Billing problems kill content profit

The direct-to-consumer mobile content space is being shackled by inadequate billing systems and an overall lack of traffic, content providers and mobile software developers said Monday.
The market for off-deck mobile content was once seen as a kind of equalizer for publishers and brands too small-or too edgy-for placement on carrier decks. Countless startups cashed in during the early days of mobile, using Internet storefronts and short codes to hawk ringtones and other goodies while their carrier partners took care of charging consumers.
But the foundation upon which the off-deck market was built is faltering, OpenMarket General Manager Steve Shivers said during a Mobile Entertainment Live session focusing on the direct-to-consumer space.
“All financial transactions have to go through a messaging infrastructure” instead of a system designed to handle billing issues, Shivers said. “What that means for operators is customer care call rates of three, four, five times higher” than on-deck transactions.
Worse, operators and content providers are losing 30% to 40% of gross revenues because of leakage. Operators’ billing systems fail to consummate transactions, and refunding all those botched transactions is a costly nightmare.
“Three out of four transactions fail” in the off-deck world, said Shivers, who claimed the off-deck market is growing 20% to 25% annually, while on-deck sales double every year. “If you’re a merchant, that’s a cost of goods that you’re going to recover. Profits are dismal both for the operator and the vendor side of the equation.”
That kind of talk might be expected from Shivers, whose company offers billing software designed to address leakage problems. But his sentiments were echoed by Brian Casazza, CEO of Denver-based ringtone provider 9 Squared.
“What we get frustrated with is the way the system’s been laid out,” Casazza said. “Even though you have a human conversion rate, it doesn’t always trickledown to profits.”
And the situation has become “a stalemate,” Casazza said, where carriers are forced to charge onerous revenue-share rates just to make their off-deck business profitable. Vendors, on the other hand, say they could invest in billing solutions if their margins weren’t so slim.
One potential solution would be a universal payment platform that carriers would agree to use to handle off-deck sales. But while content providers generally favor such a model, operators-which are notoriously unwilling to cooperate with each other-may be loath to embrace that kind of effort. Indeed, a pan-European mobile billing platform called Simpay went belly-up two years ago when it failed to keep its operator supporters corralled.
But while the off-deck space offers dubious economic viability, an increasing number of startups are targeting consumers directly with free services. MyWaves, which delivers Internet-based video clips to cell phones, earlier this year notched its 1 millionth user and bagged a deal with Alltel Corp.-marking the expansion from off-deck into on-deck.
“I think while we wait for the gaps in the mobile Internet to start to fill up (with major media companies and other high-profile brands), there’s a lot of attention and a lot of traffic” off-deck, said Rajeev Raman, MyWaves’ CEO.
And that trend is expected to continue. Billing issues will be addressed eventually, and carriers will continue to lower their garden walls as customers demand more openness from their wireless service. So for carriers, the coming off-deck market may force a choice: cooperate with each other to create a universal billing system, or risk being cut out of the loop of off-deck transactions entirely.