Driven by the collision of wireless and the Internet, wireless e-commerce represents the single most powerful market disrupter of this decade. It will entice new “virtual” operators that will help redefine both the nature of wireless competition and the business and operational models required for success.
Aside from some momentary glances, wireless e-commerce has caused little concern among incumbent wireless carriers. The industry continues to enjoy rapid penetration growth within a relatively virgin U.S. voice market. Yet “across the pond” radical change is about to embrace the whole industry.
Within Europe, the emergence of new mobile virtual network operators represents not only a fundamental shift in the type and substance of competition but heralds the dawn of a new, dominant economic model based on wireless e-commerce.
Wireless e-commerce growth
Wireless research, conducted by Renaissance Worldwide and other major strategy consulting firms, indicates wireless will account for more than 45 percent of the total e-commerce market. This perspective is based on in-depth analysis by the business and consumer segment that points firmly to significant latent demand for mobile commerce services. This, therefore, represents a market exponentially larger than wireless voice access, with the U.S. market alone worth more than $500 billion by 2005 and double that figure within 10 years. The critical enablers of this market, including technology, customer and competitor forces, are rapidly falling into place.
Traditional technology barriers to wireless data and e-commerce are falling. The ability to connect multiple devices, the need for fast connections and the demand for phone-based Internet access are all being satisfied by industrywide technological innovations such as Bluetooth, 2.5-generation protocols and the Wireless Application Protocol. Other challenges are being addressed by advanced voice-recognition technology and security solutions. All represent key pieces to the wireless e-commerce puzzle.
The ongoing movement of the wireline Internet market toward voice-activated capabilities will further turbocharge wireless Internet and e-commerce in the coming years.
Customer acceptance is another critical enabler. A critical mass of subscribers is beginning to form in Europe, where more than 200 million subscribers are forecast to access the Internet via phone by 2003. This critical mass of users will provide the impetus necessary to make wireless e-commerce a reality.
Simply put, the ubiquity, convenience and personalized nature of mobile services extends well beyond simple voice connectivity. The latent demand for mobile banking, payments, shopping, entertainment and other mobile applications is real and already being felt.
Currently, crude mobile e-commerce offerings-for example, applications allowing mobile users to purchase a Coke or movie ticket with their cell phone-are surprising market watchers in both Europe and Japan.
Telenor of Scandinavia and NTT DoCoMo of Japan are two leading mobile operators currently driving revenue and subscriber growth through such data and e-commerce services. In addition to their ability to generate up to 10 percent of every transaction, these operators expect to drive earnings through other revenue streams such as advertising (portals and phone-based) and through commissions for customer access rights by third parties.
Despite the initial success of these specific operators, most U.S. and European incumbents currently pay little more than lip service to the wireless e-commerce market. Wireless e-commerce market forecasts, while perceived as shocking by most incumbent wireless carriers, are concretely understood by new MVNO emergent market entrants.
In Europe, new virtual carriers, which by definition are not facilities-based, have business and operating models specifically designed for wireless e-commerce. MVNOs will not own, or even operate a wireless network, leveraging instead the existing wireless pipe of an established national operator.
Often the weakest incumbent in each market with excess capacity will open its doors to multiple MVNOs. For this reason, it was not a coincidence to see One 2 One offer Virgin and other new MVNOs access to the U.K. market. Through world-class branding and applications development, the mission of MVNOs generally is to exploit the market potential for wireless e-commerce and, unlike incumbents, see voice as simply a “loss leader” to generate a larger scale of service.
Free voice access
New MVNOs will concentrate their energies on the retail market, offering a unique portfolio of branded value-added services at the center of which will be e-commerce offerings. This radical departure from the current business model is represented by new MVNOs such as Virgin Mobile, a powerful global brand with innovative services. Virgin is not alone, however; a similar service is being offered by Carfone Warehouse, a leading U.K. mobile retailer, and up to 10 other European MVNOs are forecast to emerge in the next 18 months.
While MVNOs like Virgin Mobile will initially charge for voice access at reduced rates, these new-paradigm carriers intend to quickly give away wireless access to generate the scale necessary for e-commerce success.
