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As the Big Four go to war, can operators remain relevant?

A war has been brewing in the technology industry for some time now, with the Big Four contenders – Amazon, Apple, Facebook and Google – starting to encroach on each other’s territory.

According to a recent article from Farhad Manjoo at FastCompany.com, over the next two years, Amazon, Apple, Facebook and Google will increasingly collide in the markets for mobile devices, tablets, apps, content and social networking.  Each company has its own unique weapons in its armory, and whilst they did not compete directly in the past, we are now seeing more and more examples of them making strategic moves into the others’ space – Google with its Motorola acquisition and the launch of Google +, Amazon’s Kindle tablet, Facebook’s developments in Media, Advertising and Communications, and Apple’s Cloud Services and Social Networking features within iTunes.

As these four giants continue to increase their dominance of the technology industry, what does this mean for the network operators?

Operators are not direct contenders in this war, but they are in a unique position, not only providing the connectivity that allows the Big Four to deliver and monetize their digital services, but also being the custodian of a wealth of information about customers as well as having direct billing relationships with, collectively, close to 6 billion consumers globally.

The Big Four will continue to generate huge amounts of revenues from “over the top” services, and no doubt they would like nothing more than for the operators to get out of the way and be relegated to the role of “dumb bit-pipe provider”. However, if operators make the right moves, they can effectively become the arms dealer in the innovation war, leveraging their unique assets to allow the Big Four players to compete with richer, more relevant services, improve customer choice and convenience and, perhaps most importantly, provide new low-friction ways to monetize their services.

A good example is in the area of video services. Because they own the network and the customer billing relationship, operators have the opportunity to influence not only the quality of experience associated with video content, but how the delivery of the content is paid for, and by whom.  This provides greater choice and flexibility across the entire value chain, from the consumer through to the content owner. For example, a consumer may choose to pay a premium for high-definition streamed video to the content provider (i.e. one of the Big Four), who in turn shares a proportion of that premium with the operator in return for providing a higher quality of service. With platforms such as Aepona’s, this process can happen on-the-fly using APIs (as opposed to requiring manual pre-provisioning), with the revenue management and settlement processes also being automated.

Another significant weapon the operators can provide is contextual relevance. Whilst the Big Four have amassed huge amounts of data about their customers, operators can augment that with real-time customer information such as location, presence, the type of device and connection a customer is using, whether they are roaming, details of their data plan, whether they are moving or stationery, and so on. Combining historical customer data (such as the type of products they like) with real-time information (such as whether they are within a 2 km radius of a particular retail outlet) will allow service providers to offer customers contextually-relevant services, delivering significant benefits to consumers and merchants alike.

There are many other examples of how operators can take advantage of the increasing competition between the Big Four, particularly in the area of Business to Business services and billing, and we will be discussing some of these areas in future postings.

It is inevitable that Amazon, Apple, Facebook and Google are going to dominate the technology landscape for the foreseeable future, and whilst this means that the Big Four will generate significant revenues from digital services delivered on top of the operators’ networks, it does not mean that the operators will have lost relevance – provided that they re-evaluate their role and make the right investments, both in people and in platforms, that allow them to become the arms merchant in the tech war.

Managing End-User Consent

Since the advent of the information age we have an abundance of data at our fingertips, and while this has brought massive benefits it has also raised questions of personal privacy and data security.

Privacy has always been a hot-button issue when it comes to the web, whether it’s a data breach or sharing of personal information on social networks, but with the rapid rise in mobile applications and related areas such as location-based services and in-application billing, the need to obtain and manage user consent has risen to the top of the agenda.

Recently consent was in the spotlight when new restrictions were proposed on how the US Government and firms collect and use customer location data.  The two senators championing the changes called specifically for companies and software developers to get express consent from application users before sharing location information with third parties.

