SAN FRANCISCO-Direct-to-consumer is going directly, well, nowhere.
Approaching mobile users directly has long been seen as the path to riches for outfits too small-or too edgy-for placement on carrier decks. But the U.S. market for off-deck mobile content is shackled by inadequate billing systems, onerous revenue-share models and an overall lack of traffic, according to speakers at last week’s Mobile Entertainment Live.
“All financial transactions (that occur off the deck) have to through a messaging infrastructure” instead of a system designed to handle billing processes, OpenMarket General Manager Steve Shivers said. “What that means for operators is customer-care call rates three, four, five times higher” than for on-deck transactions.
Those irate customers are a public-relations problem, of course, and assuaging their concerns can be costly. Worse, operators and content providers are losing 30% to 40% of gross revenues-yes, gross revenues-because of leakage. Operators’ billing systems fail to consummate transactions, and refunding all those botched purchases is an expensive nightmare.
3 out of 4 off-deck transactions fail
“Three out of four transactions fail” in the off-deck world, according to 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 during the session. “Even though you have a human conversion rate, it doesn’t always trickle down to profits.”
And the system has become “a stalemate,” Casazza continued, where carriers must take a big chunk of each transaction just to make their off-deck businesses worthwhile. Vendors, on the other hand, say they could afford to invest in their own billing solutions if their margins weren’t so slim.
One potential solution would be a universal payment platform that carriers would agree to use for off-deck sales. But while content providers generally favor such a model, operators-who 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.
Third-party frustrations
So third-party vendors are left to try to reconcile their expected sales with the checks they actually receive from the operators, according to a report released earlier this year by Frost & Sullivan. And they must work with each carrier individually-on each carrier’s terms-to do it.
“There is a mismatch between what content providers expect as their revenues from sales of their wares in a given period and what they actually get from the mobile operators,” according to Vikrant Gandhi, who authored the report. “Content providers have to track revenues from multiple mobile operators with different payout periods, adding further to the complexity of the business.”
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 millionth user and bagged a deal with Alltel Corp.-marking its expansion from off-deck into on-deck.
“I think while we wait for the gaps in the mobile Internet 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 MyWaves CEO Rajeev Raman.
That trend is expected to continue. Groove Mobile last week began targeting consumers directly with a tune from hip-hop artist Aceyalone that can be downloaded over the air for $2; Didiom earlier this year teamed with 10 online music retailers on the nation’s first direct-to-consumer full-track mobile service. And a host of new mobile sites are integrating premium offerings with user-generated stuff, allowing users to use social networking tools free, but charging a premium for ringtones and other types of content.
Billing issues will be addressed eventually, of course, and carriers will continue to lower their garden walls as customers demand more openness from their wireless service. So for operators, the coming off-deck market may force a choice: cooperate with each other to create a standardized billing platform, or risk being cut out of the direct-to-consumer value chain entirely. “As truly IP devices come to market, I don’t think you can keep that genie in the bottle; I don’t think it will work,” said Shivers. “There’s going to be a very big revenue opportunity in off-deck mobile content. The question is, in five or 10 years, are the operators going to be in the middle of it.”
