Fortumo On Mobile Payments And The Long Tail In Eastern Europe

A customer's ability to buy virtual goods is always limited by the payment methods available to him or her. When a virtual goods business wants to open up a new demographic or geographical region, adding a new payment method is usually part of the process. Right now, a business that wants to expand its geographical range to include Eastern Europe has few options besides signing up with mobile payment service Fortumo. 

"There are so-called traditional SMS-gateway providers in every country, and some international providers are also present in some countries. But a service similar to Fortumo, Web-based with instant service activation in multiple countries at once and no fixed fees, is something new in that region. There are some local providers but at the moment no one in multiple countries. The main reasons are high entry costs and bigger risk in those countries," said Martin Koppel, Fortumo's Head of Marketing since the site's launch in 2007.

Fortumo's highest-profile partner in the virtual goods space is Finland-based MoiPal, and this is no accident. Right now, Fortumo offers mobile payment service to Finland, Sweden, Norway, Denmark, Estonia, Latvia, Lithuania, the Czech Republic, Romania, Bulgaria, Serbia and Poland. It also offers service to China and Malaysia, with service to more underserved countries coming on the way in 2009.

"Croatia, Hungary, Ukraine, Bosnia, Taiwan, Singapore, maybe Vietnam and Korea. These are the countries on our list. From Western Europe, the bigger markets, we want Germany, Spain, Italy. At this moment we have plans to launch service in the US in Q4 2009, but we will see if it happens or if it pushes back to 2010," said Koppel. 

Fortumo is primarily interested in expanding into areas where the market for mobile payments for online goods, virtual and otherwise, is still emerging. Fortumo's interest isn't just being another competitor in a crowded payment market, but instead in being able to offer its clients access to entirely new groups of users not yet served by comparable services like Zong.

"It has been a problem for awhile for social networks, virtual worlds, and MMORPGs to monetize users in Eastern Europe. They have a huge user base there, but without a payment method you can't sell to them. With international players it is really a huge problem, even in Southeast Asia. The alternatives like credit card and PayPal aren't popular over there and people aren't willing to use them, especially young people who want to use easy mobile payments. Most of the time young people in Eastern Europe don't even bother to have credit cards," said Koppel. "For a virtual goods seller, it would be perfect for them to let Eastern European users pay via SMS. If a provider would want to monetize that user base, then typically the provider has to have contacts in every country, and that's a very painful process. This is the market we are targeting, to provide an easy online alternative. You can set up the monetization through Fortumo right away, and we can make their lives a lot easier as well."

A major part of Fortumo's business plan is bringing the "long tail," the idea of profiting off of low-volume sales to a large number of individual clients, to the world of mobile payments. Of Fortumo's over 16,000 clients, most are much smaller than MoiPal. Koppel describes them as primarily small-to-mid-sized games and virtual worlds only interested in monetizing off of very specific regional communities.

"About 10% of the whole user base are bigger players who have really decent user bases. The rest of the people, 90 or 85%, are offering maybe one service and getting one message. The tail is very long if you look at Fortumo's users and services," said Koppel. "We think If the tail is long enough, those 85% who are not generating huge revenue but just doing something for fun or not too successful, if that's still a big number of users, that eventually will accumulate into a decent amount of revenue for us at Fortumo as well."

Since Fortumo's launch in 2007, the company has concluded 1.7 million online transactions, with Fortumo charging a 5% service fee on each. These transactions weren't just for virtual goods, though Koppel notes that is the majority of Fortumo's business, but also for physical goods and other SMS services. Any new client, regardless of how many or few transactions they conclude, is an asset according to Fortumo's long tail business model. Koppel gives the impression that the company's overhead is low. 

"There is customer support which is a cost in that sense, but all in all every new client doesn't bring any additional cost to Fortumo, or it's really marginal. It's decreasing over time," said Koppel.

Growth is Fortumo's goal right now, more so than getting their platform adopted by more major players in the virtual goods space. The company sets a goal for itself of 10% growth in total number of users weekly, which has amounted to 20 to 25% overall growth in the user base from month-to-month in 2008. Total number of transactions grows at about 15% per month, since the total number of transactions is overall much larger. Koppel expects growth to accelerate in 2009 but can't say by exactly how much.

"It's pretty hard to predict, since we're adding up so many countries. … In general, I think the user base could be growing by approximately 30% or 35% a month because of the new countries. If it comes to the message and transaction numbers, I don't want to predict anything, it's really hard," said Koppel. 

When asked if Fortumo would consider Zong and similar services competitors, Koppel's response says much about his company's philosophy about their role in the marketplace. Koppel believes most of his clients are generally too small to of much interest to Zong, and Fortumo primarily operates in regions where Zong is not already an easy service option. If anything, he views them as potential collaborators at some point in the future.

Right now, Fortumo is more interested in opening up emergent markets where users may not be spending a lot on virtual goods or other online transactions due to a lack of mobile payment options.  Eastern Europe is clearly one such market in Koppel's estimation.

"Let's take, for example, a random social network where you want to send a virtual gift to your friend. If it costs $1 dollar to send the gift, then most of the people [from Eastern Europe] actually wouldn't log in to their PayPal and pay for that, or they wouldn't even think of giving their credit card data," said Koppel. "The easiest and most impulsive way is to just send an SMS payment. That is why those kind of businesses are huge with SMS-payment. That doesn't mean other payment methods aren't working at all, but usually the SMS payment is quite important." 

If Fortumo's estimation of the Eastern European market is correct, then their strategy allows them to get the valuable first foothold in an emergent market that could become very significant in the future. Virtual goods are increasingly a global business since it's easy to sell to anyone in any country provided they can understand the platform and find a way to pay for what they want. Fortumo gives Eastern Europe a fairly easy way, and may open up more countries to the sort of low-friction payment methods that can drive virtual goods sales in the future.

"We see a huge potential for mobile payments in Eastern Europe since all the changes in that region are [occurring] much faster than in western countries," said Koppel. "Internet and mobile user numbers are growing rapidly and people are
more into Web business."

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