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How Can Carriers Benefit from the Pokemon Go Craze?

How Can Carriers Benefit from the Pokemon Go Craze? Image Credit: Fortumo

People over the world have been entranced in a unique mobile addiction for the past two months. Much like Flappy Bird came out of nowhere in 2013, nobody expected Pokemon Go’s overnight success. For mobile operators connected to Google Play such digital services represent a huge opportunity to increase their revenue.

How big is the opportunity?

Based on our internal data from providing Google Play carrier billing to app stores, up to 60% of all money spent on the app store today goes to Pokemon Go, depending on the market. This has not come at the cost of other apps. Instead, users who were already paying for other apps started spending also on Pokemon Go and an even larger amount of new users took up carrier billing:

This should give mobile operators assurance that launching new, unique services does not cannibalize revenue as Pokemon Go has not impacted existing spending habits. Instead, supporting the growth of such services through carrier billing helps mobile operators grow their revenue as well.

Pokemon Go is just one example of a service that helps grow carrier income. But besides gaming, there are several other entertainment categories where mobile operators can ramp up their revenue. In Malaysia, the average revenue from of a mobile user for using the carrier’s own services - voice and data - is around $9 per month. But in addition to spending money on the carrier’s own services, users also spend money for other entertainment on their phones:

App store spend: on average $5 per month

Music streaming services (Spotify, Apple, Deezer, Tidal): on average $4.6 per month

Video streaming services (Netflix, HOOQ, iflix): on average $7.9 per month

Assuming that a mobile operator enables carrier billing for these services at a 15% margin, they would contribute an additional $2.6 to average revenue per user in a month. That gives a significant 28% growth in average revenue per user. Regardless of the country, user spend and digital service pricing grows mobile operator revenue by approximately 30%.

How to increase revenue with Pokemon and other digital services?

In online payments, conversion is one of the key metrics to track. When a user reaches the payment window, the merchant must do everything possible to reduce friction. If the payment process is too complicated, a significant amount of revenue is lost due to cancelled payments. This means that when users reach the point where they are willing to do an in-app purchase for Pokemon Go, they should already have billing enabled for the app store.

One way how carriers can increase the number of users who activate carrier billing in app stores is by training their support and retail staff to educate customers on carrier billing. If a user purchases a new device from a retail location, the staff can offer to help them enable carrier billing for the app store. Educating customers through the homepage, social networks, and Push SMS notifications also helps increase activations.

Once users have activated their account, mobile operators can work on two more fronts to increase their revenue: by engaging with customers as well as supporting developers who offer items for sale in the app store.

App store end-user spending behavior follows the 80/20 principle: 80% of the revenue is generated by 20% of the user base. Identifying the largest spenders (so-called whales) and organizing campaigns targeted at them is the biggest driver of revenue growth via app stores.

Based on our experience, the most impactful activities to increase end-user spending on apps are when the carrier uses their own infrastructure (social media and text messaging) to promote carrier billing. Large spikes in revenue also come from organizing discount or volume-based campaigns. For example, the first purchase with carrier billing on Google Play can be refunded or purchases bigger than $10 can be given a 20% discount. While such campaigns need to be subsidized by the carrier, getting users to make their first purchase is the key to increasing spend in the long term.

Another way to encourage spending on app stores is by bundling Google Play store credits together with the user’s postpaid plan. Much like a specific amount of data, calls and messages are included in fixed-price plans, Google Play credits can also be added to the subscriber offering. While not all users will immediately start spending, having a small amount of monthly credits available (e.g. $2) reminds them that the opportunity is available and encourages activating their SIM card for spending in the app store.

The second part of growing revenue from app stores is engaging with developers and helping them make their service more suitable to the target market. By looking at your own data (e.g. average balance of prepaid SIM cards) and user spending across the entire app store (average size of payments on that app category), mobile operators can give developers suggestions to change their pricing to encourage user spending.

For apps on which users spend more money than in other apps, configuring custom (higher) spending limits also helps drive additional revenue. When developers shift from a globally uniform pricing strategy to a local one and carriers apply differentiated spend limits to apps, more income is generated. After all, people in India do not have the same spending capability as those in the UK and while streaming services have a fixed monthly rate, there is no upper limit to how much people can spend on games. App stores are simply not “a one size fits all” economy.

Mobile operators can also actively work together with developers to co-market apps that users like to spend money on. Co-marketing opportunities should be sought out, e.g. by bundling these apps or handing out free data for them. For example, Smart in the Philippines has made data free for Pokemon Go. Free data means more users and in turn, more revenue. In the long run, it also encourages users to switch on their mobile data connection more often.

But how to know which users to target with marketing campaigns, what recommendations to give developers and how big should the spending limits be for each app?

Analytics and risk management are key drivers of growth

In order to increase revenue from payments, carriers need to have a proper carrier billing analytics solution in place. This solution should give carriers answers to the following questions:

How many users have activated carrier billing for Google Play? Have campaigns increased the number of users who have enabled carrier billing?

What is the average transaction size and average revenue per user? How big is the spending difference between so-called whales and regular users?

What are the top performing apps and in-app items in terms of revenue?

When payments fail, is it because users do not have a sufficient account balance or is it because spending limits have been set too low?

Which users are spending the most on apps? Are they spending money on the same apps as everyone else or does the revenue come from, for example, games targeted at hardcore audiences?

Having this information available gives carriers the basis to plan revenue driving campaigns by targeting the so-called whales on one hand and on the other, identify developers whose apps should be promoted and whose pricing localized.

While growing revenue from app stores, risks resulting from increased user spending should not be forgotten either. Higher spending generally incurs both a higher risk of bad debt as well as “friendly fraud” (refund requests). This topic can also be addressed by having a proper risk management solution in place which evaluates the potential risk of each transaction and user, deciding whether the payment has an acceptable risk score or not.

Identifying suspicious payment behavior (e.g. a regular user suddenly becoming a very heavy spender, for example due to a minor having access to their parent’s phone) and reacting to it while allowing “whales” with a long positive credit history to keep spending both allows to increase revenue while reducing the risk of declined customer satisfaction and issues with regulators.

Pokemon Go has doubled app store spending volumes on its own which means carriers plugged into Google Play are also earning more revenues. But there is more money to be made for those mobile operators who are able to analyze their data, properly manage risk and activate users through marketing activities.

Author

Gerri has 10+ years of background in working with mobile operators in regions as diverse as Europe, Middle East, Asia and Latin America. In Fortumo, he is responsible for managing sales to strategic customers as well as overseeing carrier relations. Gerri has received his degrees in Business Administration & Technology Management from Stockholm School of Economics in Riga and from Tartu University. Gerri is also an avid sportsman who knows how to set goals and to fulfil them. He runs and skis marathons both in summer and winter and one day plans to get through the ultimate endurance challenge – the Ironman triathlon.

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