Take the Money and Run
By Peggy Anne Salz, Tue Jun 11 00:00:00 GMT 2002

Expect the cards to be reshuffled as content providers come up with clever schemes to wrest a bigger share of revenues from mobile operators.

It used to be that content providers have had to make do with revenue shares of 20% or less – and many smaller content providers were bullied into giving away content for free in exchange for exposure at branded mobile portals. That is already slowly becoming a history.

The European launch of i-mode in April, which only charges content providers a 14% commission fee, and the spread of alternative billing schemes that integrate rather than isolate the developer community are empowering content providers to make demands on operators. And operators are advised to listen.

In fact, they have no choice. As Richard Clifford, a senior analyst with Datamonitor in the UK puts it: “Operators have billing systems but nothing to bill for.” Their content schemes, which focus primarily on delivering ho-hum offers made up of news, weather and lifestyle services, aren’t crowd pleasers.

Users want the content they like – and not the content an operator thinks they should have.

Vodafone in the UK can read the writing on the wall. In March it launched m-pay, a payment service that allows users to buy low cost items online, over the Internet or WAP, and have them charged to their mobile phone account.

“In the past, content providers have spent valuable time and resources developing new and exciting content for mobile devices without being able to charge for these services,” admits Gavin Darby, Chief Operating Officer at Vodafone UK. To right this wrong Vodafone’s pricing solution allows the content provider to charge any amount from 0.05 to 5.00 - irrespective of whether the content is delivered over the Internet or via the mobile phone device.

The m-pay solution – the first in a range of mobile payment services Vodafone UK plans to introduce - unites online and mobile content in one billing platform. It’s a model worth duplicating, but don’t count on it. Rival operators are hardly likely to support a competitor’s billing system. So, if content providers want to reach users outside the Vodafone network, they’ll have to look into other billing schemes.

The Paradox of Choice

Billing models fall into one of three groups. There are platform models such as Paybox, where the content is debited to the user’s bank account and not the phone bill; operators models such as Sonera Shopper and Vodafone m-pay, where the content is operator branded and charged to the phone bill; and pay-per-use, a complex model where the content provider, not the operator, has center stage.

Put simply, pay-per-use blows a hole in the so-called walled-garden approach because it allows the user access to content outside the confines of the operator’s portal. It can take the form of premium SMS, where the user makes an SMS request for content and is charged for that request via the phone bill, or reverse-billing, where the user is charged only for the content he receives. In both cases, the user’s operator plays a role in the transaction and has its brand on the bill.

Not so with so-called premium rate charge. Here the user calls a premium rate fixed telephone number to purchase content such as ringtones and SMS alerts – and the operator is merely a delivery pipe. No wonder this model is most favored by small, independent content providers who lack either the clout or the patience to cut revenue–sharing deals with individual operators.

The meteoric rise of premium rate charging is proof that many content providers are determined to circumvent the operators altogether, warns Michael von Roeder, a manager with Accenture, a global technology consultancy, who advises major telcos on their billing strategies. “It’s a double-edged sword. The (premium rate charge) method means more revenues for mobile operators, but less of a grip on the end customer,” Von Roeder says.

Let’s Make Lots of Money

Like SMS, premium rate charge has grown virally and is now recognized worldwide as a simple and reliable billing mechanism that reaches a broad audience. “It is a ubiquitous model for transactions and a necessary part of the mix no matter what other billing methods may emerge,” says Ilkka Raiskinen, responsible for Club Nokia, which uses the method to charge members for content and services.

In the UK premium rate charging has skyrocketed. The Independent Committee for the Supervision of Standards of Telephone Information Services (ICSTIS) reports that it has more than doubled in worth from some 290 million in 2000 to approximately 630 million in 2001. In total, consumers spent 772 million call minutes on premium rate services during the year, 71 million of which were from mobile phones.

