business model

Hi everyone, my name is Pete Leathley.  I am going to be helping out David, and others, in what ways I can to shape the next Muse business plan into something that shows a compelling business position by means of written reports, sound and video, and other appropriate formats.  I was hoping to begin that process by asking those involved in this blog, along with other interested individuals, to allow me to interview them about their thoughts and opinions for how Mobile Muse might be involved with the proposed live sites for the 2010 Winter Olympics.  These live sites are modeled after the big television screens set up throughout Germany, and much of Europe, during last years Football World Cup.

Over the past 4 months I (Nicholas Simon, Technical Lead for Ubiquity Interactive.  My login for this blog shows up as metroCode) have spent many long nights trying to make sense of revenue models for cell phone services.  I'm a software engineer, not an MBA but I know the idea behind a business is to make money... or at least break even.  Trying to figure out who to charge, what to charge and how to recoup costs seems tricky and so far I have quite a few ideas about how to approach this, but the nagging question is: what is the revenue model behind all of this that will work?



For those you unfamiliar with metroCode service we are currently working with IVR, SMS and MMS capabilities.  At the moment providing these services isn't a problem because of Mobile Muse funding, but come March 31st, 2007 we are hoping to take what we have done and turn it into a sustainable business.  We intend on commercializing the IVR and SMS portions of our project as those are the services people have been indicating they would pay for and/or use in real world applications. We gathered this information from the user studies sponsored by Nokia and conducted by Richard Smith's grad students Florence and Sean at SFU. I believe the results of the focus groups will be made available here on the Mobile MUSE site in the new year.



So... the question remains... and feel free to jump in with any

comments/ideas... how do we address the issues and costs associated with hosting these services, which I'll break out in the next paragraph, and how can we generate enough revenue to not only keep these services up and running, but to turn this into a profitable business.



The costs for supplying IVR and SMS services are fairly basic.  Both services have a monthly fee; in the case of IVR the monthly fee acts as a monthly minimum until a certain number of minutes are used, and if they are exceeded additional costs are incurred.  On top of the monthly fees for having an SMS service, each message that is sent has an additional cost associated with it.  Depending on the hosting companies and aggregators that are used for these services the fees will vary, for the purpose of this blog post lets say the fixed costs are ~$2,000 per month.  This number will be low if the volume/usage is high, as the numbers of minutes and text messages accumulated all play a role in the overall cost to maintain the system.  In order to make back the money spent on making the IVR and SMS services available on an ongoing basis, someone has to pay for these services.

 

There are two types of information services the way I see it: those that have a high value and benefit to users of the system, and those that work in the favour of advertisers.  From this we can deduce that we either have to charge the user of the services -- that's you, with your cell phone -- or we have to charge the advertiser. Or do we? Perhaps the answer lies in a combination of having the user and the advertiser pay for the services that apply to them.  One of the findings that emerged during the user studies conducted for the Vancouver Sculpture Biennale was that users are willing to pay for information/content that is deemed useful to them. They talked about things like being directed to the best Greek restaurant, a popular nightclub having a Hallowe'en party, finding out whether or not the 9:20 pm showing of a movie was sold out on a Saturday night.



If users were not interested in paying for certain things then the advertiser would have to cover those costs.  So far it has been extremely easy to come up with a list of expenses related to IVR and SMS services (and content creation; although community-created content is another option to consider), and it has been considerably harder to come up with a good way to recoup those costs.  It appears the fairest model would be one that works on a sliding scale.  Advertisers or users would be charged for the amount of minutes they rack up using the service, and the same would go for text messages.  It's a good thing we can keep track of all the usage for each particular advertiser and user... now we just have to find out if people are willing to pay for things when April 1st rolls around.  It is pretty easy to see that if advertisers and users are unwilling to at least cover the costs of the service, we have a real challenge on our hands.



In order to make this work it looks like mass usage is going to have to happen and small fees are going to have to be acceptable.  Here's hoping that the general population is ready to use their cell phone for content-based services!