M-Commerce 2.0: Operator Billing - 'it's the merchants, stupid'
In this guest post, Telco 2.0 partners SLA Mobile argue that operators must focus on merchants' needs to make Direct Operator Billing (DOB) work, and unlock and monetise new assets through M-Commerce.
"It's the economy, stupid" was the mantra of Bill Clinton's successful 1982 Presidential Campaign - this simple message cut through the fog of political rhetoric and helped Clinton win. SLA Mobile say operators must adopt a similar single-minded focus on merchants' needs to succeed in the growing M-Commerce market, forecast by Informa to be worth US $37BN in fees by 2016.
What is 'Direct Operator Billing'?
Direct Operator Billing (DOB) enables merchants to charge the payment for goods and services to the consumer's mobile phone bill rather than their credit card.
It is SLA Mobile's view that mobile operators in both developing and developed markets have a strategic opportunity to use DOB to drive digital commerce revenues and address the ever present 'Over-The-Top' (OTT) threat.
However for a DOB strategy to succeed, operators need to embrace the reality that making it work will be "all about the merchants".
Some operators are already making plans to get their slice of this market, e.g. Vodafone Group CEO, Vittorio Colao, briefed analysts in the Q2 FY2011/12 earnings conference that Operator Billing is a significant opportunity. He described it as a "very intuitive and easy way of enabling digital commerce".
It's all about the Merchants
Consumer research suggests that consumers in developed markets preferred method of payment for goods on the mobile phone is the mobile bill, above using either their credit card and Paypal (see chart below). In emerging markets there are often no other means of payment beyond cash.
However to fully monetise this opportunity, operators need to take a merchant-centric view of the opportunity. This is because it is merchants who create the innovative services to drive the market not operators.
Operators also need to recognise they are competing with a well-developed financial services ecosystem in many markets.
One option is for mobile operators to choose to leave the merchant relationship to others in the value chain as they do in the Premium SMS market. However operators can build deeper relationships through engaging directly with merchants and aligning common goals of maximising growth. There are a few key success enablers:-
1) The barriers to entry for merchants must be low. Operators need to ensure that the technical effort of integration is low by providing 2.0 APIs and self-service portals. This is a far cry from the manual 1.0 world of Premium SMS (PSMS).
2) Operators should support merchants in growing the market. Operators need to work with merchants and provide them with the tools to make operator billing easy for web sites, mobile websites and apps.
3) The rewards for using operator billing must be high. Operators should use a commercial model that maximises demand for the widest range of products both digital and physical.
This means payouts to merchants that are at least 85% plus - much higher than for Premium SMS. Although operators have the challenge of the 'cost of cash' in running the pre-pay network where retailers get a commission on airtime top-ups, they need to get payouts much closer to those of credit cards and Paypal to be competitive.
This will create new market opportunities not just for digital but also physical goods and services. Merchants will see DOB as a fantastic business opportunity when operators make it easy to use and with attractive terms that enable them to reach new markets - for example those who do not have credit cards.
4) Ease of use and great service experience are essential. Merchants must know in real time, what's been sold, what they get paid and when. Customer care and refund policies etc. need to be of a high standard. For consumers to use the service a lot, the purchase experience needs to be simple, secure and convenient.
Operator concerns can be addressed
There will be those internally in operators who fear the cannibalisation of PSMS and voice revenues. However PSMS is already in decline and DOB presents a growth opportunity.
Others may challenge the lower margins in a DOB M-Commerce strategy than telcos' current core businesses. However the real strategy should be one that maximises the level of demand, builds significant revenue, and engages consumers who are more loyal.
Operators must get onto the front foot to address the OTT threat and DOB is central to that. We predict that the operators who will succeed in the long term in M-Commerce will be those who embrace a merchant focussed strategy with DOB.
SLA Mobile helps operators unlock and monetise network assets, and will be at Mobile World Congress MWC12 in Barcelona 27 Feb - 1 Mar 2012 Hall 2.1 Mobile Money Pavilion Stand 78.