An ever-increasing number of business and brands are recognizing the marketing potential of location-based services.  Just last month group-buying site Groupon announced it wants to start collecting location information from phones in order to tell people about deals in their vicinity, even when the Groupon app is not running on the device —but only after obtaining user consent.

With location-based deals like Groupon and other couponing apps increasing in popularity, consumers are also changing their attitudes towards privacy and sharing their data.  A recent survey, carried out by location-based ad sale house JiWire, found that over two-thirds of UK mobile phone owners and 53 per cent of those polled in the US say they would opt-in to location services to receive relevant content.  This shows customers are much more willing to provide access to data such as location if there is a perceived value to the service.

Aside from location, obtaining and managing user consent is equally important for other enablers such as customer profile and direct-to-mobile billing. For example, a Pizza Delivery app may include features allowing the customer’s name and address details to be retrieved directly from the mobile operator, and for the ordered goods to be paid for via the customer’s mobile bill. Both of these interactions between the device application and the operator require the customers’ consent to be obtained and optionally held (usually for a defined period), whilst keeping the customer experience as streamlined as possible.

With the emergence of intermediaries such as Mobile Cloud Providers that provide cross-operator access to mobile network and billing capabilities, the interactions between the various stakeholders in the application delivery value chain can become multi-directional. For example, an application developer may use a Mobile Cloud Provider’s APIs to access location data or make a payment request against a specific end-users mobile account, often from within the application itself. However, the mobile operator is still the ultimate custodian of the customer’s data and must ensure that customer consent is obtained and retained for all applications, even when it does not have a direct relationship with the application provider.

For all of these reasons, Consent Management has become an essential feature of platforms that expose network and billing APIs towards 3^rd party application developers, whether these APIs are exposed by mobile operators directly, or indirectly via intermediaries such as commercial Cloud Service Providers and industry collaboration initiatives (for example, GSMA OneAPI and the Wholesale Application Community). Aepona’s Universal Service Platform (USP) incorporates comprehensive Consent Management functionality, allowing explicit end-user consent to the obtained over multiple channels and maintained for all applications and types of interaction with the end user, for both the direct and indirect scenarios referred to above.

In summary, obtaining and managing end-user consent has become a critical requirement for any Service Provider offering 3^rd party application developers and content providers the ability to interact with end-users. This has been brought into focus recently with the proposed legislation in the US regarding location data, but is equally applicable to other enabler services such as direct-to-mobile billing and customer profile data.

Putting the Operator at the Centre of M-Commerce

Last month the three largest UK mobile operators announced they are joining forces to create a mobile wallet solution to support real world contactless transactions and mobile payments.  Joining the ranks of AT&T, Verizon Wireless and T-Mobile USA’s joint venture Isis, this latest collaboration by Everything Everywhere, O2 UK and Vodafone UK is a sign of the strategic importance of M-Commerce to the mobile industry and represents a significant step towards putting mobile operators firmly at the centre of the M-Commerce ecosystem.

However, while this is a positive move for the industry, how prepared are mobile operators to navigate the complex M-Commerce landscape?

This landscape has evolved rapidly over the last year, with both established players and new entrants taking up positions in the value chain.

In particular, Direct to Mobile billing is a growing trend for buying content both on dedicated sites such as app stores, as well as from within applications, and as smartphones continue to rise in popularity, mobile users want an easy click to pay purchase experience just like they have on the web.  Developers can create apps to run across multiple platforms, enabled for one-click payments directly to the end user’s phone bill.  The ease of this payment also encourages the opportunity for up-sell from within the application.  Operators can provide customers with greater purchasing flexibility and reliability compared with traditional methods such as Premium SMS.  This click to pay experience is seamless and secure for the consumer.

In the Direct-to-Mobile billing arena, traditional aggregators and emergent Cloud Service Providers are being joined by “pure-play” payment service providers, each offering a variant of direct-to-mobile billing services to merchants such as content providers, app stores, social networking sites and even sellers of real-world services such as transport tickets and toll operators.

