Research Notes

Premium SMS: One step closer to the virtual bazaar

M-commerce has every opportunity of becoming the virtual bazaar where buyers and sellers of a whole host of electronic services can meet and do business.
Thanks to operators billing systems, it is a marketplace, which can handle the exchange of both services and money. This is why the mobile Internet, from a business point of view, is so interesting. The existing Internet may still be better suited for the delivery of electronic services, but it has not build in system for handling billing and payment. Therefore, it too is dependent on the successful development of M-commerce.

The success of such a virtual bazaar, or any marketplace, is dependent on three fundamentals:

1.Easy access for everyone wanting to buy or sell goods and services
2.Agreed units of measure
3.An ability to adapt to and include new goods and services

It must be easy for buyers or sellers to bring themselves or their goods and services to market. If not they will go elsewhere, or they will not go at all, and the local economy will suffer. There must be agreement on what units to use when negotiating a deal. Finally, the marketplace must be able to adapt to and include new goods and services as these become available.

Mobile operators must lead the way in creating these marketplaces – these virtual bazaars. They own the land (the virtual space) where the market can take place, and they run the banks needed by both buyers and sellers to settle deals. As such, mobile operators stand to make good money on renting out land and charging bank commissions.

However, many mobile operators are not leading the way in creating these marketplaces. In fact, they are doing the very opposite. They are obstructing these marketplaces. Take the UK for example. Here content providers will have to operate four different SMS numbers in order to bring to market their services. Depending on which of the four operators a customer has a subscription with, he will have to use one of four different numbers to access the same service. In not being able to agree on operating one number for one content provider, the operators have in effect split the marketplace into four. Any merchant will tell you that this is bad for business and a loss for everyone.

Can you imagine going into a shop, and depending on what credit card you hold, you will be quoted a different price for the same product? Difficult, yes but this is exactly what happens in the UK. Because operators have not coordinated their tariff rates for premium SMS services, users will be charged differently depending on their subscription.

These tariff rates are the pricelists according to which the prices for premium SMS services are determined. It is therefore interesting to note that most operators have designed tariff structures with between 6 and 8 different rates, and with most operators the maximum rate that it is possible to charge is GBP 1. Why not operate 36 different tariff rates as Radiolinja in Finland do. Here the highest rate is GBP ( ) Clearly this tariff structure is much better suited to handle services other than ringing tones and logos. This tariff structure is much better suited to handle the future of premium SMS services. Is it more expensive to operate this extended tariff structure? No. Is it wiser? It most definitely is!

In a report just published, we describe these strategic challenges in detail and give examples on how new ways of thinking have led to new and successful business and revenue sharing models. We describe how operators around the world have handled the challenge of creating this virtual bazaar. In the report, we analyse 28 different operators’ revenue sharing models, both from the point of view of the operators themselves and from the point of view of content providers.

The report analyses the importance of different technologies for both operators, terminal producers and content providers, and for the development of revenue models.

More information on the report

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