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17th December 2010

In-App Billing 2.0: Taking the Application Billing Core out of Apple:
How can the industry profit from application billing innovation outside the Apple eco-system?

As the mobile internet becomes more like the online environment, established digital payment providers like PayPal etc are edging more and more into mobile too. Operators still have clout, however, due to their ability to cost-efficiently manage micropayments in a way that works well for consumers. That was the theme running through OpenMarket’s seminar on in-app billing, which was organised by AIME in London earlier this month.

In-App Billing 2.0: Taking the Application Billing Core out of Apple was a Knowledge & Networking Seminar designed to review the developments made over the past year in direct-to-operator billing for in-app payments and shine a light on where the market was likely to be headed in 2011 and beyond.

Featuring speakers from OpenMarket, partners like Virgin Media, Three and TigerSpike, as well as contributions from app developer ScreenReach, around 60 attendees from mobile content and application companies gathered to learn, share ideas and discuss how to drive direct billing for app and in-app purchasing forward.

Traditional Direct to Bill services supported by mobile operators allow a trusted partner/developer service to securely connect to the carriers infrastructure in order to place a charge through the operator’s billing system. In-Application access changes this model by allowing applications on the mobile handset to connect directly, removing the requirement for 3rd party access points. This poses additional authentication and security concerns validating both the subscriber and developer in each charge, however, aggregators like OpenMarket have developed solutions which meet this challenge and are currently being tested in trials by Virgin Media and Nokia.

People’s willingness to pay through their bills means that adding operator payment could still prove a boon to app stores, which are not realising their full revenue potential because of a range of reasons including:

• Clunky and cumbersome payment systems, requiring credit cards or other stored value
• Limited app discoverability
• Limited app marketing ability
• Relative high price of paid-for apps puts off consumers from trying them

OpenMarket’s General Manager for Europe, Alex Moir, began the seminar by highlighting the company’s activities in the UK market, since its acquisition of MX Telecom earlier in 2010, before moving on to how OpenMarket provides billing services for in-app purchasing.

“If charging for applications is becoming more difficult, the next logical step is to monetise the app in a new way – make the application free and look for ways to generate revenue as the application is used through Direct-to-Mobile (D2M) In-App Billing,” said Moir

The Apple App Store and Android Market are already supporting a form of this but they only enable the user to buy using the credit card linked directly to their account or via PayPal. With Direct to Bill charging, new features, upgrades and in-app content can be purchased from within the application, charging (with the user’s consent) directly to their mobile phone bill.

“App revenues, as well as the number of developers who are diversifying across multiple platforms, are accelerating. Development is growing across all sectors for apps – Retail, Consumer Product, Entertainment etc” said Moir. “And this is starting to reduce Apple’s dominance in app payments and equalising the competitive landscape for other platforms. Diversity is changing the market and creating a need for someone like us to develop multiple payment options across all channels with OpenMarket’s mobile hub model.”

Such a model allows developers and publishers to circumvent the default payment systems and market development distribution agreements of each app store and thus expand not only payment options, but more crucially, the ability to experiment with the Freemium content model, whereby apps can be downloaded for free and the consumer buys new versions or upscales levels of the app from within the app itself.

A poll of attendees at the seminar found that 93 percent believe the Freemium/In-application upselling model will be the most successful revenue model in 2011, further underlining the need for expanded payment options to become available.

Moreover, a further 85 percent believe that ease of use in the mechanism which consumers use to pay for their apps, is the most important factor requiring improvement in 2011 in order to prevent application monetisation being hindered.

Next up to speak was Rob Wells, head of mobile products and services for Virgin Media, who brought the seminar up to date on how the Virgin Media Player App, for which OpenMarket provides an in-app billing capability, is performing.

The bespoke billing system designed and implemented by Virgin Media and OpenMarket – Customer, Pass Purchase and Subscriptions (COPPS), as well as providing typical billing functionality with Virgin Media’s content partners, also contains features such as: Network lookup – to distinguish offerings for cross net customers; Geoblocking – to block certain content being accessible outside of the UK (e.g. TV Player content, rights issues); and customer care integration – allowing Virgin Media’s care agents to lookup and manage customers' passes and subscriptions.

“This in-app billing infrastructure allows for cross net billing, single payments and subscriptions. And can be easily integrated into future applications, such as the Virgin Media Music Player application we’ll be launching soon, allowing in-app purchases of new music singles,” said Wells.

Head of payments at UK mobile operator, 3, Rory Maguire, told the audience that the main reason direct mobile payments were missing from the app payments market up to this point, had been as a result of Premium SMS (PRSMS) billing scandals.

“PSMS is tainted and wrapped in regulation,” said Maguire. “There’s a perception that the rate of return is less when compared to credit cards. However, as apps get more localised, the mobile payment option is emerging and operators will start to become more flexible on revenue share.”

Maguire advised content publishers and app developers to use operator billing in a sensible way; one which provided the consumers with security, reliability and a post sale dispute process. He also recommended that for the time-being the robust mechanism of the Payforit scheme was the preferred option for all UK operators.

“It can be an almost standard checkout procedure with mobile billing: You verify the user either over the 3G network or WiFi; provide clear pricing, a refunds and returns process; and if you use an aggregator like OpenMarket, you can also enhance your app by using network APIs and location services.”

The debate which followed, led by event chairman Andrew Darling, encouraged developers and publishers to come up with ideas for more trials with in-app billing and work with aggregators like OpenMarket and operators to help drive the market further forward. Increasing the amount of direct-to-bill payments for apps and in-app purchases will provide a significant uplift in overall market revenues and this would help persuade the carriers to be more open to negotiation over revenues shares.

Clearly, there is a lot at stake for operators, especially as they begin to peer over their shoulders at the progress being made by the likes of PayPal into the mobile micropayments market.

Direct-To-Mobile In-App Billing is an essential evolution for the mobile applications market. As the marketplace becomes more and more overcrowded, it becomes harder to differentiate one developer’s application from another, and stagnation will set in. D2M In-App Billing will stimulate a new commercial interaction with the subscriber – they download the app for free and as they upgrade or advance in the app (for example, reach a new level within as game) they are charged a specific amount to their mobile phone bill. Simple-to-use APIs are available to developers to include the D2M In-App Billing feature within their apps across all popular mobile platforms, and mobile operators and mobile cloud computing providers will deploy next generation charging and settlement systems such as those offered by OpenMarket, to ensure secure, authenticated, flexible and easy to use charging functionality.

“The mobile applications market has to continually adapt to rapidly-changing conditions and D2M In-App Billing represents the next logical place the market needs to go,” concluded event chairman Andrew Darling as he wrapped up proceedings and headed to the bar along with the attendees.