When will m-commerce whet America's appetite?

Ask anyone — analysts, media reps, shoeshine guys, whomever — to dissect the issues stunting mobile commerce growth in the U.S., and they'll all tell you the same thing: It's a chicken and egg problem. Consumer demand doesn't exist because the technological solutions are too complex, and until those solutions are simplified, the general public just won't bite. What it's not, however, is a Chicken McNugget and Egg McMuffin problem. The “m” in m-commerce might as well be represented by the golden arches — nowhere has the technology made more visible inroads than in the fast-food industry. Following in the tradition of ExxonMobil's SpeedPass, which allows drivers to pay for gasoline by waving special key fobs in front of the pump or cash register, McDonald's is now testing a similar system at nine of its Chicago-area locations. Meanwhile outside Raleigh, N.C., customers at select Taco Bell and KFC franchises are charging chalupas and buckets of chicken directly to their cellular phones.

Although the deployment of these services is far from widespread, their popularity is growing, and their relative ease and efficiency may just be the right ingredients to make m-commerce services compelling for consumers and merchants alike.

Chew on this: M-commerce is not yet gobbling up market share, but there does seem to be a growing appetite. According to a study by Telephia, one-third of existing wireless Internet users have made a purchase using their wireless device, and 38% of those purchasers do so at least once a week. But by contrast, a recent Jupiter Media Metrix study predicts that by 2006, less than $4 billion in shopping and travel will be purchased over the mobile Internet, accounting for less than 2% of all online shopping.

The study fingers consumer apathy as the culprit; however, “there can't be demand for something that people don't understand yet,” says Adam Zawel, program manager of The Yankee Group's mobile commerce group. “There is a demand to purchase things more easily — that's clear if you ever saw someone fumbling for quarters to put in a parking meter. The problem is it's going to cost a lot of money to create the infrastructure and the applications.”

That's not all: “Penetration is decent, but it's not as if everyone, everywhere has a mobile phone,” says Scott Blankstein, director of mobile platform marketing with commerce service infrastructure provider Qpass. “That leads to the next issue: Merchants say, ‘I've already got all this stuff on the Web — do I want to try something else, even earlier in the development cycle?’ E-commerce is part of the core culture now, but the PC has had a preventative effect on m-commerce because you can't do all of those same things on the phone. There's also the pricing model — people have the perception that a mobile phone costs you money every minute you're using it.”

In other words, m-commerce is a lot to swallow.

ANYONE FOR SECONDS?

The Taco Bell/KFC tests are a joint venture between Nokia and its 5100 Series SmartCover phones; Texas Instruments and its RF identification technology; and Kingston, N.Y.-based 2Scoot, a developer of cash-free transaction processing platforms. Long story short, 2Scoot technology is incorporated into a key tag or phone linked to the user's credit card. After the customer points the device at a reader, a light activates, signaling authorization. The order is placed, the phone is waved in front of the register and as soon as the food is ready, the user is out the door.

“We take the customer's ID information off the tag or phone, and that goes out to a central hub where we attach the credit card to the payment processor for authorization,” explains TN Thompson, 2Scoot's VP of business development. “At the end of the transaction, there is no cash drawer or swiping of a credit card — it simply charges to the account.” While the fast-food industry has historically shied away from credit, which slows down a business model centered around efficiency, 2Scoot's system allows both consumers and merchants alike to enjoy the benefits of cashless transactions. “Carrying cash is a nuisance,” Thompson says. “[M-commerce] allows people to buy what they want, as opposed to the limits of how much cash is in their pockets. And although prepaid cards have not shown an increase in purchasing frequency or volume, credit does — there's an average uptake of 33% when you access credit.”

More important, research indicates that just a 6-second increase in transaction speed can boost a fast-food franchise's revenues by 1%. According to the company's own studies, 2Scoot-enabled transactions trim 25 seconds off the average cash payment and 45 seconds off credit card purchases. “There's an average transaction time of 90 seconds to engage the customer, and these guys spend millions of dollars each year trying to carve a few seconds off,” 2Scoot Founder and CEO Pete Shults says. “We offered them a 25-second reduction the day we started up. That's gold for the merchants.”

The need for speed aside, 2Scoot's applications also allow retailers to appeal to customers directly at the point of sale via SMS messaging and other location-based services. “The information that can be delivered is immediately actionable,” Thompson notes. “We're telling the customer what coupon is available at that point in time or we can drive them to a new product based on their past history.” In addition to paperless coupons, 2Scoot is also developing merchant loyalty programs and fostering cross-promotions between two or more retailers.

“We've added traction to the process,” Thompson says. “There's more throughput to identify and market to the customer base.

CHARGE AND CARRY

While m-commerce's success within the fast-food arena proves the model does indeed have potential, it's not out of the woods just yet. One major stumbling block is that, for the most part, carriers have been painfully slow in developing and marketing m-commerce services.

“[Carriers] saw the original hype, took a look and said buying books on the phone doesn't make sense,” says Qpass' Blankstein. “No one asked the right questions about what are the things people would want to see. And if there's no action, carriers aren't going to be interested.”

That's changing. At Supercomm 2001 in Atlanta, Cingular emerged as the first U.S. wireless carrier to announce the national rollout of a micropayments solution: Dubbed Cingular DirectBill, the service currently allows customers to download customized ring tones for 99¢ per melody, with the cost added to their existing wireless phone bill. The micropayments solution is part of Cingular's growing suite of m-commerce services, lumped collectively under the “Wireless Wallet” banner.

“We think mobile commerce will be a very important part of data services moving forward,” says Dahna Hull, Cingular's director of commerce development. “People are going to wonder what they did without that functionality. They're going to think, ‘Gosh, this is going to be great when I can make this purchase through my cell phone.’” Toward that end, Cingular is considering plans to allow users to purchase goods such as vending machine sodas and snacks, as well as pay for highway tolls and mass transit fares. In the near future, look for digital products including games, graphics and MP3s.

