M-commerce up front

The pre-paid market for voice and SMS shows that there will be substantial revenues to be generated by pre-paid m-commerce, but operators will find themselves dealing with a market more exposed to branding and marketing messages than ever before.

There was recently an advert for prepaid mobile phones on the radio, which was being advertised as a 'back to school' item. This further highlights that the average age of the mobile user is getting younger.

Also something to bear in mind -- young people tend to spend a much higher proportion of their disposable income on -- CDs, videos, concert tickets, holidays to Ibiza and so on. The proportion of pre-paid mobile ownership in this market is also extremely high. So it would seem to make sense to have a look at the purchasing habits of these consumers and see if there is a sensible way to provide m-commerce services to this pre-paid market.

The value chain

This is where the issues arise, and where the opportunities and problems rear their heads -- firstly we could look at the opportunities. There's been a lot of talk about in-commerce value chains (the supply chain that produces and delivers m-commerce products and services), and dearly there is an opportunity for operators to generate revenue in the pre-paid m-commerce arena, by controlling as large a portion of the value chain that is possible.

The best example of a likely value chain in the pre-paid market could be MP3 audio files. In the value chain there could be the operator, who provides the access, the mobile portal, the publishing companies site and the content provider themselves -- in this case the band. 3G mobile handsets will be able to double up as portable MP3 players. A customer could download several tracks, and play them on their portable MP3 players. Every track that is downloaded could be classified as a transaction from a rating perspective, the operator could then debit the pre-paid account of the customer for a certain amount of money. The operator would then take a percentage of this revenue, and pass the remainder onto the other members of the value chain.

In many cases operators will try to keep their customers on the home portal by offering decent content, tailored to a specific target market. What the operator does not wish to encourage is the customer wandering away into cyberspace and setting up someone else's portal as their 'home' page. If this happens, then any m-commerce transactions will be carried out by the usual credit card method and operators will see only traffic revenue.

SMS marketing

Something else that more pre-paid customers do than post-paid mobile customers is to send SMS messages. It's almost become a culture in itself. It would make sense to use this to your advantage in order to capture value, both from a marketing and a financial perspective. Once you have information on a users demographics and personal tastes you can use this to your benefit. Sending people personalized SMS messages may seem like a lot of work, but it can buy a great deal of customer loyalty and goodwill, and could even be used to sell something.

For example, a pre-paid customer (a male 19-year old student) gets an SMS telling him to check out the latest Madonna single on the web site belonging to our music content partners. There he can also buy some tickets for her latest concert, and sign up to be a member of her fan club. Part of this includes our young student friend getting a personlised e-mail from Madonna on his birthday (courtesy of his mobile operator). However, remember to keep marketing information up to date. This is not rocket science -- it is simple targeted marketing. What is being done here is appealing to a person's subjective nature, in determining who should 'own' the customer or not, and thus generate m-commerce revenue. This can also be applied when selling advertising space on mobile portal and content sites.

Real time credit checks

There would appear to be a strong business case for providing pre-paid m-commerce. However, and this is where the fun starts, pre-paid content is not like pre-paid voice. You can't purchase 75 per cent of a concert ticket, 35 per cent of a train ticket, or park your car for 45 minutes when you think you've purchased one hour's parking. With voice call, when your credit runs out you get cut off --simple as that. With pre-paid content the item for sale will have a price associated with it on the application server. We need to know if the person requesting the purchase has enough money in their pre-paid account to buy the good or service, and authorise/refuse service as applicable.

There are ways round this issue. One could be to have an intelligent network device sitting on the application server. When the request to purchase is made, a real time interrogation of the customer's data is undertaken to check if they have enough funds in their account, and authorization is given or declined. However, this would have to be real time. Once the purchase is made the operator debits the credit account of the customer, and collects the transaction for wholesale rating. The operator can then retail a percentage of the transaction value and pass the remainder on for value chain settlement.

"There are several slightly different business scenarios for an operator, even if the pricing is with the content provider," says Dirk Lukas, senior project manager, business support, E-plus Mobil-funk. "One way is to follow the path that has already been described. The operator retails a percentage of the transaction value for his service, and passes the remainder to the content provider. The other way is for the operator to run a billing and cash collection, and charge the content provider directly for this service. In this scenario, the operator is leaving the financial risk with regard to the end-users payment to the content provider, but also is not getting involved in the content value itself."

It could be argued that all of this is too much bother and perhaps we should all continue to use the credit card companies for content. I don't really see this as a valid argument - the beauty of prepaid is that there is no financial risk, as it is after all a pre-paid service. The real challenge will be in ensuring that the financial authorisation checks and updating of customer account information happens in real time. Also, we must consider the transport costs of 'shipping' the content -- these will have to be covered by the authorization process. This is a fairly high level view and we could see a pre-paid customer carry out several m-commerce transactions in a single 3G session. It is therefore important that each transaction is treated as an individual 'sub-session', and the authorisation process is carried out for all of them.

Substantial opportunities

"Pre-paid is such an important market that I'm sure technical issues surrounding billing for content will be solved in the near future," comments George Huitema, senior scientffic consultant for KPN Research, and leader of the GBA billing for content workgroup. "There are already several recognised commercial opportunities. Take ringing tones for example; we are presently seeing adverts in free distribution newspapers targeted at youngsters to buy and download through their mobiles. This kind of purchase has mass market appeal."

The pre-paid market for voice and SMS shows that there will be substantial revenues to be generated by pre-paid m-commerce. However, operators will find themselves dealing with a market that is more exposed to branding and marketing messages than any other. It will not be the technology that determines who will gain the majority in the pre-paid m-commerce market, people can always catch up in the technology stakes -- it will be good marketing that will determine the winners and losers.

Martin Morgan, member of the Global Billing Association.

COPYRIGHT 2001 Horizon House Publications, Inc.
COPYRIGHT 2001 Gale Group