M-Commerce Cometh

Wireless e-commerce looks to be huge. Make sure you get a piece of the m-commerce pie.

Wireless e-commerce (m-commerce) is poised to revolutionize your business. According to Merrill Lynch, m-commerce revenue will top $45 million by 2005. Other analysts predict worldwide transactions to generate more than $100 billion in revenues by 2005.

"Find-and-buy" wireless transactions, including purchases of travel and entertainment tickets, books, CDs and stocks, are estimated to reach $70 million in the United States this year.

"If you look five to 10 years out, almost all of e-commerce will be on wireless devices," Jeff Bezos, Amazon.com CEO, said recently. He and Amazon's 17 million customers should know. Amazon has deals with providers including AT&T Wireless and Sprint PCS to offer access to their subscribers. Dot-coms such as AOL, Ticketmaster and Yahoo also are racing to partner with providers to make their services available via wireless.

M-commerce is appealing because wireless offers customer-location information, personalized consumer interaction and constant connection to the Internet. But the m-commerce marketplace requires new business models for wireless.

"Wireless providers no longer control value-added services alone," said Paul Bishop, Cap Gemini Telecommunications market-development director.

But wireless providers supply the integral link between consumers and e-businesses, so shouldn't they reap the financial benefits? As voice revenue continues to fall, m-commerce can be a new, lucrative revenue source. Yet many in the industry are trying to figure out how to make money from m-commerce, and everyone's lips are sealed about their plans.

The three U.S. providers and two Canadian providers contacted for this story all declined to comment. Andrea Linskey, Verizon Wireless spokesperson, summed up the responses: "We don't want to share this information with our competitors," she said. "We don't have a one-size-fits-all approach to contracts with business partners in the mobile Web space. Therefore, the contract parameters are proprietary."

Norm Berberich, Bell Mobility spokesperson, said he'd be surprised if any providers would be "open" or "forthcoming" about their m-commerce blueprints.

Nevertheless, an m-commerce plan is integral. Providers "will really have to look to alternative revenue-stream models (m-commerce, media streaming) if they want to continue to compete in the wireless-Internet world," said Heather Henyon, The Strategis Group senior analyst, wireless practice.

A Piece of the Pie
If you don't get a share of the m-commerce revenue chain now, you might miss out later. Aengus Linehan, co-founder and vice president of sales and marketing for Cyantel, a value-added services ASP, said that there's not much in place now in terms of m-commerce modus operandi, and many providers are just "dipping their toes in the water."

"Because m-commerce really hasn't hit in the United States, (providers) haven't negotiated those agreements yet but plan to," Strategis Group's Henyon said.

"Providers are trying to figure out (if they can) take a slice of the revenue," Linehan said. "They must go in and take a slice."

But many other players also want a slice of m-commerce transactions.

"Anybody involved in this ecosystem — the people who own the backbone, the people who own the applications, the bank, clearinghouse — can take a cut out of the transaction," said Anne Burris, HP worldwide XSP strategy and marketing manager.

"It's on a case-by-case negotiation how much each company gets."

But wireless providers have several advantages, including enabling contact between e-merchants and consumers, and established relationships with customers who trust them.

"Visa may be providing the clearinghouse, but wireless has the customers," Burris said. "That may be a negotiation point. Visa may not have this business without the wireless providers. They might take a little less if they're allowed to advertise."

Providers also have payment, billing, fraud and credit-check mechanisms already in place, and they're ideally situated to act as settlement facilities, tracking purchases, charging customers on monthly phone bills and passing payments to merchants.

Partnering is key to getting a piece of transaction revenue. Linehan suggested signing agreements with banks, e-businesses and media companies for exclusive content to add value. Providers also must experiment with some type of payment engines.

"The ideal situation for the operator is to take charge in the payments," Linehan said. "Be the payment engine."

"Carriers definitely still want to retain all billing in-house," Henyon said. "(Providers) know a lot about the customer, address, location and things that will become the driver in promotional advertising and m-commerce. But the ISPs really know a lot about the consumers in terms of Web traffic. So it's not clear which access provider is really at the forefront in terms of winning the game."

One m-commerce revenue model might work like this: A subscriber purchases a $30 concert ticket via his wireless phone, and there's a $2.50 transaction charge. The wireless provider would receive the transaction charge and 5% or 10% of the ticket price, while the content/application provider would collect 95% or 90% of the price.

Henyon, who recently completed an m-commerce study, projected that a lot of the transactions probably will consist of micro and not big-ticket purchases, and so the percentage that the provider collects won't be large.

"No one will share their numbers with us, but InfoSpace and some of the portals are looking at percentages that are in the single digits," Henyon said. "The carrier may be up to 25%. The credit-card companies have an arrangement in the wireline environment, and they're looking for the same level of fees."

In some cases, she said, providers are asking for much higher percentages than the content providers think are doable. But NTT DoCoMo's m-commerce arrangement gives the company up to a 12% cut of the subscription fees that content providers charge their customers, a kind of fee for being listed on the official i-Mode portal and a 9% commission on all sales.

"DoCoMo is in a strong position because they have so many subscribers," Henyon said. "They've got a more sophisticated business model than some of the U.S. carriers. Billing is still a big problem for carriers here. A lot will depend on the quality of the billing solutions they can provide."

Linehan said providers should go to the Amazon.coms and say, "I would like to bill for that book, and even if I don't bill for that book, it's purchased in my environment as click-through revenue."

"They're going to have to take revenue from transactions, and if they don't do that, I see a very grim future for the operator who decides just to be a transport provider," he said. "Transport is not a viable business model in the future."

New Business Models
Sprint PCS already has noticed that data minutes are used more often and for longer periods than voice minutes.

"Wireless Web users are using the phone longer, so it's not so much a voice-driven thing, it's a data-driven thing," spokesman Mark Bonavia said in a press release.

As Sprint PCS' Wireless Web offerings expand, those data-driven minutes will continue to grow. That's a good thing because voice revenue is predicted to continue falling, and providers must look to m-commerce to offer new revenue streams.

"Operators are facing a revenue wall today," Linehan said. "There are only so many phone subscribers, and they're only going to talk so much."

Linehan said that everyone from investors to CEOs are looking for a business model beyond voice.

"They have to show something," Linehan said. "That's why operators all have a struggle to try and figure out how to make themselves look like a transaction business. The reality today is that voice is the killer application. In the future, voice is most likely not going to be the killer application."

M-commerce, however, just might be the next killer app, so start creating new business models, making exclusive partnerships and offering the best customer experience now.

"M-commerce probably will drive wireless Internet, airtime and usage in the future," Henyon said. "It's a growing application. The challenge for carriers is to try to maintain some kind of value once we get into the free-browsing environment, and they're not clear what that value is yet."