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Revenue Share Model over Content Business Value Chain

svo9712's picture
Posted by svo9712 - 12 Dec 2007
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In the Mobile Content Business value chain there are several parties (ie. Telecom Operator, Platform Vendor, Content Aggregator, Content Owner or Creator, Content Sponsor etc) involved nowadays. Everyone is involved here for their own benefits. From my experience I have seen that the operator tries to lower their CAPEX (Capital Expenditure) as well as the OPEX (Operational Expenditure). Hence Revenue Share business model came in the scene to satisfy all the related parties. Here in this article I will not just try to describe on the Revenue Share Business Model but also will try explore some concept on the Expenditure share model.

Why Revenue Share Model:

The current telecom market is already very much competitive. The lifecycle of any rich service is very short. So operators are concentrating on quick service rollout to start making money quickly. So they are encouraging the service providers to sit into their network, to use the network resources and to provide the service. Operator earns money and then shares with the parties involved. Generally the providers maintain the platforms and manage the services related to that specific rich service. If contract finishes the provider takes out their platform from the operators network. This is generally termed as Managed Service with Revenue Share Model. Operators generally should be very much fond of this model because this reduces or nullifies their CAPEX and OPEX cost.

Another major point why operators are adapting the Managed Service with Revenue Share model is because there needs not calculate any ROI (Return of Investment). Because sometimes there comes some services for which it becomes tough for the Project Managers to guess the service nature as well as the subscribers’ response to that service. So even if they do the mathematics to calculate the ROI to show that the management can invest CAPEX in that project. But the guess may become wrong and the ROI may not be come back. So no investment, no ROI and the result is to take a chance and monitor the behavior.

But one CAPEX investment the operator needs to engage which is the Advertisement and the Promotional (A&P) investment. This cost is not even low. So then again comes the mathematics to calculate ROI for A&P.

Why Specialized Platform is Necessary:

As far as it is a content service there needs to have a specialized platform. The below are the points will clarify the necessities:

(1) Terminal Adaptive Contents: Content business is getting popular day by day. Also in parallel, the evolution of mobile terminals and their updated features are generating the needs for the rich contents and services in the market. One major drawback found in rich content business of course is providing terminal adaptive contents. So there needs to have a specialized platform which will have the ability to serve handset specific contents.

(2) Service Specific CRM: General CRM most of the time cannot serve the necessity to show service specific reports, trend analysis etc. Suppose as an example, we can consider the Mobile TV service. It is such a service which will not be popular at a go. It is necessary to monitor the subscriber tendency about this service and based on that analysis there needs to take proper service education plan. So CRM of specific interest is mandatory.

Business Model, Revenue and Expenditure Share:

Now come back again to the Mobile Content Business Value Chain topic. So from the above discussions I think it is clear that different stakeholders are taking part to make the value chain successful. The stake holders are:

Telco: The telecom operator who is providing the network resources.

Content Owner: The creator of the contents. Content owner can be a company or any individual person who creates content and sells those to the content aggregator.

Content Aggregator: Aggregator feeds the content into the content platform which is provided by the Vendor. A content owner can also be a Content Aggregator.

Platform Vendor: Provides the platform to process, store contents provided by the aggregators. The vendor can put their platform in their local place or can take the platform to the operators premise. At the end it is required to set up the connectivity between the platform and the operator’s network. The remote connection generally can be done through the secured VPN connection.

Subscriber: Pays for the service and enjoys.

In revenue share business model subscriber pays and all others enjoys the share. Recently one term is hugely being discussed in the mobile content business world. That is: AD Funded Content. So here comes another party in the value chain: The Sponsor. Mobile is now emerging as the 7th of the mass media, joining Print, Recordings, Cinema, Radio, TV and Internet. So the brands are now ready to promote their product through the mobile channels and thus opening up a door for the alternate revenue earning. The sponsor selection can be done either by the operator or by the content aggregators or both. Below I will discuss two revenue share business models focusing the content business:

(1) Model 1: Telco Managed Content Aggregator

As it is a revenue share business model so share needs to taken care by all the parties in all cases.

