Phone-makers dial new revenue streams

Declining margins on handsets are forcing mobile manufacturers to turn app makers. Device-makers such as Xiaomi, Vivo, LeEco and Micromax are increasingly adding services to their repertoire, including gaming and video-on-demand to create newer revenue streams.

Chinese mobile brand LeEco, for instance, is setting up a 1,000-people facility in Bengaluru to develop content and apps aimed at Indian users. The company has already raked in $364 million from its global services revenue — about a third of its overall annual income stream.

“The era of making profit from devices is gone. We are moving to content, cloud and services for consumers,” Atul Jain, COO, Smart Electronic Devices, LeEco India told BusinessLine .

In India, the company has partnered with YuppTV to offer viewing of 200 TV channels live on mobile and Eros Entertainment to offer full movie streaming on mobile.

“We are also developing our own content for the India market by building a 1,000 member R&D team in Bengaluru, which will also develop software specifically for the Indian market. We’re also investing in 10 content delivery network points in India with an investment of $10 million,” Jain said.

Xiaomi sees itself as an internet company with the mobile device being just a medium for delivering content, rather than making it its core revenue generator. It also has a development centre in Bengaluru to build India-specific software.

Hugo Barra, Vice-President (International Operations), Xiaomi, said the company is working on partnering with content companies, including news apps and video content companies. It has already invested in movie and song streaming company Hungama Digital. “Network has been a big limiting factor in India for video consumption on mobile. With 4G services coming in, we expect a gold rush in this space,” he said.

Home-grown Micromax, India’s second largest smartphone maker, now calls services a critical part of the new ‘Micromax 3.0’ strategy. “With our aim of achieving 100 million connected devices in the next two years, we want to make Micromax the largest services company in India,” Micromax co-founder Rahul Sharma said.

Micromax has already invested in music streaming app Gaana, travel search provider Ixigo, price comparison app Scandid, and digital payment provider TranServ and is looking to invest in more start-ups, while also building its own services portfolio.

“We have probably reached a point where hardware (handsets) cannot offer a differentiation. And, therefore, handset manufacturers have no option but to look at services revenues,” said Faisal Kawoosa, Lead Analyst, Telecoms Practice, CMR.

Kawoosa said the mobile handset industry is following the footsteps of the PC industry where companies like HP and Dell had to shift focus towards services and software after it became difficult to differentiate themselves in the PC business. Today, for both the companies, software and services revenues form a substantial part of their income stream.

For now, most of these apps and services offered by mobile players come free. But, increasingly, users are signing up for paid plans that offer better quality services. “Making people pay for content in India has been a challenge so far. But we believe if the content is compelling enough, people are willing to pay,” said Xiaomi’s Barra.

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