Buying on the run

Wireless operators begin to put the building blocks in place to enable e-commerce Wireless operators begin to put the building blocks in place to enable e-commerce

In their off-hours, when they should be relaxing, die-hard industry mavens from wireless operators, solutions providers and traditional Internet players share a common daydream.

In that vision, a wireless customer walking down the street automatically receives an electronic coupon for a product that the customer already has expressed interest in. That customer strolls into a nearby store, finds the item from the coupon, then enters the barcode number from the product into the phone. A service offered by the operator will find that product at other nearby stores or online, possibly for a lower price. The customer then can go to another store to make the purchase for a lower price, buy the product online or use the coupon to buy it there.

That same customer may then decide to see a movie. She can find a movie and read reviews about it using her handset. Then, via the wireless Internet, she can find the closest theater and times and buy tickets in advance. After the movie, she can buy the soundtrack from her wireless phone.

"I view the phone as an electronic commerce device," says Charlotte Burke, vice president of services development for Bell Mobility. She's not alone. Forward-thinking operators such as Bell Mobility and countless application and solutions developers are working to make these visions a reality.

But when will customers be able to spend a Saturday afternoon like that? It might take some time because wireless transaction-based offerings will arise from an evolutionary process, just like e-commerce did on the landline Internet, Burke says. The Internet started as a place to find essentially limitless information.

Today, although the amount of e-commerce transactions that occur online is small, hordes of Internet companies have built their businesses around the concept. The enabling processes, including securing transactions and employing credit cards, have been perfected.

Wireless Internet is progressing along a similar path. Today, wireless information services abound, and many have been designed to evolve into actual transaction-based services.

But two primary factors prevent operators and applications providers from offering more transaction-based services: technology and customer mindset. The number of Wireless Application Protocol phones in use in the U.S. today is still small - and ubiquitous, two-way short messaging service doesn't yet exist. In addition, some operators are looking at information services as a way to help customers grow more comfortable with using their handsets for more than voice calls. That will be the first step toward introducing the idea of the phone as an e-commerce device. Just as they did with the Internet, customers will have to warm up to the idea of making purchases from a wireless phone.

In the meantime, operators and solutions providers are experimenting with different services and plotting their evolutions to transaction-based services. Those same companies also are experimenting with different business models.

Evolution time

Operators such as Verizon, Bell Mobility and Sprint PCS are taking the first steps toward wireless e-commerce. Each company currently has a few e-commerce arrangements, including deals that allow customers to buy books and other items from Amazon.com via their handsets.

Verizon recently launched a service with Barpoint that enables customers to enter product numbers into their handsets to comparison shop.

Bell Mobility has 40 content partners now, including relationships with Indigo.ca, a Canadian-based online retailer, and most Canadian banks. "This is an evolution. A number of them are at the information stage, but they will be evolving to transactions as a second stage," Burke says.

Although operators may be limited by what vendors offer, they may have another reason for offering information services first, then progressing to e-commerce. "There's an issue with feeling comfortable with conducting business wirelessly. The technology is less than a year old. We want to make sure customers are comfortable," Burke says.

Part of making customers comfortable is choosing applications and information that users want. "You have to be providing content that is of interest to them. If not, you might as well not get started," says Marc Lefar, vice president of wireless Internet, data services and e-business for Verizon.

Bell Mobility has found that one way to keep users interested in using information services is to offer information about events such as festivals for as long as they are relevant.

Offering information to wireless users, however, doesn't mean porting services directly from the Web. "We believe the mobile phone is a new medium," says Rama Aysola, CEO and founder of AirFlash. "Just like you couldn't translate a newspaper or TV directly to the Web, you can't translate the Web to wireless." AirFlash is developing solutions that combine location-specific information and e-commerce.

At least one analyst would agree. "The idea that you can map content from a fixed Internet environment onto the mobile environment is a false assumption," says Duncan Brown, principle analyst for Ovum.

Beyond developing information services that customers want and before users are ready to accept widespread e-commerce applications, some operators and third-party solutions providers are finding ways to make money without executing a transaction. "We have the ability to match up a buyer with a vendor," Lefar says. "We can get a significant portion of that revenue stream by providing a match while a customer is mobile."

Bell Mobility offers information services such as restaurant and hotel guides that allow users to make reservations. "They don't have transactions, but they lead to business," Burke says. Operators are interested in such services because they essentially can negotiate a commission for sending customers to a business.

Such services are based on permission-based marketing, where wireless customers use a Web page and a computer to define their interests. Then a wireless operator usually works with a third-party company that specializes in collecting data and supplying pertinent offers or information.

