Until you have actually bought a good or service using a mobile device, it is difficult to comprehend the sheer power of the phone as an electronic wallet. In Europe, recent initiatives by innovative carriers such as Sonera allow users to buy candy, to pay for arcade games and even rent cars using mobile phones. Based on the sheer power of personalized m-commerce, this potential market is forecast to represent more than 45 percent of all e-commerce and will likely become the de facto business model for wireless carriers.
Its impact will not be restricted to the consumer market, but also will significantly affect all forms of business e-commerce. While many in Europe and Asia understand its latent potential, U.S. players have yet to grasp the nettle and fully acknowledge the disruptive effect of the m-commerce tsunami-an economic tidal wave like no other.
The inherent appeal of m-commerce to the customer is its key strength. Convenience and economics drive this. For those consumers fortunate enough to have tried m-commerce applications, the ability to make a variety of payments any time anywhere has proved a key component of its subsequent popularity. Whether using the phone to pay for a ski pass or using the device to bet on the horses, these services make existing commerce processes more personalized and more convenient. Economic drivers also favor m-commerce. These include the inherent cost savings to various parts of the delivery chain, the uniting of customer demand with merchant excess supply and the significant value of one-to-one marketing to advertisers. Each will likely mean subsidized m-commerce transaction-based goods and services for end users. All bode well for explosive U.S. m-commerce market potential; M-commerce is set to offer faster mass-market penetration than e-commerce did before it.
Despite growing awareness, however, m-commerce is widely misunderstood. M-commerce is not simply an extension of the wireline e-commerce market, but a new, more complex breed of economic behavior. Wireless e-commerce is different. Unlike the more pull-centric wireline e-commerce market, which generally requires customers to navigate their way to purchase sites, m-commerce is extremely push-centric in nature. This push element is derived from the m-commerce engine, namely the customer profile, from which all data and m-commerce services are based. Add the second and third key ingredients, permission-based location data and time-of-day information, and a new personalized commerce environment is created.
Three types of m-commerce
Within this emergent personalization movement, Renaissance has identified three types of m-commerce: namely Internet extension commerce (IEC), location-based commerce (LBC) and short range commerce (SRC). Currently being put into effect is Internet extension commerce, the simple extension of existing Internet sites and associated payment options for goods and services, such as airline tickets and CDs. This represents at best an evolutionary rather than a revolutionary step forward. The second, location-based commerce, is likely to begin in 2002 and represents tailored position-based commerce tied to the customer profile. This form of m-commerce is far more impactful and will unify customer needs, wants and desires with the reality of merchant location, product availability and promotions.
The third and most compelling will be short range commerce, representing the realization of the electronic wallet dream. The phone becomes a replacement for both the credit card and for cash. This will bring together the power of a robust wireless network, a secure payment processing capability and a standard, short range connectivity medium such as Bluetooth to facilitate point of sale m-transactions. SRC will be relevant to all segments of the consumer and business market facilitating real-time commerce from the payment of grocery bills to the sale and purchase of building materials. Each of the three m-commerce derivatives will emerge in an overlapping sequence, with the largest and most impactful being short range commerce.
Wireless window
Unlike the wireline environment, wireless carriers enjoy a unique window of opportunity to position themselves to dominate these three m-commerce variants. Until the acceptance of technology used to facilitate the easy reconfiguration of wireless handsets, carriers can control the valuable handset real estate. With this comes the ability to become the customer’s window to the Internet and with it access to lucrative m-commerce revenue streams.
While many have rightly discounted the carriers ability to win via a “walled garden” approach, they have seriously underestimated the power of the handset to offer compelling carrier-managed data and m-commerce services. Because of this, it is the carrier-and not established wireline portals like Yahoo!-that are best positioned to own the customer and with it, control the m-commerce value chain.
Two major revenue streams
Utilizing their current large subscriber base, carriers will benefit from two primary m-commerce revenue streams-m-advertising and m-transactions.
The smaller of the two, m-advertising, will leverage both the portal-based profile and the carrier-owned location information. Profile-based push advertising and promotion to the handset (e.g. electronic direct mail) will drive significant revenue from extremely targeted permission-based advertising. This is in addition to established wireline portal-based revenue streams from banner advertising and click-through revenue. Many carriers are leveraging the services of unique wireless advertising enablers, such as SkyGo, to ensure speed to market.
By far the larger revenue stream will come from m-transactions-so large in fact that many emerging mobile virtual network operators (MVNO) will depress voice pricing to drive scale from which m-transaction revenue can be generated. Through their relationship with the customer, the carrier can position itself as the m-commerce facilitator, bringing buyer and seller together. For this they will charge a percentage of each and every transaction taking place over the wireless network.
This is already becoming a reality as certain carriers, following the i-mode lead, have successfully negotiated 4 percent to 8 percent of every transaction for content and good/service transactions. Some even charge a one-time six-figure portal entry fee and a non-trivial per user per month charge. Vodafone Group plc, through its Vizzavi portal, is one such example. While these ranges are unsustainable long term, the likely steady state percentage will be in the 2 percent range. With volume, this represents both a turbocharged revenue stream and a compelling margin-based business model.
