Understanding revenue generation for value added services on mobile

February 10, 2011 — 4 Comments

The fact that mobile is big in Africa is undeniable with more people seeking to understand how to  derive maximum value from this channel. What most seek to know is how to generate revenue from the various services that they can offer. To generate revenue, one must have the ability to bill for services and there are various ways of doing this.

Shortcodes
Shortcodes are 3-4 digit numbers that are availed by Mobile Network Operators (MNO’s) to Premium Rate Service Providers (PRSP’s) for purposes of setting up services.  At the time of setup, shortcodes are assigned billing bands which range from normal sms rates to premium rates of up to 100 shillings. Shortcodes don’t offer flexible billing and you must choose the best fit for your service. Shortcodes attract a monthly rental fee from the operators and may attract a premium one-off fee if the code is considered “golden”, such as an easy to remember 5544 for example.

Mobile operators usually reserve the use of 3 digit short-codes for network centric services.

MO billing
Mobile Originated (MO) billing is a shortcode based billing method where the consumer is charged every time they send input to a shortcode. If one has insufficient airtime, they will receive a message notifying them of the same and they will not access your service.

MT billing
Mobile Terminated (MT) billing is also shortcode based. Here, the user is billed once they successfully receive a message on their mobile phone. It is popular for subscription based services where the consumer doesn’t need to engage the service to pull content. If one has insufficient credit, they will not receive the content and as such you must account for this in your service revenue projections with assumptions.

The payout cycles for shortcode billing can lie anywhere between 30 to 45 days, which means you must plan your marketing and cash flows well.

Mobile Money
The model with most VAS services is revenue share, which is usually on a cascading model. The higher your volumes, the higher your payout. Out of the starting block, operators will take upto 50 percent of gross revenue net of tax. This doesn’t lend itself well to business models whose core services are targeted to niche markets translating to low user numbers and hence low volumes. A way to still leverage the mobile networks for service delivery and billing is to use mobile money. This is best used for subscription services where consumers can pay a lump sum one off and still receive their content via sms, mms or wap link. The main benefit of this model is the quick cash flow turnaround.

Mix and Match

You can use a mix and match of the above depending on the services on offer. The market is also evolving, and hopefully we will see additional billing modes such as micro billing adopted by operators to increase the service bouquets that can be rolled out to consumers.

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Just got a whole bunch of emails asking about USSD engagements…I will update this post later on today…

Mbugua Njihia

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An Africa based entrepreneur in the pursuit of opportunities without regard to resources currently controlled striving to build services that have real-world value for my beloved continent and beyond while having fun along the way.