I was thinking what are the basic economical drivers of the VAS business.
Let us take the example of full song download (FSD) or some video download. For a while let us broadly freeze on 4 as main types of stakeholders driving it.
Look at it as either individual or the group falling in that category:-
(I) Content creators- the one who or whose skills singing/ instrument playing/acting / directing or combination get consumed.
(II) One those who like these creativity means- us, customers let us call it as people
(III) First buyer of creativity -producer who bets on economics of human talent, charts business plan, engage all resources in anticipation of future gain
(IV) Last but not least, there is a talent, there is group appreciating talent and there is producer ready to finance the talent for the sake of business. What's missing-a group which is entire distribution chain
Now look from people perspective: People pays for content creator’s royalty or say pure cost of talent, then Producer’s margin or its ROI for the risk taken (and let me tell you it is very risky business and hence higher the margins), and some more towards interest to be paid for finance arranged & the high lifestyle he/she wants to maintain. Then some amount further added towards distribution chain, as they want return for their hard efforts to conveniently make content available for you, also there may be charges for investment made in real estate- location where you want to consume, experience provided or purely for delivering it to your door steps through various mechanism and some amount also needs to be paid for actual material or manpower utilized.
So equation becomes: You Pay = f (C+P+D). Where C= for content creator, P = Producer group, D= distribution chain. Typically it is, C << P; P = max (revenue share); D’s ( % margin) > P’s (% margin)
So now here comes Mr. Telecom, who says I will give you direct distribution channel and hassle free single point of collection and limited need to address logistic challenges. And Mr. People also started changing their consumption habit. All agree and market to Mr. People that consuming FSD through mobile/computer is a better idea! Then to make it happen you require some IT development and support. Even after that economics works out and VAS prospered so far. Since Mr. T (telecom) is replacing Mr. D (Distribution chain++) from the equation wants to retain higher % revenue share. So far so good and nothing is significantly disruptive. Right!? Now equation becomes:
You Pay = f (C+P+T) where T= Mr. Telecom partially replacing other distribution chain and retaining good margin for that hassle free convenience brought, supporting infra built, spectrum fee paid. ;-)
Now there comes the disruptive event, extreme disruption through Internet world. Let us call it with beautiful adjective-democratization of business model- and it is represented by Mr. Google Facebook Linkedin also known as Mr. Twits (or for ease we will call it Mr. G). Now give hard look to the situation. Its drastically changed, so does our equation.
You Pay = f(C+c+ G) where ‘c ’ indicates possibilities of replacing all big producers with optimal efforts by content creator itself.
Its bringing supply to demand by cutting all physical layers and trying to migrate all possible layers to virtual. So supporting content creator right from advertising till monetizing through very large economy of scale build by Mr. G. Now content owner can almost reach directly with minimal efforts to the appreciator of their content. And not to say, it will have global scope.
That is where Mr. G plays very disruptive, making all business environment hostile. Ensuring all those who happens to be at wrong side of the vision driven by Mr. G, needs to go back to their board room and chalk out new environmental scan, apply porter’s 5 force model and rework SWOT analysis for their organization.
There are some more interesting insights and perspective about all this democratization of business model, will continue this some other time. Have a great time.
Awaits your feedback, most precious thing for me…