A Business Model always considers the Cash Inflows and Cash Outflows. Cash outflow is simply the expenditures by the parties. I will consider only Advertisement and Promotional costing as the Cash Outflow. Because this is the cost which will directly relate to that specific service (lets say Mobile TV).

The Cash Inflows are the earnings from the Mobile TV service (or any service). This may include two parts:

1.1 Content Revenue Share: This is the earning from the service content or from the subscription fee which directly related to the subscribers.

In the above model it is shown that, for any content (or for the subscription Fee) if the subscriber is charged 10 unit (lets say in Bangladeshi currency, BDT) then below are the figures which will be received by the parties:

(0) Charged Amount = 10 BDT
(a) Initial Amount to Telco: 70% of (0) = 70% of 10 BDT = 7 BDT
(b) Initial Amount to Content Aggregator: 40% of (a) = 40% of 7 BDT = 2.8 BDT
*(c) Final Amount to Telco= 60% of (a) = 60% of 7 BDT= 4.2 BDT
*(c) Final Amount to Platform Vendor: 30% of (0) = 30% of 10 BDT= 3 BDT
*(d) Final Amount to Content Aggregator= 50% of (b) = 50% of 2.8 BDT= 1.4 BDT
*(e) Final Amount to Content Owner= 50% of (b) = 50% of 2.8 BDT= 1.4 BDT

If the Content Aggregator and the Content Owner are the same then this content provider/aggregator will receive (d)+(e)=1.4+1.4= 2.8 BDT So then the end revenue percentage (of 10 BDT or any unit) is becoming as follows:

Telco = 4.2 BDT = 42%
Platform Vendor= 3 BDT = 30%
Content Provider= 1.4 BDT + .4 BDT= 2.8 BDT= 28%

Hope the above percentage shows a fair distribution.

1.2 AD Insertion Revenue Share: Each of the contents is singly a resource. If the content is good and popular then it is possible to insert advertisements with each of the content. As an example: If it is a streaming service like Mobile TV then it is possible to mix up the promotional text or graphics at the bottom of the streaming content. Or if it is an IVR based solution then promotional voice can be added before or after the main voice content is played.

But there is a major task here and that is getting the sponsor, setting the agreement with them, planning & developing the mobile insertion etc. Which can be done either by the Telco or by the Content Aggregator. In the above Telco Managed Content Aggregator revenue share model I have considered 55:45 share model where 55% goes in favor of the Telco. So if a sponsor pays an amount (lets say 1,00,000 BDT) for a set of contents or any specific category (or lets say the sponsor can sponsor a specific channel like News in case of the Mobile TV case) then from this 1,00,000 BDT 55,000 BDT the Telco will receive and the remaining goes for the Content Aggregator .

1.3 A&P: Advertisement and Promotion. This is the promotional expenditure which is very much important to make the service popular. If the service is popular the hits will be increased and so will increase the revenue.

As my understanding, although the service is focused as Telco branded, but the Platform Vendor is also enjoying a big portion of the revenue (30%) too. So it is fair that, the vendor should also participate financially in the promotional activities. This is what I am representing as the Expenditure Share where both Telco and the vendor will share the promotional expenditure (lets say 60:40 where 60% expenditure should be carried out by the Telco).

This Expenditure Share methodology will not only reduce the telecom operator load but also will output the best promotional activities to make the service an icon.

(2) Model 2: VENDOR Managed Content Aggregator

The concept and calculations are almost same in this model also as described above. But the main difference here is that, the Content Aggregators communicate with the Platform vendor. And the vendor manages the agreements and other staffs with the Content Aggregators. In Telco perspective this model is good I think because it totally nullifies their OPEX cost

2.1 Content Revenue Share: This is almost the same as previous. But here revenue portion of the Platform Vendor is shared with the Content Aggregator.

