Michael De Jongh, global head of Sales, Mobile Billing and Payments at MACH, discusses why Direct Operator Billing is the glue to unite all players in the mobile ecosystem.
The current mobile landscape has changed significantly over the last few years. In what was once a space predominantly held by mobile operators, the telecoms environment has been infiltrated by Over The Top (OTT) service providers, social media giants, and device manufacturers that are having a direct impact on the mobile industry’s profitability. As part of this dynamic, we are seeing a gradual mobile apps revolution as operators begin to realise the need to evolve their business models.
OTT communications currently represents the largest threat to mobile operator revenues and is placing pressure on operators at a time when they are compelled to build expensive new 4G networks. In a recently published report, ARCchart forecasts that OTT services will account for 8 per cent of all voice traffic carried over mobile networks by 2016. Global smartphone penetration is expected to be 51 per cent of total handset sales by the end of 2016, up from an estimated 31 per cent in 2012.
Today, VoIP is capturing an increasing proportion of mobile voice minutes, but in terms of value it is worth less than 0.5 per cent of overall voice revenues. ARCchart also expects that instant messages will exceed SMS volumes by 2014 and continue growing rapidly thereafter, accounting for 65 per cent of all message traffic pushed over mobile networks by 2016. Evidence shows that even when carriers price SMS and voice comparatively cheaper than IM and VoIP, many customers continue to use OTT solutions because of the richer user experience. As voice and messaging are two of the biggest revenue generators for mobile operators, any real risk to these profits could be potentially catastrophic.
Despite the doom and gloom, however, operators are in a unique position to ally themselves with OTT providers to ensure gains on both sides. After all, it is the operator that generally provides the handset, the mobile number and has the relationship with the end-user. Operators own the network infrastructure and the billing and customer relationship. Operators are the ones that tailor, deliver and drive the quality of experience that meets consumer’s needs. While OTT services grow in popularity they are still reliant on a broadband connection, which is owned by the operator. As fragmented, closed user communities (a WhatsApp user can only send a message to another WhatsApp user), OTT providers will also struggle to compete for mindshare and look for ways to monetize their service offering.
Consumer behavior is changing and as the demand rises for richer services and experiences, apps and OTT services are becoming more popular. Gartner forecasts mobile app revenue growth of around 1,200 per cent between 2010 and 2015, which combines direct spending and advertising revenue to create a global market valued at just over US$52Bn by 2015. With advertising representing only around ten per cent of the total, the revenue opportunity for paid app downloads and ‘in-app’ purchases is vast. Providing a seamless mobile payment experience is a fundamental part of the overall marketing mix, given that monetization of mobile apps and digital content represents a significant business opportunity for content publishers, app stores, OTT providers and mobile network operators alike.
Users typically engage with OTT services via apps on their devices, often installed via an application store. By providing a seamless billing approach to these purchases, operators can raise their exposure to consumers, and strengthen their brand and relevance in the eyes of their subscribers. Today, there are ample opportunities for operators to work with OTT providers in areas outside of their core competence. Billing is an obvious example. As OTT providers do not own billing relationships with their users, operators have a chance to form billing partnerships to enable consumers to pay for OTT services via their mobile phone bills.
Direct Operator Billing (DOB) is the simplest and most effective ‘glue’ to unite the different players in this way, while ensuring that operators are not cut off from the money flow. Unlike premium SMS or credit cards, which can be cumbersome, slow and potentially insecure, DOB is slick, convenient and frictionless, and works even for those users that do not own credit cards. DOB brings consumer convenience with the effect of an increase in paid downloads. In fact, according to Tobin Ireland, (commercial director, Vodafone) operator billing prompted 100 per cent more apps downloads and 70 per cent more payments in 2011. Consumers demand a billing process as simple as possible – because the more complicated a payment process is, the less likely they are to see that payment through.
DOB integrates directly with a mobile network operator’s billing and charging environment and provides various benefits associated with the monetization of mobile apps and OTT services. These include ease of payment for subscribers, enhanced customer satisfaction from immediate purchase responses, better security involving authentication in real-time, improved purchase conversion rates and very low customer support costs for merchants. DOB creates a more reliable settlement process with the real potential to grow the apps market – and operator revenues along with it.
Despite their growing popularity, OTT players are hindered by the lack of a solution to effectively monetize their services across all mobile platforms. If they are willing to address this weakness, DOB could represent a big chance for them to turn this problem around. Internet giants such as Skype have already tackled the issue by upselling premium services to consumers that allow them to make ‘off-Skype’ calls to other fixed-line telephones and mobiles. Skype is also using DOB as a choice to pay for content, providing users with a seamless experience and creating new revenue streams.
Today’s rapid technological advancements deserve a smooth, reliable and sophisticated payment solution. There is no doubt that DOB represents a mobile billing revolution. DOB solutions not only help to facilitate increased apps consumption in the short-term, but also stimulate the further evolution of the apps market and build relationships of trust between operators and OTT providers in the long term. Simplifying and accelerating the uptake and monetization of applications on mobile phones drives revenue and allows operators to maintain a competitive position within the value chain.