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2012 was a record year in the growth of app store purchases over mobile operator billing. Google Play sales processed via carrier billing by Amdocs for leading NA operators tripled in revenues last year. Direct Carrier Billing for app stores is becoming an important Over-The-Top (OTT) monetization strategy for wireless service providers worldwide. According to Yankee , this market opportunity will be worth $11.1 billion by 2016 with carrier billing estimated to represent 30 percent of total app store purchases.

Interestingly enough, app stores that drove service providers’ content portals to extinction over the past few years are today leading efforts to integrate their storefronts with carrier billing. Carrier billing enables app stores to boost sales conversions by up to 5-times. More sales mean higher developer payouts and stronger OS ecosystems, which in turn drive smartphone sales.

Emerging Markets and the Promise of Carrier Billing

Emerging markets represent in our opinion the biggest growth opportunity for carrier billing in 2013. According to Digitimes Research , markets like India, Indonesia, China, Russia, and South America are expected to lead global smartphone shipments in 2013. Since bank accounts and credit cards are not as popular in emerging markets as they are in developed markets, carrier billing can contribute up to 50 percent of total app store purchases in these markets. Let’s remember, carrier billing is the only available electronic payment channel for 1.7 billion people in the world, who own a mobile phone but don’t have a bank account.

Two years ago, Google started establishing direct carrier billing connections in North America and Japan, and saw a significant share of consumers adopting this payment option instead of using a credit card to pay for apps. Google expanded its DCB connectivity to 20 service providers worldwide in North America, Japan, South Korea and Europe, but 200 other service providers are still waiting for Google to engage with them and integrate its app store with their billing systems. Microsoft, provider of another rising mobile operating system, is promoting carrier billing to strengthen its developer ecosystem in APAC. In December 2012, Microsoft (through a service provided by Amdocs) launched the first ever implementation of direct carrier billing in APAC for Windows Phone Store.

When discussing app stores, we cannot ignore the elephant in the room. Apple is the only major app store that doesn’t offer carrier billing as a payment option in its App Store. In 2008, Steve Jobs made the comment that Apple did not intend to make money off the app store and developers will be its key benefactors. Fast forward to today, with over $10 billion generated in revenues so far, the App Store is a serious bottom-line contributor for Apple. At the same time, the revenue opportunity that carrier billing represents for Apple should not be ignored. With carrier billing representing anywhere between 15 percent and 50 percent of other app store purchases, Apple can also see its revenues surge if it chooses to open up the paid apps market to a wider consumer base.

While in the past Apple devices were in the hands of affluent individuals only, the second-hand market for older-version iPhones and iPads gets these smart devices into the hands of users who do not carry credit cards and are unable to participate in the paid-for digital economy unless carrier billing is enabled. Apple’s developers will of course also experience an increase in their payouts and developers of local content, will be able to better monetize their apps over the iOS platform.  

2013: A Year of Expansion and Evolution

The carrier billing footprint of leading app stores like Google Play and Windows Phone Store will continue to expand at an accelerated pace in 2013. In developing economies, this will open up the digital economy for billions of people. In the developed markets, the frictionless payment experience that carrier billing offers will continue to drive high transaction volumes. New and sophisticated carrier billing scenarios such as WiFi purchases and HTML5 apps are also expected to gain popularity. 

With the adoption of mobile payments by consumers and better security measures implemented, we will likely see the carrier billing market slowly expanding from digital goods like apps and music to the physical realm, especially in emerging markets. Juniper Research estimates physical goods to contribute to the majority of mobile payments by 2014, amounting to 70 percent of all mobile payments traffic by 2016. Use cases that require mobility such as transport, parking and ticketing will gain traction and precedence over other point-of-sale scenarios. As wireless service providers and regulators start seeing the benefits of mobile payments in quality revenue generation and financial inclusion respectively, local regulation and operator policies may become more enabling and conducive.

For the time being, there’s no doubt that in the digital economy, carrier billing is a valuable monetization strategy for both app stores and the wireless service providers. Delivering consumer value for financial inclusion and smooth payments by leveraging the operator’s billing relationship is the current state of the industry, and leveraging operator’s big data to offer personalized content discovery and recommendations in app stores can set off the next phase in the partnerships between app stores and operators.

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User Comments – Give us your opinion!
  • Richard Leyland
    33765658
    Great article Oded - Really enjoyed it. I tend to reject the idea of Apple making big strides into the developing world, but you're more positive there. Do you think the second hand market is that strong?
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Oded Israeli

Latest posts by Oded Israeli
Oded Israeli
Oded Israeli leads product management and marketing for Amdocs Digital Commerce and Mobile Payments. Oded holds an LL.B. and  LL.M. from Tel Aviv University and an MBA from INSEAD business school in France and Singapore.
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