Internet, Media &
Technology Analyst
Writer, Columnist,
Commentator
M-commerce: high-tech dark horse?
M-commerce promises much, but only if companies are
able to find out which services work and how to deliver real advantages for
consumers.
By Jose M Guardia
Creating Wealth - in a Brave New World',
Spring/Summer 2001 issue
(Article
not online)
Wireless communications are now
commonplace in Europe: in one country after another, mobile phone lines are now
outnumbering traditional landlines.
Although these were initially used
for voice communication, second-generation digital services now allow limited
Internet connectivity through WAP services. The forthcoming deployment of
third-generation UMTS networks with higher speeds and "always on"
connections, means that users will now have much improved access to the
Internet.
Mobile operators and handset
manufacturers are now betting that "anywhere, anytime" access to the
Internet will encourage more people to use their mobile phones to take
advantage of a wide range of services on the Internet, allowing them to receive
information, shop and be entertained. The consensus among analysts and research
companies is that, by 2003, wireless devices will be the preferred method for
accessing the Internet in Europe. Internet access also opens the door to
e-commerce and access information conveniently splashed with ads.
While this is possible, and
mobile commerce will be convenient for certain kinds of user (in particular
circumstances and for specific transactions), there is reason to believe that
this wireless revolution may be postponed. For the same reasons that e-commerce
in wired environments hasn't grown as fast as expected, and for reasons
affecting wireless technologies and its uses resulting in the deeply
disappointing performance of early WAP services over GSM networks we're
unlikely to see a takeover of e-commerce by mobile devices any day soon.
Actually, a cynic would say
that the current hype surrounding m-commerce is due to the fact that it allows
all the e-commerce companies involved to reset the unfulfilled promises and
over-inflated hopes counters back to zero. The most worrying thing is that,
even with super-fast, pervasive and reliable wireless technologies, nobody
knows which applications are going to appeal to the consumer and how they will
show a return on the enormous investment required for their deployment and
operation.
M-commerce defined
M-commerce includes any
transaction with a monetary value conducted via a mobile telecoms network and
carried through devices that are directly and autonomously connected to the
Internet. These devices range from mobile phones and personal digital
assistants (PDAs) to other portable devices, such as e-mail specific devices,
pagers and even gaming consoles or music players with an Internet connection.
M-commerce comprises both B2B
and B2C transactions, and many experts expect to see the latter take a lead in
the short term.
That said, m-commerce is likely
to be affected by the advantages and constraints of both e-commerce and the
mobile phone technologies on which it is based.
If we consider e-commerce in
general, it is hard to deny that its growth has been slow, when you consider
the increase in the number of Internet users in Europe. This may not be due to
security concerns or low levels of service from on-line merchants. It could
simply be that customer behaviour changes at a slower pace than we previously
thought.
On the other hand, the future
of m-commerce does depend on the evolution of wireless technologies in the
European continent. As countries move from slow, circuit-switched GSM networks
to faster "always-on" packet-switched GPRS and UMTS networks, the
mindset of both consumers and vendors will change and create new opportunities.
If this process is slower than expected, as seems to be the case, opportunities
may be limited, while the costs of infrastructure and services by both
operators and independent vendors will remain in place.
Promising future
There is a great deal of data
coming from analysts and research companies painting a rosy picture for m-
commerce's future. Some predict an increase in total revenues from E23m in 1998
to E23.6bn in 2003, with an aggregated growth rate of 236 per cent during this
period. On that year, the biggest markets will be Italy with E4.8bn, or 19 per
cent of the total European market, followed by Germany with E4.1bn or 18 per
cent, the UK with E3.4b or 15 per cent, and after that France and Spain with 12
per cent and 10 per cent respectively.
As for the services that will
dominate m-commerce, advertising leads the way, followed by financial services
and m-shopping. One especially interesting finding in a recent study is that
entertainment and information provisioning, two of the most successful services
to date on the wired Internet which, at first glance, would seem suited to
m-commerce will have an extremely low share of revenue (six and five per cent,
respectively) in the wireless world. Even more tellingly, information
provisioning will decline.
This suggests that the
e-commerce model should not be simply replicated in a wireless environment. No
portable device will ever match the quality of a computer screen, at least in
the short term. In the entertainment and information provisioning market, this
is a particularly important consideration, since reading long texts or looking
at graphic-intensive material on a small screen is a pretty unattractive
proposition.
Even for pure transactions,
m-commerce should not be seen as just a stripped-down version of hardwire e-
commerce, but as an extension to it, which is only suitable for specific, time
critical or location-based transactions, such as event ticketing, auctions,
stock quotes and trading.
There has to be a real
advantage for consumers to carry out a particular transaction on their wireless
Internet devices, given what we might call the "mobility paradox":
using a mobile device for shopping, accessing information or any kind of
transaction forces the user to be non-mobile while the transaction is
performed. If you have to stop to use the device, why not wait until you get
home to your PC?
One of the most promising
developments, bringing real value to users, might be the use of the mobile
phone in e-payment solutions. For example, turning the phone into an e-wallet
for the payment of small expenses (such as newspapers, taxis and movie tickets)
via SMS messages is something that we are starting to see in Europe. Moreover,
operators are already salivating at the prospect of becoming a central billing
system for purchases on the wireless Internet, eliminating user concern over
credit card fraud. The thinking is that if users feel safer, they will be more
keen to shop.
