The recently thrown together partners have differing opinions as to whether a pay-to-play, subscription or usage-based billing model will fly with subscribers. And neither party is sure what type of revenue settlement will be fair-and lucrative-for both. Even though both sides have more questions than answers, the operators are being forced to put a stake in the ground and roll these new services out into a chaotic marketplace.
"Think of mobile content as the Wild West," says Dan Mohn, CTO at eGolfScore. "We're all pioneers out here, trying to decide the best way to settle this territory."
Sorting Out the Revenue
Wizened content providers smirk when they recount the early negotiations for sharing content revenue. The 50-50 split that operators first proposed is a long way from the 85-15 (85 for content providers) that is edging toward standard and the 91-9 that NTT DoCoMo offers its content providers.
When these partners negotiate revenue settlements, network usage is the critical, deciding factor. At Telus, some content providers receive 90 percent for each retail sale, while others retain only 40 percent. Darcy McNeill, manager of Telus' business development and strategic alliances, explains that each settlement decision is based on certain parameters.
"We look at an application in terms of how much time does it takes to launch, what is the consumers' average consumption time, will it drive usage, is it single or multiplayer, and is it a business or consumer application," he says. "We weigh all these factors when negotiating revenue settlement, but the applications that put more demands on the network-and cost us more-will not have higher revenue shares."
Airborne Entertainment, which offers content through Telus, AT&T Wireless mMode and other wireless providers, reports that most content developers receive between 75 percent and 80 percent of content sales from AT&T. In the mMode model, where subscribers pay a flat fee ($2.99, $7.99 or $12.49) for bundled services plus network usage, AT&T relies on higher network usage to increase its revenue rather than dipping deep into the content providers' pocket.
Alternatively, the content provider's share decreases to 15 percent and 25 percent when the service includes network fees. Verizon, for example, uses this model when it distributes content via SMS. For every text message Verizon sends over its network to subscribers, the operator pays a per message fee to the content company. A subscriber pays 10 cents to receive a text messages from a content provider, explains Garner Bornstein, Airborne's CEO; it costs Verizon 7 cents to send the message. "In this scenario, content providers can't expect a large percentage of the revenue," he says.
What the content providers do expect, though, is that operators will handle subscriber billing. And if the operators manage BOBO (billing on behalf of others) successfully, the content providers are willing to give up an even larger portion of their share.
"We want to focus on creating a valuable application," says Joe Kaplan, CEO at eGolfScore. "The operators need to step up and handle collection and billing. I'd like to see a time where they just send us a monthly check. For that, I'll give them a cut of the subscription fees and single-pay fees."
More well-known brands are less enthusiastic about giving up any of their share. These partners claim that their familiar names have driven traffic through the operators' networks and increased subscriber minutes.
"Our primary push now is asking carriers to share the revenue that we are carrying on our backs," says Andrew Sturner, president of corporate and business development at CBS SportsLine.com. "We don't want a cut of their minutes, but we do want some revenue for our content services."
Many of these companies claim the increased airtime should be the operator's sole profit. "We want 100 percent of the price of the content service, but we'll live with 85 percent," says Jenny Southerland, wireless product manager at Hoover's. "Last month, we had 300,000 page views from wireless devices. Those views to our content increased subscriber airtime and increased operators' bills."
With all the uncertainty about revenue settlements and the haggling between the operators and content companies, developers are looking outside the relationship for other partners.
"At some point, I envision that there will be ways for consumers to pay us directly, or through retailers like Wal-Mart, using prepaid cards," says Airborne's Bornstein. "That money will be divided between the retailer and the content provider. Carriers will only have a claim to the usage fees."
Billing Requirements
Content providers are zealots when it comes to subscriber pay points. Through focus groups with their target market and extensive consumer research, these developers have acquired a thorough understanding of how much their constituents are willing to pay and how they want to make their payments.
"Pricing for content is an art," says Emanuel Bertolin, vice president of marketing and sales at Wmode. "Content providers put a lot of time and effort into determining how to price and sell their content."
To date, though, operators have not leveraged their partners' knowledge, but Tom Atunes, vice president of industry solutions at Convergys, says he's seeing a shift within the mobile community.