These players are also forming partnerships with each other: for example several of the pure-play payment service providers are working with established aggregators as a quick way of connecting to mobile operators in many of the countries in which they operate.

This multi-faceted M-Commerce landscape presents operators with both opportunities and challenges: on one hand, they can realize new transaction-based revenues from multiple sources – directly from merchants, from aggregators and cloud service providers, and from pure-play payment service providers. On the other hand, they need to be able to control and manage these transactions, to automatically settle with multiple parties in the value chain, to make it easy for those partners to connect to their billing platform, and to protect their customers from unauthorized or fraudulent transactions.

Aepona’s USP Payments and Settlement solution allows operators to effectively manage this complexity, providing a centralized “command centre” for Direct-to-Bill transactions that originate from multiple sources, with advanced functionality to allow scalability to many partners, prevent revenue leakage, and protect the consumer. Aepona can offer its USP Payments and Settlement solution to operators either as an on-premise software platform, or as a hosted, fully managed service. In addition, we have partnered with Bango, the leading global provider of billing and analytics services for mobile content and application providers, to help quickly bring established merchant relationships to our operator customers.

Watch our recent webinar (“Putting Operators at the Centre of M-Commerce”) in which we discussed the M-Commerce opportunity for operators, focusing on the opportunities, challenges and solutions associated with Direct-to-Mobile billing, and the issues that operators need to consider in order to play a central role in this exciting marketplace.

Direct to Mobile Billing – More than just an API

The continuing growth in popularity of in-application billing was not unexpected and is the obvious revenue model for developers in the face of declining application prices driven by ever-growing competition among developers offering applications through the popular app stores. With revenues from the four major app stores forecasted to grow by 77.7% in 2011 to reach $3.8 billion and $8.3 billion in 2014, and with in-application billing expected to be a key driver of that growth (see http://cnet.co/k1Wr1N), the market opportunity for Service Providers offering a facility for in-application payments is clearly significant.

However, the emergence of this new model is also causing concern among both consumers and the App Store providers that developers will exploit the facility to maximize revenue through hidden or “less than explicit” charging resulting in large, unexpected bills to the consumer and headaches for the app store providers. In many ways this can be compared to the tarnished reputation around premium SMS several years ago as a result of similar behavior, and several recent high profile legal actions related to In-Application billing (see http://bit.ly/fTNztW for an example) serve to highlight this.

In-application billing now accounts for up to 50% of the revenues for many popular mobile applications and games, and many analysts believe that this proportion is set to increase significantly as the “Freemium” business model for the sale of applications increasingly becomes the dominant model. However, as we’ve seen from recent legal actions, in-application billing brings with it certain operational challenges that Service Providers need to address up-front, before choosing and implementing a direct-to-mobile billing platform.

One of these challenges is associated with the fact that once downloaded, many applications run on the handset independently (i.e. there is no interaction with an application provider’s server), therefore the in-app billing request passes directly from the handset application to the Service Provider’s Payment API. This introduces the need for security mechanisms that ensure that the application is both authenticated and authorized to carry out the payment request on behalf of the user. In addition, the In-Application billing facilities should support charging in a non-intrusive, yet secure, manner to provide maximum flexibility for the widest range of usage scenarios. Aepona has been working closely with industry bodies such as WAC (Wholesale Applications Community) to define a solution for this security mechanism, and our proposal based on the OAUTH standards (being developed by the Internet Engineering Task Force, IETF), has been accepted by WAC as the preferred approach.

However, the operational challenges for Service Providers presented by in-application billing go beyond security issues. As recent legal action shows, even if an application has been correctly authenticated and authorized, there is still the potential for users to run up large bills for in-application goods or services, without the bill payer’s consent. In one extreme case, a child playing a popular mobile game was reported to have spent over $1,400 on virtual goods.

To address these challenges, Service Providers must ensure that their Direct-to-Mobile Billing platform includes the essential capabilities required for a commercial service. In many instances, Service Providers provide a Payment API without the operational features that are needed – they focus on the set of parameters supported by the API and spend little time thinking about how to commercialize their service offering.

