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“mGinger Is Not A One Product Company”; Interview With VC Sateesh Andra Of Draper Fisher Jurvetson

We’d reported mobile advertising company mGinger receiving its first round of funding a month or so ago from NEA-IndoUS Ventures. mGinger’s model of paying users for receiving advertisements is much debated, and many including me have been skeptical of their success. The funding – of $2 million – was led by Draper Fisher Jurvetson (DFJ), and I spoke to Sateesh Andra, Venture Partner with DFJ recently:

How much have you invested in mGinger?
We’ve invested $1.5 million, while NEA-IndoUS has invested $500,000.

Why mGinger, what was the company’s valuation, and how did you value the company?
There are three things – first is a good marketing opportunity. Mobile is a great medium, as is opt-in permission based advertising in that segment. The second factor is that the mGinger team is a great team. The third factor is the traction – there are close to 1 million subscribers. Also, the change in market dynamics: when I turn on a spam filter, I don’t receive advertsing. That’s what the Do Not Call registry is doing. As a marketer, I can sign up with a network like mGinger, and I get advertisements that interest me. mGinger is building a directory of consumers. I can’t comment on the valuation.

There other advertising models like 160by2 for free messaging and even (Rajesh Jain’s) MyToday that is a publishing based model…Why the push advertising model like mGinger’s?
All of these things can be done. mGinger is not a one product company. When advertisers look for a platform, they consider: (a) Content Compositition, (b) Cost of Campaign and (c) Measurability. We think mGinger provides this value, and importantly, it has traction.

But don’t the other models give advertisers the same opportunity? And what other products has mGinger planned?
I’m not saying that mGinger is better. We’re betting on a team, the opportunity and traction. We’re not just looking at the next couple of years. I can’t talk to you about their plans.

More in the extended text

What kind of a year-on-year growth do you expect from the company?
Usually they have operational plans, and they give you a figure for one year. No one comes with a 3 year plan, and the growth depends on the sector and the ecosystem. In the chip business, it take 18 months to launch the first product, and 18-36 months to start selling and establishing partner sales. I think $10-15 million in 2-3 years – that’s building good value.

Where’s the exit for you in mGinger?
You can’t build a company with an exit in mind. Once you’ve created value, then you can look at M&A, IPO…you decide the exit once you’ve built value. There have been a few IPOs and some acquisitions in the mobile space, and what’s happened is a sign of things to come. However, no one thinks of an early stage investment with a clear exit in mind.

With just $2 million in funding, why did you take the co-investment route? Why not put in all the money yourself?
Early stage deals are a lot of work, and if there are two partners, then we both go to work together for the company.

What’s your take on the ecosystem on the Internet and mobile? The pace of growth doesn’t appear to be half as fast as expected…
I don’t think it’s going to be like South Korea or the US. It’s going to be about leveraging new media and bringing in efficiencies. In reality it’s always more expensive to build a company, and it takes longer to get revenues than planned. In India, people talk about e-commerce, credit card penetration, broadband.

Which other sectors interest you?
We’re interested in essentially consumer services – nano technology, clean tech, IT enabled retail entertainment. Reva, Komli, MChek (mobile payments) and Live Media are among our investments. Also SeventyMM, which a combination of NetFlix and FedEx. The entry of Reliance in the online home video segment validates the opportunity.

14 Responses to ““mGinger Is Not A One Product Company”; Interview With VC Sateesh Andra Of Draper Fisher Jurvetson”

  1. I seriously think that mginger is a big joke… It's been more than 5 months not since i signed up and i've got just 1 message till date, that too last week. If having an database of 1million users willing to get ads, and still not being able to grab attention of big companies and get them on board is a bit baffling..

    The "Earn money by reading SMS" sure sounds dicy… I would like to put the following scenario to test though and see what all your responses are :

    Person X works in a big MNC, shops branded and is obviously a target for brands like Nike(A) and Levi's(B). Now A and B sign up with mginger for providing sms ads to people like Mr. X .
    But guess what, Mr. X is not on mginger's database !! People like Mr. X will be almost non-existent on mginger. That's because for someone who'se phone bill runs up in a few grand, and one who is not interested to get pesky sms's just to earn a few hundred bucks, will certainly not be signing up for mginger's program.

