Could Qpass’s Wireless Model Work for Web-Based Micropayments?

While various startups attack the problem of enabling payments for small-value games, songs, and other content on the Web, a working model may already have established itself in the world of mobile commerce. Seattle-based Qpass Inc., a 7-year-old company that makes software that connects content sellers to mobile operators' billing systems, is seeing explosive growth in transactions. From the end of 2002 through 2003, the company says, transactions ballooned 500% while dollar volume grew twice as fast. The current growth rate in transactions month-over-month is 20%, says Scott I. Blanksteen, director of product marketing at Qpass. He will not reveal actual figures. “We've seen exponential growth,” he says. Until 2001, mobile-phone networks were loath to allow third-party billing, fearing that integration issues would interfere with the lifeblood of their own business. “They didn't want thousands of separate integrations into the billing system from thousands of content providers to cause a problem,” says Blanksteen. “When the billing system goes down, someone loses their job.” That began to change when Cingular Wireless licensed Qpass's software, mainly to sell ring tones. The software filters a multitude of content sellers through a single pipeline and allows mobile carriers to manage complex and instantaneous promotions and pricing on content, which can include everything from ring tones and Java games to so-called multi-media messaging and instant-voting campaigns, a la “American Idol.” Such products and services typically carry price tags in cents rather than dollars. The software, which is priced according to how many mobile subscribers sign up for premium services, manages distribution of revenue shares to the carriers and the content sellers, as well. Seven carriers are now using the software, including AT&T Wireless and Nextel in addition to Cingular, while other major networs such as Verizon and T-Mobil have developed their own systems. Third-party micropayments for premium content began to take off early last year as more carriers, seeing a major revenue opportunity, started opening their massive billing systems to content providers. Curiously, says Blanksteen, Qpass started out as an effort to solve the problem of micropayments on the Web, an issue that has plagued Web merchants since the commercialization of the Internet. Sellers of low-value content like articles and songs find that transaction fees for credit cards eat up any profit, so companies like Peppercoin Inc. and Bitpass Inc. have formed in the past 12 months to cut transaction costs through methods such as aggregated purchases and prepaid accounts. Others came before them. Qpass signed on clients like the New York Times early on, but shifted to mobile commerce early in 2000 after finding that selling billing and content-management software to media companies and other content providers wasn't likely to yield high growth. “This was interesting (to them) but it wasn't their core business,” says Blanksteen. “(Mobile) operators saw this a key to their business.” Could an approach such as Qpass's work in the wired world? Blanksteen thinks so. The key, he says, is to concentrate in selling transaction services to cable companies and the major Internet portals, such as America Online, rather than to content providers. Such companies already have huge billing systems that may only require customization for odd lots of low-value transactions. For now, he says, the 115-person company has its hands full with the wireless market. But that doesn't mean e-commerce is ignored. “We keep our eyes on that market,” he says.