Posts tagged “Net profit”

Revenue sharing is one of the oldest methods of earning profits, actually, I believe it may just be right up there with trading of goods and food. For those of you not in the know, I’ll explain what revenue sharing is:

1. A content provider wishes to distribute a certain type of content – charging for it.
2. The content provider has not ability to charge the consumers directly, thus he partners with another party – the transport maintainer.
3. The transport maintainer charges the consumer, while keeping a certain percentage in his pocket.
4. Everybody’s is happy.

In general, this model works really well in many markets – specifically those that are driven by unique content – for example the mobile content market (ringtones, screen savers, games, apps) – the Apple App store is a wonderful example of how this works.

In the telecom industry, the revenue shares business is very common – however, in many cases it is highly guarded as a secret – main reason is that now one wants anybody else to know how they do it. This hiding of information, usually results in some problems – as when there is hiding of information, only those in the know are able to access it. Those in the know are called “mediators” or in Herbew “Machers”. In this entire ordeal, the mediator also takes a small percentage – leaving the content provider with slightly less. So, now it looks like this:

1. A content provider wishes to distribute a certain type of content – charging for it.
2. The content provider has not ability to charge the consumers directly, thus he contacts a mediator to find him a transport partner.
3. The mediator engages the prospective transport maintainer.
4. The transport maintainer charges the consumer, while keeping a certain percentage in his pocket and passing some funds to the mediator as well.
5. Everybody’s is happy.

So, if everybody’s so happy – why am I bitching about it? very simple – people are Greedy and always want more – putting the entire model into a frenzy. In order to give an example, let’s imagine the following scenario:

1. Company A provides IVR based content utilizing Asterisk server, connected to the internet.
2. The mediator engages a premium number company, getting the total revenue of 0.08$ for every inbound minute of traffic.
3. The premium number company leaves 0.01$ in its pocket and also pays the mediator a fee of 0.01$ per minute.
4. The content provider gets 0.06$ of the 0.08$ – 75% of the net profit goes to the content provider.
5. Content provider says: “Hell, I want the mediators 0.01$ as well, and I think the premium company should only get 0.005$, so I would get 0.075$ at the end”
6. Content provider contacts the premium provider and starts complaining
7. Premium provider negotiates and strikes a deal for 0.07 to the content provider, leaving the premium provider with 0.005$ and the mediator with 0.005$
8. Premium provider says: “I’m not making enough money on this, actually, I’m loosing money – I’ll find a better alternative service for that access number”
9. Premium provider asks mediator to bring in a new customer, providing similar content – mediator has sure incentive here
10. Premium provider gets new customer and transfers the access number to the new customer – returning back to previous profits
11. Original content provider is left with no profits and only greed in his hands

Over the past 10 years, I’ve seen this vicious cycle happen over and over and over again, in various formats and scenarios – but always ending in the same outcome – the content provider always suffers. If you’re a content provider and you provide IVR based services, let the people that provide you the access make their cut and the people in the middle, without them, you will have a service with no access – which means no service at all. Don’t go about thinking you can keep all the profits to yourself, you will break the equilibrium of this business, and eventually, no one will want to do business with you.