Portals have a hidden agenda to capture the wireless e-commerce market.
Carriers had better beware.
Greek mythology chronicles the fall of the once-prosperous city of Troy, misled by the promise of a gift in the form of a Trojan horse. Looking back, it seems hard to understand how such a foresighted community could have made such a cataclysmic mistake. Many centuries on, in a market very different to that found in eighth-century Greece, the U.S. wireless carrier community is about to make the same mistake.
Bolstered by a prosperous wireless voice market, carriers now are looking to develop the critical wireless data space. To their surprise, sitting below their corporate ramparts is a gift in the form of a wireless portal. This wondrous prize promises immediate Internet-based wireless data services and content. Unfortunately, this apparently irresistible gift from the gods of the Internet represents nothing less than the Trojan horse of wireless carrier profitability. It threatens to impose commodity status on wireless providers and to rob carriers of their biggest and most profitable market yet: the wireless e-transactions sector, a market forecast to reach more than $1 trillion within three years.
Wireless data will transform the industry
Wireless data will transform the mobile industry, polarizing carriers into one of two camps: pipe-oriented commodity carriers and application-owning premium carriers. The former camp ultimately will supply wholesale bytes to other entities, notably the portals. The latter camp will offer enhanced wireless voice and data applications, catering to the needs of its target customer group.
As the data market expands, new highly lucrative sources of revenue will emerge, notably wireless e-commerce. Here carriers have the opportunity to offer both wireless carrier-based services and to generate significant revenue from the emerging wireless e-transaction market.
In the sudden rush to offer wireless data services, however, carriers see the Internet portal as a means of generating rapid speed to market and as a powerful platform from which to launch compelling data services. Frenetic activity in recent months has spawned many seemingly compelling carrier/portal alliances, notably between Microsoft’s MSN and Nextel Communications Inc.; between Yahoo! and both Paging Network Inc. and Sprint PCS; between Nextel and America Online; and between Excite and Japan’s NTT DoCoMo. The portals clearly have been embraced as partners in the pioneering effort to grow the horizontal data market.
Portals power
For their part, the portals have graduated from being simply a window to the Internet, to providing a whole suite of value-added services such as e-mail, push content and e-commerce services. The portals, not the carriers, are currently driving wireless data. The destiny of the new market is being shaped by the portals in deals such as that between AOL/Netscape and Lucent Technologies Inc.; between 3Com’s OpenSky portal unit and Aether Technologies; and between Excite and Starfish Software, a subsidiary of Motorola Inc.
These organizations see the huge potential of e-commerce, hoping to attract eyeballs to their sites to generate market momentum. Alliance formation with organizations that own valuable customer segments, such as the carriers, is now a central pillar of their market strategy. The portals understand the latent power of wireless e-transactions and are positioning themselves for dominance in this space for future growth. Indeed, rather than portals, these organizations are better termed commerce service providers (CSPs), which more accurately reflects their future state.
Upstream disruption
While CSP-based services will become a valuable component of many wireless data services, two powerful dangers exist. Firstly, carriers risk becoming wholesale commodity providers. Carrier customers begin to see the portals as their source of new data services; intermediation becomes a reality. Recent much-heralded alliances place a third-party organization, the portal, between the carrier and its hard-won customers.
Portal alliances, such as that between Nextel and MSN, even prevent the carrier from investigating the usage patterns of its customers, such information being proprietary to the CSP.
Palm Computing Inc.’s portal ambitions block the carrier completely, representing a critical source of competitive disadvantage. As such, the portals represent a rabid source of upstream disruption, a fundamental threat to the customer relationship. This threatens to make the carrier a low margin, wholesale, commodity byte provider, a world of “Yahoo! Everywhere,” carrier nowhere.
As the Internet collides with the telecom world, speed will become increasingly critical. By the time wireless carriers realize what has happened, the game likely will be over. Customers quickly will become comfortable and loyal to portal-based data and e-commerce services. They will rapidly own the customer. It becomes a matter of time before CSPs will generate critical mass and simply buy unbranded wholesale bytes from a plethora of potential wireless carrier sources. This is already seen in the wireline space with AOL’s use of wholesale minutes and has begun in the wire-free domain through Palm.net’s hidden use of BellSouth Mobile Data’s network. Once Palm has generated branded critical mass, how long before it puts the squeeze on byte carriers? Thus wireless services, like long distance before it, will become relegated to a commodity status.
