April 6, 2009
Micro-Billing, Byte by Byte, Suits the World of Cellphones
By MATT RICHTEL and BOB TEDESCHI
LAS VEGAS — As the music, film, television, newspaper, book and video-game industries strain to find a way to thrive in the new digital marketplace, one seems to have figured it all out.
It is that trailblazer known as the phone company.
Consumers are using their mobile phones to download tens of millions of games, songs, ring tones and video programs. And they shell out money for these items, even as they resist paying for similar digital goodies online using their computers.
It is a curious equation: pay for stuff on a tiny, low-resolution screen while getting some of the very same games and video free on a fancy widescreen monitor.
At its annual trade show in Las Vegas last week, the phone industry pushed new software stores, video players, games and content. Their efforts are based on a digital twist on Pavlov: The phone rings and we pay.
“There’s been no expectation that anything would be free,” said David Chamberlain, an analyst with In-Stat, a market research firm. “The telcos have been very careful not to give stuff away.”
By contrast, he said, “a lot of people on the Internet are wondering — why did we let all this stuff go for free?”
It may have to do with each industry’s origins. “Information wants to be free” has long been the rallying cry for many Internet pioneers. As the mythology goes, the designers of the Internet envisioned it as utopian and open — two words rarely used to describe the phone experience.
One example of the stark difference between the phone and the computer is the concept of micropayments. Newspapers and other content producers have examined the method — getting people to pay for content with a nickel here and a dime there — as a possible answer to their revenue problems on the Web.
But the phone industry has had a micropayment system for decades. Ever since the local telephone company charged a customer an extra 35 cents to hear a recorded weather forecast, the phone industry has been charging for content.
Couple that pervasive billing culture with the ability of consumers to get what they want, whenever and wherever they want it (playing Tetris while waiting in line at Starbucks, for example) and you have a powerful alchemy. Piper Jaffray, a market research firm, published a report recently saying it expected consumers to spend $13 billion on downloads to their phones in 2012, up from $2.8 billion this year. The report called Apple’s popular iPhone application store “a tipping point in consumer consumption” over phones.
Apple’s payment model strongly resembles that of the phone industry. A consumer enters his credit card data once, and all subsequent downloads are automatically charged to that account.
By making the process convenient, Apple has been able to sell software applications that, accessed through a computer, would be free. LiveStrong’s calorie-counter app, for example, is free online but a version of it costs $2.99 in the iPhone App store.
But to some consumers, paying on the phone feels different, and more reasonable, than paying online. Sabrina Sanchez of Pleasanton, Calif., a mother of two teenage boys has found herself with mounting bills from downloaded navigation tools and games, like a Star Wars game that turns their iPhones into light sabers.
Ms. Sanchez said she finally started setting down rules in February when her 12-year-old racked up $25 in charges in a month.
“I don’t want him to get used to the instant gratification,” she said. “It’s like a slot machine.”
Ms. Sanchez said she and her children were much more likely to buy things like games on the phone than on the computer. “I have not bought a casual game on the Net. The kids have bought a couple, but not like on the phone.”
Content developers say consumers like the instant gratification of downloading on the go. By contrast, PC users have to go through a few more steps to pay for items online because, most of the time, they must enter credit card information for each purchase.
Research shows that the more steps a person must take to pay, the less likely he is to buy something. Besides, people have simply become used to paying for things on the phone.
One paid service on phones is TV shows, sold through services like MobiTV of Emeryville, Calif., which packages television programming for phones. About 5.5 million people in the United States are paying $10 or more for MobiTV from AT&T, Sprint and Alltel. “People can’t carry around a 48-inch plasma TV,” said Ray DeRenzo, senior vice president of MobiTV.
But there are others who question how much longer consumers will be willing to pay for content on the phone.
Paul Jacobs, the chief executive of Qualcomm, which offers a mobile TV service called MediaFlow, said the company expected before long to start offering broadcast channels free while charging only for premium programming, like cable shows.
Despite the success of paid phone applications, there are thousands of free applications available. One company, called GetJar, offers some 20,000 services, including games and productivity software, and has been getting 33 million downloads a month.
Apple has plenty of free applications too; Skype, which lets you make free calls over the Internet was downloaded one million times in the first 48 hours after it was introduced last week.
Still, providers of content for mobile devices remain happy about their ability to get paid. One is Kinoma, a Palo Alto, Calif., company whose $30 browser software lets mobile phone users surf the Web and organize their music, among other things.
Brian Friedkin, the company’s co-founder, said he had sold “many thousands” of downloads — though they are features that are free on a PC.
“It’s tough to say why mobile users are more willing to pay,” he said. “But it’s great for us.”