Mobile Commerce

Mobile Commerce

Mobile commerce, or m-commerce, has made several false starts over the past couple of years. Initially it was hyped along with the third-generation wireless networks (3G) and WAP in 1999 and 2000. At that time, the growth of the m-commerce market seemed just around the corner and analysts were projecting hockey-stick growth and adoption among consumers using their cell phones to make a wide range of retail purchases. As 3G rollouts were pushed back, and as user expectations fell after initial exposure to WAP-based cell phones with their user interface limitations in terms of screen size and data entry capability, the volume of m-commerce transactions was an additional victim of the delays.

The promising signs are that m-commerce is becoming a reality almost under the radar. While consumers aren't quite buying retail products using their phones, they are starting to purchase enhancements for their phones via m-commerce transactions. Downloadable ring tones serve as one example. Today, ring tones can be purchased and downloaded to capable cell phones from a number of providers, including content companies and wireless carriers. Carrier examples include AT&T Wireless and Cingular Wireless. While ring tones appear to be a somewhat trivial service for the enterprise, they are big business for carriers and content providers targeting the teen and young adult markets. The ARC Group predicts that 551 million users worldwide will buy ring tones in 2006 and Nokia estimates it will make billions selling ring tones by the end of 2005. At a charge of $1 per ring tone or thereabouts, wireless carriers can generate revenues today and start to drive the process change to educate their consumers on making purchases for their wireless phones. Customers can often choose to pay via credit card or have the charge directly applied to their monthly bill. One of the business issues for teen-oriented transactions such as mobile gaming or ring tones is that teens often have prepaid cards for their cell phones. This makes billing a challenge for the wireless carrier. A solution is to provide prepaid credits for these types of m-commerce services along with the prepaid airtime credits. This is the case in Europe with the Club Nokia program. Consumers use their Club Nokia Credits, purchased via retail outlets or via their mobile phone using SMS, in order to make payments for downloading ring tones, picture messages, operator logos, and caller group graphics. Another challenge related to ring tone downloads is that some of today's cell phones either do not support downloadable ring tones or support storage for only a limited number of downloaded ring tones on the device. As an example, the Nokia 3360 mobile phone supports up to 10 downloadable ring tones.

Mobile gaming is another m-commerce opportunity that has gained considerable attention from the wireless carriers. The wireless carriers in Europe and Asia have found that the killer applications for consumers appear to be services that are simply entertaining. One of the challenges to delivery of gaming, however, is the latency of the networks and the current state of the art in terms of user interfaces. Gaming applications delivered via the network also face competition from the mobile device manufacturers such as Nokia who are placing interactive games directly on their handsets, providing a free option for single-user games. These device manufacturer games can also be given prime placement on the device in terms of their position on the menu. Multiuser network-delivered games can generate substantial revenues for content providers and wireless operators, but an additional challenge beyond the technical hurdles is the business model itself. Key questions include how the revenues are divided among the content providers and the carriers, and who provides the customer support when there are questions related to billing or content functionality.

How the mobile commerce value chain works itself out in the ring tone and mobile gaming markets is worth observation by the enterprise business audience. It may set the ground rules for who eventually owns the customer and holds the most power in the value chain. Businesses wanting to market to their customers via mobile devices will then need to work with and partner with these new incumbents in order to gain placement and priority via this channel. Key players at this point in time are clearly the wireless operators and, to some extent, the mobile device manufacturers and financial services institutions. The wireless operators own the virtual channel to the consumer through the wireless device. If they can unlock the secret to the killer applications for these devices, it is perfectly conceivable for them to migrate from providing the commoditized bandwidth and connectivity to providing the value-added data services on top of the basic pipe. Device manufacturers can appeal to consumers by enhancing and differentiating their handsets and fostering loyalty to the device and brand itself rather than to the operators' connectivity. By providing a community of interest such as Club Nokia, they can turn the devices themselves into the main offering. Finally, the financial services provider or the owner of the customers' digital wallet will certainly hold a strong position due to its level of trust and ownership of key customer information. The ability to store and manage customer contact and payment information, together with customer preferences, gives them the ability to act as an agent on the customers' behalf by screening and filtering information and transactions based on these preferences. This is a battle well worth watching for any business that sells directly to consumers.