billing for content
Read this. You’ll learn how the industry bills for content, where the money goes, and how such billing methods are set to develop, as mBlox’s executive chairman Andrew Bud calls for the growth of m-billing and wholesale data to unlock higher content revenues.
No one can accuse life in the off-deck value chain of being dull.
First, there was the interminable debate about whether the on-deck or off-deck models would “win”. Even when most carriers had discovered that off-deck revenues were incremental to their on-deck business and not substitutional, even when carriers had discovered just how scaleable the off-deck business could be and how easy to manage, even when they saw the first clear signs of commitment to off-deck by major brands — still there would be panels at conferences discussing the same old arid question. Despite determined attempts by many of us to drive a stake through its heart, it refuses to die completely and still occasionally shows twitches of life.
Then there was Hurricane Subscription; this powerful new business model swept through ring-tone markets in one country after another, uprooting existing vendors and tearing the roofs off the regulatory systems. That has largely passed now, and tough new regulatory regimes have been constructed to prevent a recurrence. Many markets were left devastated and barren by its passage.
Despite this, many other markets are showing phenomenal growth in their off-deck revenues. Intelligent people are still debating whether off-deck will ever happen in the United States, apparently unaware that the US market is already becoming the largest off-deck market in the world, streaking past the UK in mid-2006 with double-digit monthly growth on its way to becoming a $3bn+ market.
Meanwhile, in the suddenly-mature markets of Western Europe, where the abrupt deceleration of growth in Premium SMS revenues has hit a number of publicly-quoted off-deck players quite hard, a new era is opening — the era of mobile internet billing. But what exactly is it?
To understand it properly, first we have to review the Premium SMS (PSMS) experience. PSMS was always a bizarre solution – a billing mechanic accessed by the merchant using a messaging API. It really shouldn’t have succeeded – but it did, and most brilliantly. PSMS alone has powered the creation of Europe’s €4bn off-deck mobile content industry, and continues to support innovation, creativity and entrepreneurial flair in the mobile content industry worldwide.
After three to five years of experience, what have we learned? Most importantly, we’ve learned that a very simple billing mechanic, enabling a purchase journey of six key-presses from impulse to transaction, is an immensely effective and desirable micro-billing system. The simplicity and speed of PSMS translate into high conversion rates between advertising and transactions. Thus, although all content providers complain continuously about poor carrier payouts, the extraordinary effectiveness of PSMS always makes its use worthwhile.
Then we’ve learned that the higher the payout rate by the carrier, the more money goes into demand-creating marketing by content providers and the larger the overall market. A study recently carried out by mBlox, looking at payout rates and market sizes in different countries, demonstrates a remarkably good correlation. When the study looked at the effect of increasing payout rates on carriers’ net margins — what they actually retain — we found that there, too, there was a clear positive correlation. In other words, the higher the carrier payout, the more money the carrier makes from its off-deck business. It is our view that this economic incentive, more than any pressure from content providers, will have a positive effect on payout trends in the future.
But we’ve also learned that presenting customers with premium charges on their bills with virtually no narrative or explanation is a recipe for disaster. High customer service costs for carriers, political backlash and widespread suspicion result from consumers not knowing what they’ve been charged for.
We’ve learned that a billing mechanic that does not permit a prior check of the consumer’s ability to pay the requested sum is not adequate. In many countries only 20%-30% of premium SMS transactions succeed, due usually to low balances on prepay accounts. This requires all content providers to attempt to bill their content before they supply it, due to the high probability of failure. Yet in a market moving towards rich media, where delivery itself may very well fail, this creates an unacceptable risk of treating the consumer unfairly.
And we’ve also learned about the need to have clear corroboration of the customer order. As long as all transactions were exclusively SMS-based, a record of the customer’s MO SMS requesting the content or subscription could be traced by the carrier or aggregator. But in a world in which the consumer can place an order just by hitting a WAP link, only the content provider — the merchant — has any trace of the consumer’s consent, and the carrier simply cannot trust their word alone.
All these factors have given rise to the next generation in off-deck billing. Unfortunately, we don’t even have a single name for it! WAP Billing, Silent Billing, Content Billing, Billing-on-behalf-of, X-Pay…they’re all used somewhere. At mBlox we call it Mobile Internet Billing, or mBilling for short.
One problem is that mBilling actually refers to two completely separate developments in carrier infrastructure capabilities, even if the two sometimes are done together.
One aspect of mBilling is the API offered by the carrier to the merchant. Whereas first generation PSMS offered a pure messaging API, mBilling APIs are altogether richer. Carriers invest in systems, from companies such as Valista, that provide secure and controlled access to their billing systems via off-deck APIs that include such crucial functionality as a balance check before transacting, fully flexible price-points, per-transaction narrative text fields and refunds. These enable the merchants to charge the consumer more accurately, more ethically and more transparently, leading to lower customer care costs and less failed transactions.
The other aspect of mBilling is the user interaction. Once WAP (or indeed Java apps) become the chief buying interface, the problems of disclosure and corroboration must be dealt with. To do so, carriers are creating business rules that require the disclosure to the customer of deal terms such as price, commitment, help line and supplier identity to be executed by someone separate from the content provider.
In some cases they insist that the customer be transferred to the carrier’s own WAP page for this, whereas in others it is accepted that their connectivity provider (their mobile transaction network operator) can serve the disclosure pages. Even more crucial than the buy-time disclosure is the capture of the customer’s consent to order. Here again, new business rules insist that the order page itself must be served by a third party – either the carrier or the transaction network operator. That way, in case of a contention with the consumer, independent corroboration of the transaction is available from a trusted third party.
These two aspects are often lumped under the same name, but are actually separate. In the UK, for example, the new “Payforit” scheme is actually solely a set of business rules for user interaction. Of the four GSM operators, two will support Payforit with PSMS merchant APIs whilst the other two will also offer mBilling APIs. In the United States, the technology underlying some carriers’ APIs for premium SMS is actually mBilling, although not all features have been made fully available to merchants. In Germany, the mBilling APIs are linked to mBilling business rules.
The latest development in off-portal billing is actually wholesale data. Wholesale data is the business model whereby content providers can buy airtime megabytes on behalf of consumers, so that consumers pay nothing for a download whatever their tariff, and the content provider picks up the bill instead. The sheer beauty of this is that the carrier can create very structured and nuanced tariff structures for their wholesale offer — far more complex and targeted than anything they could ever offer a consumer. In this way, they can charge for data on a service-specific basis. For example, MP3 music downloads of 1-2MB are unthinkable at typical retail rates of £7/€10/$10 or more per megabyte. Therefore, mBlox recently launched a service on the Vodafone network based on a wholesale offer for data at less than one-tenth this price — but for music downloads only. Usage has exploded. Browsing and VOIP are specifically banned. When mobile TV arrives, it is likely to require data prices below 10c/MB. With wholesale data, carriers can operate pricing strategies that extract all the marginal value to be had from the market, whatever the application.
This will prove exceptionally important once off-carrier billing methods begin to arise. Stored credit-card wallets and advertising-funded content are likely to be the two most significant hits on carrier off-deck revenues. Carriers can respond by shifting their revenue models, from taking a share of merchant billing, to taking an exquisitely measured fee from the merchant for the delivery of content. But it requires carriers to follow the example set by Vodafone UK in creating and operating this win-win wholesale data model.
Today’s off-deck industry is based on a Faustian pact. Carriers permit the off-deck content model to flourish in exchange for 20% or so of its value. Mobile internet billing will support and maintain this pact. The industry also needs to move in the direction of wholesale data as well, if the pact is to survive and flourish in the exciting mobile content world to come.