The Revenge of Crazy Frog – 3 Lessons From the Premium SMS Debacle

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It is the revenge of “Crazy Frog”. Two weeks ago T-Mobile CEO John Legere called out Verizon and AT&T for being customer-unfriendly (in pretty stark language), and then last week his firm got sued by the Federal Trade Commission (FTC) for foot-dragging on ending “cramming”, the practice of billing excessively for Premium SMS.

For those of you that don’t remember Premium SMS, it was the way customers got ringtones, graphics, content, information, etc. before the iPhone and Android app stores. And Crazy Frog was the first Premium SMS megahit, generating $400 million in revenue in 2 years, despite being an ugly little guy with a very annoying ringtone. Fueled by the success of Crazy Frog, Premium SMS became “m-payments 1.0”, where service providers for the first time made it easy for third-party vendors to connect with and sell to mobile customers. It was magic! Everyone was happy – customers got customized content, third-party businesses boomed, and service providers got a significant boost in ARPU.

But as the business grew, it turns out the frog had some warts. Premium SMS transactions became the stock in trade of get-rich-quick artists on late night TV. The business became rife with customer complaints, and service providers didn’t have standard processes for evaluating vendors, issuing refunds, or stopping fraud. Service providers went from being viewed as trusted content and payment providers to shills for anyone that wanted to drop a $9.95 charge on page 86 of my cellphone bill.

Fast forward to today, where mobile service providers now want to be part of “m-payments 2.0” in a world where the competition will be Amazon, Google, PayPal, Apple, Visa, and Mastercard. In order for them to rise to this challenge, they’re going to have to learn from their 1.0 experience. Here are three things they need to do differently this time:

1. Invest in the consumer first

In the Premium SMS business, once service providers opened their premium SMS Gateways and figured how to put premium charges on the bill they were “ready to launch”. This time around, it needs to be different – it needs to start with the right experiences for the consumer. How will refunds be handled? Will every customer get the same treatment? What are the likely fraud scenarios? How will they treat repeat offenders? Then, and only then, providers can build the other elements of the ecosystem required for a successful launch.

2. Enable intelligent decisions on the front line

In the Premium SMS business, customer service call centers were unprepared for refund requests. With no system support, representatives could not consistently make good decisions regarding refunds. As a result, providers got a bad reputation (e.g. FTC lawsuit) despite generous refund policies. Going forward, service providers must give their service representatives the right tools to make intelligent, consistent decisions regarding refund policies. These tools must take all available information – transaction value, customer history, vendor history – and give representatives clear guidance on how to treat the customer.

3. Realize what busines you are in, and get help from those that know that business

Instead of viewing Premium SMS as a new line of business, service providers primarily viewed it as a technical evolution of their existing SMS service. As a result, they looked to their existing vendor ecosystem for guidance and support – mostly those with deep Network Infrastructure, OSS, and BSS experience. If instead they had looked to vendors with experience in financial services, supply chain management, etc. they would have gotten better guidance on how to build, harden, and deploy the processes and procedures necessary for a successful and less fraud-ridden service.

At Pega, we believe that digitalization will bring industries together in ways that we cannot currently imagine and create new cross-industry requirements for managing the customer experience. Communications, healthcare, and financial services will merge in unique new ways that put increased pressure on people, processes, and existing systems. To respond, organizations must think differently, and look not only to their industry peers, but to the leaders in customer experience across industries for guidance and inspiration. M-payments 2.0 is a massive opportunity for mobile service providers, but with all due respect to the crazy, annoying, frog, they need to think differently to ensure that they can seize the opportunity to turn him in to a prince.