DM: So Jens, whenever we hear from Flexion, it’s always talked about in terms of your “wrapper” technology. Can you explain exactly what this is please?
JL: Sure, it works by creating a small amount of code that is wrapped around the original content. This wrapped code can then enable a range of additional services, such as in-app billing, DRM (Digital Rights Management) and content discovery, enabling content owners to create customised pricing options, including what we call “Try & Buy”. They can also offer more content to their customers through a dynamic storefront delivered with every wrapped game.
But the wrapper is nothing without the back-end licensing and billing platform we have. Effectively, it’s an easy way to enable in-app billing, and what we have done over the last three years is to focus on making the wrappers completely industrialized, so we can wrap any Android or Java app. The developer submits the content to an FTP site; it’s wrapped and returned, and then after that, they can decide how they want to licence and price the app.
The developer can come to us and ask us to help them charge for their app. We help them wrap the content, and we can also help them distribute it through preloads/app store downloads and other channels. We are currently live, with billing, in 64 markets, with 15 more coming soon.
DM: So what’s the appeal for games developers?
JL: There are a number of ways to sell content. In the Android space, no one really wants to use the pay first, download later (pay-per-download) model. Premium content has to compete with a lot of free content from Android Market and this has meant that you really need to be more creative with your offers.
With Try & Buy, the user downloads the content, and then the developer decides how they pay. So it could be that they get to try the game for a number of plays or a period of time and then the purchase options are displayed with the help of the wrapper. Or it could be a rental or subscription model.
The main options are trials, either a limited time or limited number of plays; rental; or subscriptions, and this could be a multi-product subscription, so you could have an all-you-can-eat subscription, and as long as you are subscribed, you can access a portfolio of games and apps.
We started out with a football subscription service a few years ago, doing live scores. This was perfect for a subscription model, because people consume live data during the season, and then during the summer they might not want it.
For games, in places like India and other regions with a low credit customer base, Try & Buy works well. We will try and sell them the app, but if they try to buy it, and don’t have enough credit, we use something called ‘bounceback billing’ to give them the option of renting it for a day. This is good for ARPU, because typically, they rent it a couple of times, and then later on, when they have enough credit, they buy it.
India is a very interesting market, in fact. Operators have seen high download failure rates, up to 90 per cent, because customers do not have enough credit to buy full-price games, so our solution lends itself perfectly to that market. Also, being able to use direct operator billing is good. Premium SMS was a limitation - you could only charge 20 Rupees max, and the payout rates were horrible; it made it very difficult for anyone to make money. So the combination of a very low retail price - too low for the big content providers to feel they get paid enough for their product - plus the 90 per cent failure rate, and low payouts, made it a tricky market. But now there is a whole new opportunity coming through local OEMs (handset makers). 20 per cent of the Indian market consists of local OEMs, and we have established a couple of interesting deals with them.
We have been live in India for three or four months, and it’s going well; the conversion rates are great. It’s still early days for us, so we are still trying to find the right price points, but we are seeing very good conversion on quite high prices.
We have just launched in Ovi with Nokia, and I was surprised to see markets like Thailand Indonesia and Mexico, performing very well. There is not the same price level and the payouts are not very good, but the volumes compensate for that. We did a two-phase launch in Ovi and we realised in the second phase there were all these big markets I have just mentioned that were performing well, even though we did not expect much from them at all. The same is true of Nigeria; the conversion rates are great because people there don’t get bombarded with as much stuff.
DM: So who are your customers?
JL: It’s a mixture of operators, handset makers and content providers like EA, Glu, Digital Chocolate and Popcap. We started out working only with operators. 3UK was the first one, then Orange, O2 etc. But we went from being a 1-2-1-led service provider, to being 1-2-many, working with Sony Ericsson, our first preload customer, serving them and many providers in many markets.
The next step is to go many-to-many and let as many developers as possible wrap their content and provide it in multiple channels, GetJar, BuzzCity or wherever. We are not there yet but this is our vision, to work with as many developers as possible, to service thousands of them. Because increasingly, is seems like the app stores are allowing the big content providers to run their own service within the app stores, where previously they were walled gardens.
Orange Group is our biggest operator partner. We have an integration with their billing platform live in five or six markets, and we have another five hooked up to the platform, so we integrate on their behalf to the global billing platform. The operator takes the money in, and pays us our share.
DM: So what evidence do you have that the wrapper and the alternative in-app billing models it enables, work?
JL: What we see is that when you wrap an offer with in-app billing, most customers convert to a download. With the pay-per-download model, if you have a really good portal, you will typically have around a 30 per cent conversion rate, but we get 100 per cent conversion to download. In fact, we compared the models - Try & Buy versus normal pay-per-download - and we had 700 per cent more traffic on the portal for Try & Buy compared to pay-per-download. This is the way to increase penetration. Let the customer download the game, and if they like the content, they will buy it. Maybe not straight away, but in the months following.
And in the preload environment, within a 12 month period from device being sold, if you preload four or five games on a device, you will sell one, so it’s easy for operators and OEMs to look at the business case.
DM: And at the start of our conversation, you talked about a dynamic storefront delivered with every wrapped game. How does that work?
JL: Once the wrapper has been enabled with a product, having run operator stores, and comparing traffic on the stores with that within the app, we saw that we had 500 per cent more daily traffic within the games than to the operator store.
Five times more people were playing games on a daily basis than visiting the operator store, but that had previously not been used as marketing opportunity. So within the wrapper, we have enabled an on device portal called Discovery. When you start your game, you also see the Discovery storefront as part of the wrapper interface. This allows the customer to easily explore and download more content. Discovery is like any app store and can be dynamically updated... So now you are addressing a new market that is easier to sell to, because you can target existing gamers, rather than asking them to go to an app store.
This solves the problem you have in any mobile content space of discovery. Because if you have downloaded something once, you may not remember how to get back to the store, so why not retail directly to the customer? It is live now; we are using it with EA, who are using it to promote their other games, so customers who download one title will see others.
Also, in Android, the wrapper works as a good DRM solution. This has been a problem for content providers and operators, who have been late in the game on Android. There is not much protection for content, so when someone has purchased a game from an operator’s portal, it is often the case that they can quite easily forward it to someone else, but that is not possible with a wrapper; it controls access to the game.