From the above figure if we consider the same amount (ie. 10 BDT) as the content price then the shares are coming like as follows:

(0) Charged Amount = 10 BDT
*(a) Final Amount to Telco = 50% of (0) = 50% of 10 BDT= 5 BDT
(b) Initial Amount to Platform Vendor = 50% of (0) = 50% of 10 BDT= 5 BDT
*(c) Final Amount to Platform Vendor= 60% of (b) = 60% of 5 BDT= 3 BDT
(d) Initial Amount to Content Aggregator= 40 % of (b) = 40% of 5 BDT = 2 BDT
*(e) Final Amount to Content Aggregator = 50% of (d) = 50% of 2 BDT = 1 BDT
*(f) Final Amount to Content Owner = 50% of (d) = 50% of 2 BDT= 1 BDT

If the Content Aggregator and the Content Owner are the same then this content provider/aggregator will receive (e)+(f)=1+1= 2 BDT

So then the end revenue percentage (of 10 BDT or any unit) is becoming as follows:

Telco = 5 BDT= 50%
Platform Vendor= 3 BDT= 30%
Content Provider= 1 BDT+ 1 BDT= 2 BDT= 20%

AD Insertion Revenue Share and A&P share is kept as the first model described earlier.

But little mathematics and engineering can make a fair share model which can encourage all the parties to do business.

Conclusion:

The above two models are not obvious. Of course the nature of calculation and cases will be different for different types of services. But one point I must say here that when everybody is investing less and gaining most then we the Telco as well as other parties must concentrate on the subscriber satisfaction. So we should go for the AD Funded Content business model to give the subscriber a little comfort which will obviously increase the service penetration.


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Posted by svo9712 - 12 Dec 2007

svo9712's picture

From Bangladesh, expertise in Data Service planning. Likes to see dotmobi from behind the telco firewall.

Posted by shikhakumari 6 years ago

Awesome stuff !!!

But Sir, i would like to what is the basis for your distribution of revenue and expenditure among these parties. How did u come to these percentages?

Thanks a lot!

Posted by svo9712 6 years ago

Thanks for your question. In the article I just tried to focus on a 3-stakeholder revenue share model where I tried to keep a fair distribution. The final percentage at then end came like below:

Model-1: Telco:Vendor:CP = 42:30:28
Model-2: Telco:Vendor:CP = 50:30:20

Percentages were assumed but fine tuning must be required from operator to operator to get the distribution tolerable.

The basis for my initial assumption was: the more a stakeholder work, the more they should get.

In the Telco Managed Content Aggregator (Model-1) the operator is managing the content aggregators. This is not a small task to do. From my experience I saw that, the party who will handle management of the content aggregators the OPEX (operational expenditure) will increase a lot for them. Also they have to take care of the legal issues related to content. So naturally they should get a bigger percentage. So I put 70:30 where 70% in favor of the operator.

But in Model-2(VENDOR Managed Content Aggregator), I put 50:50 which seems something like unfair. This is because I thought that Telco is providing the network and a bigger setup to start the business. So this time I did not put 70% for the vendor, rather I reduce it to 50%.

The tough part of business is that, you cannot say that this model and the percentage will work and is a standard case. Generally in the revenue share model you cannot consider the CAPEX of the vendor like the server cost, software price etc because the contract remains for the short period. And so you cannot include this in calculating the share percentage.

I think, the Revenue Share Business Model came out to meet the short term business need.

Muntasir Mamun Joarder
Sr. System Analyst
Product Service Innovation
AKTEL
Bangladesh
Cell: +88 01817 183 021

Md. Muntasir Mamun Joarder Web Developer Ipswich City Council Australia Cell: +61 42 50 49 459

Posted by shikhakumari 6 years ago

Well, i Agree. The percentage distribution depends also on the lobby power of telco, vendor and content provider. And subjective to the environment.

