“Revenue Leakage and” “Breakage Bonusses”

I recently read an interesting article about Revenue leakage over at MocoNews: http://www.moconews.net/entry/419-vodafone-fesses-up-on-faulty-reporting-content-companies-setting-up-own/

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: http://www.theregister.co.uk/2007/04/24/gmtv_phone_scam_allegations/

Sobering!