Editor’s Note: Welcome to Reality Check, a feature for RCR Wireless News’ new weekly e-mail service, Mobile Content and Culture. We’ve gathered a group of visionaries and veterans in the mobile content industry to give their insights into the marketplace. In the coming weeks look for columns from Tom Huseby of SeaPoint Ventures, Mark Desautels of CTIA and more.
Over the past (almost) four years, I was lucky enough to be in a position at Verizon Wireless, and as chairman of the MMA Consumer Best Practice committee, to see a new industry grow from virtually zero revenue to one that is arguably approaching a billion dollar business. I had a chance to deal with many content channels while at Verizon, but I became best know for my efforts in the premium SMS, or direct-to-consumer (D2C) market (also known as premium SMS, off-deck, or off-net).
I am now at Limbo, a mobile entertainment company that uses the off-net infrastructure-in addition to carrier decks-to deliver entertainment and content to mobile consumers. Everything Limbo offers is non-premium and advertising-supported, so it can be argued that we do not have a dog in this fight.
My view, however, is that consumer perceptions of the premium SMS space, and more broadly the mobile content space is important to Limbo’s brand and future. Flat-line to negative revenue growth and, more importantly, consumer dissatisfaction in the premium SMS space are, best case, limiting investment and, worse case, setting up this industry for collapse. Thanks to the Internet, consumer sentiment on premium SMS is easy to find:
This should be a major concern for all companies involved-especially carriers. As the winds of open networks buffet the wireless industry, it may very well be that premium SMS model becomes dominant in the near future. Given the poor state of the current market, that is indeed scary.
The reality is that given the current set of constraints (carrier revenue-shares, cost of content licenses, etc.), the North American premium SMS market may be as big as it ever will be. While almost everyone I know in the industry is concerned, and many problems have been identified and solutions proposed, the core issues that got us where we are remain intractable. In my view, only three things can impact this situation and get the industry growing again:
1. Treating consumers better
2. Lowering carrier revenue shares
3. Carriers allowing access to additional functionality in the D2C channel
While always a proponent of providing more access to promote the growth of new, innovative products and services (D2C location-based services, in particular, would really spur innovation), the first two are more important right now, and are, I believe, mutually dependent, and can only be done synchronously. Without them, we will never get to the third.
The reason for this is that the primary driver behind this state of affairs is economic. The bottom line is that carriers need to differentiate between legitimate players in that space and the sham artist that currently have the upper hand, and reward the legitimate players with significantly higher revenue shares. On the flip side, premium SMS brands that continue to abuse consumers need to get a correspondingly lower revenue share-to the point of making it economically unsustainable to continue these practices.
Right now, we have almost the direct opposite of this approach. Static revenue shares and limited bonus/penalty structures the carriers currently have in place are not only ineffective, but result in making it almost a necessity to skirt the rules and screw consumers to the wall in the pursuit of revenues and profits.
The economics are reinforcing the behavior-it saw this over and over for the last couple of years, the bad apples drag everyone else down to their level, with no self-correcting mechanism in the system.
Want proof? To see the existing consumer experience, follow this link to buy a ringtone:
www.google.com/search?hl=en&q=free+ringtone&btnG=Google+Search
Now, return to the link next week, next month, or next year. If the existing premium SMS structure remains the same, I will bet that the experience is as anti-consumer as it is now. Sure, the brands might change, but deceptive marketing, invisible mice-type, and confusing purchase paths will remain.
Admittedly, I was a big proponent of industry sponsored monitoring coupled with carrier enforcement when it became clear the aggregator policing of content providers was not the answer. Unfortunately, it is clear now that this is not the solution either.
There has been a respectable amount of money poured into monitoring, and by and large, this investment has been effective-the carriers are aware of what is out there, and the continual violations by certain content companies.
Enforcement is another matter. This naturally falls to the carriers, and given their role in the ecosystem, one wonders why they can’t just clean it up.
It turns out that most of the worst violators of best practices are the content companies with the largest revenue in the space. Enforcing full compliance with consumer best practices would have a significantly negative impact on revenues. Worse, if you take one content company down, another one just takes its place with similar practices-all content providers will maximize profit while their competition has been laid-low by the carriers.
The net effect is that carriers are put in the position of continually taking down the largest revenue generators in the space-this not a good way to foster revenue growth in the space-always a priority in the carrier world.
For those skeptics that think I am getting religion now that I am outside the bounds of the carrier, I have had this belief well before I made the move to Limbo, and as I said earlier, Limbo does not run premium programs, so increasing premium pay-outs from the carriers does not impact our business plan. I also do not find many of my old carrier colleagues or industry friends that disagree with my assessment. The clock is ticking, this is clear:
www.redtape.msnbc.com/2007/10/sean-clark-pays.html
So what do you say you carriers? The premium SMS market has collapsed in other markets-most notably Europe. The ball is in your court, please do what needs to be done so we can get things growing again.
Contact Dave at daveo@limbo.com. Contact RCR Wireless News at rcrwebhelp@crain.com.
