In their recent report, Mobile Ecosystem Forum identified Direct Carrier billing as of the “10 Key Mobile Trends for 2020-2025” and described it as a major driver behind the global growth in digital content sales. We asked Yuri Berchenko, who is a Product Partnerships Lead at YouTube, to share his expertise about Direct Carrier Billing and reveal insights you need to know about it. In his role.
Yuri has 10+ years of experience of building innovative products and delivering sustainable growth. In his current role at YouTube he is responsible for driving product distribution of YouTube’s paid subscription services in Germany, Turkey, Russia and Ukraine. He specializes in identifying and adopting new technologies to drive growth and product adoption.
Apps are a driving force for mobile consumer spending
The digital sphere has become an ecosystem with great impact in everyday life. It changes the ways we relate to each other, how we work and how we have fun. The number of Internet users in the world is already close to 4.6 billion people, about 60% of the world’s population. Last year, 346 million people joined the digital community which means roughly 11 new users per second connected for the first time to the Internet.
The Internet is the gateway to an increasingly wide range of products and services, so ECommerce and mCommerce transactions are growing rapidly every year. There is a growing number of mobile apps for all types of activities and the subscription economy is reaching new levels.
According to App Annie, the global app downloads exceeded 194 billion last year, up 35% from a year ago. Of these downloads, around 55% were games. In an increasing number of countries, consumers now have around 100 apps installed on their smartphone. And what is more important, consumer spending on these apps reached $101bn. Analysts predict that global app store consumer spend will reach $157bn by 2022, up 92% from 2017.
Mobile operators are uniquely positioned to fuel growth in the value of this app market because they have direct relationships with billions of phone users and can enable all these mobile subscribers to pay in-app or in-store via Direct Carrier Billing (DCB).
Direct Carrier Billing (DCB) or operator payment enables consumers to buy apps, games, music and other content by charging the cost to their mobile bill, in one or more taps. Carrier billing is achieved through a direct integration into the billing system of a mobile operator, allowing a charge to be placed on a phone bill. This is advancing as a convenient choice for many transactions in the most digitized communities, and also in countries with limited banking services, as well as in new segments of the population, such as younger consumers.
What is the money being spent on the DCB market?
Recent years have seen carrier billing availability spread across the globe, along with the variety of items that can be purchased. This is driven by an increasing understanding on the part of merchants and mobile operators of the value of carrier billing.
Bango, the global leader in carrier billing, has estimated that the DCB market will reach $38B by the end of 2020, which will represent a 10X growth in the last 5 years.
Figure 1. Global DCB market by type of the category
Source: Mobile Money Quarterly eBulletin, MEF
When it comes to what are the largest categories and where the money being spent on the DCB market, we can see that the Apps & Games category dominates the market and composes almost half of it. However, content has begun to branch out beyond the traditional apps and games. The category “Other” which consists of purchasing everything from bus tickets to software drives $13.3B out of $38B, so being roughly a one third of the market. Media and physical goods contribute to $3.4B and $3.0B respectively.
Why is DCB growing so rapidly?
Everyone in the carrier billing business agrees that the opportunity is massive. Where many mobile payment technologies are known for expectation and hype, but disappointing revenues, carrier billing is a notable exception. It’s happening now, on a massive scale. As app stores have driven the digital content market forward, so carrier billing has grown and increased its share of the overall market.
The growth and adoption of this technology is being pushed from two sides.
On the one front, Mobile operators are using carrier billing to “fight back. Revenues from voice and messaging are in decline for most mobile operators. Over The Top services (think Skype, WhatsApp, Instagram and Snapchat) are increasing data usage for the mobile operators, but those same services are destroying voice and messaging revenues. Carrier billing allows the mobile operators to fight back, and to gain a slice of the revenue that’s flowing over their networks anyway.
Figure 2. Case-study: transactions volume for an app developer after enabling Carrier billing (DCB)
Source: How are operators maximizing carrier billing revenue from app stores by Ray Anderson
With the right tools, mobile operators become a crucial ingredient in today’s app economy, enabling app developers to successfully acquire, engage and monetize mobile subscribers.
