Does Wireless Have a Model?


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Wireless is the new World Wide Web. That is not a compliment. Like the Web of 1995, mobile phone networks promise that we will all be anxious to pony up monthly fees in order to access horoscopes, stock prices, sports scores, and even a quick game of Tony Hawk Pro on our cell phones. According to the theory we hear reiterated by publishers ever more frequently, carriers like Sprint, Verizon, and AT&T have invested buckets of money into robust networks that carry these data services. Now, these telcos need customers to buy into premium services and more airtime to pay down the investment. Thus, they need publishers to fill these new channels with content. After all, the line goes, people are used to paying incremental fees for additional phone service, so they are much more likely to pay for content here than on the free-for-all Web.

Well, maybe. The fact is that, especially in the U.S. market, wireless carriers are being extremely tight-lipped about how much even early adopters of next-gen cells are paying for premium content like ringtones and screensavers let alone sports scores and stock quotes. When trade monthly America's Network surveyed the field of cagey corporate responses, it found Verizon claiming about $50 million in data revenues and Sprint suggesting that by the end of the year it might actually see the average revenue per user (ARPU) from data services reach (get ready…) $2.

Two dollars? According to JupiterResearch, Japanese mobile carrier DoCoMo makes about $15 ARPU from data. In fact, the research firm thinks U.S. users will spend less than $100 million on wireless content in 2003 compared to $2.5 billion in Europe, and over the next two years U.S. revenue will barely crack a "paltry" $200 million. Mobile data just hasn't taken off in America the way it has in Asia and Europe. Perhaps we're too busy talking while crashing our SUVs to bother with premium cell phone content, but in any event it looks as if content providers will be hard pressed to see any appreciable revenues from this channel for quite a while.

And even if the U.S. market for mobile data does kick in, how much could a publisher possibly make on simply getting a slice of an incremental fee? The business models surrounding wireless content are far from settled, and they vary radically according to individual deals and global regions. According to analysts, Asia has relatively reasonable models, giving content partners like game companies up to 80% of the retail price it charges customers and keeping only 20%. Meanwhile, European carriers are notorious for taking half or more of the retail price off things like SMS messaging and game downloads.

U.S. carriers seem to have learned to be reasonable, some publishers tell us, and they know that they need to incentivize publishers to deliver better content with better revenue sharing deals and licensing fees. But like everything else involving phone service, don't expect even those small content fees (maybe $2 to $5 a month for content services or $5 per game download) to hold. Nitesh Patel, senior analyst for Strategy Analytics (UK) warns that competition is already depressing data service pricing in Europe. "We've seen this already in icons and polyphonic ring tones that are coming in at the same prices as monophonic ring tones," says Patel. In other words, users don't want to pay much at all for phone content, and they are not willing to pay more for better content. For content publishers and game developers, the best bet may be to veer away from revenue sharing altogether and negotiate a flat licensing fee or a fee per download that insulates the publisher from any price variations.

And while we're laying down roadblocks, let us not forget how difficult it is to find content via a cell phone. Even on a next-gen handset with large color screen and fast service, navigating to a downloadable movie guide or a game, let alone a Web-based service, is a special kind of torture. The best hope for a lot of content brands will be partnering into data bundles that a carrier loads onto a handset at the point of sale.

Lovers of the wireless model like to say that despite all of the hurdles to getting data services to pay off (user acceptance, low prices, revenue splits), this is still a game of scale. Mitch Lasky, CEO of mobile game developer Jamdat, argues that cell handsets sell at a rate of over 133,000 a day, and a platform that enormous lets a smart publisher make money despite the obvious obstacles. "When you're talking about an installed base of a half-a-billion units by 2007, you don't need to get a great deal of penetration even at a dollar to see revenue."

Well, at last count, the World Wide Web global population was at 649 million. With that kind of penetration, are you seeing fee-based revenue yet? Perhaps U.S. mobile content doesn't want to follow in those footsteps.