Waiting for the m-plosion

It's a niche market now but expected to be a juggernaut in five years. Here's what must happen for m-commerce to come into its own

It's a mobile service provider's dream. In the near future, a man will walk down the street and his mobile phone will vibrate. "Comtextel releases third quarter profit warning," says the readout. "Recommendation: Sell Comtextel stock. To sell, press `1'. To keep, press `2.'" The man pauses to consider, takes a deep breath and presses `1'."Sale executed," reads his handset.

Heady from the excitement, he needs a soda to calm his nerves. He goes to a machine and, instead of fishing through his pockets for change, points the handset at the soda machine, keys in a code and pushes a button on the machine. A soda pops out.

Coming to an intersection in a shopping district a few minutes later, the handset vibrates again. "On sale at The Gap: men's khaki pants. Twenty percent off! Turn left now!" Both The Gap and his service provider know he likes khaki pants. The man turns left and makes the purchase.

This may not be the stuff of James Bond movies, but it is the scene most wireless operators hope will be played out by thousands of people every day in the not-too-distant future.

If you listen to the analysts, those hopes are not misplaced. According to Frost & Sullivan, the North American mobile commerce (m-commerce) market in 1999 was $234.2 million. In 2005, total revenues for the market is expected to reach $5.81 billion (Figure 1).

Yet how is this going to come about? Are today's featured applications - stock trading over a handset or ordering books from Amazon with a personal digital assistant (PDA) - going to drive this growth? How many people actually trade stocks over the wireless Web or even know someone who does on a regular basis?

The answer is, frankly, not many. "I would estimate that in North America, regular users of the wireless Web are between 750,000 and 1 million," says Justin Webb, chief strategist for ViAir, a provider of mobile applications and software infrastructure for the mobile Internet. Webb also served as Sprint PCS' vice president of data services from 1997 to 1999, when the carrier was constructing its mobile Internet network.

Most analysts agree with that estimate, and peripheral statistics support it. According to an April report from Forrester Research, only 4% of U.S. households trade online with the wired Internet, and only 7% of these online traders make more than 50 trades per year. Move those people to the mobile world, and the percentages are sure to get even smaller. Many of the most talked-about m-commerce applications, then, have a limited audience. Maribel Lopez Dolinov, senior analyst with Forrester, goes so far as to call some of these apps "short-sighted" because they have such a small potential market, disqualifying them from the killer app horserace.

So what must happen to get from today's m-commerce point A niche market to the worldwide financial bonanza of 2005's point B?

Push, don't pull Labeling current m-commerce apps as too narrow is overly critical, says Paul Reddick, vice president of product management and development for Sprint PCS. "I don't think what they've done is short-sighted," he says. "They're the natural first steps of mobile commerce.... You have to get customers comfortable [with the applications]."

Everyone agrees, however, that they are only the first steps in m-commerce. The applications that will allow the field to become an economic juggernaut will be different from the apps featured today, requiring a change in how the mobile Web works in terms of content, application and service providers.

Aside from obvious differences between the wired and unwired Internet such as the display, the traditional landline Internet follows what Andrew Cole, head of the global wireless practice for Adventis, formerly Renaissance Strategy, calls the "pull" paradigm. The information is sitting there on servers waiting for someone to pull it toward them.

The mobile Web is a different beast altogether, though. To meet the lofty expectations that have been placed upon it, m-commerce would have to follow a "push" paradigm, one in which the information is aggressively forwarded to the end user, Cole says.

The area that maps out most clearly how the push paradigm will work is the vaunted financial services market.

Currently, stock trading on the mobile Internet is really no different than stock trading on the wired Internet or even with a broker: When a person wants to execute a transaction, she goes online or makes a phone call with the proper instructions.

While effective, this method doesn't truly take advantage of the mobile in mobile Internet.

Mobile stock trading, like almost all mobile transactions in the future, will become proactive. If the market is shifting, instead of waiting for instructions from the end user, mobile Internet services will alert customers, recommend a course of action (such as buy, sell or hold) and allow that course to be followed with the push of a button (Figure 2).

"To tap mobile's potential, successful [financial] firms will combine one of the key principles of open finance - the easy electronic movement of money - with the any-time, anywhere properties of mobility," according to a May report from Forrester Research. And if financial firms are tapping mobile's potential, so are the carriers.

Add it up Of course stock trading isn't the only mobile application that will follow a push paradigm. Most analysts agree that service providers will send wireless Web subscribers ads via their handsets or PDAs.

