With carriers ending support for premium SMS in mid-January, premium content providers and wireless carriers are exploring alternatives for monetizing mobile users, including direct carrier billing.

There is value in leveraging the relationship between wireless carriers and subscribers, with 35 million mobile phone owners in the United States completing a purchase using premium SMS last month, according to a new report from Bango and Yankee Group. Direct carrier billing, which is more widely used in some international markets, is viewed as a possible alternative and could struggle to gain a bigger foothold in the U.S.

“It’s still too early to tell what the impact will be [of carriers dropping premium SMS support], but fundamentally we expect digital merchants to transition to some flavor of operator billing in short order,” said Richard Leyland, vice president of marketing communications at Bango, Cambridge, Britain.

“They have no choice, and we can’t see content being taken off the market for any prolonged period,” he said. “Old school, SMS-based mobile payment aggregators should just die away.

“Bango also expects that the operators will group together to form some set of common standards for operator billing, much as happened in the UK with Payforit.

Mobile commerce value chain
Despite ending support for premium SMS, wireless carriers are expected to continue to explore avenues to boost their average revenue per user by playing a role in the mobile commerce value chain.

While wireless carriers are stepping away from premium SMS, some have made investments in direct carrier billing, such as U.S. Cellular, Telefonica and Telenor, per Bango.

The benefits of direct billing are the ability to eliminate friction and streamlining the checkout, which can lead to increased conversions for app stores. Bango, for instance, reports that its partners see an average conversion rate of 77 percent with its Bango Payment Platform.

“On the direct billing front, it will require not only the establishment of capabilities and partnerships by the carriers but also a major shift in consumer behavior,” said Glenn Pingul, vice president of mobile strategies at Globys, Seattle.

“Emerging markets that are implementing this approach have a different makeup than the U.S. – low-priced smartphones are often their only access point to digital commerce, so it’s much easier to drive that behavior,” he said.

“Carriers in established markets will have to surpass the convenience of buying direct from vendor and also regain the stance of being a trusted biller.”

Filling the void
Yankee Group finds one in five U.S. consumers with non-iOS devices are already using direct operator billing to pay for apps, compared to just 5 percent using premium SMS.

“We anticipate direct operator billing to fill the PSMS void,” said Jordan McKee, analyst atYankee Group, Boston. “As with premium SMS, it fulfills the goal of monetization, but is far superior in terms of user experience and overall quality.

“Given the cumbersome nature of premium SMS billing paired with the number of initiatives that were leveraging it for unscrupulous measures, the influx of direct operator billing will be a welcomed sight in the U.S.,” he said.

Bango also expects U.S. wireless carriers will cooperate on working toward a set of cross-industry standards for mobile commerce.

Personalized experiences
There is also an opportunity for carriers to better leverage data about their customers so they can deliver more personalized content experiences.

“As a consequence of better targeting, take rates go up, more products are purchased and customers are happy,” Globys’ Mr. Pingul said. “Those carriers who advance their analytics to a point of sophistication where they know how their customers behave, what motivates them, and when to engage with them will reinforce their position as more than just a dumb pipe with their customers.

“This will also be key to upping their value for future partnerships.”

Carriers could also work towards solutions that collect a user’s personal information in exchange for providing premium content.

“Aside from direct operator billing, there is some degree of likelihood that content providers may shift to a data-oriented business model,” Yankee Group’s Mr. McKee said. “In other words, collecting a user’s personal information as a form of payment in lieu of charging a fee.

“This data can in-turn be monetized in a variety of ways,” he said. “Evidence of this can be seen already with the increased popularity of monetization platforms like Tapjoy.

“However, the success of this type of model will be directly indexed to consumer trust.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily