Wireless data: WIZARDRY

Internet over the air finally is falling into place, but operators now face the challenge of fitting the Web into the confines of wireless

If you work in wireless, you've undoubtedly heard it by now: a low rumbling like distant thunder. It's the sound of data, and the market is in the midst of the calm before the storm. Companies that have invented a wide range of applications are coming out of the woodwork these days, as are companies that craft products to allow for smoother wireless data access. In fact, there are too many new names to keep track of in the wireless data field.

Operators are choosing among those new companies and implementing enabling products. What's left to do, though, is for actual services to hit the market. They've started to trickle out, but with all the behind-the-scenes activity, that trickle may soon turn into a torrent.

In the meantime, operators are searching to find the right answers to some troubling questions. One of those issues revolves around defining the market for data services - some believe consumers will take up data services fast and furiously, while others see business users as the pot of gold.

Along with the carriers, application developers are progressing to respond to the needs of service providers. They're learning how to wrap up services for their operator customers. Gone are the days when end users must choose an application, find a device that can operate the application and then find a network and operator to deliver it. Instead, developers are negotiating with operators to resell airtime so that they can offer packaged services directly to end users.

"Operators know how to sell minutes but not necessarily how to sell an application," says Kristopher Tyra, founder and chief technical officer of HiddenMind Technologies. To varying degrees, operators are handing off end-to-end data services to application developers.

However, before any progress can be made in the field of wireless data, the industry as a whole must grapple with the question of the Internet, which has been both a blessing and a curse to the wireless world.

That darned Internet

Ultimately, it was the Internet that opened the doors of data to the wireless world. But it is also the Internet that slowed down progress. "Wireless and the Internet aren't a natural fit right now. The Internet was not developed for wireless," says George Davis, chief operating officer for Aether Systems. Instead, it was created for desktop computers and wired access.

"In North America, the computer is the fulcrum of Internet access," says Ted Leonsis, president of America Online's interactive properties group.

Changing that model to accommodate a connection between the wired Internet and wireless devices has spurred the birth of a whole new segment of developers. "The market we're trying to address is bridging between wireless and growth in the Internet," says Marlin Nelson, senior vice presidentand general manager at TWS, developer of the bulletIN Internet messaging services. TWS is joined by countless firms.

The Internet comes with other roadblocks in addition to incompatibility with wireless networks. "The good news is the Internet is free and available," says John Major, president and CEO of Wireless Knowledge. The bad news, however, is that the Internet can shut down in response to things such as popular events. For that reason, it has been challenging to build wireless applications based on the Internet that can satisfy all the needs of businesses.

The incompatibility of the Internet and wireless also may have spurred the battle that is just beginning over wireless portals. "Carriers recognize that while the Internet offers opportunity, it also marginalizes them to a certain extent," says Mark Zohar, senior analyst at Forrester Research. "They'll have to look at partnerships. They'll have to cede some power."

Standard PC-based portals such as AOL and Yahoo! have heard the buzz around wireless data and have made moves to enter the space. "AOL wants a portfolio play," Leonsis says. AOL wants its customers to be able to access AOL anywhere, any time from any type of device.

Yahoo! wants to get as many users as possible. "We want to attract new users, and we want to be sure they can access our services on any device," says Mohan Vishwanath, vice president of Yahoo! Everywhere.

While wireless operators are happy to have those companies point customers to their wireless networks, those traditional PC-based players may be too aggressive for their liking. "The business of Microsoft and Yahoo! is to further their own brands," says Ben Linder, vice president of marketing for Phone.com.

Leonsis himself says: "Brands are king." However, wireless operators are concerned with furthering the kingdoms of their brands, not of those portals.

Going it on their own

Even while wireless operators are hyping agreements with the likes of AOL and Yahoo!, they are creating their own portals, which they hope to make stronger and more focused than their PC-based competitors. Even though wireless operators may be new to the portal space, they will inherently have some advantages over their PC-based competitors. Wireless operators can avoid some of the downsides of traditional portals.

