Wednesday, March 01, 2006

PSMS no longer where it's at - QPass Connections

It's the Data, Stupid

Premium SMS (PSMS) was enough to get the digital media party started. But, with billions changing hands, its inability to shed light on what users actually buy makes PSMS a poor basis for business models moving forward.

If it ain't broke, don't fix it? The judgment that it is a mistake to try to improve something that works falls flat when it comes to PSMS.

Granted, this simple and straightforward payment mechanism does what it promises: it allows media companies and content providers to charge for digital content across all networks and operators. But PSMS can hardly meet growing industry demand for a payment mechanism that does more than count transactions.

Without insight into precisely what digital goods and services users purchase content providers and operators will have a tough time growing their business, warns Paul Hughes, vice president, Communications Software Strategies, at Yankee Group, a global market research firm.

"PSMS is very basic," Hughes explains. "It's not information-rich, so you can't rely on it to track usage, customer preferences, or any of the other (variables) you need for CRM (Customer Relationship Management) functions or business intelligence."

Put simply, PSMS merely alerts the messaging gateway to the fact that a content sale has taken place. The transaction shows up as an item on the mobile phone user's bill. Neither the operator nor the provider know more detail than that - and neither can effectively cross-sell or up-sell based on the data.

Against this backdrop, transparency is a business imperative. "The more information you have on the data and services consumed, the more accurate you can be in revenue capture, revenue sharing, and in overall business planning," he adds. "Without a way to track what users are downloading, for example, you're potentially leaving money on the table."

The more content providers sell, the more they stand to lose. "The big issue comes when you start to see content volumes increase," Hughes says. "Then it becomes crucial to get a better grasp on what customers are downloading and consuming. You have to get a better sense of revenue capture because you are capturing more revenues through content sales."

The Yankee Group forecasts sales will be robust over the next five years. According to recent research, global wireless data growth will increase from $81 billion in 2005 to a whopping $150 billion in 2009. But there is a downside: the burgeoning market also threatens to stretch the limits of service delivery technology along the way.

Primitive payment solutions such as PSMS will ultimately be squeezed by technologies designed to identify and meet the demands of specific user segments, and enable the deployment of more personalized services. This shift will create significant challenges for a range of business support systems. From charging to settlement to content lifecycle management, content providers and operators will be under pressure to implement better and more flexible solutions.

Money for nothing
Shareholders are also bound to turn up the pressure on operators and content providers who base too much of their business on PSMS. "If no one knows where the money came from, then that raises a lot of uncomfortable questions around accountability, audibility and customer service," notes Scott Blanksteen, a Sr. Director of Corporate Development at Qpass.

To complicate matters, many operators are taking the heat - and losses - when customers vent their anger over premium content scams.

"Imagine a customer who sees a $3 premium content on the bill and, for whatever reason, believes the charge is inaccurate," Blanksteen explains. "Without more information about the revenue than the price, the operator is ill-prepared to argue the point."

To make matters worse, customer service calls cost operators between $12 and $20. "Then operators often decide to refund subscribers' money to keep them happy and loyal," Blanksteen says. "The little episode of bill amnesia suddenly makes this a very expensive sale."

Moreover, because the operator doesn't know where the revenue came from in the first place, there is no way to get the refund back from the content provider. "The operator loses more money than it makes," Blanksteen concludes. "And, if it sells a lot of content, it loses even more."

He believes that financial analysts will soon pick up on this and turn up pressure on the industry to plug the holes. "You'll see demands to capture that extra 5% because it's pure lost margin. It's not 5% on the top line; it translates into 5% on the bottom line."

The Yankee Group's Hughes agrees. "Two to five percent revenue leakage on a couple of thousand dollars is not a big deal. But, when you capture millions of dollars in content revenues, then we're not talking small numbers. We're talking big problems."

Operators are understandably reluctant to discuss the size of this revenue leakage. However, a new white paper published by iGillottResearch, Inc. argues worldwide revenue leakage in 2004 was a whopping $3.9 billion. This figure is forecast to reach $18.1 billion in 2009.

"Billing amnesia and a host of issues around charging transparency account for a major percentage of these losses," Gillott says. "A few years ago, when the (mobile data) market was smaller, revenue leakage was a minor issue. Today it's a major concern."

The price is right
Digital Media is a business. No supermarket would charge every item on the shelves $1.99 or $2.99. Many items that cost more or less than these price points, and many more are slated to be sold as part of special offers or "buy-one-get-one-free" promotions. The success of the supermarket's business model therefore depends on pricing flexibility and the ability to change prices in response to factors such as weekly sales and customer demand.

A content provider, like a supermarket chain, also requires charging flexibility. Yet, the vast majority settle for PSMS, a mechanism that allows only a limited range of price points. "There are services where it doesn't make sense to sell at these prices," observes Qpass' Blanksteen. "Non-optimal pricing means providers are forced to sell content at prices that are either too expensive or too cheap."

Stores also understand that supply chain management drives high performance. Buy a disposable razor and the sale triggers a series of responses throughout the enterprise. Inventory reorders the razor, management gains insight into customer preferences and marketing prepares a campaign to either push what's already hot or aggressively promote what's not.

"We need a similar integrated supply chain in mobile content retail," Blanksteen says. "We need to move from charging $2.99 for a piece of content to making the metadata available to the system. This means the source of the content, the content provider who offered it, the revenue distribution contract associated with the content, the refund rules and the controls that apply. That way content providers can develop a tenable business plan based on all the critical facts and demographics."

Put simply, the mobile industry must move from billing 1.0 to billing 2.0, and embrace new methods to make it work. "This is about creating new systems, architected from the ground up, to understand the products, not just the prices," Blanksteen says. "We're making the transition from a practice of traditional billing, which was about a few products at a few price points to a new world of digital content and services, with hundreds of thousands of products, personalized offers and flexible pricing."

What's more, companies doing business in this new world cannot afford to wait until the end of the month to charge for content - which is the procedure with PSMS - and learn then if subscribers can actually pay. "To sell content successfully, companies will need to function like credit card companies," Blanksteen explains. That means debiting each purchase in real-time from the customer's credit limit. "Otherwise, the transaction becomes a source of revenue leakage."

As The Yankee Group's Hughes sees it, the increasing problems around revenue leakage and the growing requirement for billing flexibility will ultimately create a need for systems that "don't stop with the end-customer." Operators will need to reach out to customers and content providers to ensure that content is being delivered efficiently and billed effectively, he says. "Operators will also not necessarily want to invest in in-house technology, so they'll partner with a company like Qpass to manage the content and the revenue share to make this happen."

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