Technology and market evaluation for mobile micro payment and development of a business plan

Abstract

In this project we evaluate the feasibility and potential of creating a new Business Venture to offer mobile micro payment (price of goods less than S 5.0) for digital content providers. The proposition refers to a service by which billing for internet content will be through consumer's mobile phone bill, instead of existing transaction mechanisms of credit card. The objective of this project is to1. Evaluate the technology and market feasibility of Mobile Micro Payment for digitalgoods2. Estimate the market size and potential for this business.3. Develop a value proposition from the perspective of 'Digital Content Providers' addressing the concerns of all players in the value chain including the regulators telecom operators and end users.4. Create a Business Plan including financial projections, cash flow estimates and funding requirement for business. Importance of the work: Today telecom operators are providing 'Bill-on-Behalf' service for 3rd party content providers, who selling content which is consumed on mobile phones (e.g. Ringtones, games etc.). This mobile entertainment market is more than 16 billion USD worldwide as estimated by different research reports. With recent changes in government regulations and technological advancements in security and user identity, it is possible for Telecom operators to offer 'micro payment billing services' for internet digital content. Gartner Data Quest estimates a S 60 Billion micropayment market by 2015. To offer this service, however, there are significant technical and business challenges to be addressed. Secure Transaction Management Fulfilment awareness Age verification and controlled Access Seamless integration across disparate networks Retail Distribution Copyright ownership End User support In this project we aim to review and address these issues to enable mobile micro payment for digital content, potentially creating a new business opportunity. Methodology: 1. Market research of primary and secondary data for sizing the opportunity and evaluation of Industry's structural attractiveness.2. Market segmentation and Product positioning by using different frameworks and techniques of B2B marketing.3. Competition analysis by studying development and growth of different players in the value chain4. Study of regulatory environment and operator guidelines in different geographies5. Technology evaluation by preparing a high level architecture for transactionhandling6. Projections of revenues, costs and cash-flow. Determining the investment requirement for setting up a business to offer mobile Micro payment service Need Identification: We begin with the premise that 'all of us have a need for a convenient and secure way to pay for what we buy'. We see that for small value purchases of less than 5 dollars on internet, traditional payment mechanism does not address this need effectively. An alternate payment mechanism is conceptualized: 'Use of a mobile phone for these transactions'. The existing mobile operator billing system and recent regulatory changes make this concept a reality. We have conducted a detailed 'end user survey' as primary research to validate the needs and pain points of end users. Market Size estimate: From various research reports, we estimate the addressable market to be about 1.5 billion dollars in United Kingdom. We combine this data with mobile data revenues, SMS transactions and penetration of mobile phones to evaluate the opportunity for mobile micro payment. Industry and Value chain Analysis: We have studied the industry from multiple perspectives, including content providers, telecom operators, aggregators, rights owners and end users. We have analyzed the industry from Network economics perspective and structural attractiveness to identity the strategic challenges. We observe that this industry requires specialized niche players to absorb the complexity in the 'digital goods' supply chain, while providing the payment service. Technology evaluation: We have studied different alternative payment mechanisms and propose a distinct and new mechanism for handling mobile micro payment transactions addressing the key problems of1) Content security against theft 2) Fulfilment aware transactions 3) Security of end user identity and payment transaction 4) Non repudiation of purchase transactions. As a part of this evaluation we identify the key components and technology interfaces required to build such a solution. Market Segmentation and Targeting: Here we have segmented the market along several dimensions including Geography, Content Type and customer business type. From analyzing each of the segments, we identify the "Target market" to be Western and Nordic European countries for small value digital goods purchases on internet, with specific focus on music and video downloads. Positioning and Value Proposition: Based on the market need analysis, segmentation and targeting primary value propositions for content providers are identified as1. A mechanism to monetize content for individuals and small content providers2. An alternate channel of payment for large content providers. Competition Analysis and Differentiation: In this section we have identified multiple sources of competitive threat from different quarters including current players diversifying vertically (E.g. Telecom Operators) and horizontally (Tier 2 aggregators) as well as threats from new entrants and regulatory changes. Financials: We have projected revenues for the business from bottom up (based on customer acquisition strategy and transaction estimates). We have validated this from Top Down approach (based the market size and assumptions on penetration). The revenues are projected to be $150,000 in the first year of operations increasing to about a $ 1.2 million in 5 years. Net profits are projected to be about $471,000 by the 5th year. The business would break even operationally by 18 months. The investment required for the business is estimated to be $ 200,000 over 12 month after which the cash generated by the business would be sufficient for further operations. This investment is expected to yield a compounded annualized return of 33% over 5 years.