AirFlash is one company that can allow operators to offer such services. AirFlash's customers are wireless operators or portals such as Excite@Home, which partnered with AirFlash to extend its services to wireless users. AirFlash creates content specifically designed for wireless phones, offering what it calls mobile relevant content such as Yellow Pages information, movies, events, automated teller machines and hotels. Customers can add location information by typing in their locations, but soon operators will be able to supply that information automatically.

Excite@Home self-brands AirFlash's content. Excite@Home then can make deals with operators - it has a relationship with AT&T Wireless - to offer information to end customers.

AirFlash makes deals with companies such as Travelocity that specialize in online hotel booking and other travel planning. When a wireless user makes a reservation from a wireless handset, AirFlash gets a commission from the hotel, which it shares with its carrier or portal customers. So with Excite@home, for example, the portal may in turn have a deal with the wireless operators to pass on some of those earnings.

Moving into a more pure e-commerce offering, AirFlash also has a deal with Inktomi. AirFlash has plans to launch a mobile shopping engine, integrating Inktomi's existing relationships with e-commerce companies into AirFlash's wireless offering. Mobile users will be able to purchase items using a common wallet and common shopping cart.

Tying knots

One of the first sectors that has whole-heartedly embraced wireless e-commerce is the financial industry. "We've focused on getting the financial services sector up because it's clear to us that the concept of real-time financial information resonated with the customer," Burke says. Bell Mobility has partnerships with five of the seven Canadian banks and several financial trading organizations such as Schwab Canada. Each relationship Bell Mobility has with these companies is set up differently, though one aspect may be key: The closer operators work with partners, the better the solutions likely will be.

"Traditionally, financial institutions have viewed mobile operators as suppliers of needed infrastructure. Now what we're suggesting is that financial institutions and mobile operators have come together more as partners," says Susan Witteveen, vice president of e-commerce for 724 Solutions. 724 Solutions is a software company that works primarily with financial institutions that want to make their services wireless-enabled (Figure 1).

Operators bring valuable information to the table because they understand how customers want to transact in the mobile world. The banks or financial institutions also contribute valuable insight because transactions are their expertise. "There are a lot of complementary things they can do as partners rather than look at each other like suppliers," Witteveen says. "They can put together a much richer offering."

For example, 724 Solutions recently designed a service with Bell Mobility, the Bank of Montreal and Indigo.ca. The service allows Bell Mobility Web-enabled users to visit the Bank of Montreal's wireless service site and buy products from Indigo.ca. All parties worked together, which helped Indigo.ca determine the appropriate products to offer wireless users. Close collaboration allowed the Bank of Montreal and Bell Mobility to work through security issues and discuss what types of financial products could make the offering more enriching in the future.

The parties also worked together from a marketing perspective. Typically the operator doesn't have much part in marketing such a service because the Bank of Montreal actually offers it. Although the companies couldn't share some confidential information about customers, they could discuss the general customer base that would be interested, Witteveen says. Bell Mobility also struggled with how to price the services, and the bank had an influence on the model the operator settled on.

However, building tight relationships doesn't mean that operators should do so with only one or two content partners. "Right now operators are pretty much adopting the walled garden approach," Ovum's Brown says. Many operators are making deals with one bookseller, one portal or one bank. While that may be a valid model as a first step toward e-commerce, it won't last. "We don't think that operators or others have realized that this is a short-term strategy," he says.

If a consumer banks with bank A and that consumer's existing wireless operator has a relationship only with bank B, that consumer has a choice. He can switch operators, switch banks or do without the service - none of which is an ideal solution. "Customers will want to choose for themselves," Brown says. "They don't want to be forced into a relationship, the same way that using one ISP doesn't force you to only shop at Amazon.com."

Many operators are finding ways to allow customers to choose which sites they'd like to visit. Bell Mobility is launching a personal menu so that customers can go to a Web site from their computers and set up their own menu of Web sites that will pop up on the screen of their wireless phones. Bell Mobility will have a default menu, but customers could create their own.

Verizon also has launched its markets with the ability for customers to use their desktop computers to personalize information. "You have to have the traditional Internet text desktop interface so you can go to a place where you can set up the preferences and content you want," Verizon's Lefar says.

Severed cords

Operators may be learning that it's better to work closely with application developers than to be left out of the equation altogether. Some Internet retailers are offering services directly to wireless users, who can type in any URL from their Web-enabled handsets. Amazon.com has a strategy of working with operators, portals and handset manufacturers. Such a varied strategy ensures that the site will be widely available to wireless users.

Amazon.com also may have such a strategy because it can be cumbersome to work with operators. "They believe the carriers move too slowly," says Alan Reiter, president of the consulting firm Wireless Internet and Mobile Computing.

