THE M-COMMERCE EXPLOSION: IS THERE STILL HOPE?

It was a mobile provider's dream: A man walking down the street uses his phone to buy and sell stock, receive a discount on jeans at The Gap or purchase a Coke from a vending machine. But the mobile industry has quickly found that this vision has remained exactly that — a dream.

Like most of the high hopes that operators shared for wireless data in 2000, the idea that millions of people would replace their credit cards with mobile phones melted away last year. Instead, the wireless industry faced the reality that, for a variety of reasons, customers weren't compelled to use m-commerce — and most data services, for that matter. In a nutshell, the promise of m-commerce has m-ploded.

“Early on, some of the ideas I saw were pretty wild,” said Tom Hogan, executive director of business marketing with Cingular Wireless. “Everyone was jumping in with new ideas, but they didn't think about the business models that could make them work.”

Richard Siber, partner with Accenture, said there are a “gazillion” reasons why m-commerce failed to explode. He said lousy user experience, bad user interfaces, slow-speed networks, security issues and the problematic distribution of money between content providers, retailers, carriers and handset vendors all contributed to the quick downfall of the m-commerce dream.

The financial services industry is also partly to blame for the stalling of m-commerce. Financial firms were supposed to be among the first to legitimize the m-commerce space. However, the Bank of Montreal, which was the first bank to make an aggressive step into the North American wireless commerce space, ended its m-commerce service in June, and Wells Fargo, Bank of America, Citibank and Washington Mutual have followed suit.

Meanwhile, highly touted m-commerce start-ups such as Brokat and W-Technologies, which inked deals with many major financial institutions, have shut down. Other companies such as 724 Solutions and Aether Systems have moved away from the financial services industry.

Since 1998, technology vendors and financial institutions have spent about $250 million on wireless banking and brokerage services, yet less than half of 1% of all mobile phone subscribers ended up using those services, said Michael Haney, senior analyst with Celent, an analyst firm focused on the banking industry.

“The financial institutions felt this tremendous pressure [to get into wireless],” Haney said. “They oversimplified a lot of things, and didn't give themselves much opportunity to study what wireless was and whether users wanted it. They basically went out there and offered a wireless Web.”

The hard economic times that hit the United States account for one of the biggest factors for the widespread pullback in the m-commerce industry, analysts say. Budgets for new projects are shrinking everywhere, and new projects like wireless aren't as much of a priority.

Likewise, m-commerce — at least the way it has been envisioned — isn't a large priority for many carriers. Cingular Wireless introduced a micropayments capability more than two years ago that gave the company the ability to bill for digital goods and on behalf of merchants for hard goods. However, it has never sold hard goods.

“We've focused on our ability to charge for ringtones and graphics,” Hogan said. “Where we see near-term success is in similar arrangements: low dollar amounts and digital goods, as opposed to hard goods. We have found that customers aren't looking for hard goods.”

SAMPLE OF U.S. FINANCIAL INSTITUTIONS THAT HAVE POSTPONED OR CANCELLED WIRELESS SERVICES Dreyfus Brokerage Services (acquired by JP Morgan Chase's Brown) Wells Fargo's retail banking First Union (acquired by Wachovia) Fleet's Quick & Reilly Regal Discount Securities' Investrade Bank of America's retail banking Citibank's retail banking Keybank Wachovia's retail banking Washington Mutual Source: Celent

Is there is still hope for m-commerce? Yes, say even the biggest skeptics, though the definition of m-commerce may move far away from what the industry had initially predicted.

“The reality is that m-commerce means a lot of different things to a lot of different people. It's hard to say what it is,” said David Steinberg, founder and CEO of InPhonic, a provider of wireless software and services that purchased the assets of bankrupt W-Technologies this year. “I think it's going to turn out to be a much simpler format that won't take over the world, but can bring great ARPU increases to carriers.”

To wit: In June, InPhonic introduced a capability that lets eBay members receive alerts when they are outbid on Beatles posters and Luke Skywalker action figures. Users can then instantly re-bid on these items from a mobile phone using two-way SMS technology. eBay members are charged $2.99 per month for the service, which Steinberg said now supports thousands of eBayers.

According to The Yankee Group, the new service has the right ingredients for success: It allows for quick and easy transactions and is priced at a rate justifiable for the convenience provided. The $2.99 price to eBay addicts is worthwhile if it makes the difference between winning or losing a coveted item.

Earlier this month, m-Qube, a U.S. mobile and marketing management company, and CambridgeSide Galleria, a shopping mall in Massachusetts, launched a service that allows shoppers to use their wireless phones to receive instant coupons from the mall's stores. Shoppers dial an 800 number and choose from a menu of options to receive an SMS blast with a code good for a store coupon.

“SMS will play a catalyst role in [m-commerce],” Accenture's Siber said. He envisions a time when a customer calls directory assistance for a phone number to Home Depot, for example. That request is answered with an SMS message pushed out to the phone. The SMS message will then ask if the user wants directions. If the user punches “yes,” another SMS message is blasted out to the phone containing directions to the nearest Home Depot.

Accenture is working on these types of solutions. “Is that m-commerce? Well, it's a shade,” Siber said. “You're initiating a transaction and getting a small bit of information, but enhancing the value with an SMS blast, all of which I'm willing to pay more for.”

RINGTONES ARE MUSIC TO CARRIERS' EARS U.S. consumers already buy more than 50,000 ringtones each day for about $1 per ringtone. That amounts to $18 million per year for the wireless industry. By 2003, ringtones will become the leading B-to-C premium content delivered over wireless devices. That amounts to $50 million per year for the industry. Source: The Yankee Group

In Europe, SMS is becoming a natural extension for delivering content because it has been a primary communications tool for mobile users for about 10 years. With the failure of Wireless Application Protocol (WAP) services in Europe, carriers turned to enhancing SMS to push data content to users. Such efforts are evolving into new m-commerce opportunities such as the ability to pay parking meters, vending machines and car washes.

European operators are also poised to launch new multimedia messaging services (MMS) that should make m-commerce more compelling because it will involve more graphics and multimedia applications.

SMS is in its infancy in the U.S., where mobile carriers this year began offering the ability to send and receive SMS from any mobile user, regardless of provider. Inter-carrier SMS was an overnight success, and U.S. operators are beginning to exploit more of its capabilities.

“Sending a message about stocks or football results can turn into sending a message to remind people to buy flowers for an anniversary,” said Malcolm Lewis, director of mobile industry business with CSG Systems, a vendor working on m-commerce payment solutions.

Messaging services, when allowed to travel via the Internet and wireless, are already resonating in the banking industry because they give customers the power to customize content, Celent's Haney said. Brokerage firm Charles Schwab has noticed an increase in the number of stock trades among the retail brokerage customers who use both the Internet and their mobile phones to receive Schwab alerts about stock prices.

“SMS begets more m-commerce opportunities as more and more people are looking to their devices to do multiple things,” Cingular's Hogan said. “If you go out and focus just on m-commerce and push just the transaction, you're probably reaching out beyond anyone's comfort level.”

It's that comfort level that carriers must learn how to target. Although wireless is obviously here to stay, it's going to take a lot longer to convince customers to use their mobile phones for anything beyond making voice calls.

RINGTONES ARE MUSIC TO CARRIERS' EARS

U.S. consumers already buy more than 50,000 ringtones each day for about $1 per ringtone. That amounts to $18 million per year for the wireless industry.

By 2003, ringtones will become the leading B-to-C premium content delivered over wireless devices. That amounts to $50 million per year for the industry.

Source: The Yankee Group