Faced with increasingly crowded shelf space on carrier decks, content providers are gaining traction by marketing directly to U.S. consumers with Web-based storefronts of their own. And carriers are slowly warming to the idea.
Off-portal marketing of ringtones, wallpapers and other “personalization” content has long been popular in Europe, where third-party providers were often quicker to see the value of mobile content than some operators. It’s estimated that off-portal content represents about 80 percent of all mobile transactions in Europe, while more than 90 percent of U.S. wireless transactions are executed through carrier decks.
The U.S. market has in many ways mirrored the early days of the Internet, when service providers like AOL notoriously tried to keep consumers within the walled garden. For U.S. operators, though, the tidal wave of content offerings-and consumer demand to access third-party content-is eroding those walls.
“We’ve seen a real uptick in off-portal activity happen in the last six months in the U.S.,” said Ron Faith, vice president of Qpass, a Seattle-based company that manages wireless transactions. “In the first quarter alone, we saw an average monthly growth rate of 141 percent.”
Much of that growth stems from Internet vendors like Dirty Hippo and InfoSpace’s Jamster that use premium short message service to sell ringtones, images and games from Web sites. T-Mobile USA Inc. is often cited as the least restrictive carrier when it comes to third-party transactions, and Cingular Wireless L.L.C. and Nextel Communications Inc. also allow subscribers to access off-portal content.
Sprint PCS and Verizon Wireless have established more rigid garden walls, but many in the industry expect those walls to slowly crumble. Indeed, Sprint has begun testing short-code transactions with several third-party vendors.
“Some carriers move faster than others,” said Are Traasdahl, chief executive officer of ThumbPlay Inc., a New York-based content provider that launched its own direct-to-consumer Internet storefront last week. “The GSM operators have been more open to this kind of business initially; we expect others (in the United States) to open their networks more slowly-maybe in the next three to six months.”
Of course, loosening controls on third-party content can cause massive headaches for carriers. Jamster and other content providers have been accused of deceptively targeting young users with expensive subscription services, and operators are wrestling with issues regarding pornography and other adult content. Also, data-heavy content like video downloads can weigh down carrier networks and cause traffic problems.
And while the walled-garden approach is generally effective at stopping third-party transactions, it isn’t airtight. Vendors are finding ways to package content to sneak it to subscribers within the garden walls. 3Gupload.com, an Indiana-based content provider, can make a ringtone appear to be a photo message on a carrier’s network, according to Mark Donovan, vice president of products and senior analyst at mobile usage measurement firm M:Metrics.
“They’re using MMS transport as just a delivery mechanism, just sticking a payload there that is something different than what is generally intended,” Donovan said.
John Scrofano, finance director for 3Gupload.com Inc., declined to comment on whether the company disguises content, but said carriers that tightly control third-party offerings “do not make up a large percentage of our customer base.” Scrofano also declined to say whether any carriers have tried to shut down the operation.
“Even in the last year, we’ve seen a great uptick in people wanting to go shopping for ringtones on the Internet. We’re not sure how carriers feel about that,” he conceded.
The most important factor in the proliferation of third-party content is the establishment of a shared revenue model, M:Metrics’ Donovan said. Although the trend toward off-portal transactions is evident, the key for both carriers and content providers is to establish a mutually beneficial revenue split. Third parties that bill consumers directly via credit cards or money orders as a way to circumvent carriers in the revenue chain aren’t likely to build much of a business in the long term.
“What is really going to make off-carrier activity take off is if carriers see this as a winning proposition for them,” Donovan said. “If you look at companies that have tried to cut carriers completely out of the revenue stream, right now you see A) their business end up being relatively small or B) carriers can get creative about how they can shut you down. … If you build a big business, driving a lot of traffic, you’re going to get noticed.”