The hurdles ahead
Not everything is rosy in the
world of m-commerce. There are serious hurdles in the "untethered"
future, for both objective and subjective reasons, and there is still a great
deal of uncertainty over which technologies will be adopted and the pace at
which they will be deployed.
The first over-hyped
experiments with WAP over GSM networks have failed, mainly due to low performance,
lack of compelling services and the high cost of airtime. The new generation,
packet-switched services could change users' mindsets and open up new
opportunities for companies.
However, it seems that the
current deployment of GPRS all over Europe will be slower than forecast.
Handset availability is a problem, as is the speed of the system: instead of
the promised 100kbps, recent tests showed that it will probably run at around
20kbps, faster than today's 9.6kbps GSM networks, but far from wireless
Nirvana. In fact, it's roughly half the average speed on a conventional wired
modem.
Then there is the 3G conundrum.
This was to be the technology that would put an end to the limitations of
wireless connectivity and European UMTS operators bet their shirts, spending
more than E150b in licenses alone. Studies suggest that they will probably have
to spend as much again in infrastructure and marketing before launch. Also,
lack of equipment (mainly handsets), bandwidth limitations and
slower-than-announced speeds will probably mean that UMTS services will not be
working on any scale in Europe until at least 2006 or 2007.
To make matters even more
complicated, several wireless technologies (such as Bluetooth and WiFi) and
digital radio pose a serious threat to the viability of 3G networks, as they
are cheaper, often more reliable, faster and already available. Some experts
and insiders are questioning if 3G is ever going to see the light of day.
European telecom operators
might be hit by a "double whammy", in the end: 3G, for which they
have already paid hefty amounts in licenses, may not take off and they will
have wasted their money. Even if it does, competition will be so intense among
incumbents and new entrants that subscriber revenues from traditional services
such as voice and text messaging will drop drastically. Even though data
transmission will soar, the revenue from this will never make up the
difference. No wonder European telecoms operators have been battered in the
stock markets and that we are hearing the word "consolidation" so
often.
These technical issues will
eventually be clarified and, for companies looking to adopt m-commerce
strategies, there is reason for optimism: at least in the short term, they will
find operators strapped for revenues and keen to talk about partnerships and
placements in their mobile portals on more reasonable terms.
Other factors may concern
users: security, for one. The WAP protocol is fundamentally insecure after data
leaves the WAP gateway and enters the public Internet. On the other hand, those
worried about privacy are concerned about the ability of new-generation
networks to pinpoint the user's exact location at any time. Consumer activists
are also worried about unsolicited commercial messages (spam).
Predicting the future
The biggest hurdle for wireless
technology and m-commerce is not knowing if, when and how far services will be
accepted by consumers and which ones they will choose. The truth is, most
m-commerce projections are based on very little verifiable data; they are the
product of wishful thinking. If there is anything that we should have learned
from the puncture of the Internet bubble, the damping down of the wired
e-commerce dream and WAP hype, it is that new technologies can't be forced on users:
they will only adopt those they deem useful.
It is sometimes forgotten that
the real "killer apps" in wireless technology are voice and text
messaging, both of which are well provided for by current mobile technology.
There may be an initial demand
for additional data services, but these might not live up to the hype
surrounding them. The undisputed fact is that the first markets in m-commerce
will probably be for modest items. Even then, the harsh reality is that
consumer behaviour resists change. Just because there is a new technology
available, it doesn't mean that users will start using it. Even if they do,
they are not likely to drop their old habits altogether.
Mixed messages
Sometimes it is easy to get the
wrong message from otherwise positive developments. For example, the fact that
there is such a high penetration of mobile phones in Europe (near 70 per cent)
is encouraging. It demonstrates that users have been convinced of the
advantages of mobile technology. The down-side is that users will have to
replace their sometimes recently purchased handsets if they want to take
advantage of the new networks. In the end, this might mean that PDAs or
hand-held computers are more likely to become more popular for accessing the
Internet.
Usability expert Jakob Nielsen
recently referred to mobile phones as "Europe's Minitel", meaning
that, as with the French on-line service, success with an early technology can
hinder later development.
Another potentially misleading
signal is the often-cited success of i-Mode in Japan. This is thought to
demonstrate that people in general are embracing the Internet "on the
go", but this overlooks the fact that i- Mode's success is also partly due
to specific circumstances in Japan.
There has been very low PC
penetration in the country. A workstation can't always be fitted comfortably
into a Japanese home, and besides, Japan is in the middle of an economic crisis
that prevents its citizens from buying such big-ticket items as desktop or
laptop computers. There are also some sociological reasons for the i-Mode
phenomena. Japanese culture discourages talking to or making eye contact with
strangers the i-Mode is a great way of killing time during long daily commutes
on public transport. The success of the wireless Internet in Japan might well
be difficult to replicate in the European market. It does not say much about
how willing Europeans will be to adopt a similar technology.
And finally, if a recession hits the US and begins to affect
Europe, many users will reduce their non-vital expenses, which may well include
new generation mobile phones and data services.
© 2001 Jose M. Guardia, Barcelona -- All Rights Reserved