About a month back, we took an equity investment in Oxigen Services (India) Pvt. Ltd.  The announcement was an acknowledgment of the integral role of  mobile telephony and mobile payments under our Unlimited Potential strategy.  Some may recall we profiled Oxigen back in October at i3 2007.

As the first such deal in India, the investment generated many questions amongst our entrepreneur and investor friends here in India.  To answer these questions for a broader audience, I sat down with my colleague, Latif Nathani, who is the general manager for Microsoft India’s Unlimited Potential Group for his views as one of the individuals who led the investment.  A serial entrepreneur himself, Latif carries the ambitious charter of helping to make technology relevant to the over 700 million people in India who sit at the middle and bottom of the economic pyramid.

Before we dive into the detail, let me explain a bit about Oxigen.  Headquartered in Gurgaon, Oxigen is a leader in the mobile payments platform.  It currently has a footprint of 50k POS terminals across India and conducts over 7m transactions per month. Oxigen handles aggregation of recharge, bill payments  & subscriptions, for all leading Telecom operators, Internet Service providers,  Direct to Home TV, PrePaid  Radio, PrePaid Value added Services, Railway and Airline ticketing etc  on a single platform.  It has a plethora of other services in its pipeline like utility services, insurance, travel, cinema, gaming, applications and content  that would be launched shortly on its  web and mobile  solution.

In short according to their site, Oxigen is an IT enabled transaction and payment processing platform for electronic delivery of prepaid and transaction/payment management services in a seamlessly networked environment through a rapidly expanding retail network.

Now for the Q&A with Latif…

What is the Unlimited Potential Group (UPG)?

UPG is Microsoft's efforts to bridge the digital divide profitably.  The global Unlimited Potential initiative is intended to reach billions of people at the lower end of the economic pyramid in a profitable and sustainable fashion – of which India plays an obviously important role.  The focus areas for UPG in India are affordable computing, education, shared access, and mobile / mobile payments.

Although we have done so in the past, Microsoft doesn't typically pick up a minority interest in companies.  What made Oxigen different?

Two things.  First, there was a commercial agreement that preceded the investment.  Second, we felt helping Oxigen expand their presence across India would be beneficial to our vision of bringing affordable technology to people across India.  Oxigen is in 50k outlets today and perform 7m transactions a month.  Providing growth capital allowed Oxigen to expand at a much faster rate.

Through our efforts to foster Local Software Economies across the globe, we often introduce high potential startups to venture capitalists to help them grow their business.  Why use Microsoft’s money instead of connecting them to one of our VC partners?

Just to clarify, our investment doesn’t prevent others from making investments.  We specifically wanted to help Oxigen grow their footprint across India and in this case we felt it made sense to use our capital for this purpose.  We had already invested in an affiliated company in South Africa and viewed this deal as an extension of the existing commercial agreement we had with Oxigen.

Why didn’t Microsoft buy Oxigen entirely?

Technical and legal details aside, Oxigen is an enabler to our Microsoft and Microsoft is an enabler for Oxigen – but we’re fundamentally in different businesses.  Running a mobile payments company is not core to what we do – but we do see Microsoft’s software and services as a key enabler for their business going forward.

How will Microsoft benefit from this partnership?

As their customers start using the internet on mobile phones, there is the opportunity to incorporate our Live services email.  There are significant advertising opportunities.

How will Oxigen benefit?

Growth capital to expand operations and Microsoft’s underlying software and services technology will provide significant benefits to Oxigen.

Is UPG looking for similar deals to invest in?

We’re always looking for partners to reach the masses and will consider similar deals in the future but, as you know, Microsoft doesn’t have a venture arm and does not typically consider early stage equity investments.

Paul Murphy, Microsoft India