Ill-defined alliances
Secondly, ill-defined alliances will allow portals to dominate the lucrative wireless e-commerce market. The CSPs are seeking to offer carrier customers a number of value-added services, not simply Yellow Pages. They are intent on offering e-commerce services to take a cut of the transaction. This is the primary driver of their interest in the wireless space, the motive behind the alliance announcements and the real driver of the portal Trojan horse.
Should the alliances work, the CSPs will quickly generate stickiness with the carrier’s customers and allow them to dominate the lucrative e-transaction market. The carrier will have lost the ability to brand e-commerce offers and with it the ability to generate above normal value creation.
The ability to move up the value chain to play in the e-commerce market is vital to success in the new market paradigm. This paradigm is being driven by other macro trends in the economy, such as vertical dis-integration. Under this force, market players will divide into two groups, branders and deliverers.
Ford’s recent downstream outsourcing announcements make it a primary nonindustry example of this trend. The company is evolving from a car manufacturer into a global consumer products and services or brander organization. By outsourcing car assembly to focus on activities further up the value chain, it reflects the broader shift in value creation from ownership of the operations to ownership of the customer. The same is occurring with other car manufacturers such as Volkswagen and DaimlerChrysler and within other industries, such as food manufacturing.
Similarly, wireless carriers need to think less towers and technology and more products and channel. Ultimately, successful players will outsource the network altogether as Ford Motor Co. is doing with car assembly. Just as Ford moves up the value chain with the purchase of aftermarket firms such as the United Kingdom’s Kwik-Fit, so carriers need to move upstream to wireless e-commerce and other value-added services.
For success, carriers increasingly will focus on value-added product design, branding, marketing and sales and service. An understanding of such market drivers puts into context the portal threat. Left unchecked, the portals will drive carriers to the low value-added deliverer end of the spectrum and, in so doing, rob carrier brands of their deserved status and value.
New dataCo model
Understanding such
forces, success in the wireless data market will require a new set of operational core competencies free of third-party portal disruption. A new “DataCo” operating model will be necessary. Critical will be the development of targeted wireless data and e-commerce offers.
Carriers will need to develop their own portals to host applications and aggregate-but rarely originate-content. Over the immediate term, while internal competencies are being developed, carriers are wise to contract with smaller portals, such as AirFlash, to perform as hidden services bureaus behind the “carrier” flag. In so doing, they can retain ownership of the customer and eliminate margin dilution. A benchmark in the Internet world is the AOL strategy: creation of a rich set of customer-valued services, with access to key wireline portals such as Yahoo! allowed as one of many capabilities. Over time, we would even call for the development of an industry-sponsored wireless portal.
The ability to drive such meaningful customer-valued applications will be predicated on the carriers’ understanding of key customer needs. New competence in developing ongoing customer profiles, often through analysis of portal activity, will be essential to the creation of personalized, sticky applications.
Other, as yet absent, core competencies will be required, including the creation of a dynamic partner alliance unit to identify and manage key wireless offer partners (e.g. content, software and hardware players); in essence the ability to create and farm a carrier-based wireless data ecosystem.
The appropriate channel mix also will change. Existing wireless direct sales forces will need to be revamped, to move on from the simple voice sell to the sale of more complex data offers. The nature of customer care, support and billing also will need to be redefined, as will the metrics that gauge success.
Carriers.com
The ability to make and execute fast decisions, however, represents one of the most challenging hurdles. Speed will be critical-carriers will need to become more “.com” than telecom. This will involve a new way of doing business. Indeed, a new set of skills likely will be required to supplement existing voice-centric old-company entities.
While this metamorphosis will not be easy, carriers have little choice if they are to remain competitive within the new wireless paradigm. Alliances need to be understood as critical elements of carrier strategy. The portal/CSP threat is real, representing a dangerous source of customer de-alignment, forcing carriers to become low-margin byte deliverers. Fortunately, the business models of the wireless portals are as yet undefined, providing carriers with a fast-closing opportunity to claim the wireless e-commerce market and to prevent wireless from becoming just a transport medium subsumed within an Internet-based universe. Carriers are the rightful heirs to the wireless e-commerce throne-they should think more strategically than did the leaders of Troy.
Andrew Cole heads the wireless practice at Renaissance Worldwide, a global strategy consulting firm. He is driving the development of wireless e-commerce strategy for major carriers. He can be reached at (617) 694-6388 or at andrew_cole@rens.com
