Who would have guessed that something as simple as ring tones would drive wireless data revenue to the tune of about $3.5 billion a year globally? The ring tone market has taken many by surprise, and operators, not wanting to be left out in the cold, understand that they have to design ways to handle those services, from launch to billing to settlement.
Ring Tone Purchase Scenario
In the United States, ring tones aren’t advertised as they are in other parts of the world, so subscribers have to rely on the operator to present options in the form of a drop-down menu or other display on the handset screen. Discovery is the term used to describe the process of letting subscribers know what ring tones and other services are available.
“Discovery is key,” says Dennis Woronuk, president and CEO of Wmode. “You don’t see bulletin boards or ads in the media for ring tones to download. In North America, discovery is the only way to get them to notice it.”
Operators and content providers alike must make purchasing and downloading ring tones simple. Currently, subscribers can self-provision services online using the operator’s or content provider’s Web site or by using the menu on the phone’s screen. But in Europe, content providers and operators have found some ingenious ways to provision those ring tones and collect money for them. For instance, a young subscriber in a nightclub inserts his cell phone into a special port in a jukebox while a song plays. Before long, a server at the operator or at the content provider translates the song into a polyphonic ring tone and downloads it to his phone.
In a more typical scenario, a user selects the ring tone he wants to buy and keys in the order, which is sent to the operator through an SMS message. When the subscriber confirms they want to purchase that ring tone, software instructs the content provider to push the ring tone through to the operator—and on to the wireless phone. “The content provider has a download server, and puts a charge through to the customer and a confirmation from the server—also via SMS, that indicates the service has been delivered,” says Woronuk.
The price of the service is then sent to the operator’s billing system through an SMS message. Once the billing system receives the charge, it goes on the subscriber’s bill.
Setting Up a Business Plan
Given the short life-span of ring tones, video clips and other content, operators have to move quickly to offer them to customers. However, there are many things that can slow the process. Bad software mapping between the operator and content provider, for instance, can hold up delivery of the ring tone to the subscriber. Perhaps the operator’s software can’t assign the right value to the clip or slips up when trying to bundle ring tones and a bucket of minutes for a promotion. Or it finds out too late that it can’t process payments.
Operators must have transaction management systems to handle a large pool of content providers. Content takes time to create; It’s relatively easy to set up a content delivery business plan for TV shows such as “American Idol” where subscribers can vote for contestants over their mobile phones. It’s much more difficult to predict which song or movie might capture the youth market’s imagination. The operator, therefore, must be fleet-footed in translating software to build rapidly evolving business rules. The agreements include who the operator is relying on for the content, what the operator’s willing to pay for the content, which micropayment system will handle the transaction, how credits and debits are processed—the pacts are as simple or complex as necessary. But simplicity makes for smoother execution of an agreement.
“It’s difficult coming up with standard ways to negotiate contracts and quickly set up pricing and standard templates for different partners, including common types of revenue agreements,” says Jennifer Kyriakakis, senior manager for solutions marketing at Portal Software.
If operators have the right transaction software and agreement templates, operators can reduce the time between the creation of content to delivery from two weeks to four or five days, she says.
Other problems operators have faced include payment, especially with regard to prepaid account data. In the prepaid world, customers can order ring tones and games successfully before operators realize their account balances have been emptied. Software such as ADC’s Singl.eView for network management and Metrica for transaction management and billing can set minimum balance requirements before subscribers can purchase ring tones. “We require a reserve in the account,” says Judy Gil, ADC’s software product marketing manager. “If the customer deducted $1 for the ring tone, it’s immediately reserved at the instant of the sale. If the subscriber then makes a 30 cent phone call, it won’t dip into the $1 set aside for the ring tone.”
Business Plans Hurt Content Providers
In the beginning, content providers made pitches to operators on content, says Portal’s Kyriakakis, but ideas flow both ways now, with operators looking for content providers to support what the operator thinks will sell. “Operators have begun to wake up; with the explosion of SMS and premium data services it has really pushed operators to start forming a lot more partnerships,” she says.
