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Goodbye PSMS?

The US operators (except Verizon which will likely follow suit) have dealt a death blow to the single most important factor besides the ringtone that enabled the mobile content market: Premium SMS billing.  Companies made a fortune on this market, often using questionable tactics to attract users ($5/week for 5 games, when you thought you were buying 1 game for $5), keep them subscribed for at least until the user acquisition cost was covered, and move on to the next user.

On a positive note…

Well, most of the dodgy ringtone providers are gone, and content has concentrated around mega app stores and alternate app stores, with carrier stores hanging in there. Premium SMS has really just been replaced by other options, whether credit cards on Google Play or iTunes, or with mobile operators and mobile direct billing.  Also, due to excessive costs, PSMS has actually been a deterrent to uptake of content purchases in most markets.  In the US, PSMS rates costs ranged from 40-50%, while direct billing rates range from 18-20%, and as such should be far preferred by content providers.

Direct billing however is far more superior method when it comes to user experience. When paying on mobile, you simply need to click a button and you are done. No need to send or receive messages and type cryptic codes. Direct billing is a true one-click experience and as such far better than any other method on mobile.  While the cost is still high compared to PayPal and credit card, for in-app transactions that range from $0.99-$4.00 typically, the difference is less than for higher priced items.

The downside…

But while direct billing is better, with it – at least in the US – comes very tight control by the mobile operators in terms of who gets approved as a merchant. In the “good old” premium SMS days you could connect through a wide range of resellers. This number has now been narrowed down to a few, and in addition you typically have to provide a list of each digital item you sell and get approval.   The industry certainly wins by removing dodgy content providers, but it will surely hurt for a while until the onboarding process of genuine merchants and developers can become smooth.

So do you need billing on mobile?

So as a developer you may just not care, and go with Google Wallet, PayPal or Amazon and be happy with it. And if you distribute your app through Google Play and Amazon, you actually do not have much choice in the matter. But if your downloads are increasingly coming from alternative app stores, and there are several with traction in the US, not having mobile billing is a huge loss simply because the ease of use which is so critical when you try to convert a $0.99 purchase decision.

If this trend catches on to other countries, developers are best to align themselves with service providers who have good inroads with the mobile operators, and can facilitate quick onboarding and approval of your app, so you can keep going as wide as possible with the most appropriate billing options.

Disclaimer: The views expressed on this post are mine and do not reflect the views of any clients or companies I am currently working for or have worked for.

Posted in The Business of Mobile.

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