Premium SMS is defined as a message charged at a higher rate than a normal SMS message and is used by third party providers as a billing mechanism so you can purchase content such as ringtones. You can also use Premium SMS to get information such as your latest horoscope, up-to-date sporting results, news and opt in to receive alerts.
Premium SMS has a varied reputation in virtually any marketplace you look into. They range from disputed or hidden charges to content and services that have questionable worth.
It is not for me to decide how, or on what people spend their money. If someone is willing to get a horoscope, or check the weather for a fee then that is his or her prerogative.
As discussed in an article from Tech Crunch, these fees are outrageously high for other goods that have an actual marginal cost. For a news feed or ring tone that has virtually no cost to its seller, it’s not difficult to share 30% to 50% of the revenue.
Even ‘merchandise’ such as virtual items or ring tones have very low
marginal value. That is the key to making the current Premium SMS
model work -- zero or low marginal value.
It is difficult to fault the MNO's for these high fees as they are providing significant value in this transaction.
As the article mentions, there are already some companies using this approach or very similar approaches to facilitate micro transactions on the web.
Looking at the current MFS ecosystem it is interesting to note that a MNO with decent market presence could quickly, and relatively easily market this service to their customers as an MFS offering supporting micro-transactions or ‘social transactions’ or whatever the marketing guys come up with.
Removing a third party allows the MNO to price the service at whatever level they choose. Instead of buying ring tones, the MNO can transfer value for a variety of low cost services. This would add convenience to the user and more transactional revenue for the MNO, either from post-paid bill increase or more frequents top-ups from pre-paid.
Realistically a broad service offering utilizing this approach is too much of a stretch for today’s marketplace, but support for web based micro-transactions it’s certainly something that is possible.
Both Carrier and 3rd party providers need to determine how they can serve both service offerings. I believe its possible to support micro-transactions and still charge a high fee for other services, such as your favorite team updates.
Its important to note that it is not necessary to cannibalize the higher priced services to support these micro-transactions.
http://www.techcrunch.com/2009/01/13/mobile-payments-getting-traction-on-social-networks-but-fees-are-sky-high/
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