The Smart Set

Proving that necessity isn't always the mother of invention, toy maker Bandai followed its enormously successful Tamagotchi virtual pet with Tamapichi, a wireless phone that doubles as a sort of virtual pet carrier. Tamapichi was an instant hit in Japan, thanks in part to its use of the personal handy-phone system's messaging channel, which allowed users to transfer pets to their friends' phones for care and playtime with other Tamagotchi.

Silly? Perhaps. But Tamapichi generates traffic, and traffic generates revenues. Tamapichi also built on a tenet of wireless: Give people more ways to communicate, and they will communicate more. It might take a similar gimmick to promote short message service (SMS) in the United States. SMS currently is targeting business users who are more likely to pay upward of $10 per month for computer-generated messages and $20 or more for operator-assisted messaging.

Marketing SMS to consumers means improving its value by cutting prices and offering services beyond messaging. The payoff for carriers is increased SMS penetration -- as many as 27 million users or 22% of the wireless market by 2003, according to Strategy Analytics. Continuing to target business users will achieve only 10% penetration.

Europe already has a higher SMS penetration thanks to GSM's dominance, a relatively small alphanumeric-paging market and the popularity of voice-mail notification via SMS. A January 1998 study by Ovum found that North America had approximately 712,000 SMS users in 1997. In Western Europe, that same figure was nearly 3.1 million. By 2001, Ovum projects North American SMS users will total slightly more than 3.6 million, about one-fifth of Western Europe's nearly 20 million.

Sprint, with 37% of the PCS market, is the largest to implement SMS, which might be wireless' best-kept secret.

"SMS is there," said David Kerr, Strategy Analytics director of wireless programs, "but customers have to do way too much work to find out about it."

TOO LIMITED? SMS's 160-character maximum isn't necessarily an inherent limitation. Although systems such as Nokia's Artuse can stitch together multiple SMS messages into a single message, displaying multiple paragraphs means phones would need screens befitting a Teletubby.

"Given the limitations of the handset windows, 160 characters is too much," said Mike James, American Cellular executive director of technology development.

Mobile-originated SMS also is constrained by the cumbersome process of entering letters from the telephone keypad. QWERTY keyboards make typing easier and faster but add bulk and heft in the process. An alternative is predictive word support, a feature that word-processing programs such as Microsoft Word have had for years. To enter the word "although," for example, the user would type only "alth" before the software offers to complete the word as "although." It's an approach that can cut the number of keystrokes by as much as 60%. Siemens is one manufacturer incorporating predictive word support into its next generation of handsets.

Canned messages such as "call the office" also can help, but even with those shortcuts, mobile-originated SMS is costly.

"I don't see how a carrier is going to recover the cost of putting in that type of a network," James said.

Hardware and software aren't the only barriers.

"Carriers have been scared to death that SMS is going to be an operator-assisted market," Kerr said.

Self-provisioning is one way to trim overhead. Subscribers can use the carrier's web site to choose which information they want pushed to their handsets. Nokia's Artuse allows subscribers to use mobile-originated SMS to contact a web server, which then searches an intranet or the Internet for only the requested information. Artuse then downloads the page, strips out graphics and tags before sending the text via SMS to the handset. But even with self-provisioning and a growing number of carriers implementing SMS, opinions differ about how much of an asset it really is.

"Today I don't see it as being a significant revenue stream," said James, whose American Cellular is adding mobile-terminated SMS as part of its partnership with AT&T Wireless. "It's not so much a differentiator as it is keeping up with the Joneses."

But keeping up is costly, and carriers likely will look to value-added services as a way to recoup an investment that starts in the low six figures. A lucrative solution might be found in E-911: By combining their new tracking abilities with SMS, carriers could offer business travelers a rundownof taxi services the moment they step off the plane. And by offering enhanced services that competitors can't or don't offer, carriers could use SMS to combat churn.

"The only way that they can truly build dependency and brand association is through the depth of content that they're providing," said Kerr, who sees a long-term trend toward content-based SMS.

"They're all looking at offering value-added services," said Kim Purdie, Nokia product marketing manager for wireless data. "One carrier I spoke with said it would like to have more travel applications," such as automatic notification if a flight is delayed.

"For any carrier with digital services, basic short messaging is an absolute necessity," said Mark Bing, Glenayre integrated network group senior applications engineer. "In every single case, it's not having it that would differentiate you."

TOO PUSHY? Jerri Barrett first heard about the U.S. strikes against suspected terrorist strongholds in Sudan and Afghanistan from colleagues who were alerted via their pagers and wireless phones.

"I found out three different times from three different people," said Barrett, Glenayre integrated network group director of product marketing. "Not one of those mediums was print or television. It's like traditional media don't work any more."

To capitalize on that change, handset manufacturers such as Siemens are building phones to support cell-broadcast SMS. But not everyone is convinced that pushed content is something users really want.

"I've had those pager products, and for me personally they were annoying," said American Cellular's James. "The CNN Headline News, MSNBC and stock tickers are stuff that I consider to be a nuisance. I don't know if I want to provide those services to my customers unless I can see some material benefit to them. Right now, I'd say I'm taking a wait-and-see attitude on those types of services."

One alternative is self-provisioning with intelligent filters that scour the Internet for information and report their findings only when certain conditions have been met, such as when a stock's price dips below a certain level. Subscribers would get only the information they want, and carriers wouldn't fret about unwanted SMS messages clogging their networks.

"That is a critical success factor," said Kerr, who sees self-provisioning as a way to combat churn. "If we don't have it, then we do not become dependent on the content."

Finding the right business model also is key. Content providers might find partnerships with carriers an attractive way to reach a wider audience across multiple platforms and with only minimal investment. SMS could be the final piece of the puzzle for a company such as CNN, which already caters to mobile demographics via radio and its airport channel. SMS also could provide both carriers and content providers with a way to extend their vertical reach into their existing customer bases.

Including locally produced content also allows the carrier to tap into the local advertising base and reach demographics that limit their wireless use because of cost concerns.

"The most compelling type of content is localized," Kerr said. "I think they will pay for school closings and special offers for local businesses if you price it at 30 cents an event or something like that. Long term, it will become a big consumer market."

Identifying which types of content suit the market's demographics is the first step. American Cellular serves semi-rural second- and third-tier MSAs, and James would prefer local information more than other content.

"They would much more prefer to know that there's an ice storm and school's closed as opposed to the stock market dropped 100 points today," James said. "Connecting with the local NBC affiliate to deliver essential information is something I would find more beneficial. I believe that you need to provide the customer with intelligent messages and not just messages for messages sake."

Content could be important because SMS won't remain a differentiator for long.

"If we don't continuously add value, customers churn to the latest special promotion," Kerr said. "Part of the motivation for the SMS content market has to come from operators' realization that they're not in the business of competing for how many subscribers they have this month but rather what they're getting from those subscribers. How much are they using my service?"

Sprint is one carrier considering content over SMS, but Kerr said small, entrepreneurial third parties might wind up being the real innovators.

"What we need to do is foster an environment of third-party developers," a la Microsoft, Kerr said. "The networks are not going to be the people who can foster innovation. We need to open this up to a lot of smaller companies that are much more tuned in to multimedia communications and the value of content."

One likely start: narrowly tailored content for industries such as medicine and finance.

"I think we're going to see that develop on an industry-segment-by-industry-segment basis," Kerr said. "Essentially what the networks need to do is not stand in the way of that evolution."