While common in Asia, how this will play out in the U.S. is complicated, says Kelly Quinn, senior analyst for wireless technologies at The Aberdeen Group."The end user in the U.S. is very savvy about the cost of their service. If you don't offer them some sort of tangible cost-value benefit, you're going to have a hard time getting ads on a handset."

A cost-value benefit, Quinn says, will take the form of not just a simple ad but an e-coupon for a product or service that can be presented to a retailer via the handset.

Taking advantage of the global positioning system abilities that are expected to be built into each mobile device could enhance this feature even further. When people pass a business, for example, an e-coupon for that shop will be sent directly to their mobile devices.

Most people involved in m-commerce, however, say that just randomly informing end users of discounts and specials won't be enough. Users will want ads and coupons dealing with areas in which they are interested. This will lead directly to the user profile.

In an m-commerce future, when users subscribe to a wireless Web service, they will be asked to fill out a profile detailing their lifestyles and hobbies. Using this profile, content and service providers can team to send ads over mobile devices that are targeted to the end user's interests, not just random messages.

And by more closely linking the end user with the service provider, analysts predict that churn will be reduced. Customers will not want to go through the hassle of filling out a new user profile just to save a few dollars a month on service.

"By encouraging mobile customers to personalize the mobile data services accessed on their handsets through mobile brow-ser bookmarking and online preference setting, operators will make the phone a more personal device - and switching wireless service more of a hassle for customers," says Forrester analyst Amanda McCarthy in a report. "By doing so, carriers will reduce churn by up to 50%."

Service providers are beginning to realize this potential now, says Adventis' Cole, leading many to quickly set up their wireless portals in an attempt to build their customer profile base. "The company that owns the profile is king," he says.

Dealing with the sensitive nature of a profile raises questions for wireless carriers on how to handle the information on their networks. The security risk involved - especially if the profile contains a customer's electronic wallet - is high (see sidebar on page 40). This information must be protected.

Nextel uses a separate server for m-commerce."For [mobile] transactions, an SS1 encryption will be held in our mobile commerce server," says Greg Santoro, vice president of Web-based services for Nextel. "We make sure any transactions have the maximum amount of security available.... It's where we store the info and where those transactions terminate before they head out to our partners."

Service providers agree that any experimentation they do with ads over a mobile device must be carefully thought out to avoid becoming an inconvenience to consumers.

Ads on mobile devices risk morphing into spam, which could cause the death of m-commerce by driving consumers away from both service providers in particular and the wireless Web in general.

"We cannot afford to introduce any type of activity, like advertising, that would result in customer churn," says Andy Willett, vice president of business development for AT&T Wireless Services.

What's a carrier to do? Though service providers may be building a bank of customer profiles to take advantage of the expected boom in m-commerce, they shouldn't expect everything to be beer and roses. They, too, must change their ways if m-commerce is to reach its potential.

The m-commerce bonanza promises not only increased carrier revenue through increased minutes but through other various ways as well. Carriers already have tapped into some of this potential such as selling the top placement of a company's name on a wireless Web search, says J.F. Sullivan, vice president of marketing for AirFlash, an application service provider of wireless location and m-commerce infrastructure.

But Sullivan believes there are other m-commerce revenue streams out there that no one has even thought of yet. To tap into these, carriers have to think outside the proverbial box and create a compelling end user experience.

"You cannot think of m-commerce until you have users. You cannot have users unless you can drive usage," Sullivan says. "How do you drive usage? Give users something compelling. And how do you get something compelling? You have to innovate."

The freedom to innovate may be difficult, though, because of the pressures wireless carriers are feeling to show immediate improvement in their revenues instead of just promising rosy futures. "You don't get to be creative or innovative if you have to be pragmatic," Sullivan says.

Beyond the need for creativity, though, is the need for investment from carriers.

The applications that are going to make m-commerce work will require an always-on environment, and an always-on environment will require upgraded networks, Adventis' Cole says.

While much of the talk surrounding mobile applications deals with third generation technology, the most important network upgrade for m-commerce will not be to 3G but 2.5G, which provides an always-on data environment, Cole says."Carriers need to invest in 2.5G networks," he says."A lot of it is in the hands of the carriers to invest. European carriers are a little more aggressive. U.S. carriers have been somewhat lethargic."

While upgrading networks will necessitate significant financial commitments from carriers, such a commitment also will be required if they are to catch up with their European counterparts.