    So to sum it up, where to big advertisers like A and B go ? Do they trust mginger's ad medium and invest in it ? Or would they be better off spending the same money on something more usefull ? How does mginger really attract them ? And where do people like Mr. X who want deals and discounts on sms's get served ?

  2. Have they tried with the straighter/simpler proposition of "desired & relevant ads on your mobile" or started with "get money with SMS" right away? because the later one seems more of a contingency plan.. :)

  3. Raghu makes a very valid point. The "pay to read my message" goes against the very fabric of advertising and surely that is not the kind of customer a brand owner wants.

  4. When a news about mGinger being funded came on contentsutra earlier ( http://www.contentsutra.com/entry/419-mobile-advertising-company-mginger-funded-by-nea-indous-ventures/ ),
    i tried to raise this point but couldn't find an answer.. hope this time i can…

    i believe there is a weakness (if not a flaw) in the business model of mGinger (and its clones). For them 100% of the revenues depends on the advertisers' confidence/perception about the channel… Now when advertisers know that mginger is attracting subscribers by saying “you get money to receive SMSes” and NOT “useful/helpful/relevant/desired/timely ads on mobile”, can't they imagine what kind of people would subscribe?

    its easy to imagine that its a way to attract 'parasites' who are not interested in any msg but the only the money that comes with it.

    how does mGinger and the whole mobile ad industry plan to build the advertisers' confidence then? on a mobile every spam SMS is like a sitting duck waiting to be deleted… its not sandwiched with interesting content as it happens on other media.

  5. Javaliram

    Ohh now I get from where I was getting those annoying messages. I registered with mGinger the first time I heard about it. I for sure ain't getting any royalty check but non-stop marketing messages. There were days when I received upto five promotional sms messages. Unfortunately, in the messages there is no mention that I am receiving these messages because I am registered on mGinger. Now, I will go and clean up my account and rest the debate between active and non-active users. Oh by the way, I am also on 160by2 – should clean that one also.

  6. Well, those who have signed up will receive…so, I think they're active….or activated :)

    So the operators know when a message is opened? Interesting. I think the operator will be involved. The interesting thing is that OnMobile has been doing the rounds of conferences talking about a targeting system they have, which apparently allows for targeted sms campaigns..the software is called Morpheus. They have a closer relationship with the operators…so I wonder what'll happen to mGinger if they get involved.

    Also, the DNC is not applicable to SMS', is it?

  7. @Nikhil: Technically yes, they are active users. But if I sign up for a service, and have no contact with the service for 3 months after signing up, I think that's pretty much an inactive user. This is like Rediff having 25m email accounts, but only a certain proportion of it can be counted as active accounts for any valuation or otherwise purposes.
    For me the active user base of mGinger will be the users whom they have touched, through some ad, in last one month. And I seriously doubt that number to be anywhere near a million!

    If they get the operator involved they would know if the message has been read or deleted without being read! :)
    I agree with your assement, since this medium cannot be used for branding campaigns, promotional offers and coupon campaigns will come only through precedence of high response.

  8. Yogi: these are people who have signed up for the service, and have agreed to receive promotional messages. They'll need to sign in and deactivate their number if they want messages to stop. So, until that happens – this is an active user base.
    I think the response rate will be critical – for coupons and offers. Otherwise, is there any other way of knowing whether people are actually reading these messages? that's one BIG issue that mGinger has to find a way of dealing with.

  9. Nikhil, but the problem is that, mGinger's user base is not a an active user base – it is just a database! There is no regular service that mGinger is offering to its users. A large number of their users have not received any ads till date, so would not even remember that they actually have signed up for mGinger.
    Not sure, what can they do with a passive database!

  10. LTLRC: I'm not defending them, but also look at it from another perspective: this was probably the quickest and cheapest way of getting a user base…now we'll have to see what they do with this user base.

  11. Long Time Listner Repeat Calle

    hmmm

    do these guys work at being idiot or does it come naturally to them ? if they want to make mGinger a multi product company than launching there first product like this is equivalent of Dipika Padoken coming to Vogue Cover without makeup and
    than saying Wait I can look better with some diff Hair Style , makeup and Dress .
    my experience is that you don't get a second chance to make a first impression .
    Impossible ?? No
    Hard ?? Yes

    Good Luck to mGinger Team