By Charles Damen, Vice President, Mobile Billing and Payments
The explosive growth in the uptake of smartphones and tablets has defined the mobile industry in the recent past. Largely, it is this growth that has driven the rise of the applications market; mobile apps now offer one of the most promising revenue streams for the mobile industry. Gartner estimates that global mobile app store revenues will triple from $5.2 billion in 2010 to $15 billion this year and reach $58 billion by 2014. With such vast potential, it is easy to assume that all content providers and apps developers need to do is to develop a great app and then sit back and reap the revenue rewards.
In reality, it is far from that simple.
To date, the apps market has been dominated by Apple and individual app developers have found it challenging, to say the least, to monetise their apps as there has been a lack of a solution that works across other platforms. Despite this, app stores and content providers must start looking at ways of maximising revenue streams and develop a clear monetisation strategy to gain market share.
Apps providers have very much been restricted by the type of payment mechanisms available to them. The mechanisms have traditionally also been overly complex, requiring credit card details which disrupt the user-experience and give rise to fears of identity theft. Credit card-only payment systems also mean that content providers can’t reach non-credit card holders.
To fully monetise apps and provide a flexible payments infrastructure, a significant change is needed, and mobile network operators must do everything in their power to ensure they remain part of the apps ecosystem, beyond just serving as a bit pipe for third-party content.
This is where direct operator billing enters the stage.
It is quickly emerging as the optimum approach to overcome these challenges, as it is a vastly superior charging model to both Premium SMS and credit card payments. One-click purchase, real-time charging, flexible pricing points and direct refund capabilities are delivered on some direct operator billing solutions and make them ideal for Pay-per-Download and in-app purchases.
For consumers, direct operator billing enables a frictionless user experience by providing them with the option of buying apps and in-app goods and services through a simple 1-click process, placing the fee for the application on the user’s phone bill. For merchants and developers, it can provide a range of potential features, including real-time charging, flexible pricing points and direct refund capabilities, while the frictionless user experience it creates maximises conversion rates. At the same time, direct operator billing inserts the mobile operators back into the application and content value chain, enabling them to effectively generate revenues from the apps ecosystem. The frictionless 1-click buy and payment process of direct operator billing reduces drop-off rates and increases conversion rates, while some solutions also provide a real time charging process which ensures instant authorisation and reduced revenue leakage.
George Linardos, Nokia’s vice president, product and media, noted at last year’s Nokia World that the one-click billing enabled by operator billing leads to 13 times more payments being made than over credit cards, providing tangible proof of the opportunities this payment system affords app stores and content providers. Research from analyst house Strategy Analytics [i] backs this up, demonstrating that nearly 40 per cent of users in Western Europe prefer this payment mechanism to any other.
From an application developer’s perspective, direct operator billing enables greater price flexibility, allowing developers to vary app prices. This pricing flexibility is beneficial from the point of view of driving developers’ bottom lines. An app’s popularity within application stores is dictated mostly by its sales. By being in the position to lower and differentiate their prices, developers can move their apps up the popularity ratings within app stores, helping them to drive further sales. This points towards a more sophisticated apps ecosystem not previously seen, further changing the way we pay for mobile content. Furthermore, with a cross-platform solution supporting among others Android, Windows, Symbian and Java-based phones, the ability for application developers to monetise apps is maximised.
The flexibility of direct operator billing extends to the connectivity method used when buying the app. With direct operator billing systems, it is possible for end users to choose the type of network they would like to buy the app over, whether that is their own operator’s 3G network or a WiFi network at, for example, a coffee shop. Regardless of the network used, the payment will still be sent to the operator bill, providing users with greater flexibility and choice over how they download content.
Direct operator billing unites operators and apps developers by connecting their businesses, while at the same time allowing end-users to download apps with ease. In short, it simplifies and accelerates the uptake and monetisation of applications on mobile phones, creates a great user experience, while driving revenue for developers and allowing operators to maintain a competitive position within the value chain. From that point of view, it is a win-win service.
[i] Strategy Analytics; Consumers Prefer Operator Billing for Mobile Content Purchasing