Josť M. Guardia

Internet, Media & Technology Analyst

Writer, Columnist, Commentator

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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