTFOLIO: More than 400 apps for multiple

mobile platforms (G. Keshav Raj)

SUNIL K. SAJJAN, DIVUM PORTFOLIO: Popular apps include IBNLive, MobileESPN and Sports Guru

(Jagadeesh NV)

“The exercise was done just out of curiosity, HarperCollins gave us the job as they found us serious enough during our

presentation to them,” says Benty, founder and director at Trellisys. The book, SAS Survival Guide, has sold a million

copies since 1987, but when it became an app, it sold over 168,000 copies a year. “The success was due to the fact that

the guide became interactive with videos and graphics. This was never possible with a book,” says Benty. Now a host of

publishers have come to Trellisys. HarperCollins itself commissioned about 20 books to be converted into apps. “It took

seven months of hard work in 2009-10 to reap the benefits now,” says Rego, co-founder and chief technology officer of

Trellisys. They are building an app, Papyrus, which will allow writers and publishers to interact with each other. It allows

the writer to reach his audience without depending on a channel. The firm is just over $1 million in revenues and works

on a revenue-share basis with customers.

Similarly, Bangalore’s FuGenX Technologies used to be a web-design firm founded by Babani Sankar Jena and

Debasis Behara. In 2008, a UK-based recruitment agency looking for a suitable app developer in Bangalore had a

casual chat with the founders. They asked the firm to give them one chance, and that was the beginning of their Web-

development business. Today, FuGenX claims to have a hundred app portfolio and revenues of $ 1 million.

One reason the app industry is attracting entrepreneurs from different areas and different backgrounds is because there

are literally thousands of niches and therefore hundreds of thousands of new apps that can be created. While a good

majority of developers and entrepreneurs stick to games — which is easily the most popular category — there are others

who seek out areas that will allow them to mark a presence early. NuStreet, founded by S. Parthasarathy in 2008 in

Chennai, for example, has created an app that tracks a company’s manufacturing processes on a smartphone. The app

takes real time data from the main server of the factory to provide the user with the information. Parthasarthy is focusing

on the textile industry to sell his app.

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At the other end of the app spectrum, is Sunil Kumar Sajjan, the COO of Divum Corporate Services, which has

developed more than 300 apps. Divum has developed an app, which enables your car to be both steered and parked

remotely using a mobile phone. Sajjan says such innovative apps are the future for the Indian app industry.



Making Money

While entry barriers are low, making lots of money is not very easy for the average app entrepreneur. In fact, while many

entrepreneurs insist they make enough money to keep growing, few share any concrete numbers. One reason is that the

most visible face of the app economy is also, perhaps, the least lucrative. A large number of apps in a typical app store

are either free or cost a very minimal amount. Many developers price their apps at just below a dollar to entice

customers.

Typically, the app store takes 30 per cent of the cut for every sale, leaving 70 per cent for the developer. And that is if the

app store is acting generous. In India, where many app stores are controlled by the network operator, the developer

actually gets just 30 per cent of revenues, while the rest goes to the network operator. “Absence of micro-payment

mechanisms and reluctance to use credit cards have strengthened the hands of operators,” says Sriram Kannan whose

firm Nivaata offers apps such as location intelligence app Verayu, contact management suite iTransfr and sureLock, to

secure mobile phones. Nivaata has mainly focussed on enterprises, though Kannan says it will address the consumer

space too. Johnathan Bill, head of data services and 3G at Vodafone India, disagrees saying that since the bulk of

entrepreneurs in India have no proper business model, a store such as Vodafone’s helps entrepreneurs monetise their

work. And that is why telecom service providers feel they are justified in taking 70 per cent of the cut. There are 3,000

developer partners working with Vodafone India and their firms have created over 100,000 apps.

At any rate, for a developer, therefore, an app priced nominally would need a million downloads or more to make any

sort of money, and relatively few priced apps manage a million downloads. That is also one reason most app companies

prefer to develop a few hundred apps so that at least one or two become millionaires.

What about free apps? There are two models here — entirely free and the Freemium models. In the first category, the

app is entirely free and hopes to make money by placing ads within the app. In the second, there is a lite version or a

basic version which is free (or ad supported), but the consumer pays if he wants the full version or some extras. Some

games, for example, are free, but to buy ammunition or other things to play it beyond base levels, you need to shell out

money. Nokia India, which claims 48 per cent of the apps downloaded here come from its Ovi store says that almost 85

per cent of the apps downloaded by Indians are free or freemium at best.

ANNIE MATHEW (left), RIM INDIA AND JASMEET GANDHI, NOKIA INDIA Both RIM and Nokia are hand-

holding thousands of third-party app developers on their platforms (BW pics by Tribhuwan Sharma and

Subhabrata Das)

There is another variant — like the one Indiagames is trying out with the Ra.One. This is a product placement model

within the game. The hero needs to keep replenishing his energy from time to time by consuming Parle G biscuits. The

makers of Parle G biscuits paid the developers to build it into the game. This is a variant of the ad-led model, but the

payback is higher.