To benefit from this new business model, world class m-payment engines are being developed by leading players. Carriers are currently assessing the relative benefits of using the billing engine for micro-payments, of using prepaid technology as m-cash and of using the SIM or smart card as virtual credit cards. At this point, the likely winning combination appears to be using the billing engine for micro-payments (i.e. payments less than $10) and a protocol independent SIM card, backed by the major credit-card companies, for all macro-payments. To facilitate m-payment engine development, most Renaissance carrier clients are currently utilizing the off-the-shelf capabilities of processors and merchant aggregators such as Brodia, WorldPay and InfoSpace.
M-commerce foundations need to be put in place
For m-commerce to develop, however, a number of requirements will have to be met. While much progress is being made on all fronts, at present movement in the U.S. market is depressingly slow vs. other continents; this Wireless Divide is growing by the day. The slow uptake of WAP in Europe provides the naysayers with ammunition, threatening to harm the required investment and organization
al development necessary for U.S. success within the next paradigm.
WAP’s woes will be resolved through an HTML compliant WAP version 2.0 and through near-term improvements in the m-commerce environment described below. What is clear from the Japanese experience is the large scale latent demand for value-added services at the center of which will increasingly be wireless e-commerce. Once we have fixed the technology, the market will appear.
One key m-commerce requirement currently missing from most markets, however, are critical investments in 2.5G always-on data-centric wireless networks. Another is the carrier failure to invest in a robust location-enabled wireless network linked to merchant and points-of-interest location databases. In the United States, Cell-Loc is moving ahead with its location-based system in the face of carrier lethargy. Carriers also need to more widely deploy second-generation WAP/C-HTML Internet phones and to invest in new m-commerce billing mechanisms.
Beyond pure investment needs, the networks will also need to create a mutually beneficial m-commerce ecosystem of multiple industries and to help ensure the widespread uptake of cost-effective Bluetooth-like devices.
Beyond the much-maligned carrier group, the industry as a whole will need to develop standard wireless security technology, perhaps the most glaring requirement from a customer perspective. The ability of customers to trust wireless technology to handle their money will largely determine the speed of market uptake in the near term. This area is fluid to say the least, with multiple alternatives from fingerprint phones to PKI-enabled networks.
Key success factors
U.S. carriers will need to carefully understand the emerging key success factors of the m-commerce market. New core competencies will be required primarily in customer understanding and tailored service development. Renaissance is currently working with both incumbent and new virtual carriers to establish themselves as key power brokers in the m-commerce market. All are driving success through the creation of a new “CommerceCo” operating model, requiring new processes, new ways of doing business and a new business design.
At the center of this is the development of a “living and breathing” customer profile engine facilitated by the portal. Control of the customer profile through a portal offering has become a strategic imperative. The profile represents the crown jewels of the m-commerce market, linking valuable customer information with time-critical, location-sensitive and event-driven mobility. Going forward, profile-based information will be at the center of all high value data and m-commerce applications. Housing the profile will be the portal, so critical to m-commerce success.
Carrier portals in Europe are successfully driving up ARPU, pushing down churn and creating early-stage commerce-based revenue. Many are becoming wireless American Online Inc.’s-creating a powerful mix of content and commerce services with a window to other wireless Internet services. Orange World is one such example. Such is the power of personalization-based data and m-commerce, that carrier portals such as Vizzavi, Zed and Genie are rapidly becoming as important to European consumers as Yahoo! is to the U.S. wireline population. European carriers are showing their counterparts in the United States the way forward, which is particularly relevant as many of the key European trends are directly applicable to the United States.
For carriers, the m-commerce paradigm represents either a boom or bust scenario-either they secure the beachhead and dominate the m-commerce market or they become relegated over time to a low-margin pipe service. While most European carriers have seen this reality and the strong threat from existing wireline portals like Yahoo!, most U.S. carriers have yet to acknowledge the revolutionary impact that m-commerce will have. Through a “wait and see” policy, they risk being dominated by large-scale European and Japanese competitors.
The collision between the Internet and wireless will have a far larger impact than ever imagined-the tsunami of all economic waves. Driven by the Internet collision, m-commerce represents the single most powerful market disrupter of this decade. The impact will be clearly visible-by 2010, the first ATM machines will be removed displaced by the mobile wallet. All memories of initial WAP-based wireless Internet troubles will have been forgotten. A new mobile commerce paradigm will have been established.
Across multiple industries, m-commerce positioning represents the single most important strategic decision to be made by senior executives during the next 10 years. For carriers, it represents an unprecedented opportunity to successfully surf the greatest of all waves.
Andrew Cole heads the Wireless Practice at Renaissance Strategy, a global strategy consulting firm focused on communications, computing, commerce and content. He can be reached at (617) 694-6388 or at andrew_cole@rens.com.