AT&T Wireless Services may have created one of the first true wireless portals, which it designed from scratch for use by its PocketNet customers. AT&T Wireless gladly will allow users to access other portals but gives its customers the option of using its own portal first. "We don't want to be in the position where we force them to a Web-based portal," says Kendra VanderMeulen, senior vice president of product strategy and development for AT&T Wireless. AT&T Wireless would rather spare its customers from negative aspects of those portals such as spam, she says.

Wireless operators have other advantages to offering their own portals. "Operators have assets that portals don't," says Pekka Salonoja, vice president of wireless data server systems for Nokia. Wireless operators have information about their customers, including their locations and usage patterns. As a result, carriers can offer location-based services via their portals or services that they know most of their customers might use.

Operators also are knowledgeable about what types of information users would want over their wireless handsets. That information may be very different from what those same customers would want to receive at their desktop computers. For example, operators could offer services that automatically update train or flight schedules for users overnight. "Then the handset becomes more than a phone," Salonoja says. "That's why it's important for operators to build brands." In the flight schedule example, users would associate updated flight schedules with their operators, not with a computer-based portal.

"It creates a stickiness so customers want to stay," says Robert Pearl, director of business development for SmartServ Online, a company that offers portals that service providers can customize. "Yahoo! does nothing for a carrier - it doesn't make [customers] want to stay," he says. For example, if customers can access Yahoo! from any wireless providers' service, they will have fewer qualms about switching service.

A number of companies have surfaced that hope to address the wireless portal segment. Oracle, Phone.com and SmartServ, to name a few, have developed portal solutions that allow operators to create and brand their own portals. Phone.com believes its platform will set wireless portals apart from computer-based portals. "The type of applications mainstream portals are creating are aimed at using the phone as an appendage to the PC site," Linder says. "We are creating a portal platform that uses the phone as the primary platform."

In order to entice customers to use the wireless operators' portals instead of the well-known computer-based portals, carriers will have to offer the most valuable information. "Carriers are in the position to get control of the customer," says Michael Forbes, vice president of marketing for Intelligent Information Inc. Operators own the point of sale, can offer a high level of customer care and can bundle data services into other packages. "If they offer services that are as compelling as elsewhere, they're in the position to get the first crack at the customer. And it eliminates the need for the customer to go elsewhere to get really compelling services," he says.

Sprint PCS, which recently unveiled its Wireless Web offering nationwide, has looked closely at the moves made by the PC-based portals. "It is a big concern, but we've taken care that we don't lose" the customer relationship, says Charles Levine, chief sales and marketing officer for Sprint PCS.

When customers access the Web using Sprint PCS service, their handsets display a Sprint PCS services option first, followed by links to sites such as Yahoo! and Bloomberg. The Sprint PCS option allows customers to go to the Sprint PCS Web site and check unique information such as their account status, including how many minutes they have used during the month.

Despite the advantages operators might have, some believe they won't succeed at being portals. "We don't think it's a sustainable model because wireless users will wish to extend their existing online relationships with strong online brands like AOL and Yahoo!," says Forrester's Zohar.

Instead, he envisions co-branding partnerships. For example, AOL could allow users to purchase wireless phones and services from its Web site. AOL would send customers the handset, which could be co-branded by AOL and the service provider. Users could pay their wireless bills at the AOL site.

While operators may cringe at the thought of giving up some branding, there are positives. Operators still would be gaining the opportunity to sell Internet services. "Access to data will drive up voice usage as well," Zohar says.

Who to chase

While portals may open the doors of the Internet to wireless users, the Internet in and of itself isn't enough to serve the entire market. "General Internet access will only take you so far," says Aether's Davis. "Wirelessly, the dilemma is to develop enough compelling applications that drive people to want to use it." He believes the compelling applications will be ones that that allow users to make money - stock trading, for example.

Ultimately, operators likely will address the consumer marketplace with basic Internet-based applications such as information services. They also likely will partner with companies or develop their own vertical applications to attract niche markets.

