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Why Do Mobile Startups Fail?

Anamika Sahu
Wednesday, July 6, 2011
Anamika Sahu
Ever since the telecom industry was introduced in India, it never looked back. India has the fastest growing telecom network in the world with its high population and development potential with total numbers of mobile phone subscribers reaching to 811.59 million at the end of March 2011.

With such a stunning number of subscribers, 2010 saw considerable growth in the mobile applications market and more competition is expected in 2011. In the last three years, over 300,000 mobile applications have been developed. Applications have been downloaded 10.9 billion times. This increases the potential for the mobile application start-up. However, the success rate of such start-ups is less as compared to the failing ones. "The startups who fail to differentiate themselves among the existing providers lead to closure. There are even challenges regarding monetization, which if not handled properly concludes to the end of the company," says Suresh Narasimha, CEO, TELiBrahma, a mobile solution provider company.

Many applications are provided free in smartphones and other application costs a few rupees which is not sufficient for continuing the establishment. "The average download price of a mobile app is falling rapidly on all vendor app stores and one in four apps once downloaded are never used again. There are big players playing their part of game in the field. The startups need to locomote with innovative ideas to attract the operators to try them," says Lalit Bhise, Co-Founder and CEO, Mobisy, an application and platform developer for mobile.

The tussle between the application provider and the operator/ mobile manufacturer for revenue has worsened the circumstances for the start-ups to survive. What is touted as $1 billion plus industry, what subscribers pay, is in reality only a $200 million industry from the VAS provider's point of view. The slanted revenue shares between the operators and the VAS providers create a Hercules of trouble for the startups to sustain in the industry. . "The unsustainable business model clubbed along with this challenge leads to external as well as internal problem for a start-up," says Bhise.

With the considerable increase in failing rate, it has become difficult for the segment to convince the VCs for funding. "It will take 2-3 years for things to be normal as the demand for the industry is increasing. Funds will start flowing as 3G and smartphones will change the scenario," says Narasimha. Android and iPhone has worsened the scenario for the small enterprises as they provide many applications to be downloaded free. "The emerging start-ups should rather focus on areas that are not a regular one and are going to be hot, such as mobile wallet/payment, mobile commerce, delivery of government services where they are making much stuff online such as income tax payment and many more. New ideas will surely ensure funding and growth of the segment," says Ashwin Raguraman, Vice President, IKP Investment Management Company.

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