Carriers should not choose between app stores and digital content revenue

When enabling direct carrier billing, mobile operators often see a binary choice: whether to integrate app stores and bet on their growth or digital content providers and be ready to manage solid number of demanding merchants. Choosing only one of the two segments results in the mobile operator on missing out on a significant amount of revenue.

Doing only app store integrations means carriers unlock about 23% of the entire digital market for themselves*. When going only after digital content merchants, they in turn lose out getting a part of the $24 billion spent in app stores each year**:

Carriers should not choose between app stores and digital content revenue

Fundamentally there is no difference in billing technology when providing carrier billing for an app store with 1 billion users, a music streaming service with 50 million users or a PC game with 25 million users. Merchants’ requirements are in all cases similar: dynamic pricing, header enrichment, subscription support etc.

The main challenge with capturing the rest of the revenue is fragmentation: while there are only a few dominant app stores, digital content providers number in the thousands. This creates several challenges for mobile operators:

  • need for a direct carrier billing platform that enables dynamic pricing, header enrichment, recurring billing, a refund API etc for a very large variety of merchants
  • building up processes and infrastructure to onboard, manage and maintain a large number of technically savvy and demanding merchants
  • being flexible for on-demand requests, custom reporting, features etc.
  • building up a business development team who would seek out merchants and close deals before competitors can do so

Providing financial services is not a mobile operator’s core business and building out these capabilities in-house is a significant risk if the venture does not pan out. Outsourcing with a partner who can deliver a broad range of merchants and manage those relationships at scale is the best way to go. After all, would you start an in-house antenna building or logistics service when there are already companies out there who are experts on the matter?

Coming back to the topic of lost revenue, beside the immediate impact from sticking to one specific merchant segment, there is also a potential to lose out on additional revenue in the future. 5 years ago very few people expected music or VOD business to transform, industry leaders to invest heavily into emerging markets to capture the next new billion internet users and monetize them via carrier billing.

Similarly, 5 years from now it’s reasonable to assume that merchants such as e-wallet providers, credit card companies and sharing economy enablers will plug carrier billing into their platforms. Carriers like Swisscom are already providing payments for physical services today.

For mobile operators it makes sense to keep their doors open for immediate revenue opportunities but also future areas of growth. Having a long-term vision helps carriers maximize their revenue from payments in an increasingly problematic environment of declining revenue from calls and messaging services.

* Research by IHS and App Annie shows that in 2013 global spending on digital content exceeded $57 billion. Assuming a similar growth rate (30%) for 2014, the market grew to $74 billion last year.

** Market sizes of digital music, video streaming and security software. Digital gaming sales were estimated to stand at $45 billion in 2014 by analytics company SuperDataResearch.