Like all things mobile, m-commerce is much more accepted in Europe than in the U.S. The same Frost & Sullivan report that pegged North American m-commerce as a $5.81 billion market in 2005 says the European market will be valued at $24.06 billion that same year. That's a more than 400% difference. Though societal factors play an obvious role in the disparity, more aggressive rollouts of data services are also a large factor. It's clear that American carriers are hurting themselves with their hesitation.

Earning customer confidence Of course, there is the ever-present factor of security and customer confidence. Customers need to be assured that their financial information will not be intercepted over the air, which many consumers instinctively feel is a less secure medium than other transactions.

Their instincts, of course, are influenced by analog mobile phones, whose signals would unwittingly be picked up by handsets for which they were never meant. Packetized data through the air, though, is much harder to sniff out than analog voice signals. "For the actual transaction between the device and the edge of our network, clearly we take advantage of that," says Nextel's Santoro.

Even with this inherent security, no one doubts that more should be added because "all you need is one bad incident where someone steals credit card numbers before major hell breaks loose in this market," Aberdeen's Quinn says.

Despite the fact that security is paramount for m-commerce, there are a number of areas where the wireless world disagrees on how to establish security for a wireless network, often dealing with locations of certain network elements.

One of these elements is the wireless gateway, which translates Wireless Application Protocol and other wireless signals for transmission over the landline Internet, says Peter Klante, vice president of marketing for Tantau Software, a maker of m-commerce applications.

Wireless signals, he says, reach network gateways in encoded form. There they are deencrypted, translated and re-encrypted. The middle step of this process leaves end-user data vulnerable (Figure 3).

The conversion, he says, would be most secure inside a content provider's own firewall. However, that is not the normal practice in the U.S. "In the U.S., the most common model is for carriers to provide gateway capability," Klante says. "That's an acceptable implementation if you're trying to get the weather. It's quite another situation if money is changing hands."

AT&T Wireless' Willett, however, does not see this as a serious security risk. Carriers provide protection for data during this conversion, he says, and "in no way is that information being stored or cached."

In addition, having each content provider handle its own gateway would be complicated for both the business and its mobile customers, Willett says."I see it as a large additional capital expense that would have to be made [by the content provider]," he says. "It also means users would have to sign up with individual content providers instead of with a carrier."

The end user is king Of course the main factor - really the only factor - in m-commerce taking off will be the rate of adoption by end users, where human nature can trump all the high-tech security measures and clever marketing tools.

Simply put, the prospect of buying and selling over a mobile phone will take some getting used to, and it will be accepted at different levels and rates by different generations, says Randy Dence, vice president of business planning and development for w-Technologies, a provider of mobile applications software.

"My father doesn't use an [automated teller machine]. My generation will still probably go to banks...," Dence says. "I'm confident my son will never set foot in a bank unless he goes in the next couple of days to get a sucker."

No one has any real doubts, though, that people will incorporate the technology into their daily lives, especially given the rapid and widespread acceptance of the wired Internet, where usage seems to grow exponentially.

"As the appliances get developed and the apps get developed, people will use it," says Mark Carleton, national industry director for KPMG's communications segment. "They'll wonder how we ever go along without it."

First, though, end users will have to really know what to expect from m-commerce and the mobile Internet. They must come to the realization that the wireless Web is a text-based, short message medium with limited pages. Browsing is difficult and very different from the expansive, graphic-friendly wired Internet.

The reason end-user expectations may differ from reality, though, may lie in how the mobile Web has been marketed to the U.S. public by service providers. "The wireless Inter-net is not the Internet wireless. A lot of people are making a big mistake," Cole says.

A prime example of this is Sprint PCS' introduction of its mobile Web service in April 1999, Quinn says. The initial ad campaign, which two separate analysts singled out as poor marketing, presented the mobile Web experience as essentially the same as the wired Internet, with the same tools and advantages, which it clearly is not.

To get the most out of their investment, carriers and application providers must treat and present the mobile Internet as a unique end-user experience. "You can't just take apps from the [wired] Internet world and try to move it to wireless, where you have a phone with a small display and is text-based," Dence says. "You have to think in the terms that wireless is different."

As end users are presented mobile Web service as it really is and become more tech-savvy, they will come to a better understanding of the medium. At that point, if security and applications issues are worked out, expect the mobile Web to begin to come into its own.

"The initial activity behind the wireless Web was around branding and awareness," says ViAir's Webb. "It wasn't so much about revenue as about usage.... As we go into next year, there will be more of an emphasis on the customer actually using the product and generating a revenue."