Hi James,
In some ways premium SMS is similar to the 900 lines, at least in terms that
it uses IVR/Service Bureaus and premium rate numbers for billing and
delivery.
Basically, its just another method of distribution - and in the process it
revived the 0900 industry in much of Europe (which, like in the US, had the
taint of porn).
As far as the US goes, no one except porn and psychics are delivered these
days via 900, AT&T and MCI got out of the business and there's a 60%
chargeback rate, so in the short term, I would not look to this as a decent
billing and payment method (frankly, if the telcos won't bill for it, it is
not going to be very successful).
Now, in terms of profits from mobile content, I have to disagree with your
analysis simply because there's not the volume to support the Japanese
model, and moreover, because telcos are extending the same type of inane
pricing (e.g., all you can eat, flat rate) that is applied for voice, which
sets a bad precedent for the content provider as it limits there ability to
set fair rates for their content.
And, while I understand your arguments regarding Japanese production and
development of new products, frankly, this is an argument that the content
providers, who many want to do this, are being told to keep prices lower
than the market may dictate by the telcos in the US to spur initial
demand...
First, where the telcos should use the Japanese model of product launch is
for handsets, not actual content. They should put out decent phones for $99
with full enabling of color services, high-speed, etc. After all, its a
terminal just like a PS2, and at the end of the day, should be as low as
possible to ensure the entry of as many users as possible into the market
for mobile content.
Unfortunately, this is not the case, at least for the phones that will
actually drive the market.. This means a phone with a color screen, memory,
downloadable ringtones and high-speed access. These phones are not
subsidized enough at present (starting right now at about $199) to jump
start the market.
And, it is this lack of decent handsets that does not allow content
providers to realize the potential of mobile content at volume pricing.
So, to then say that content providers are to subsidize the market by
sticking to lower pricing is quite unattractive for the content providers
that matter.
In Japan, the model works because DoCoMo built out the mass market for
mobile content by subsidizing handsets and standardizing pricing.
The telcos in the US are all over the map on this one, and frankly, like
DoCoMo, KDDDI and J-Phone, they need to hire hardcore content people to
develop a platform, pricing and services that are built from a content
provider prospective, not a telco prospective.
No telco is good at content, they are engineers, technology experts, and
frankly, the only time they have been successful with content has been when
they have allowed the content providers to define the market. Both in
Europe and Japan, and I sincerely it will be the same case in the US.
Now, in terms of content providers making a profit, I agree with you that
absolute pricing, whether a Japanese model or a Euro one will not determine
whether a content provider makes any profit at all... But that is not the
main problem.
The main problem is that most mass market content providers look at the US
mobile content market's current revenue and distribution models and they
feel that it doesn't offer them a platform attractive enough to risk their
main brands and best resources.
And, this makes it harder to get users to use the content options the telcos
allow, regardless of the pricing model.
Frankly, the telcos should concentrate on building a reliable infrastructure
and getting decent phones terminals out to users quickly, and do their best
to allow content providers to define distribution and revenue models that
work.
And, as far as pricing models go, I think that people are similar throughout
the world, and that with some local variations, the models that have worked
in other markets will work here in the US... But the telcos should not try
to control the content pricing as strictly as they are currently...
To keep changing the game in terms of payment and billing and pricing on the
consumer and content providers, as is the case in the US now, is to the
determent of building out an attractive content market.
Now, in terms of 900 services in the US I couldn't disagree with you more
strongly. From the IVRs to the consumers to the FCC to the content
providers, and content provider worth their salt will not use 900 for
anything.
Firstly, the FCC is on record stating that users can retroactively refuse
payment for any 900 charges, causing a 60% chargeback rate, something no one
wants... And causing remaining 900 providers to charge at least $1 per call,
making profit margins slim for most services.
Moreover, the two biggest and most reliable providers, AT&T and MCI left the
game as a result.
And, of course, you can factor these elements into a business model and
still be profitable, but any mass market content provider will shy away from
900 services not only due to chargebacks, but just as importantly, due to
negative market perception of the 900 services in general and the damage
that these may cause their brand.
Look into the 900 scene in the US and you will see that my analysis is
backed up quite well.
For the mobile content provider, 900 is a last resort, and until the factors
mentioned above change significantly, you'll find that 900 will not be used
as a delivery mechanism as it is in Europe.
In absolute terms, of course you can use 900 to circumvent the telcos to
some degree, but from the content provider's perspective, it just doesn't
work as well as you assume.
Best,
Mark
--
Mark Frieser
Consect
+1 917 664 1606
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On 9/26/02 23:01, "James Santagata" <jsanta@audiencetrax.com> wrote:
>
> At 09:28 AM 9/26/02 -0400, you wrote:
>> Moreover, in Europe it was the content providers that set cost expectations
>> rather than the telcos, tightly tying mobile content options to existing
>> content in other mediums, and creating pricing models that were most
>> attractive to content providers (almost wholly based on pay per use),
>> allowing market competition and the attractiveness of content to ultimately
>> determine the relative cost level of mobile content.