"The operators are realizing that they don't have a great track record for understanding the consumer psyche," he says. "The smarter service providers are beginning to understand that content developers may have closer touch points to the consumer."
The crux of the problem, though, is that even if the operators had a crystal ball revealing exactly how and what consumers wanted to pay for wireless data services, they couldn't meet most consumer wishes. The current inflexible billing systems confine operators to rigid payment options that rarely appeal to all consumers or all content providers.
"Current operator billing and customer care systems are forcing content providers toward a subscription model, because they can't handle more complicated models," says Yoav Tzruya, vice president for product marketing and business development at TeleKnowledge. "We're starting to see resentment among the content companies because they have limited billing options."
Yet what the content providers want-every possible payment option-is asking a lot. Larger brands, such as the Weather Channel and CBS SportsLine, are relying on advertising models now, but both want monthly or annual subscriber options and micropayments. eGolfScore, along with many of the gaming companies, is a dedicated advocate of micropayments. And all desperately want the operators to support BOBO.
"For these services to be successful, they must be easy to use and easy to pay for. The easy payment piece has been missing," says eGolfScore's Kaplan. "Consumers don't want to use credit cards for these transactions. They want to add the fee to their phone bill."
Airborne's Bornstein sees it the same way. "Credit cards make the process cumbersome," he says. "The ultimate goal is to have billing work like a phone call, with monthly charges. All our operator partners are saying they will be able to offer that in the next three to four quarters."
The operators' willingness to discuss BOBO is a major shift from a year ago, when they shied away from the responsibility. Non-repudiation and high customer care costs are still a concern, but the operators are inclined to take on those challenges, if doing so generates revenue.
"The service providers want to offer billing in principle, but they are not technologically ready," says Dale Gonzalez, vice president of wireless development at Air2Web. "Many are rolling up 15 or 20 subsidiaries and have massive billing consolidation projects. They are using TAP and CIBER for billing units, but these formats don't translate well to bits and bytes. It will still be several months before we see widespread billing."
With nine to 12 months of waiting ahead of them, the content providers are pragmatists. "Each carrier is at different development points. Some are closer than others, but no one is saying 'We can't do that and we won't do that,' " says Jody Fennell, vice president of wireless business development at the Weather Channel. "Together, we are approaching the problem collectively and are willing to try different ways. Clearly, there are some constraints right now, but we're both working to make our way through them."
The Clearinghouse Option
Faced with making multiple point-to-point connections with every mobile operator's billing system, some content providers are interested in a billing clearinghouse. This model would ease integration efforts and allow the content providers to control payment methods and pay points.
"We want a third party, such as Wmode, to handle the billing so we would only have to deal with one integration," says eGolfScore's Mohn. "But that's not going to happen. Each carrier will want to have its own internally developed, slightly proprietary system."
Thus far, his assertion is on target. Few mobile operators have shown much interest in a clearinghouse approach. Wmode is in trials with the UK's Orange, as well as one provider in the United States and another in Canada.
"The clearinghouse concept is good," says Airborne's Bornstein. "But carriers have not bought into it-and the first principle of a clearinghouse is you have to bring everyone on board."
For the last two years, Wmode has been trying to gain ground among the operators and content providers. The clearinghouse has signed up 75 content companies, which offer more than 100 applications.
"Content providers use us for subscription and pay-per-use transactions. We manage the revenue shares through our system and handle the financial settlements," says Bertolin.
The clearinghouse is also responsible for advising the consumer of the charge. Bertolin explains that non-telecom charges must be clearly explained to the buyer. The consumers must be alerted to the fee amount, as well as how to enter a PIN, and where and when the charge will appear.
Wmode wants to empower the content providers rather than the operators. "We let the content companies determine the price of their content and the user's purchasing experience," says Bertolin. "The system lets participating operators negotiate the revenue share and pricing, but they are not allowed to dictate the user experience. We believe the content community should set the price and market its services to their communities."
To take advantage of Wmode's payment system, each member pays a membership fee to download a software development kit that provides the APIs to the clearinghouse billing infrastructure. Wmode then handles converting the events to IPDR, CIBER or TAP, depending on the operator's preference.