“The best thing that's happened is Cingular's [micropayments] announcement — it opened a lot of people's eyes,” says Blankstein, whose company provides the carrier's commerce service infrastructure. “Now there's a competitive threat.” And while downloading ring tones at a buck a pop is a small step forward, Cingular feels that easing their customers into m-commerce is the best approach. They've even established a $20 monthly spending cap — after all, higher-value purchases can add up quickly, creating the potential for “bill shock” and forcing carriers to run afoul of credit risk.

“Micropayments have their own niche,” Hull says. “I don't foresee us allowing the purchase of something like a refrigerator through micropayments, but it's ideal for smaller value transactions where it doesn't make sense to put it through a credit card. When you find yourself in need of pocket change and you don't have it, this is going to serve as a huge convenience.”

Dave Williams, Cingular's VP of strategic planning, agrees: “Look at i-Mode in Japan — it's probably the most successful service ever launched. You're not going to be downloading Pokemon as a screen saver over here, but with banking, paying parking meters and things we do all the time, there's enough in the mix for it to be a success.”

The Yankee Group, for one, applauds Cingular's moves. “The near-term opportunity for m-commerce leverages today's infrastructure — downloads for digital goods like ring tones, song clips and MP3s, short videos and cartoons,” says Zawel. “But the real opportunity is when you move from buying books and things from your PC to having your phone to use as a tool as you walk around. That involves interacting with the physical world directly, meaning changes not only to the device but also to things you're interacting with in the real world. For example, how does the parking meter know you've paid? To complete the loop, there are going to be major investments required.”

MESSAGE IN A BOTTLENECK

So there's consumer disinterest, technological complexities, carrier inactivity… is that everything? Not quite: The location-based services — SMS messages, coupons and the like — that are among m-commerce's chief selling points are also potentially among its biggest inhibitors. About 10 billion SMS messages are sent globally each month, and European telcos now reap as much as 15% of their overall revenue from SMS-based transactions.

But Telephia's research indicates that as of June, only 6% of U.S. respondents were “extremely willing” to accept advertisements over their wireless devices; conversely, 34% were “somewhat willing,” and 21% were “not at all willing.” John Dee Fair, Telephia's VP of R&D, says their research found that user concerns with location-based services include everything from privacy and wasting airtime to clutter on their device screens. Regardless of the reason, however, it's clear that location-based services run a serious risk of alienating users.

Maintaining customer privacy is among the chief concerns of SignalSoft, a Boulder, Colo.-based wireless location services provider. The company's products include Access Manager, which guards private subscriber location data by allowing users control over which location-based services have knowledge of their whereabouts. SignalSoft offers emergency cellular tracking services and localized content coordination within North America and Europe, two very different target audiences: “We view the market as very split — in the U.S., we see it from the standpoint of a technology-driven 911 marketplace, while outside the U.S., the focus is on more commercially driven services and is not based so much on location accuracy,” says Mark Flolid, a SignalSoft founder and executive VP of corporate development. “Ultimately, the U.S. will move toward more of an m-commerce model — today, it's 911, but it's just a matter of time to allow carriers to focus on it.”

Flolid was recently in Washington to discuss with lawmakers the touchy subject of location data. “Legislators want to know: When location information is created, is it aggregated? How is it protected? How will that information be used?” Flolid recounts. “We're tending to find that advocacy groups are more focused on how law enforcement will use location-based services — they believe the commercial aspects will self-regulate. If you spam your customers, they will all leave you.”

Spam is one thing, security is another, however. According to a recent Boston Consulting Group study, 74% of Americans are concerned about the safety of sending credit card info to complete a mobile transaction. Cingular's Hull counters, “Once consumers get into the purchase experience and understand there's a Web site where you can check your transactions, they'll feel really comfortable.” Hull cites PIN codes and username authorization among the failsafes buttressing the company's micropayments infrastructure.

Adds Rob Hyatt, Cingular's executive director of data services marketing, “In reality, it's no more risky than losing your phone, and it's as secure as a [fixed] Internet transaction.”

Still, consumer fears speak volumes about the uphill struggle m-commerce still faces: “The problem is awareness,” Hull concedes. “People don't know the possibilities, and it takes awhile to get that information out through the mass market.”

MORE FOOD FOR THOUGHT

Ultimately, m-commerce — like much in life — comes back to the topic of food. “The real issue here is user experience,” says Jeff Sass, COO of wireless product information and shopping service BarPoint.com. “If the best chef in the world opened a restaurant on top of a mountain, no matter how good the food was, few people would bother to climb up there. The issue is not just good food — it has to be easy to get to.”

That's why Flolid believes voice-based services are the key to m-commerce's future. “[Our services] are not data-based — everybody carries voice phones,” he says. “Plus, voice recognition adds convenience: A lot of data-based applications tend to be very cumbersome to use, and for every click of a button, you lose another 50% of your users. There's such a falloff in data-based phones because they're so inconvenient.”

Assuming m-commerce overcomes its growing pains, what's next? Many observers agree there will not be any single “killer app” to drive the market: “There will lots of different types of services, each addressing different niche markets,” predicts Flolid. “Look at [NTT] DoCoMo: The answer isn't having one type of content but 19,000 different types.”

But let's not get ahead of ourselves here. Says Flolid, “What we're seeing is that an enormous amount of budget is going into these services — carriers are buying platforms, and the money and the decisions are being spent and made. It's not when is it happening — it is happening.”

2Scoot's Thompson agrees: “It's not about smoke and mirrors; it's about the technology that's available today. It's about life on the go.”

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Jason Ankeny is now features editor for Telephony.