Despite the buzz around mobile data applications, Amazon.com gets the impression that mobile data doesn't rate well on operators' radar screens. "While wireless Internet is hot, it's still a small part of their marketing budgets," says Charles Napier, product manager for Amazon.com. "Voice is still key."

Third-party companies that don't opt to partner with operators may be heading down the wrong path. "Companies that try to get between established business and the end user are not going to survive," says Sergey Fradkov, chief technology officer for W-trade. Financial institutions are W-trade's customers, but the company also works closely with operators. "We partner with operators because we provide them with a larger reach," he says. W-trade has dedicated lines from its data centers to AT&T Wireless, BellSouth and American Mobile Satellite.

Partnerships also offer operators one easy way of making money in the mobile Internet business. "Selling portal spaces will be a business as well," Reiter says.

Sprint PCS and Verizon essentially sell handset real estate, or space on their initial portal sites, to the highest bidder. Sprint PCS negotiates to determine if a site will appear on the opening page or embedded under subjects such as shopping or finance.

"A lot depends on what they bring to the table," says Keith Paglusch, senior vice president of operations for Sprint PCS. Recognizable Internet names have a better chance of getting space on the opening screen.

Verizon says that companies are clamoring for space on its opening page because when all its mergers go through, the operator will have more than 23 million customers. "People call us every day and say they want to pay us for real estate on the menu because they understand the value of those eyeballs," Lefar says.

Underlying all the decisions operators must make about services and technology is the question of creating an ideal business model. While operators are eager to earn revenue from transactions, they may have to bring more to the table than just the pipe. Many operators point to NTT DoCoMo's i-mode service. The carrier is charging fees to applications providers for offering services.

Amazon.com's Napier thinks that operators in the U.S. are missing the point if they think they can imitate that model. "i-mode is doing billing and collections services. They're not making money because they're a walled garden," he says. NTT DoCoMo can charge for delivering services, he says, because the operator also is performing a service: billing.

In the end, patience may be the best advice regarding the development of wireless data business plans. "There may be thousands of people using these services today, but there will be hundreds of thousands tomorrow," says Bell Mobility's Burke. "So how can you craft a business model today?"

Securing mobile e-commerce transactions is in the early stages, and the industry is working to solidify the process. Several companies have joined to form an association called Raddicchio with the goal of hammering out wireless security standards. In addition, the Wireless Application Protocol (WAP) Forum is developing security for the standard.

Some portions of securing wireless transactions are easy because they are based on existing Internet solutions. Because most of the existing mobile e-commerce services are delivered via partnerships with Internet players that already have e-commerce offerings for computer users, operators can rely on standards such as SSL encryption with which those players have experience. Amazon.com requires a secure SSL link from an operator's WAP gateways to its servers.

With most digital technologies, operators have confidence in inherent security in the airlink. From there, the third party often handles security. In one scenario, customers input their credit card information using a computer. A company such as AirFlash stores that electronic wallet on a secure Web server. When a user wants to make a transaction, she will input a password, which assures the operator that it's the correct customer using the handset. The transaction request travels via the carrier's WAP gateway to AirFlash's back-end servers where the credit card information is stored.

Like AirFlash, Amazon.com stores credit card information at its servers so mobile users don't have to input theircredit card numbers from their phones each time they make a purchase.

Entrust, which secures landline e-commerce transactions, also is serving as a public certificate authority in the wireless world. Companies such as Entrust issue certificates, which act like passports by confirming that users are who they say they are.

The wireless world adds a new twist to Entrust's business, though. That's because wireless operators have more control over the browser than operators or ISPs have in the desktop computing world. As a result, some wireless operators wish to become their own certificate-issuing authority. Such a function could offer an additional revenue stream for them. Entrust could sell operators the technology to become certificate authorities or operators could essentially become resellers of certificates issued by Entrust.

The WAP Forum is working to define a standard for including a digital certificate in the handset and not just the server. In the landline world, computer browsers use SSL, so WAP is working to include SSL in mobile browsers as well.

724 Solutions, a software company, has a several pronged-approach to enabling secure services. The company has three security goals, including authenticating both parties in a transaction, encryption or making sure that data isn't compromised and handling repudiation.

"It's really important that we have an open yet secure platform," says Susan Witteveen, vice president of e-commerce for 724 Solutions. 724 Solutions can work with any certificate authority.

The wireless world may have an advantage over the wired world when it comes to developing security solutions because of its insistence on standards. "The phone world works a little different than the PC world," says Ian Gordon, director of business to consumer marketing for Entrust. "The phone companies are never in a situation where they have to buy from a single vendor. They demand things work on open standards, and they won't buy unless it does."

By contrast, in the landline Internet world, Web sites must be coded differently depending on the browser. Entrust is fully supporting the security standards the WAP Forum has set out to define.