(keitai-l) Re: SMS/mobile Internet/TV

From: James Santagata <jsanta_at_audiencetrax.com>
Date: 09/27/02
Message-Id: <>
At 09:28 AM 9/26/02 -0400, you wrote:
>Moreover, in Europe it was the content providers that set cost expectations
>rather than the telcos, tightly tying mobile content options to existing
>content in other mediums, and creating pricing models that were most
>attractive to content providers (almost wholly based on pay per use),
>allowing market competition and the attractiveness of content to ultimately
>determine the relative cost level of mobile content.
>This in turn created a situation, unique to Europe (at present) where the
>content providers (rightly) dominate the pricing, promotion and development
>of the mobile content market.  Using SMS rather than WAP (which the mobile
>operators will admit was a disaster of their own making) as an entry point
>for their services, the content providers circumvented the telcos to connect
>directly with the consumer, hence creating a new market for services.

This seems very similar to the US Audio-text services many years ago (also 
as "900 lines") that offer/offered phone sex, dating lines/personals, party 
and horoscope readings and which produced handsome profits for many businesses.

And once you had your line you could control the content, pricing, positioning,
marketing, etc. and you didn't have to jump through hoops to get a line.

>By setting these price expectations early, they deflate the market's
>potential value for services, making it harder for content providers to
>maximize profit for their services.

While I do agree it would be best to not have any particular pricing 
set so early, I'm not sure that we can anticipate the impact of this on
the content providers revenue and profits.

Setting profits aside and simply looking at revenue, the revenue maximization
will depend on many issues including the market segments served, segment sizes,
price elasticity of customers in each segment and so forth.

Traditionally, US technology firms have employed a price skimming strategy 
they try to identify and then exploit the inelastic demand of the innovator 
and early adopter
segments for a product/service and then gradually lower the price as the 
early majority and
later segments comes on board. The lower price entices these later customer 
to come on board and at the same time reduces the price signals that would 
competitors to attack the market as aggressively.

Many Japanese firms, by contrast, would set a price that made economic
sense at a projected volume. For example if they could sell 100,000 widgets
and  make xx% at a $5 retail price, they would try to get the volume up to that
level as fast possible and increase the adoption rate. This would mean charging
$5 from the start even if it cost $6 to make so they could penetrate the 
market as
soon as possible and then when the market share was up, revenues and cogs would
come into alignment. That presupposes a lot about the product,
the adoption rate, and a company's ability to support the negative
spread in margin during that period but that's what they did.

So, the point is, it may be that for some segments a lower price
for the US services may be beneficial. It will depend on the margins and
the volumes. Time will tell.

>2.  There are too many types of confusing billing and payment schemes in the
>US market.  Between BREW, SMS, WAP, J2ME and others, US telcos are trying to
>define a pricing model based on pay per use, download, flat fee and timed
>use that at present is confusing and hence less attractive to both users and
>content providers than a standardized pay per use or packet-switched model.

I agree there are a lot of options, but I don't think we can make a blanket
statement as to which payment plan is best -- it will depend on the
market segments and use cases.

One of the positive things of the US model is that it's a free for all, and 
possible method is being tested and ferreted out. Over time, the model/models
that are most accepted by customers will come to light. And because it is
cut throat competition, we can expect some of the answers to come fairly

>3.  As the US market has little or no usage of 900 services outside of porn
>- and chargeback rates of more than 60% for 900 in general, and SMS short
>codes for services have yet to be defined and standardized, content

Actually 900 lines are used for many services besides porn. These include 
vote-for-some-tv-program-polls, political contributons, charities and even 
for internet content. For instance, you can do this via iBill. Many of 
these services/contents
may be somewhat unsavory, but they can be and often are extremely profitable.

Chargeback rates, though, will vary on many factors -- product/service 
sold, customer
segments, etc. The total percent of chargebacks by themselves are not
as important as how they are factored into the gross margin and the company's
reserve for uncollectible debt. It's like a credit card company -- they 
expect some
amount of bad debt and they build this into their pricing structure. Same
thing with retailers (they plan for shrinkage -- ie., theft) and electronic 
(Solectron, San Mina, Jabil, etc.) plan for attrition (lost/unusable 
components like
resistors and/or stolen).

>providers do not have a easy and ready way to charge for their services
>outside of the mobile operators.  In Europe, content owners can circumvent
>the billing systems of European operators via the usage of both premium rate
>SMS and "0900" billing systems that are more independent of the mobile
>operators than in the US and Japan.

I don't see why it would be so difficult to circumvent the mobile operators.
It still seems that customers could use a 3rd party billing systems, ibill,
hereuare, etc. These could be activated through a number of ways, such as 
web-based access, external 900/888 dialing, etc.

James Santagata

Received on Fri Sep 27 06:11:18 2002