>>
>> This in turn created a situation, unique to Europe (at present) where the
>> content providers (rightly) dominate the pricing, promotion and development
>> of the mobile content market. Using SMS rather than WAP (which the mobile
>> operators will admit was a disaster of their own making) as an entry point
>> for their services, the content providers circumvented the telcos to connect
>> directly with the consumer, hence creating a new market for services.
>
> This seems very similar to the US Audio-text services many years ago (also
> known
> as "900 lines") that offer/offered phone sex, dating lines/personals, party
> lines
> and horoscope readings and which produced handsome profits for many
> businesses.
>
> And once you had your line you could control the content, pricing,
> positioning,
> marketing, etc. and you didn't have to jump through hoops to get a line.
>
>> By setting these price expectations early, they deflate the market's
>> potential value for services, making it harder for content providers to
>> maximize profit for their services.
>
> While I do agree it would be best to not have any particular pricing
> expectations
> set so early, I'm not sure that we can anticipate the impact of this on
> the content providers revenue and profits.
>
> Setting profits aside and simply looking at revenue, the revenue maximization
> will depend on many issues including the market segments served, segment
> sizes,
> price elasticity of customers in each segment and so forth.
>
> Traditionally, US technology firms have employed a price skimming strategy
> whereby
> they try to identify and then exploit the inelastic demand of the innovator
> and early adopter
> segments for a product/service and then gradually lower the price as the
> early majority and
> later segments comes on board. The lower price entices these later customer
> segments
> to come on board and at the same time reduces the price signals that would
> entice
> competitors to attack the market as aggressively.
>
> Many Japanese firms, by contrast, would set a price that made economic
> sense at a projected volume. For example if they could sell 100,000 widgets
> and make xx% at a $5 retail price, they would try to get the volume up to
> that
> level as fast possible and increase the adoption rate. This would mean
> charging
> $5 from the start even if it cost $6 to make so they could penetrate the
> market as
> soon as possible and then when the market share was up, revenues and cogs
> would
> come into alignment. That presupposes a lot about the product,
> the adoption rate, and a company's ability to support the negative
> spread in margin during that period but that's what they did.
>
> So, the point is, it may be that for some segments a lower price
> for the US services may be beneficial. It will depend on the margins and
> the volumes. Time will tell.
>
>> 2. There are too many types of confusing billing and payment schemes in the
>> US market. Between BREW, SMS, WAP, J2ME and others, US telcos are trying to
>> define a pricing model based on pay per use, download, flat fee and timed
>> use that at present is confusing and hence less attractive to both users and
>> content providers than a standardized pay per use or packet-switched model.
>
> I agree there are a lot of options, but I don't think we can make a blanket
> statement as to which payment plan is best -- it will depend on the
> market segments and use cases.
>
> One of the positive things of the US model is that it's a free for all, and
> every
> possible method is being tested and ferreted out. Over time, the model/models
> that are most accepted by customers will come to light. And because it is
> cut throat competition, we can expect some of the answers to come fairly
> quickly.
>
>
>> 3. As the US market has little or no usage of 900 services outside of porn
>> - and chargeback rates of more than 60% for 900 in general, and SMS short
>> codes for services have yet to be defined and standardized, content
>
> Actually 900 lines are used for many services besides porn. These include
> horoscopes,
> vote-for-some-tv-program-polls, political contributons, charities and even
> payments
> for internet content. For instance, you can do this via iBill. Many of
> these services/contents
> may be somewhat unsavory, but they can be and often are extremely profitable.
>
> Chargeback rates, though, will vary on many factors -- product/service
> sold, customer
> segments, etc. The total percent of chargebacks by themselves are not
> as important as how they are factored into the gross margin and the company's
> reserve for uncollectible debt. It's like a credit card company -- they
> expect some
> amount of bad debt and they build this into their pricing structure. Same
> thing with retailers (they plan for shrinkage -- ie., theft) and electronic
> manufacturers
> (Solectron, San Mina, Jabil, etc.) plan for attrition (lost/unusable
> components like
> resistors and/or stolen).
>
>> providers do not have a easy and ready way to charge for their services
>> outside of the mobile operators. In Europe, content owners can circumvent
>> the billing systems of European operators via the usage of both premium rate
>> SMS and "0900" billing systems that are more independent of the mobile
>> operators than in the US and Japan.
>
> I don't see why it would be so difficult to circumvent the mobile operators.
> It still seems that customers could use a 3rd party billing systems, ibill,
> hereuare, etc. These could be activated through a number of ways, such as
> prepay,
> web-based access, external 900/888 dialing, etc.
>
>
> James Santagata
>
> A U D I E N C E T R A X
> http://www.audiencetrax.com
>
>
> This mail was sent to address mark@consect.com
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>
>
Received on Fri Sep 27 16:54:04 2002