May 28, 2020
In 2019, global spending on mobile apps stood at $85 billion. Leading mobile app research firm Sensor Research estimates that this figure will double to $171 billion by 2024 – an annualized growth rate of 15%. For context, this is almost five times the predicted worldwide GDP growth.
Furthermore, the latest data indicates that, in contrast to the broader economy, the mobile app ecosystem is benefiting from the movement restriction mandates to contain the COVID-19 pandemic. Data for the first quarter of 2020 showed a 20% year-on-year growth for mobile app store downloads. Unsurprisingly, mobile games – already a $68.5 billion market in 2019 – had its best quarter ever, with over 13 billion installs, which amounts to 35% year-on-year growth. Most of us prefer to use either Apple App Store or Google Play Store. However, there are few other mobile app stores with tons of apps endorsed by mobile device manufacturing players such as Samsung, LG, Huawei, and Sony. The number of mobile app stores and device-specific apps is also growing with increasing penetration of smartphones.
But while mobile games currently capture the lion’s share of mobile app revenues, the landscape is set to shift. And with this shift, the increasing importance and necessity of direct carrier billing (DCB) as a payment solution is surfacing.
Sensor Research estimates that for 2019, mobile games accounted for 68% of Apple’s App Store revenue and 85% of Google Play’s – 74% of the aggregate. But by 2024, the firm forecasts these figures to fall to 49% and 74%, respectively, or about 57% of the total.
This reduced market share is not from any decline in mobile game growth, but rather from a greater surge in other app segments, most notably entertainment and social. In the App Store alone, revenues from these two categories are expected to soar by 230% from 2019 to 2024. As the ecosystem expands, more apps from more categories will come online, especially as 5G becomes prevalent.
Consumer choices will only improve. But while greater choices are undoubtedly beneficial for the consumer on the demand side, it will mean that competition will also be more intense than ever on the supply side. Both the mobile network operators (MNOs) and app developers will be scrambling to capture the ever-increasing amount of consumer dollars that will be flowing into the space. They will and should be looking for every advantage they can get. One such advantage is Direct Carrier Billing or DCB.
As mobile apps continue to proliferate, so will the number of available payment methods. The familiar staples – credit and debit cards, online payment networks, and gift cards, for instance – will still be there. But newer options like e-wallets, QR codes, and even digital currencies are also gaining in popularity.
However, when it comes to mobile apps, there are two basic deficiencies concerning most of these payment methods. One, they require the consumer to have access to traditional banking facilities – this is something most of us take for granted but unavailable to over 1.7 billion adults worldwide. And two, they cannot fully leverage on the sticky relationship consumers already have with their MNOs.
DCB (direct carrier billing) overcomes both these deficiencies. With this method, the unbanked can pay for apps, in the same manner, they pay for their mobile airtime, typically using cash for prepaid cards. This is a tremendous growth opportunity, particularly in emerging markets. So, it’s not surprising that when Apple – which was initially reluctant to adopt the DCB model to maintain the 30% cut of its App Store revenues – eventually capitulated. Its first DCB arrangement was in the Philippines, where 77.3% of its adult population was unbanked as recently as 2017. Tremendous upside remains in DCB, particularly in emerging markets.
And there are no additional steps involved for the consumer because consumers can access the paid app universe through the methods they are already using to pay for mobile services. It is the most convenient option, and it further strengthens consumers’ relationships with their MNOs while providing them with revenue opportunities amid declining voice and SMS margins.
However, implementing DCB at scale requires specialized intermediaries – DCB solution providers. These companies, such as DOCOMO Digital, Boku, and other players, provide platforms that seamlessly connect MNOs and app operators (plus many others). Their core services include back-end integration and uptime maintenance, making them a truly ‘hands-off’ and scalable solution.
Some take it one step further. For instance, DOCOMO Digital, the leading player in the field, also provides MNOs with data analytics, business intelligence, bad debt management capabilities, and second-level customer support. Its global capabilities also mean it can provide a greater scale compared to its peers. It counts over 300 mobile carriers and 200 digital service providers as its customers.
While the benefits of DCB and their solutions providers to MNOs are clear, ironically, the MNOs are holding back wider adoption. Because DCB solutions providers take a percentage of the MNOs’ revenue share, DCB is sometimes viewed as a “lower-margin” payment option for MNOs. While it is true that margins are tighter, using that as justification not to adopt DCB solutions is short-term thinking. Another significant point of apprehension is that launching app store DCB can cannibalize MNOs’ revenues. The root cause of this fear is the assumption that MNO customers have a set amount they are willing to spend on their mobile networks, and adding an app store will shift their payments to services where their revenue share is limited. Contrary to this belief, some of the carrier billing implementation case studies show that MNOs have increased their revenues after launching carrier billing with the mobile app stores.
DCB solution providers can help MNOs tap the full mobile app store revenue opportunity by boosting the number of subscribers making payments, motivating subscribers to purchase, minimizing payment failures, increasing data consumption of consumer, enabling payment activity review, and conducting the analysis of price trends & spend frequency to identify high spending and potentially high-risk customer activity.
Looking at the growth opportunity, the mobile app store DCB integration by MNOs makes sense. Needless to say, the mobile app ecosystem will continue its path of strong growth regardless of whether MNOs adopt direct carrier billing. If they wish to capture as much of the 171-billion-dollar market as possible, they should focus on the far greater long-term opportunity instead of quibbling over minor short-term margin compression, complacency, and unsubstantiated fears. DOCOMO and other leading DCB players could be great partners for MNOs to explore this opportunity.