SMS: Publishers Turn Cents Into Dollars

My last column outlined how the value of most online content is below the threshold credit/debit card systems can profitably transact.

Many might be willing to pay $0.01 to $0.05 per page viewed or per day for access, but not $0.25 or more. There’s a global need for a system capable of processing small online transactions (microtransactions).

An ideal microtransaction system would be universally used. It would not require users to install software or disclose credit/debit card numbers to merchants or publishers. It would provide secure transactions and billing with established legal protections and precedents and operate across national borders.

That may seem like a tall order. It’s beyond current limitations of Microsoft Passport, Clickshare, and other existing or proposed microtransaction systems designed for online use. But a system is in place with all the needed attributes.

It’s the global telephone grid.

Online publishers wanting to charge for content should consider its capabilities. This column provides examples of how some online publishers use the system to process microtransactions for content.

Let me first explain why I continue to write about phone-processed microtransactions. After writing about it, reader feedback had two themes: “This isn’t a new concept, and it didn’t work well when first tried years ago.” and “Why are you proposing the telephone billing system is the microtransaction answer for publishers?”

Using phone systems to process online microtransactions isn’t new. But telephone technology is just catching up, thanks to near-universal adoption of mobile phones and their SMS capability.

No, I’m not saying telephone billing is theanswer to microtransactions. There will never be one single solution for all online publishers. Topical, regional, cultural, and organizational needs vary. What works in Madrid may not work in Manchester, Milan, or Memphis. But telephone-processed microtransaction is the most promising global solution at present, something online publishers should at least examine. So, let’s do that.

Four Publishers

Let’s start in London. FHM (For Him Magazine) is the U.K.’s largest circulation print magazine for young men who want to gawk at lingerie-clad girls and who pretend to read entertaining short articles consisting of very short words. Among its Web site’s most popular content is the High Street Honeys section, consisting of photos of scantly clad girls-next-door who ostensibly are vying for a spot on the print magazine’s cover and £10,000. It’s FHM.com’s most trafficked area. The site began charging Britons £1 per month for access, billed to mobile phone accounts (gentlemen residing elsewhere must use credit/debit cards). No whisper yet from Emap Digital, FHM.com’s owner, about how much dough this scheme rakes in.

Down the Thames, the broadsheet Times newspaper and a sister News Corp. publication, the tabloid Sun, have been testing a mobile-phone-based paid site access system. The Sun has used the system to sell online access to diet plans. A consumer sends an SMS request to the Sun for a site password, which is immediately received. There’s been speculation the Sun (perhaps borrowing from FHM) will use the system to charge for access to the popular Page 3.com topless photos and jokes site. Unsurprisingly, the system was designed by News Corp.’s mobile division, News Omnimedia, which has secured billing agreements with all four mobile phone networks in the U.K. and is now trying to patent and sell the system to online publishers throughout the British Isles.

Nine hundred kilometers east in Estonia, Äripäev is the major business newspaper (owned by Sweden’s Bonnier Group). Its Web site, once free, is now accessible to print subscribers only.

Last December, Äripäev started accepting payment for access, using SMS-based microtransactions. For a day’s access, an Estonian mobile phone user sends the message “AVA AP” (open Äripäev), plus a password, to a local phone number. This provides instant access with the chosen password to Äripäev’s site. The mobile phone is billed 10 Estonian krooni (about $0.62). That sounds high, but a print copy of Äripäev costs 15 krooni. An identical system is being launched by Postimees, a general-interest Estonian newspaper.

The Johannesburg Sunday Times has launched Pay as you Use access, billed to South African mobile phone accounts. One minute of access costs 1.78 rands ($0.18), with no monthly subscription fee.

Crunching the Numbers

In each of these examples, the telephone network takes a commission of about 50 percent. That’s high (though no more so than commissions DoubleClick or RealMedia once took placing banner ads on publishers’ sites). The remaining 50 percent can be lucrative.

In Europe, consumers are charged anywhere from €0.136 to €2 ($0.14 to $2) to send or receive an SMS message. Fees are slowly declining due to competition among mobile network operators, but the sheer number of messages sent is rising very quickly. The result is lower fees for consumers and a revenue boon for SMS networks and their content providers.

It’s calculated 103 billion SMS messages were sent worldwide last year, generating $11 billion for mobile network operators. Most came from interpersonal messaging, but 20 percent of those revenues were from news alerts, marketing, and commercial messages. Most online publishers haven’t tapped this $2.2 billion revenue stream.

If the Times of London were to charge £0.06 ($0.10) per page view, keeping half after the network commission, the site’s 26 million page views per month would generate over £780,000 ($1.3 million), or £9.3 million ($14.6 million) in annual revenue. Even if the site lost half its page views by charging, SMS revenues would probably account for more than this free site earns today from banner ads.

The Geographic Gap

The geographic gap is North America, where most people are unfamiliar with SMS. Its mobile phone networks, unlike the rest of the world’s, use incompatible protocols. Most North American handsets made before 2000 don’t permit sending text messages from the keypad. All new handsets now do, and mobile network operators are beginning to offer consumers full SMS, or at least some intranetwork text messaging.

SMS usage didn’t boom in other countries until about 40 percent of mobile phone users had access. The North American market will reach that point in 24 to 36 months. Then SMS usage will sky rocket, as it has elsewhere.

Telephone-processed microtransactions weren’t an attractive solution five years ago, primarily due to the costs of dialing long distance, or publishers operating toll-free lines or only semi-automatic call centers. That’s no longer the case. SMS fully automated microtransactions carry no long distance fees.

Another reason why mobile phone-based transaction systems are increasingly used worldwide by online publishers is because credit/debit cards don’t have sufficient penetration. North Americans think everyone in the world has charge cards. In reality, the majority of Europeans, Latin Americans, Asians, and Africans don’t. No, I don’t mean the aborigines or the poor, but middle-class people who own phones, TVs, and PCs. More people worldwide own both a mobile phone and a computer than a credit/debit card. It’s predicted these people will double the number of online users by 2010.

Globally, more people can use a mobile-phone-based microtransaction system than a credit or debit card. This disadvantage was recognized by MasterCard’s European division, which began offering credit/debit card transactions that interact with SMS.

If the Internet goes mobile in this decade, it makes sense to merge its billing into the mobile grid’s billing network.

Publishers should certainly consider these systems. In future columns, we’ll also examine credit/debit-card-based microtransactions.