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NGN Magazine Magazine logo
July/August 2009 | Volume 1/Number 4
Eye on the Money

Mixed Revenue Models

By Grant Lenahan

Over the past two years I’ve been fortunate to be a core member of the TM Forum’s living laboratory — named the "Content Encounter". Every 6 months this group of operators and vendors has demonstrated the value and viability of new business and technology models for content and information services. Interestingly, all the realistic and well-accepted models employed a holistic approach to service revenues in which all recognized that a complex interaction exists between fees, plans, ads, benefits, discounts and content.

Back in the real world, the talk is different. So maybe the lessons learnt within the TM Forum need to be spread more widely. This column affords us all that opportunity.

There’s a lot of chatter about advertising revenues on broadband (IMS/NGN) networks and on mobile networks. Talk about things like "will consumers accept ads on their phones" and "can ads really replace fees" and "why would consumers accept an ad, I wouldn’t". These kinds of statements reveal just how far some of the talk misses the point. It’s not one or the other. And it’s certainly not "pay me your full mobile bill and I’ll send you SPAM too." Consumers won’t stand for that; nor should they. Nor, if we’re the slightest bit savvy in our economics and our history, will they have to. Ads and fees are just two ways to pay for services and content. Historically, they have been tightly linked to content (as in TV ads), but have also paid for distribution (as in the local affiliate’s share of network show ads). There is also a long history of "mixed revenue models" in which a combination of service fees (such as your monthly cable or satellite TV bill) and content-linked ads pay the freight.




The key is trading off one form of payment (money) for another form of payment (willingness to watch and reply ads). Different people will prefer different trade-offs. Some may be cash poor but have significant influence on others’ purchases (think children); while others may be time poor but sufficient cash (think busy professionals, maybe like you). No single ideal combination likely exists. But a range of plans may cater well to various market segments, making them all happier. Economists have observed this behavior in nearly all choices consumers make: the trade-offs are drawn as indifference curves, and they always exist. (See the accompanying graphic.)

Advertising has always been based on a social contract. Simply, users knowingly watched ads in return for free or discounted content. Consumers fast-forwarding through ads violates this social contract. Likewise, forcing ads on consumers without a commensurate benefit violates the contract. From this follows a simple conclusion — we need a new social contract within which ads will be delivered. The variations will be myriad, limited only by marketers’ creativity; but they will all share one defining characteristic: consumers will actively choose a plan that meets their needs — and either includes ads (a form of opt in) or does not (and carries higher fees or fewer benefits). Either way, the social contract is preserved, and individuals are left in charge of their choices. This, after all, is just good consumer marketing. Operators often ask about whether our approach is based on "opt in." I believe it raises this a notch or two — consumers most definitely "opt in" but as a much more sophisticated process of choosing the right overall plan for them.

We should envision a world in which there is innovation not only in services, but in plans. Plans with ads and without. Prepaid and postpaid. Family plans with different characteristics for each family member. Plans targeted to various demographics, or even to take advantage of events or market conditions. What all this boils down to are two needs: the need to innovate easily; and the ability to easily define new plans complete with rating rules, account balance tracking, and ad components. This is important — the advent of ads, and the maintenance of the "social contract" places new and complex demands on billing and charging systems (postpaid and/or prepaid) — because they must be modified to include ads as an integrally engineered component of the overall plan.

I believe we need to stop thinking in simple absolutes — it’s not fees or ads — it’s some combination of both. Its not "op in or not" — rather it’s about consumers choosing their plan, their preferences, and defining their interests. And it’s most certainly not the "ad system" vs. the "billing system" — from a process perspective they must be one.

So don’t think about ads in a vacuum. Think about them in the context of your business, and the value proposition you offer. And above all, don’t let technology prevent you from doing it right. There’s too much money at stake, and the TM Forum demos prove that it’s feasible. Let’s — as an industry — do it right.

Grant F. Lenahan is Vice President and Strategist, IMS Service Delivery Solutions at Telcordia Technologies, Inc. For more information, visit www.telcordia.com.

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