On the other front, the leaders in digital content sales – the app stores – have embraced the technology. Google has recently reported that nearly 1 in every 8 people on the planet can pay on the internet using Direct Carrier Billing (DCB). The technology is available in more than 55 countries and offered with 140 telecom operators, reaching 900 million Android devices every month. Similarly, as Business Insider recently pointed out, Microsoft’s Windows Phone Store has more than 80 live markets and Bango recently announced the introduction of Carrier billing to Amazon Appstore in the UK and Japan.
An insight to DCB unit economics
When a user purchases a game, book or subscription, the 70% payout to content developers is one of the few unchanging facts of the app economy. The remaining 30% is the subject of commercial negotiation, and tends to look something like this: Telco operator gets 10-15%, App Store (like Google Play and Apple Play) takes 5-15% and payment provided (think about Bango or Boku) absorbs the remaining 2-5%.
Figure 3. Typical revenue split when a DCB transaction occurs
Source: Bango
The operator’s glory days of mobile wallpaper, ringtones and huge margins are long gone. This is undeniably low margin business for mobile operators accustomed to taking the largest slice of the pie. Against that background, mobile operators are tending to outsource to specialist payment platforms (or payment providers) that work at scale, handle complexity, capex, R&D and so on.
When it comes to average purchase values with carrier billing, they are probably higher than you think. By default you may think that if the user uses their mobile bill to pay for a digital or physical good, the total value of the transaction would be around $1.00. In fact the highest grossing price points across the range of content are $4.99, followed closely by $9.99. So forget 99 cents. These price points, rarely falling below $4.99, are the norm for carrier billing purchases.
Let me illustrate this by sharing statistics from ‘Clash of Clans’ by Supercell, which is the freemium game and one of the worlds’ highest grossing apps in Google Play. Players make in-app purchases for “Gems”, the in-app currency, in one of five different volumes:
– “Pile of Gems” at $4.99 for 500 Gems
– “Bag of Gems” is $9.99 for 1,200 Gems
– “Sack of Gems” is $19.99 for 2,500 Gems
– “Box of Gems” is $49.99 for 6,500 Gems
– “Chest of Gems” is $99.99 for 14,000 Gems
And which is the most popular purchase? Not the cheapest $4.99 option. In fact the highest selling option is the $9.99 Bag of Gems.
Why must you absolutely enable DCB when you are building your product?
Around the world, over a billion homes have broadband internet connections. Some countries are nearly fully fiber, and home connectivity through fixed-line or mobile data services means that more people pay at least one Telco bill every month. The facility for carriers to bill consumers is far more widely available than simply mobile airtime. This gives every carrier of every Telco service the opportunity to build stronger relationships by managing customer payments for a wide variety of app developers providing digital services.
The technology has been already very well adopted and tested. Analysts estimated $37 billion was spent in 2020 charged to phone bills, growing at around 20% CAGR. However the awareness and considerations are still surprisingly low among the developers.
If you are building your product you should be aware that in developed markets such as the United States, Germany or Japan credit card adoption has substantially slowed down amongst the ‘millennial’ generation, who are on the whole looking towards mobile payment alternatives. And equally in emerging markets such as Brazil, Russia or Indonesia you should be aware about the rapidly developing mobile payments and commerce beyond traditional credit cards.
Both these facts in general explains why Direct Carrier Billing has been recently seen as a very attractive alternative new form of payment around the world. For digital products and services it opens up unprecedented growth opportunities. Therefore, when you define your product adoption strategy I highly recommend to take a closer look at DCB and start considering it as your next growth driver.
DISCLAIMER: The opinions expressed in this publication are solely those of the authors. They neither reflect nor purport to reflect the opinions or views of YouTube, Google, Alphabet Inc., their respective parent companies or affiliates or the companies with which the authors are affiliated and may have been previously disseminated by them. The authors opinions are based upon information they consider reliable, but neither YouTube nor Google, nor Alphabet Inc., nor their affiliates or parent companies, nor the companies with which the authors are affiliated warrant its completeness or accuracy and it should not be relied upon as such.