Business plans used by operators, content providers and middlemen are translated into software programs that let partners easily make deals. For instance, the BREW platform is a very thin applications environment for wireless devices. It provides applications developers with an open, standard platform upon which to develop their products. Because the BREW platform provides a standard environment, it greatly simplifies the task of integrating applications onto wireless devices.
“All BREW content that’s downloaded gets the same revenue share no matter who the content developer is,” she says. “There’s no negotiating in the revenue share.” Then there are more complex models where 50 to 100 content providers have agreements with a single mobile operator. Each agreement can be unique and can include different flavors of usage-based billing. The billing system may post a charge for initial download, and offer unlimited playing time. Agreements may take into account bundled packages, such as six ring tones for $5 if the subscriber signs up for a new calling plan.
Kyriakakis adds that content providers often lose when it comes to revenue-sharing agreements. “The value the wireless operator will get is higher if the wireless operator partners with the content provider,” she says. “But the content provider loses money when other partners are involved. With an operator, the content provider splits it 50-50; ideally the content provider should get 60 percent or more. A lot of content providers have come and gone, it’s hard to sustain their business. Churn is large in the content provider business.”
Operators Need Enhanced Billing Systems
Mobile operators have to write their own transaction management software or rely on software vendors to install the software as an adjunct to their legacy billing systems, as most legacy billing systems weren’t designed to split up and divide revenue along a three-party relationship in a value chain. Operators have two choices: invest in enhancements to existing billing systems, or bring in new components.
What operators need is the ability to perform payment mediation, either by writing the programs in-house or hiring a vendor to install it on their legacy billing systems. The operator also must install consistent, external interfaces to all the merchants to make it easy for the content providers to do business with the operator. Larger mobile operators still use spreadsheets and manual processes to mediate payments among multiple partners, Kyriakakis says. “It started out as a smaller part of their business, and it was not a very well-defined process. There was no real consistency in mapping a set of revenue sharing agreements among partners, but in the past year there’s been an improvement.”
There are also independent content providers out there that don’t have agreements with carriers, rather they advertise their ring tones in magazines, for instance. How do they bill the user? “They can get agreements to become part of an ISP’s portal, such as Yahoo! or MSN. For a fee, the ISP’s portal would contain a link for subscribers to buy that content provider’s ring tones, and the billing agreement would be reached with the ISP. “The content provider would like to bill, but it doesn’t have a direct billing relationship to the subscribers,” says Sasha Globa, director of business development at UCP Morgen, a provider of value-added mobile services. “They have to bill one way or another, so they have to have some agreement with someone. They can create agreements and present them to be part of one carrier’s portal. They become a partner that way and utilize the billing infrastructure, and they have to duplicate it with each carrier out there. Establishing all those agreements is difficult.”
U.S. carriers don’t like to bring in new content providers because they already have a good thing going with a content provider already on board. If another content provider comes along and makes the case that it has more valuable content and a better financial agreement, then the carrier may bring them in. But convincing them to do so is difficult.
Customer Service for Ring Tones
How does an operator handle a customer who says he got the wrong ring tone or is having another problem with a ring tone transaction?
“No matter what the problem is, the operator’s CSR has to fix that issue as quickly as he would fix air time issues,” says Chase Franklin, president and CEO of Qpass. “And the operator has to do that at scale, economically, or lose money.” Carriers don’t have the software that lets CSRs look into transactions in real time, that is, to see what the customer ordered, what it cost, the phone number or other identifying number for the customer, and reinstate a download to correct the problem. Industry analysts estimate that a customer service call costs between $10 and $13.
“There is not a lot of integration; no major carriers are producing ring tones or writing Java games—these are foreign to the operator. They come from a content operator somewhere, but referring the customer to the content provider to fix the problem is not the answer,” Franklin says.
Developing an appropriate customer service system is very expensive and not yet worth the investment to carriers. “Most operators have spent some money trying to get a toe in the water, but they’ve run into severe economics,” Franklin says.
But once the investment is made, whether in customer service systems or in forging relationships between mobile operator and content providers, carriers have a better shot at getting a share of the multi-billion dollar ring tone market.
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