A successful Direct-to-Mobile billing service needs to balance the consumer protection with the benefits of convenience that in-app billing offers to both application providers and end users. It has been clearly demonstrated that such a low-friction billing mechanism greatly improves sales conversation rates for applications, so it’s vitally important that Service Providers optimize both the consumer and developer user experience to ensure success.

Aepona is focused on helping Service Providers to get this balance right. The advanced Payments and Settlement component of our Universal Service Platform has been designed from the outset as a full commercial solution for direct-to-mobile billing, and in-application billing in particular. This includes features such as control of spending limits, parent-child hierarchies, fraud management, monitoring, subscription management, repudiation management and customer self-service.

The challenge in implementing a successful Direct-to-Mobile billing service, including In-Application billing, is not simply in the design or exposure of a payment API. As recent legal cases have shown, offering a commercial Payment Service involves so much more than this. Service Providers need to ensure they can enable users to control how, when and by whom they are charged, whilst maintaining the required level of simplicity and convenience.

How can the Mobile Cloud address fragmentation?

Historically, fragmentation has been one of the major challenges facing application developers across the mobile industry, whether as a result of differing operating systems, technical standards, software tools and resources, or commercial models. With the advent of the smartphone and the recent phenomenal growth in the mobile applications market, fragmentation continues to be a significant talking point within the industry.

Indeed, fragmentation even exists within specific operating systems as well as between them, as is the case with the Android OS. According to research from Robert W. Baird & Co, 87% of 250 developers surveyed said Android fragmentation was a problem, with 24% stating that it was a “huge problem.” View the results of the survey.

So much for fragmentation on the device side of the apps equation, but what about the network side? There is growing interest amongst developers in the capabilities of the mobile network itself, as well as other mobile operator assets such as billing and customer intelligence. These capabilities can be used, either by themselves or in conjunction with mobile device capabilities, to differentiate applications, provide a better user experience and to offer new payment options such as in-application billing. In response to this, mobile operators have begun opening their network and billing capabilities to developers and other third parties using Web Service-based APIs: Rogers in Canada, with its Rogers Catalyst service, and Telefonica, with BlueVia, are two good examples of this.

However, with an increasing number of operators now opening their networks in this fashion, fragmentation could well persist in the network API domain, unless steps are taken to mitigate this risk. From a technology perspective, industry initiatives such as the GSMA’s OneAPI and the Wholesale Application Community (WAC) seek to address fragmentation by providing a common set of specifications for network, billing and informational APIs, so that developers don’t have to re-code their applications when interfacing with different network operators. This goes some way to addressing the problem, but developers would still have to sign multiple commercial contracts with every operator in a given geography if they wanted to reach all of the subscribers in that country.

The Mobile Cloud offers a solution that addresses both the technical and market aspects of network API fragmentation. The GSMA’s OneAPI commercial pilot in Canada, which went live in May 2010, is an example of a Mobile Cloud service that offers a single commercial access point and a single set of APIs that allows developers to reach the vast majority of subscribers in Canada, with Rogers, Telus and Bell Canada all connected to the platform.

More recently, as well as this industry-led initiative, commercial Mobile Cloud Providers are now entering the market to offer a full-blown Mobile Cloud service that connects multiple operators to the developer community, providing access to hundreds of millions of customers, via a single connection and single contract. A prime example of this Neustar’s Intelligent Cloud Service, which was announced in February and is due to go live later this month in North America, with other regions to follow throughout 2011.

So whilst fragmentation may well continue on the device side, particularly if the growth of Android continues at its current pace, the Mobile Cloud offers hope to developers that for network, billing and customer intelligence APIs, a solution to fragmentation is now emerging that will allow them to focus on developing great applications and services, rather than being distracted by the challenges of adapting their software to integrate with multiple, disparate networks.