The pendulum swings back to “paid for” content

It looks like the swing towards “ad funded everything” is quickly coming to an end, and there is a trend back in the direction of selling products and services to users. 

“Ad funded” for many businesses really meant “shareholder funded in the hope of later monetization”.  Meanwhile, people actually selling things were ignored – that was thought too “dirty” or “difficult”.  However, in difficult economic conditions, remember the Yorkshire expression: “where there’s muck there’s brass”.

It was interesting to see the announcements about Google’s apparent shift towards becoming an e-Commerce business.  They will be selling music and games direct to consumers on their YouTube site.

This, and a glut of other recent announcements around music stores, music subscriptions, online games sales, and the various “app store” initiatives from Apple, Google, Blackberry(RIM) and others all indicate that we are seeing a return to the traditional model of “selling things to customers”.  For a few years, there has been a swing in the other direction.   “Freeconomics”.  The idea is that everything is free, you just get it by watching ads, so the advertised pays for whatever you need.

Looking at the world of TV, it seems the pendulum started swinging back to paid-for a year or two ago.  Ad funded TV companies (like ITV) are struggling against their “paid for” counterparts (Sky).  The latter are adding more and more options to buy content – ad-free as technology and consumer behavious changes.  Now that SKY has the technology in place they are making users pay to vote.

TV and radio shows are increasingly leveraging technology and mobile payment to sell participation in gameshows (votes cost money, entering games, bid-up auctions).

Now that belt tightening is on the increase, as people reduce their investments and feel concern about a potential recession, is the natural time for a move towards basic business.  Advertising will get cheaper to chase the customers.  Advertisers will get much sharper in their use of analytics and measurement to verify ROI.  Content owners will be more nervous about devaluing their offerings.  Increasing unemployment might reduce the demand for some forms of entertainment – although erotic content and teen spending on games seem in teh past to have been resilient to this – but advertising is sure to feel the pinch much more.

My prediction is that there will be amove back towards “value” over the next year or so, with paid for content moving to the front of the agenda.

Fortunately, the timing is right on teh technology and business front.  Most leading operators (Verizon,TIM and France Orange being teh notable exceptions) now embraced a paid for content model by opening up their billing systems and empowering innovation.  Device makers are supporting more innocation and opening up capabilities not they have a “green light” from the carriers.

Bango has seen a surge of interest in “mobile payment” interest at  and we are working with a host of “app store” and “content store” developers targetting the fast growing SymbianS60, Blackberry and Windows app opportunities.

Companies who could benefit from this move could well be the older internet companies like Yahoo, who have platfomrs and the reach to leverage demand and a historic capability to sell things.  As a newcomer, Google might be able to succeed in this area, but only if it can embrace non-google avenues for payments and  take the risks necessary in being a “supplier” or “seller” rather than an ad channel.


Apple iPhone Software Store generating sales

According to Apple, sales of software in the iPhone App store were $30 million in July.

“This thing’s going to crest at half a billion, soon,” Jobs told the Wall Street Journal: iPhone Software Sales take off. “Who knows, maybe it will be a $1bn marketplace at some point in time. I’ve never seen anything like this in my career for software.”

With a run rate of around $30 million a month, the App store is certainly showing that making apps easy to find and relatively easy to buy makes business possible.

Interestingly, Apple’s offering has a number of restrictions which if lifted could make it even more successful:
(1) You can’t do single click payments to your phone bill
(2) The range of apps is very limited and subject to many restrictions
(3) Apps are limited to a “one shot” pricing model (subscriptions or on-demand are forbidden)

Just as the iPhone made usability a key factor in new phone design – because customers like it – the success of Apple in selling premium content should do a lot to refocus people’s minds on selling content to users without having to place it in the “Operator Deck” or “Portal”.

We have seen many smaller businesses do very well by opening up mobile content and application stores on the mobile web, collecting payment through mobile operators (via Bango) and marketing through search and mobile ads.

Just imagine how successful Nokia might be if it got serious about an off-deck store!

Hassle: Portuguese Taxes

Here’s another “single market” one:
Bango deals with three mobile operators in Portugal.  Each of them requires various documentation, in physical form, with the appropriate notarization, stamping, and authentication by local tax offices, before they can remit funds outside Portugal – to avoid double taxation.  In addition they require various VAT documentation and clearances. 

Hassle watch

Acting for thousands of content providers, collecting payments from over 100 countries through many different payment channels gives Bango a great view into the byzantine complexities of tax and financial laws around the world.  We are going to start blogging some of the hassle we encounter, ranging from odd local practices to mobile carriers who make illegal demands on us, and to so called “anti-terror” laws which make it really difficult to pay content provider sbased in certain countries.

“Revenue Leakage and” “Breakage Bonusses”

I recently read an interesting article about Revenue leakage over at MocoNews:

There are definitely inaccuracies in reporting, but it goes both ways:

A major carrier has outages in its billing system from time to time – usually no more than a few minutes.  When this happens, off-deck connectors into the billing system can’t collect money, so they don’t allow users to get the content (In fact Bango automatically switches to PSMS to keep revenues flowing) . 

We discovered that during such outages, the “on-deck” content is still sold (to provide good customer service) but ther fail over to “free mode” so all content becomes free during the outage. In this case however, it turned out that the carrier was simply not reporting the sales to the content provider, who was therefore subsidising the “good sevice”….  EEEEK!

Two ways we have seen content providers or aggregators benefit:

(1) Content providers sell content using a single or double opt-in Premium SMS system.  Unfortunately the user does not have WAP connectivity or the content does not work on their handset.  Provided the user does not claim a refund, the CP can detect that content has not been delivered, pocket the money (potentially for many months on a subscription service) and not pay any royalty.  For some CP’s and aggregators, this “breakage” accounts for their entire profit margin – everything else is break even!

(2) We discovered that a “top five” music publisher was allowing users to purchase from their WAP site by sending them a premium SMS and then routing them to a URL where the content was downloaded.  Between 10-15% of all the PSMS’s  failed to deliver revenue (user had run out of credit, barred by user, corporate account etc.). So, at the end of the month the company simply reconciled things and did not pay the artists any royalty on these sales.  Unfortunately, the end users had already been given teh URL for the content – so it had been supplied.  A back of the envelope calculation indicated that they potentially owed artists royalties to the tune of $450,000.  This was a strong motivator for them to sign up to Bango – where such leakage was eliminated!   There must be many other such situations.

Over in the UK this week the big “scandal” is about  the alleged $80million phone in fraud: