Hot & Cold M-Commerce Opportunities

Mar 15, 2001 12:00 PM, Nikki Swartz, Assistant Data Editor

It’s 8 p.m. on a Monday night and no one is at the movies. So See the Stars Theatre in Cell Phone City, USA, sends out a short message promotion to all of Talk-’Til-You-Drop Wireless’ subscribers announcing a 2-for-1 fare for the 9 p.m. show. Soon, See the Stars Theatre is full of patrons, and its employees are posting “sold-out” signs in the windows.

That’s just one example of how m-commerce can drive transactions and create value for merchants, carriers and subscribers. Good applications, including promotions and coupons, will drive m-commerce into the mass market, despite device limitations.

“The key is that the transaction doesn’t necessarily have to take place through or over the device, but just that it drives the transaction somewhere,” said Andy Willett, AT&T Wireless vice president of business development (www.attws.com).

McKinsey & Company said that m-commerce is the primary means of creating more value per subscriber (www.mckinsey.com). But in order to create that value for yourself, you must offer applications that are valuable to your customers. M-commerce will succeed, according to Ovum research (www.ovum.com), in situations where applications meet the “three Cs: convenience, (low) cost and compulsive to use.”

For example, a popular application so far has been getting information for a particular product while you’re in a store making a buying decision.

“Access to information at the point of sale provides a very unique value-add to the consumer, and there’s really not another way that they can get that,” Willett said.

Consumer Reports offers a selection of its product ratings and recommendations for sale individually to online and wireless consumers. Purchasing-advice summaries on products such as electronics and appliances are free, but complete ratings and recommendations cost per report on a pay-per-view basis.

“The devices are hard to use today, so people are really looking for information that will help their shopping decisions,” said Roy Sehgal, Info-Space senior director of m-commerce (www.infospace.com). “People are most interested in finding information on a product when they’re in a store, or finding which store has a product in stock or where a local sale is occurring. Giving users access to information they need when they need it is the biggest opportunity.”

Another opportunity is directory services. According to The Kelsey Group (www.kelseygroup.com), one of every four wireless users’ requests for business listings from directory assistance leads to an in-store purchase. Wireless directory assistance and enhanced directory assistance will support more than 10 billion calls and $7.5 billion in annual revenues by 2005.

“It’s probably a $20-billion industry where merchants pay to have premier placement and listings,” Sehgal said. “Usually, when you’re looking for a phone number or a particular merchant name, you’re on the road. Today, the only option is calling 411, and it costs the user 75¢ to $1.”

Time-sensitive applications, such as movie tickets, banking and travel reservations, will be popular, said Vikram Chachra, Snaz Commerce Solutions (www.snaz.com) chief strategy officer & co-founder. And SMS will become a powerful promotions medium. Carriers and merchants will send daily offers via short messages, such as what’s on sale at a local store.

“I don’t believe spamming people as they’re passing by a store is the right way to get them in, because it’s going to be more of an annoyance than anything else,” he said. “SMS is the right way to go because it’s non-intrusive; you don’t have to look at it. Also, SMS is a powerful tool to get users to react.”

For example, for a test British Telecom (www.bt.com) sent an SMS message to all of its customers in a London-area mall alerting them to a special sale in a particular store; there was a mad rush to that store within minutes.

As for cold m-commerce opportunities, Willett said carriers should cautiously approach applications that require change in consumer behavior.

“When you talk about standing in front of a Coke machine, pressing some buttons and buying a Coke, I think that’s cool, and it’s a viable vision and something that will become real over time,” Willett said. “But there are so many substitutes (bills, credit cards) as a way of making that transaction happen that driving people to that kind of behavior is going to take more time, not to mention all of the technology hurdles.”

Similarly, he said, using a wireless device to beam credit-card information at the point of sale using Bluetooth will happen someday, but it’s so easy to hand the salesperson your credit card.

Seghal said any applications that require consumers to input lots of information won’t work either. For example, visiting Barnes & Noble’s WAP site and entering your credit- card number, address and shipping information requires more than 100 keystrokes.

M-Commerce Strategies

M-commerce most obviously will increase usage minutes, but there are many other ways it can create revenue for clever carriers.

“Even in a promotional environment where you’re driving people to a store, there are ways of structuring business relationships where there is an upside for us above and beyond transport, and we’ll be taking advantage of those,” Willett said. “In terms of delivering promotions to the device that might drive someone to the Gap for a sale, we can structure a relationship with the Gap to deliver that promotion.”

And like the Gap pays a newspaper or a direct mail house to do campaigns, carriers can collect additional revenues beyond just what the consumer will pay for transport services.

“By sending targeted messages and coupons, carriers are going to become a medium, like newspapers or TV, for distributing promotions,” predicted Patrice Peyret, CEO of MobileWay (www.mobileway.com). “Carriers will be used as a channel to push things to consumers, and they will get paid for it.”

Willett said delivering m-commerce coupons and promotions won’t drive business this year, but promotions are a growing part of carriers’ business. But, he cautioned that most promotions should be permission-based.

“We’re effectively providing access to a large customer base, and you want to make sure that you’re capturing the value associated with that,” he said. “You have lots of responsibility to make sure customers’ privacy is protected, they’re not getting spammed and so we want to have some control over the kinds of things being delivered to our customers.”

AT&T Wireless’ eDeals program will offer neither pushed nor pulled promotions.

“When we launch, it will be a place on your phone that you can go whenever you want and pull down promotions,” Willett said.

Cingular Wireless’ My Wireless Window service, which is powered by Info-Space, offers m-commerce shopping, rewards and transactions (www.cingular.com). The rewards application is a subscriber-controlled, electronic promotions program. Consumers search for deals from participating online or offline merchants by city or product category, or register for customized alerts, which notifies them of new merchant deals.

Personalized shopping applications are essential, said Steve Krom, vice president of data and Internet services for Cingular Wireless.

“We’ve really tried to focus on relevant categories for customers and getting key content and applications within those categories,” he said. “There’s always demand for more personalization. As more and more applications come out in the marketplace, it’s going to be really hard for carriers to just keep filling up the menu structure and maintain a good user interface. We’re really going to need to give the user the ability to manage that more themselves.”

Application integration is also crucial. M-commerce applications such as promotions, wallets and shopping must integrate flawlessly.

“You want the experience to be integrated from a user standpoint and not have the user enter the same information across different applications,” Sehgal said. “If you launch a wallet that’s not integrated with the other applications the carrier’s using, it becomes much less useful.”

Cingular’s m-commerce services are tied together by the wireless wallet and integrated with services such as messaging, calendar and other content. Information entered into the calendar, for example, can carry over to the m-commerce applications.

Snaz customized an m-commerce solution for Nextel Communications’ (www.nextel.com) business customers. Snaz’s platform allows Nextel’s WAP-phone users to search and buy from multiple merchants and categories with a single click. Categories include office/computer, gift and flowers, and food and wine. Merchants on Nextel’s wireless platform include OfficeDepot, OfficeMax, Sharper Image, 1-800-Flowers.com and Brooksbrothers.com.

But some aren’t so sure enterprises will embrace m-commerce.

“More likely, the manager at IBM is going to sit behind his desk and make purchase decisions,” Chachra said. “The buying process for a large company is not done instantaneously; it’s not time sensitive.”

“There won’t be much m-commerce in the enterprise space because the enterprise space is mostly about enabling people to receive important e-mail from their companies,” Peyret said.

Driving Transactions

The Kelsey Group predicts that through delivery of real-time, promotional messages, comparison shopping and transactions, wireless carriers will influence local purchases that exceed $3 trillion annually.

By facilitating transactions to a variety of merchants, carriers can provide value to customers and create revenue for themselves. Sehgal said a big m-commerce opportunity for carriers is the micropayment.

“Since the carrier has the relationship with the user, there’s already the opportunity for the carrier to act as the agent and sell other services to the consumer, and all of that going back to your phone bill, similar to a DoCoMo model,” he said. “Users will pay incremental fees for micropay-ment applications; downloading favorite ring tones and games worked well in Japan.”

In addition to incremental fees, carriers will be able to make a transaction fee from shopping, just as AOL does from Shop@AOL, which now brings in millions of dollars in transaction fees. Transaction fees typically fall within 5% to 10% of the consumer transaction.

“There are other models, the placement and slotting-fee models, where merchants pay to be placed on the top deck, so as adoption rises, carriers will be able to get rents from merchants,” Sehgal said. “Just like you would pay for the best spot at the mall, they’ll pay for the best spot on the device.”

According Peyret, there are three phases of commerce: merchandising, shopping and payment.

“Mobile phones are not very good for the merchandising phase because shopping over the screen of a WAP phone tends to very tedious, not to mention that phones are not very good for browsing or pulling information,” he said. “If you restrict m-commerce to a shopping phase via the phone in data mode, you’re restricting m-commerce to a very narrow niche market.”

Consumers mainly will use their wireless phones as devices to trigger a payment. Credit-card numbers could be replaced by cellular phone numbers for wireless transactions. For example, if you’re driving to the airport in rush-hour traffic, you may need to change your flight. You call your travel agent and find out there is a $100 fee to change flights, but you may not be able to reach your credit card (and you probably don’t know the number from memory).

“The phone number is the thing that the merchant knows about you,” Peyret said. “The architecture that the Visas and MasterCards of the world are aiming at is one where your banking credentials (credit-card number, billing/shipping information) should be reachable from your phone without forcing people to punch in this information on a 9-key keypad.”

“M-wallets will be very critical for m-commerce’s success,” Willett said. “But definitely, what’s going to be real important for this is that kind of capability that allows a 1-touch buying experience.”

M-wallets also make micro-payments easier and help carriers charge for advanced services such as digital media and game applications that consumers can’t get any other way. In fact, Willett said most m-commerce transactions won’t come from merchandise, but from electronic media applications such as games and streaming media.

M-Commerce Success & Challenges

The user interface (screen resolution, keypad, voice recognition) will improve over the next few years, but enhanced devices are irrelevant unless m-commerce applications are compelling and user friendly.

Most analysts agree that the world of commerce will not be a purely wireless one. It will incorporate both wireless and wired, and carriers’ strategies should straddle both.

“Even when the devices improve, you’ll still have the fixed Internet where users feel comfortable doing more things,” Sehgal said. “M-commerce is leveraging the wireless Internet to drive transactions in all mediums, to a local store, on a device, back to the traditional Internet to make a purchase. It will be more successful overall if you take a broader view of m-commerce, but not if you define it as how many purchases someone makes from the device.”

Carriers also should carefully consider their relationships with banks and merchants.

“Jumping to the conclusion that they can do everything themselves may be a bad move,” Peyret said. “Dispute resolutions and international settlements will be difficult for them so they should team up with a payment system or local bank.”

He added: “One of the limitations carriers have is that they are not terribly good at recruiting participating merchants. We will probably see the large payment systems (AmEx, Discover) jump in and try to help carriers because they are much better at doing the things that are necessary for m-commerce.”

Security & Privacy

Sehgal said security and privacy issues also will challenge carriers, at least initially.

“People didn’t think in 1995 that anyone would enter their credit-card number on the Internet, but after a couple years of getting used to it, consumers became more comfortable,” he said. “You’ll see the same thing with wireless.”

Will m-commerce adoption be challenging as well?

According to Willett, m-commerce won’t be a hard sell because consumers will see value in it.

For example, subscribers can find value easily in a 2-for-1 movie promotion delivered to their wireless phones.

But despite such appealing applications, m-commerce will require a lot of consumer education.

“It is not easy to communicate to customers,” Willett said. “The thing I worry about isn’t the capabilities or the availability of the capabilities in the next nine to 12 months, it’s how effectively we’re going to be able to get customers to understand it.”

Hot M-Commerce Applications

•Comparison Shopping
•Directory/Store-Finder Services
•Games
•M-Wallets
•MP3s
•1-Click Purchasing
•Promotion/Reward Programs
•Ring Tones
•Streaming Media
•Tickets (Movie, Concert, Sporting Events)
•Time-Sensitive Apps
•Travel
•Voice-Enabled M-Commerce

Cold M-Commerce Applications

•Browsing for Products
•100-Click Purchases
•B2B Transactions
•In-Store Purchases
•Spam/Pushed Promotions
•Vending Machine Purchases

Make Way for M-Commerce

Before m-commerce really takes off, carriers need to have seven building blocks in place:

1. Offer interesting applications — and many of them.

2. User-friendly menus, so navigation is easy and logical. For example, restaurant applications that feature restaurants ranked in order of popularity are more user friendly than alphabetical lists.

3. Applications must be robust and secure.

4. Packet-switched networks are a necessity.

5. U.S. handsets must allow for colors, graphics and more text. I-mode has 10 lines of text. Phones in the U.S. market have four on average — that makes a big difference.

6. Provide an easy way to sign up for service and a subsidy for new handsets.

7. Focus on urban populations. Typically, an urban population is more ready for enhanced services, and in areas where people have long commutes, you’re likely to see higher usage. Young adults and teens will be key demographics.

Source: Risto Perttunen, McKinsey & Co. global wireless m-commerce practice leader