Few in the mobile billing community show visible support for Wmode or any clearinghouse. Third-party billing developers, their partners and the operators view Wmode as a threat. Pinpoint, which supports its own application Fuel, a billing system enabler, sees a limited future for Wmode.
"Every operator wants to offer its own unique value proposition and leverage their infrastructure," says Dov Cohn, vice president of marketing and product management at Pinpoint. "The various integration points are so difficult that the clearinghouse model is a bit of an oversimplification of the problem."
Others expect clearinghouses to succeed only if the mobile market is forced to define format standards. "For a clearinghouse to work, all parties must adhere to an approach and accept it," says Martin Demers, senior vice president and chief marketing officer at Ace-Comm. "Right now, with so many formats coming from softswitches and RADIUS servers, it's impossible to get everyone to agree. People want to create their own view of things. Unless dictated by law, no one will settle on a standard for a long time."
Wmode's Bertolin is well aware of his company's uphill battle, but he looks to past co-op successes, such as Visa, to defend the concept. "In Europe, clearinghouses are finding support," he says. "Here in North America, the idea is just now coming to age within the mobile content market. We're only now seeing the pain threshold within this community be significant enough to bring the operators around to the clearinghouse model. None of the banks were eager to support Visa at first, but now it's a raging success. Our time will come, and one-to-one relationships will most certainly fail."
Enabling the Content Providers
The content developers may be on hold when it comes to their ultimate billing model, payment plan and revenue deal, but they aren't waiting on anyone to broadcast their content out to subscribers. Many are relying on companies such as Air2Web and Pinpoint to prepare their content for multiple devices over various technologies.
To reach an operator's "deck," or content menu, the content providers must meet the carriers' specific criteria (see "Finding Space on Deck"). The operators provide the developers with documentation regarding billing interfaces, transport technologies, device interfaces, SLAs and security guidelines. They also mandate the look and feel of the content through style guidelines. The problem, though, is that each operator has different requirements, depending on its technology.
"The operators are all over the map," says eGolfScore's Mohn. "Just to support the various clients requires extensive project management. We look at the user and identify the phone through the gateway. We then format the code based on the user's phone. For browsers, we can create Java scripts, but for a phone, the operator must supply a list of headers of each phone they support. Now with 3G, the operators are introducing new browser technology that we will also have to support. It's difficult to stay on top of all the additions and maintain all the older versions."
Once the content developers have created their application for the different devices, technologies and interface specs, they send it to the operators for testing. Here, the operators test all their supported devices with different browsers and memory constraints. Next, the operators alert the developers of any necessary adjustments. eGolfScore uses a team of developers with emulators to create its applications; the Weather Channel, SportsLine and Hoover's rely on Air2Web to program their applications.
Like the documentation, the operators' test beds are not consistent. Mohn says AT&T is the most stringent, and Air2Web's Gonzalez says all the operators could improve how they provide feedback. Currently, the carriers test the application over devices in their facilities using a network simulator. Then they take screenshots to reflect the application's behavior, but the screenshots can't convey all the nuances that would help developers fine-tune their applications.
"At some point the operators need to move away from restricting testing to their facilities on their devices. At least during be done at the development site," says Gonzalez. "The operators are used to testing devices, but testing applications is a new beast to them. They are creating a higher degree of conformance than is probably necessary for the application developers."
Once the application passes through the testing gauntlet, the content providers must focus on other operator requirements, such as maintaining availability, load and throughput during traffic spikes. Most operator SLAs require 99.999 availability from the content provider's application server. The SLAs also have throughput requirements, ensuring that the content provider can deliver, for example, 50 messages per second. And as expected, during peak traffic, or after traffic-generating events, the content provider servers and delivery systems must be reliable.
Throttling is another aspect that content companies must address during peak traffic. "Operators want us to be able to throttle traffic when an event occurs that generates masses of traffic from CBS SportsLine or Weather.com," explains Gonzalez. "We have to guarantee that hundreds of thousands of messages will not flood their system. We meter these messages out so the carriers don't get spiky, unpredictable network behavior."
