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Off-Portal Mobile Content Mired in Billing Problems
By Jill Morgan
It is estimated that the mobile content market will see $1.2 billion in sales this year; of that, off-deck content represents about 30 percent, and industry estimates expect this number to climb. In other regions of the world, off-deck portal content is a larger market than on-deck sales. However, in the United States, off-portal content has been more deeply mired in billing and OSS challenges than in other regions of the world.
The problems are overwhelming and frustrating merchants so much so that if processes don’t improve and transaction fees are not reduced, merchants—large and small—will revaluate their commitment to the market. In the short term, large media companies will not view mobile content as an ideal business environment and invest accordingly. Smaller merchants, unable to cope with the challenges, will be unable to sustain the quality of their offerings or to innovate and could exit the market altogether. In the long term, as wireless devices become more sophisticated IP devices, alternative payment methods and delivery options will present themselves but operators will miss out on such revenue opportunities completely.
Why the Off-Deck Model?
Off-deck content is defined as ringtones, wallpapers, games and other such content that is independently marketed by merchants and not found on a service provider’s web site. Today, merchants of all sizes see a huge value in the off-deck model over on-deck—with content provided directly by the operator—for several reasons.
For one thing, the small merchant does not likely have the clout to strike a direct deal with the mobile operator to offer its content, so the off-portal model is its only option. These merchants, however, know their niche audience, represent a long tail opportunity or could become the creators of the next killer app.
The off-deck model also appeals to the larger merchants. They can reach a larger audience with this approach because they are not tied to an exclusive deal with any one operator. These merchants, the largest of media players, already have giant advertising infrastructures in place and do not necessarily need any particular mobile operator to sell their products.
Moreover, the revenue share in the on-deck model can be as high as 50-60 percent of sales for the operator. Revenue splits for the merchant using the off-deck model are currently at about 40-45 percent for the operator and aggregator, and 55-60 percent for the merchant.
Why Is the Off-Deck Model Broken?
If a merchant wants to sell a ringtone using an off-deck model, it must first apply for a short code. That process is the first of many headaches for the merchant; to get short code approval, each mobile operator must approve the use of the code. For something as simple as a ringtone, the process is straightforward. However, “if the content offering is new, innovative, out of line with any operator’s image and so forth, the process can slow to a crawl,” says Steve Shivers, general manager of OpenMarket, a division of Amdoc’s Qpass. If any one operator rejects the proposed content, the merchant will not get a short code. In certain situations, the approval process can take months and ruin time to market.
Next, the merchant must sign contracts with various SMS aggregators to distribute content. The aggregators deliver the content to the mobile operators so that the content can then reach the end users. The aggregators act as neutral third parties, receive money from the mobile operator for content sales and then in turn pay the merchant. Since not all aggregators have deals with all mobile operators, the merchant generally must sign deals with several SMS aggregators to reach the entire U.S. mobile customer base.
For the merchant, it is a time-intensive effort to have relationships with these various aggregators. One of the worst problems they have today is that it can take up to 90 days to receive payment from an aggregator. The aggregator must first get payment from the operator before it can pay the merchant.
Worse yet, the payment is often far lower than the merchant expects. In today’s market, “30 percent of content transactions never succeed,” says Shivers. Mobile content transactions are failing because certain handsets are incapable of accepting certain content, the end user has exceeded a spending limit, the end user is prepaid and some operators can’t bill prepay customers, or the customer calls for a refund.
When the check amount is less than expected, the merchant becomes wary of the entire system, but does not know whom to blame or how improve its own efforts. This has been a major sore spot for the merchant. Revenue leakage due to system errors is rampant. Using short codes and SMS aggregators, there is low visibility into the success of the transactions, and authorization and authentication functionality is weak. Waiting 2-3 months to receive a payment has had a devastating impact on merchants’ business; they have no insight into how their product is selling or whether they need to readjust their marketing efforts. The smaller merchants are often startups, so cash flow is essential. The merchants have little or no insight into how much to invest in R&D, new products or enhancing their existing offerings.
Major technical challenges exist between the SMS aggregator and the various service providers. These challenges include file formats, different processing techniques, different networks, different rules of engagement and even more. Each of the various mobile operators has its own unique ways to handle the content transaction.
For the SMS aggregators, this presents a huge challenge and makes their job extremely difficult. The aggregator is operating under low margins—3-5 percent for each transaction—and this low-margin business could be inhibiting them from making the necessary improvements, such as increasing the visibility of transaction for their merchants or supplying a more robust CRM functionality for their merchants. In any case, the merchants are spending an exorbitant amount of time hashing out billing problems, building out their own billing systems to deal with inaccuracies and spending less time on their core business of content creation and advertising.
Early market abuses have created huge problems, as well. High-profile cramming and misleading advertising have created an unfriendly business environment. “When the market took off in 2000-2001, service providers were faced with unscrupulous merchants. As a result, they have been on the defensive, and penalties for merchants can be steep,” says Shivers
For example, as part of one mobile operator’s contractual agreement, if the refund rate for a merchant exceeds, say, 15 percent, the operator has no obligation to pay the merchant whatsoever. This agreement also applies to the aggregator. In another example, a mobile operator states in it contract that for every call it receives in its call center about a refund for a particular piece of content, it can in turn charge the merchant $15. The merchant, who has no visibility into sales transactions, may never even know this is happening until it is faced with an enormous bill. Of course, even if service providers have strict penalties in place, they don’t necessary enforce them. But the fact that they exist does point to a contentious business environment.
The Industry Must Make Changes
The picture that emerges from this business environment is that mobile content space simply is not going to flourish unless several important changes take place.
- The cost of payment processing must be reduced, or merchants will no longer embrace the mobile channel and innovation will suffer.
- The industry must provide more timely and accurate billing, with end-to-end visibility.
- The penalty-driven business environment must shift to an incentive-based environment for all players to work in a more cooperative manner.
- Finally, customer care must shift from the operator to the merchant.
In the June issue of Billing World & OSS Today, we will look at the new players in the industry and what they bring to the table, explain alternatives to short codes using WAP billing, examine how SMS aggregators are reacting to market needs and hear what improvements merchants would like to see most.
Comments and feedback welcome, please email Jill Morgan at jmorgan@billingworld.com.
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