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Mobile heralds a new are in social network monetization

The mobile phone has long been promoted as a key platform for payment of goods and services. However, paying via your phone bill has a number of issues:

* Charges for payments are insanely high in many countries, ranging from 30-70%.  The UK is the leading market outside of Japan, where costs are down to 15-20%.
* The high costs are especially high in prepaid dominated markets, such as Italy, where retailers will take 15-20% of the phone bill (expect so see different options on payment whether you are prepaid vs postpaid be common very soon).
* Different price points also make things difficult. The price points are often set (i.e. your product must adapt, not the payment method, which often means triggering multiple messages to pay), and daily limits are set low.
* Limits are often low due to the regulatory nature of putting charges on the bill. Mobile operators do not have banking licenses in most cases, although discussions on that have been ongoing for years (Telenor thought of merging with the largest bank in Norway 10 years ago, but the discussions did not go anywhere).
* Predatory behavior by mobile service providers with insane subscription models have scared off many users.

The key to adoptation will be to move away from PSMS/mobile phone bills, but rather have other tie ins.  Several providers have come up with innovative solutions. Danal Inc with its Bill to Mobile initiativeis one of these players.  Verizon post paid customers will now be able to use this platform to pay for virutal goods that are hooked up to the Bill to Mobile platform, and can initially spend $25/month. In Korea, the home market, users can spend up to $200.  The fee charged to merchants is 15%, which is on par with cash cards sold in stores. More expensive than credit cards for sure, but a lot cheaper than PSMS.

Another player with an innovative initiative is Zong. With their Zong+ initiative, users who elect to pay for things online are offered free credits or goods if they give up their credit card. By linking their credit card to their mobile, they can use their mobile to trigger credit/debit card transactions every time they pay through Zong+. This effectively removes all the disadvantages with PSMS and still allows users to pay via their mobile, which is convenient. However, it still requires the user to have a credit/debit card, which is not always prevalent in many countries.

Why this focus on mobile for virtual goods?  A new report from PlaySpan Inc, the market leader in online virtual goods purchases, show that gamers and smartphone owners are heavy buyers of online virtual goods:

Virtual Goods Buyers

Source: PlaySpan and Magid Media Futures

Last year, the average spent $92 on buying virtual goods, with the average increasing 10% over the previous year. Clearly, virtual goods is becoming an important monetization vehicle for social networks, where a lot of game playing takes place, and other virtual goods such as gifts can be bought. In fact, social networks accounted for nearly half of the spend:

Top Sites for Purchasing Virutal Goods

Source: PlaySpan and Magid Media Futures

With more inventive mobile payment solutions expected to pop up, with much lower costs to the consumer and merchants, expect both an increase in virtual goods spend and in payments initiated via the mobile device (To download the full report from PlaySpan, go here).




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