The parallel in the wireline market is the Internet access market, where free access is offered to generate a large customer base from which e-commerce revenues can be garnered. The success of the United Kingdom’s FreeServe, now that country’s leading Internet service provider with more than 1.5 million subscribers, is indicative of the new market reality emerging in the wireless space. Having no sentimental attachment to the voice-minute god, these entities are causing a significant paradigm shift, a new turbulent force in both the European and U.S. markets.
Who are these new MVNOs?
The size and importance of the wireless e-commerce market is attracting many new MVNOs, organizations that mostly originate from non-telecom markets but with one common characteristic: They are all large branding companies with an e-commerce mission.
Internet players such as America Online and Yahoo!, whose valuations are largely based on e-commerce revenue, see the mobile e-commerce market as both an opportunity and an absolute requirement for success. Increasingly blocked by the wireless incumbents, these entities are forced to establish MVNO units to offer mobile e-commerce services. Expect to see announcements from AOL and other players in the near term.
Other industries are also producing new MVNO entities. Renaissance is currently crafting the wireless market-entry strategies for major players in industries as diverse as retail, auto manufacture and entertainment. Soon to be announced in both Europe and the United States, these players will have successfully negotiated network-access rights and will aggressively power the wireless e-commerce market with multimillion-dollar marketing and awareness campaigns. For many, MVNO access provides the ability to transition one-time customers into buyers of long-term service with robust monthly e-commerce revenue streams.
New MVNOs will enjoy a competitive advantage through their understanding of customer needs and their abilities to craft winning customer-valued application packages. Customer profiling and data-mining techniques linked to new applications’ design and development processes will set new MVNOs apart from incumbents. They will also offer mobile e-commerce and access services from any device, whether from handheld PC, auto, mobile phone or fixed PC-based portal access.
Value within the wireless market continues to migrate from network prowess to the successful creation and targeting of unique voice, data and e-commerce offers. This plays well to new paradigm MVNO brand and marketing strengths.
MVNOs will significantly leverage the high-value services of powerful wireless e-commerce enablers such as Geoworks, Intelligent
Information Inc. and Infospace. These companies will reduce MVNO speed to market by offering essential fixed and mobile portals, enabling wireless direct mail, aggregating content and providing critical customer profiling services.
Wake-up call
These projections are clearly a wake-up call to incumbents, which will soon face a radically altered competitive landscape in a market environment that takes network capabilities for granted-rewarding instead new customer-focused skills.
Carriers are notoriously bad at brand development and marketing, as evidenced by worsening customer churn. They are often slow and, more importantly, worship the voice minute. It will be difficult for many of these organizations to reinvent their voice-centric operational and economic models to compete in the new wireless data and e-commerce paradigm.
Success in the new wireless market will require a new incumbent “CommerceCo” operating model. At the center of this will be a carrier portal to avoid intermediation and generate critical scale. Successful incumbents will come to position virtual mobile malls as a cornerstone to future strategic success. The fixed portal will become an essential wireless carrier tool, harvesting many of the Internet-based drivers of success now so important in the mobile space.
Leading players will also need to host applications and aggregate content; they will increasingly be required to own more of the value chain to ensure success. Carriers will also need to be able to create and farm a carrier-based wireless data ecosystem.
The ability to make and execute fast decisions, however, represents one of the most challenging hurdles to overcome in the face of MVNO pressure. 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 will likely be required to supplement existing voice-centric “OldCo” entities.
The Internet and wireless collision
The Internet will soon have millions of new intelligent WAP devices attached to it via wireless links. In so doing, many of the laws that govern the Internet will, in turn, impact the wireless industry. Portals and powerful Internet market drivers will alter the carrier economic model, exacerbating the commoditization of voice and empowering wireless e-commerce.
The collision between the Internet and wireless will have a far larger impact than ever imagined. Wireless e-commerce will likely become so large and so pervasive that it will prove irresistible to a new group of formidable U.S. MVNO competitors. It also will severely disrupt existing, access-based business models.
E-commerce-based MVNOs are coming to the United States in the next 12 months. Incumbent carriers had better take note.
The new e-commerce paradigm will, however, serve the entire industry well. Successful incumbent carriers will enjoy revenues from markets much larger than previously thought. Despite the success of carrier stocks of late, e-commerce will likely turbocharge the valuations of carriers and wireless e-commerce enablers through this new century.
Andrew Cole heads the Wireless Practice at Renaissance Worldwide, a global strategy consulting firm. He can be reached on (617) 694-6388 or at [email protected].