The final model is to develop white label apps — or customised apps for specific customers. The app developer gets

either a flat, one-time fee for developing the app or a fee plus a revenue share. Most entrepreneurs prefer to have at

least a few white label clients so that they can cover operating expenses while trying to create the next original

blockbuster. This is a hugely favoured model for Indian developers. Abishek Vinod Singh, CEO of DbyDx Software,

which has developed over 200 apps, for example, has a solid roster of clients for which it makes apps. He counts thelikes of MakeMyTrip and Computer Associates among clients.

But there are also those who be lieve that going in for white label work, while mitigating risk in the short run, is actually a

mistake. Affle, a Singapore-headquartered company getting all its development done in India, is one of them. It is

unusual that even after five and a half years of operations, it has released only five apps. Affle wants to stay focused on

the mobile messaging and social networking space,” says Anuj Kumar, CEO of the company.



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The company which develops apps for most major platforms has raised $25 million from

investors such as Microsoft, Itochu Corporation, D2 Communications and Centurion

Investment Management. Apart from the focussed app development, Kumar says what sets

Affle apart is that it takes care of the monetising bit for apps itself. “All of the company’s apps

are ad-supported and unlike some others we do not outsource the ad-selling bit as we believe

this to be key to our operations,” says Kumar.

Hurdles On The Way

Though the initial costs of getting into the app game is low, there are plenty of bumps that

entrepreneurs need to navigate once they get started. For instance, Singh of DbyDx says most

app developers who are creating consumer apps have to develop versions that have to work

across platforms. They not only need to work on versions for each of the popular operating

systems, but also for different versions of the same OS. For example, in the Android platform,

there are at least six major versions that have been released — all named after desserts. So

there is Android 1.5 (Cupcake), 1.6 (Donut), 2.1 (Eclair), 2.3 (Gingerbread), 3.0 (Honeycomb)

and the latest is the Ice Cream Sandwich (4.0). Developers for the BlackBerry platform have to

contend with OS 5, 6 and 7, all of which are present in the market.

Then there is the enormous clutter that faces most popular categories. There are a few

hundred clocks, and several dozen calculators for most versions. Also, with hundreds of apps

being developed every day and released, getting noticed is a huge p roblem.

Here, the less popular platforms (those with lower market share or fewer apps) are actually

more ready to help out the app entrepreneur. RIM, Nokia and Windows are all supposed to be

more helpful than Apple and Android. However, RIM is routinely slammed by mobile phone

reviewers for their relative shortage of apps compared with Apple and Android, Annie Mathew,

head of alliances and developer relations at RIM India, says it is an advantage for the new

developer. “Some platforms claim hundreds of thousands of apps on their stores. Does one

need 1,500 versions of poker? It is important there is quality control and applications are

curated, so that a user need not have to wade through junk apps to find a few quality ones.”

Jasmeet Gandhi, head of OPM and Devices at Nokia India says that app developers typically

gravitate to those who offer both handholding and an opportunity to gain revenues fast. “While

most major players provide support like access to forthcoming devices, software libraries,

native API’s (application programming interface), and SDK’s (software development kits) to

app developers, they are also looking at a platform’s ability to drive revenue.”

RIM’s Mathew agrees. “When a developer comes with issues such as their app download time being too high or battery

consumption being heavy, we offer expertise.” Gandhi says there has been good response to the joint ‘go to market’

strategy with Microsoft for its Windows Phone 7.5 platform, which Nokia deploys for Lumia 800 and Lumia 750 phones.

But the Ovi store still primarily stocks apps working on its older platform, Symbian. “In India, we have nearly 12 million

downloads a week from Ovi for our Symbian devices,” he says.

Even Samsung, whose top-end phones tend to run Android, still woos developers for its own Bada platform, which runs

the lower and middle end devices. Dipesh Shah, vice-president of Samsung Electronics, says that India — both as a

handset market and as a base to develop apps for the global and local market — is critical to all players. “We have more

than 350 companies in India developing apps for the Bada platform.”

With the introduction of the iPad, and the Samsung Galaxy Tab, the tablet app market has also opened up, providing

another opportunity for app entrepreneurs. Says Rohith Bhat, CEO of Robosoft Technologies, based in the temple town

of Udupi: “The tablet market will explode over the next five years and the enterprise app business will become a major

source of interaction with employers and employees.” Robosoft focusses primarily on apps for media houses such as

CNN-IBN, Times of India and NDTV. It has built 400 apps for 50 customers and claims revenues of $20 million.

There are plenty of app entrepreneurs who claim to have revenues in the $10 million to $50 million range. The question

that remains unanswered is: will the app economy support $1 bill ion plus companies. Most entrepreneurs are happy to

keep building apps, while they wait for the answer.

venkatesha(dot)babu(at)abp(dot)in

(This story was published in Businessworld Issue Dated 16-01-2012)

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App Business in India -Businessworld