Sensing a business opportunity T-Mobile and Vodafone in the UK are now gearing to remove the current 1.50 ceiling on premium rate charge and introduce mechanisms that would enable content providers to charge up to 5 for premium rate content. The increase would mean more revenues for both the operators and the providers, but, more important, it would allow both parties to pursue a more ambitious m-commerce strategy.

“Brain-dead, But Ubiquitous”

But the market for premium rate charge extends far beyond the UK. Anil Malhorta, founder of Bango.net, a global company that enables content providers to charge for access to content over any mobile network, sees a “worldwide surge” in premium rate charging over the last six months. The company works with over 30 portals and a long list of mobile operators including Vodafone, Telefonica, BT, KPN and Mitsubishi – relationships that give Bango and its thousands of content providers access to an audience of over 20 million users worldwide.

Premium rate charging is “ brain-dead, but ubiquitous,” Malhorta says, “and that’s why it’s the de facto global billing method.” But it also has its downside. “Premium rate charging has a high hassle factor – and there’s a time gap between the impulse to purchase content and the actual transaction. This gives consumers a chance to think twice about what they buy – and they usually do,” Bango’s Malhorta explains.

Vodafone’s m-pay, for example, removes this gap – allowing users to buy on impulse. But one month after integrating Bango’s Premium Service with Vodafone’s newly launched mobile payment service, Malhorta reports premium rate charging still leads over Vodafone’s solution by a “margin of four to one.”

Now for Something Completely Different

Rather than simply relying on premium rate charge to bill for its own content, Saw-You, an unknown that received the W@W Award in 2001 and finished hot on the heels of Big Brother at the 2002 Mobile News Awards, is using a different approach to market its content to other providers – creating a kind of parallel value chain that keeps mobile operators at the lowest end. Its technology enables a person to send a message via SMS templates or WAP pull-down menus to someone else in their social space by describing what they look like and where they are - at that precise moment.

“With Saw-You's technology every room becomes a chat-room,” Kinsella explains. But there’s also a B2B aspect the company plans to put next on its agenda. “Our users want to find the perfect match so the information they input into the system isn’t bogus. If they like Kylie or Guinness, they say so. If you want to launch a campaign around a concert or an event, you can be sure to target the right audience.”

To be in the Saw-You community users purchase credits by calling a premium rate number. “These are the revenues we share directly with our partners on a monthly basis,” Kinsella says. Our service, which is built on the strength of our proprietary technology and a self-contained billing system circumvents the operator.”

Because the operator is a pipe, and also figures nowhere in Saw-You’s business plans, the company can focus its efforts on building a global community via peer-to-peer that benefits content providers, ISPs and organized groups of mobile users. “We like to think it can bring a cash flow to the parched areas of the Internet and allow these communities to flourish,” says Mike Kinsella, Saw-You CEO. The service formally launched in the UK, but counts users worldwide.

Saw-You’s white label product, which creates fully branded sites for other companies, has been taken up by five ISPs including IC24, making Saw-You’s service available to more than 1.4 million registered users. Saw-You is also in talks with Nokia, which sees the potential for a service that is immediate, builds community and has spread without marketing.

The rise of Saw-You and the overall increase in premium rate charging show content providers favor billing models that allow them more control over their business and their revenues. If forced, providers will seek models that circumvent the operator. For this reason it’s imperative that operators introduce billing systems to share revenues rather than stockpile them. Vodafone is on the right track, but it falls short since it only addresses users in the UK.

The industry needs a ubiquitous technology and consensus on a revenue-sharing model to encourage the development of more and compelling content, Accenture’s Von Roeder says. “It would be a real blow if the killer app goes the way of premium rate because then the operator would be only a pipe to the coolest content on the wireless Internet.” Then operators, like fishermen, would have to settle for trading stories about the big one that got away.

Peggy Anne Salz is a freelance who likes to go beyond the day-to-day developments in the mobile space to grapple with the toughest issue: where the industry is going.Her work has appeared in a number of publications including Time, Fortune and The Wall Street Journal Europe, as well as Communications Week International, where she is one of the editors.