The jury still is out though on which segment will take up services most rapidly and which segment operators are expected to aggressively chase first. Wireless Knowledge's Major believes that most carriers are addressing the huge consumer segment first. "It's a more straightforward sale," he says.

Although Wireless Knowledge's market - business users accessing corporate-based data - is tiny, Major projects it will grow significantly. He expects about 600 million browser-equipped phones in the market by 2003, with half of those actively using data functions. Three-quarters of those users will be consumers, he says. The rest will make a sizable market for Wireless Knowledge.

Sprint PCS believes its horizontal Wireless Web offering will be used by both consumers and business people but expects to see more data minutes on the business side, Levine says.

"Most will be targeted at businesses, at least initially," says Ken Tyra, president and CEO of HiddenMind. Businesses will be interested in wireless data if it can improve productivity.

"And they're the ones who are going to pay for it," adds HiddenMind's Kristopher Tyra.

Vertical users may make up a smaller portion of the user base but likely will generate the most revenue. III's Forbes predicts a typical 80/20 split, where 20% of users are vertical "power users" that generate the most revenue. The remainder will be consumers with simple, low-bandwidth needs. He believes those consumers can get the majority of the information they need through standard short message service channels. "If you're only interested in weather and Cubs scores, do you really need [Wireless Application Protocol] to do that?" he asks.

Vertical profits

While application developers and operators may be interested in chasing the more lucrative vertical markets, it has been difficult to do so. In the past, developers have struggled with finding a middle ground between developing custom applications that businesses find too expensive and totally generic applications that don't fit any customers. But some developers today are learning that there actually is a middle ground.

"Everyone has been avoiding the hard problem," HiddenMind's Kristopher Tyra says. "There are a lot of developers using current models and trying to apply them to wireless." That doesn't always work, though. In response, HiddenMind has developed platforms that isolate the wireless portion of an application, allowing developers to program in Java and hook into the wireless piece, which HiddenMind already has developed.

That concept also allows HiddenMind to easily alter existing applications for custom jobs. One vertical application HiddenMind created only required about 28,000 lines of code, as opposed to the norm, which is close to 1 billion, Kristopher Tyra says. "In some regards, you can build one and hit a tremendous amount of verticals," he says.

HiddenMind also has found a way to work around the downfall of the Internet being a public network. The company built a wireless application for the medical industry, which deems it illegal to send records over the Internet. Using Omnipoint's GSM network, HiddenMind's application runs over a LAN instead of the Internet.

Aether is another software and services company that has managed to create a core set of products that can be customized for different uses. Aether focuses on the financial industry and has landed contracts with big names such as Charles Schwab and Discover Brokerage.

Aether's applications run on its protocol gateways that connect to different networks and Aether's intelligent messaging routing platform (Figure 1), which sits in the middle. The intelligent messaging routers are where customization happens. Other developers can build applications to the intelligent messaging product. "That will help us push into the vertical markets," Aether's Davis says.

Application developers also have made strides in building attractive payment and distribution models for operators and end users, at least in the vertical application world. HiddenMind has targeted smaller businesses or large businesses that have broken off smaller business units. Those businesses often don't have the cash or aren't willing to pay for a new application up front. "Our view is, our software is so compelling that we can charge as they use it, by transaction," Ken Tyra says. HiddenMind contracts with wireless operators to essentially resell service so that end users only have to pay one source. Aether uses a similar model but also handles customer care.While III's service targets mainstream wireless phone users and doesn't actually resell wireless time, it also operates as a service bureau, charging operators on a usage basis. III also offers marketing and retail strategy support (Figure 2).

Such one-stop shopping models may be just what operators needed. "Operators are great at what they do - they're network providers. But they have no experience with data services and no experience with the Internet," Forrester Research's Zohar says. Rather than face the cost of not only marketing data services but supporting them, more operators may begin looking for partnerships to offload some of those functions. "Some carriers are more advanced in their thinking then others," he says.