CSPs’ attempts to generate revenue from their OTT partnerships have perhaps been less successful than anticipated. But what if a change of focus could change all that? Operators should shift their approach away from deals with large OTT brands and collaborate with a much wider range of partners because generating a small amount of revenue from a large number of business partners looks like a sound business case, Alex Hawker, general manager for EMEA at AsiaInfo tells VanillaPlus
VanillaPlus: CSPs generally view OTT partnerships as useful for attracting and retaining customers, but are these partnerships really moving the revenue needle?
Alex Hawker: Many CSPs are very interested in OTT partnerships. There’s a strong motivation for bundling certain OTT services with mobile data plans to make them more attractive to consumers and create differentiation. That’s seen quite a lot of partnerships created already, typically between mobile operators and music and video providers.
There’s also been lot of interest from CSPs in generating new revenues from these arrangements, and they have a lot to bring to the party. They can bundle the service with a data plan, they can market a service to their customer bases, they can enable billing and charging and they can share customer insights with their partners.
That capability leads to the idea of multi-party mashup services with revenue sharing between the OTT and the CSP. However, in practice it seems this is not turning out quite as CSPs might have hoped. We’re hearing that many operators are finding it difficult to do commercial deals with OTTs that really do move the revenue needle. Part of that is because there isn’t much revenue generated by the smaller OTTs and the large OTTs, such as Facebook, don’t feel the need to agree commercial deals with CSPs.
VP: What needs to happen for CSPs to create a workable business model for engaging with the smaller OTTs?
AH: A lot of operators are trying to focus on a limited, manageable number of OTT partners but the research we have commissioned with consultancy firm Northstream suggests there is a stronger business case for doing more deals that may be smaller. The firm, based on relatively conservative assumptions, estimates that there is €2bn of net cashflow to be generated over a three year period for operators in western Europe, but only if the cost of supporting OTT partnerships is reduced using a B2B collaboration platform. That’s basically €2bn of profit, after investment in a collaboration platform for CSPs.
However that collaboration platform is essential because the figures rely on CSPs having a lot more partners; therefore greater automation needs to be applied to the onboarding of partners and the creation of commercial agreements.
That becomes an IT issue – how do you manage the IT to add value to a lot of partners without creating complexity and cost? The traditional way of hand cranking the CSP’s IT systems to offer a specific mash-up service with an OTT partner is not scalable, and efficient IT infrastructure is required.
VP: What value can a mobile operator bring to its OTT partners to justify revenue share and investment in the necessary IT platform by CSPs?
AH: One of the obvious things is that OTT content providers generally operate on a subscription basis with credit card payment. A lot of people don’t have credit cards, but CSPs can handle those payments using their pre- or postpaid charging and billing systems. That, therefore enables the OTT to sell to a segment of the market that it couldn’t previously address.
CSPs can also make OTT services attractive by bundling data charges with the subscription, so customers feel more comfortable using the service without worrying about how much data they are using. This makes the OTT service more attractive to consumers.
It’s also possible to do other types of charging such as usage-based charging for one hour of a music service, for example. Variations include overage charges or enabling the service to be used for free in a specific location or at a specific time.
All of these things can be done by CSP billing and charging platforms but not by the OTT. The CSP can create much more interesting offers and can also promote the OTT service to the right subscribers and share customer insights through their business intelligence capabilities.
A lot of the added value relies on using the internal capabilities of CSPs’ IT platforms, enabling the creation of mash-up services which are worth more than the sum of their parts. It might not be worth vastly more but it will be worth more. In the past, CSPs have tried to charge too much for access to APIs – for example location, where the OTTs have found workarounds which don’t rely on the CSPs APIs. That particular opportunity for CSPs is now gone, but there are others mentioned above. I think the lesson is that CSPs need to be in a position to offer much more reasonable charges for using their APIs, and that means they need an efficient collaboration platform.
VP: What is preventing CSPs from adding this value to OTT partner services?
AH: CSPs will say they have the IT capability to do this but they don’t necessarily have the capability to do it at large scale, so doing it for a lot of partners is a big headache. When it comes to music and video partners, CSPs will typically not want many, but other OTT partners such as retailers or advertisers could represent a large market.
The Northstream research highlights that CSPs can really make money serving these partners with sponsored data if there is volume. If the CSP has hundreds or thousands of partners there is a business case but it can only happen with the right IT infrastructure.
Many CSPs today have got stuck on the commercial challenge of working with OTTs, and the IT issue has been secondary. However, once you change the business approach to doing more deals with less revenue per partner, then CSPs need to overcome the cost barrier by deploying an OTT collaboration platform.
AsiaInfo has our Veris Open Operational Platform (O2P) which enables operators to open up their IT systems and publish APIs for use by OTTs. The platform has been deployed at China Telecom since 2011 where it is used to generate $200 million of revenue per month through all kinds of OTT partnerships.
VP: How can IT transformation improve the business case for OTT partnerships, and by how much?
AH: We estimate that compared to the cost of doing one-off integrations the cost involved in OTT partnerships based on such a collaboration platform is only about 10%. Of course, there’s an initial investment in the platform that needs to be made by the CSP but, once that’s done, OTT partners can register on the platform and do a lot of the work themselves.
Once the one-off investment is made, the cost of adding partners goes down dramatically. New partners can be brought on board more rapidly and more cheaply. It might take one month instead of six so time to revenue is reduced.
The CSP remains in control because the platform enforces the business processes and that all helps to reduce cost. The collaboration platform for smaller CSPs really can make the difference between losing money because the management and IT overhead of OTT partnerships can make them unprofitable.
VP: CSPs often comment that commercial considerations are a bigger barrier than IT, in which case is there any point in investing in IT transformation to enable OTT partnerships?
AH: Everything comes back to the business case which has two sides. The first is revenue – how can the CSP add to the OTT business case and generate more value. An OTT collaboration platform helps on the revenue side because it exposes CSP APIs which OTTs can use to make their services more attractive and generate extra value. On the cost side the platform helps because it significantly reduces the cost of each partnership.
That allows the CSP to be less ambitious in the amount of money it needs to charge each patner. Instead of making cripplingly expensive demands, the CSP can offer something much more attractive to the OTT.
Everybody tends to think about music and video and social networking and the big OTTs like Spotify, Netflix and Facebook and, if that’s the target, it’s no wonder CSPs are challenged to do commercial deals. Outside of those, though, there are a lot of options for OTT partnerships out there. People use a lot of different video services, for example. There is an opportunity to work with not just the big companies. For example, there is going to be another Facebook at some point, so there will be up and coming social network OTT providers who would want to work with CSPs to expand their reach, as long as it is made effective and easy.
There are also many OTT content providers such as magazines and news sources who want to reach a CSP audience. If a CSP can bring those on board at scale and work with a lot of partners the figures Northstream predicts are reasonable.
Similarly, with sponsored data, you are working with a partner that is willing to pay for data. There’s always the argument with sponsored data that you’re replacing retail data revenues from end customers with wholesale data revenues from OTT partnerships but this ignores the fact that if you make a service easier and cheaper to use, more people use it more often. It’s therefore not necessarily substitutional revenue, but additional revenue. That needs to be seen to play out in the market but it is starting to happen.
The concept of generating small amounts of revenue, enabled by an efficient OTT collaboration platform, from lots of partners is the way in which CSPs will transform their approach to OTT and really move the revenue needle.