I have one more basic doubt here, By platform vendor are u referring to SMS,MMS , WAP, 3G ?? what i understand here is the platform vendor has specific technology to deliver the content to the Mobile subscriber. and if they have these technology ( some time patented) then they will have greater lobby power so they would want a bigger share in the pie.

I would really want to know your comments on this.

Thanks a lot!!!
shikha

Posted by svo9712 6 years ago

The concept is: lets say the operator do not want to involve CAPEX to deploy a service. So then comes the vendor/service provider and the business model is Revenue Share. This platform is not SMS, MMS or 3G platform but is a service platform which may connect with the enablers(like MMSC, SMSC, WAPGW etc). I think when the platform vendor (meaning to say enabler vendor) comes up with a Revenue Share model, the business case will not be so much comfortable for the telco. Rather for the case of enablers (SMSC, MMSC etc) the operators will like to involve CAPEX.

Muntasir Mamun Joarder
Sr. System Analyst
Product Service Innovation
AKTEL
Bangladesh
Cell: +88 01817 183 021

Md. Muntasir Mamun Joarder Web Developer Ipswich City Council Australia Cell: +61 42 50 49 459

Posted by shikhakumari 6 years ago

Just a simple doubt here… I read about Global mobile technology (http://www.glmtech.com/gmt/index.php ) that has a technology(PUSH-IT) which can push any kind of internet on a mobile phone ( Any mobile phone rather, they just want their data port to be enable) in a better, faster and cost effective manner.

then where are they positioning themselves ? and which kind of revenue share they can ask for ?

Posted by svo9712 6 years ago

I studied the push-it technology. It saves the cost providing data directly through the data port. Now in any case where you can charge the subscribers, you have the option to share the revenue with the content provider. Because in this platform also there should have a interface to check the transactions.

Also I saw that, through the Push-It platform content providers also can provide contents. But they have an arrangement with the operator that only the subscribed users can access the Push-It technology then they can share that part.

Nonthless there is option here for putting advertisements which also can be shared.

Muntasir Mamun Joarder
Sr. System Analyst
Product Service Innovation
AKTEL
Bangladesh
Cell: +88 01817 183 021

Md. Muntasir Mamun Joarder Web Developer Ipswich City Council Australia Cell: +61 42 50 49 459

Posted by fonts 6 years ago

Mobile operators must find a better way to address the content market other than transferring the Internet model to a mobile platform.
Best regards, Kraig

Posted by Noor 6 years ago

Hi, its a gr8 article.
We are a start up and are developing a content.
Can you please help me with the following
1. As a content owner do i need to get in touch with content aggregator or platform vendor or telco.
2. What charges i'm supposed to pay to the party that will host the content.
3. Which model will be good considering that it is a start up and low on fund.
4. Do you have a list of the companies or a website from where i can get the company name. i'm based in india.

I've asked you a lot of question. Please bear with me.
Hope to get your reply soon

Regards
Noor

Posted by hosdel 5 years ago

Hello
I am working about mobile banking,I want to write a business model ,i don't know how can i determine revenue sharing between stakeholder ,for example between bank,mobile
operator and mobile vendor ,could you please help me about that?
for example we want to use SMS channel so mobile vendor role is integration between bank and operator ,is customer do any transaction with sms its beneficiary for mobile operator or if customer send money like remittance to bank maybe bank use this money and loan to other customer ,how they van share this revenue
regards
Mostafa

Posted by arjunsik12 5 years ago

What is the cost of developing a platform. I am interested in developing one.

Posted by Karimhf 5 years ago

Dears,

I need to make a revenue share model with a supplier for handsets, but the thing is if i applied a % of revenue share, i will not be able to make a price move on the tariff or i will have to reconsider any price move to be bale to coop with revenue share model

could you please advise what is the best practice to build the model for a revenue share model between the operator and handset supplier

Thanks
Karim