Thus far, security requirements have not been stringent. The operators want to make sure that no one can hack into their decks, but they aren't concerned about encrypting the information, because the content isn't confidential or identifiable. Added security is typically generic encryption from development tools or from OpenWave, Ericsson or Nokia. Enterprises, banks and financial institutions employ the only applications that do have security requirements.
"Most of our connections are open where clients opt in," says Telus' McNeill. "The only applications where security would be relevant is with banking, and they are very rigid."
"We rarely run into security requirements," Gonzalez says. "Banks and financial institutions want encryption; enterprise customers want certification, non-repudiation and transactions with end-to-end security and encryption."
Reporting Tools
Billing is a top priority for content providers, but they are also extremely interested in gathering statistics about how consumers are using their content. Today, the content companies get virtually no such information from the operators.
"Carriers say they don't have any information," says Hoovers' Southerland. "We know we received 300,000 page views last month, and we know what operator the viewers came from, but that's it."
The operators don't even tell the developers which content sites are the most popular. "We deem that information confidential," says McNeill. "We have the information, but the numbers are so small that they aren't really useful. Currently, games and messaging make up about 65 percent of our traffic. Only eight or nine sites share the other 35 percent, and we don't see those numbers as hugely valuable to anyone. As traffic increases, these numbers will become more useful."
The content providers are interested in other statistics, too. "These companies want management reporting about who is downloading at what frequency," says Convergys' Atunes. "They are also interested in relevant demographics about these subscribers."
To get any type of information, content providers must include their requests in the early negotiations. "It's important to anticipate the types of numbers and information you may need. Six months into a relationship, you don't have the latitude to make new requests," says the Weather Channel's Fennell. "I respect that companies are protective of their customers, but if you can identify what you need, why you need it, and how both parties can benefit, you can usually get the information."
A Relationship of Equals?
Wireless operators are loathe to see a repeat of what happened to content in the wireline world. They want to put a price tag on content services before consumers become accustomed to receiving content for free.
As Air2Web's Gonzalez puts it, "It's a lot easier to get a subscriber to go from a dime to a dollar than it is to make that same subscriber move from zero to a dime."
An intrinsic element of the formula that will cause that subscriber to give up his dime, or dollar, is an extensive menu of rich content services. "We're the reason why subscribers should purchase the new phones and subscribe to the services," says eGolfScore's Kaplan. "The operators must do a much better job communicating the benefits to the consumer and marketing the new services. We can all share in the profits, but it must work for both sides, or someone is going out of business."
This symbiotic relationship isn't lost on the operators. "If I don't have enough content to distribute to customers, I'm dead in the water," says McNeill. "And if a content provider wants access to our 3 million subscribers, they have only one way to get to them-through me. This makes for a balanced, yet evolving relationship."
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Finding Space on Deck
“The key to content placement is the same as in real estate—location, location, location,” says Joe Kaplan, CEO of eGolfScore. “We are all fighting to get the best visibility on all the providers’ decks.” Top placement on the deck is equivalent to a story above the newspaper’s fold or a cable broadcast channel in the lower digits. Not too long ago, operators were asking content developers to pay top dollar for premium placement. Now no one is asking, and no one is paying. Instead, the content providers negotiate for top menu placement, but location often boils down to brand name and recognition. Big names get top ranking. The Weather Channel and CBS SportsLine claim they have never had a problem gaining up-front visibility within their categories. Less-known companies, like eGolfScore and Hoovers, say that their constant movement toward the top of their categories is evidence of their growing influence. While consumer awareness gives a content provider a leg up on the competition, the developer still has to add new features to keep its public happy. “Within the sports category, we want to be the premier content provider,” says Andrew Sturner, president of corporate and business development at CBS SportsLine. “To stay at the top, we must respond quickly to our subscribers and continue to offer high-quality content.” With many of their competitors dropping out of the market, these competitors are well aware that in this nascent market, the key to survival is content that drives usage and appeals to subscribers. As Jody Fennell, vice president of wireless business development at the Weather Channel says,” The best content sites will be winnowed by natural selection.” |
