M-Commerce Hot Spots, Part 2: Scaling Walled Gardens

M-commerce, or mobile commerce, is poised to grow into a multibillion dollar market over the next decade. Phone handset makers, telecoms and content providers are pushing the technologies that will enable users with m-commerce-enabled devices to easily purchase products and services via the phone.

Part 1 of this two-part series discusses the biggest obstacle to rolling out m-commerce: the potential conflict of multiple standards and technologies competing in an immature marketplace.

The Walled Garden

While the U.S. and European Union markets are more crowded, closely regulated and contested, their size and technological infrastructure mean that they will be important proving grounds for m-commerce. There could be 10 million to 20 million m-commerce users in the U.S. by 2010, David Chamberlain, In-Stat’s principal analyst for wireless technology, told the E-Commerce Times.

In Europe, “the UK is showing some very positive trends. Specifically, in the music space, 3’s full-track download services is second only to iTunes in digital music downloads,” according to IODA’s Mitchell. 3, owned by Hutchison Whampoa, is one of Europe’s leading mobile telecoms services providers.

“The U.S. market continues to show signs of massive growth,” said Jeff Mould, CEO of Announce Mobile, adding that “consumer awareness, new applications and 3G handsets are building an m-commerce momentum and has only just begun to touch on the potential.

“The U.S. has long lagged behind the European and Asian markets in both handset technology and carrier adaptability. With increased consumer awareness and demand, the carriers are rapidly adopting new technologies, however, to meet the demand,” he said.

“The U.S. has several obstacles in the way that will eventually play a role in the growth of m-commerce,” he pointed out. “Government regulation, carrier revenue models and privacy concerns will affect the overall growth of the m-commerce market within the U.S.”

“I think that the mobile players need to open up and operate more like the Internet,” Tim Mitchell, vice president of marketing at IODA, the Independent Online Distribution Alliance, told the E-Commerce Times.

“The opening of the ‘walled gardens’ will lead to greater innovation and much faster and wider adoption of profitable products like content services. Both networks require massive investment in infrastructure, so it will always be a few large players who operate the network, but now there is a choice to be made as to their roles really are,” he said.

“Issues like net neutrality and whether or not ISPs are responsible for monitoring or stopping illegal file trading show that some really key issues haven’t yet been sorted out on the Internet side. The reality is that mobile and Internet are going to merge together in a lot of ways, so these issues will cross over, to be sure,” he noted.

“I believe lack of standards, or — to note the cause of this — lack of openness will hurt mobile commerce because it will hurt the ability of companies, be they the carriers or small software entrepreneurs, to innovate and bring to market products that consumers want and will adopt,” Mitchell continued. “Without a vibrant and competitive marketplace, the right products won’t be developed.”

Content Drives Usage

In terms of economics, entertainment and information services are driving m-commerce forward, just as they did in the early days of radio and television.

Low-priced, relatively simple and straightforward content — such as ringtones and wallpaper — continue to be the revenue drivers in terms of product consumption. However, that is changing as network providers build out broadband wireless cellular and Internet connectivity, technology providers forge standards for streaming audio and video content, and manufacturers ship greater numbers of portable multimedia devices.

Therefore, more people will become familiar with — and trusting of — using m-commerce to purchase goods and services.

“While we can’t divulge any specific numbers, let’s just say that our mobile revenue from 2005 to 2006 has gone up over 1,000 percent, and we sell only mastertones and full-track OTA (over-the-air) downloads,” said IODA’s Mitchell.

“Clearly, music is a big driver for mobile commerce, and many of the networks have chosen music as the bedrock of their content offerings,” he continued. “Video is definitely gaining some momentum, though, and there have been full-length films sold and viewed on mobile phones as of this date in more than one territory. But I think only time will tell how video content plays for mobile.”

Global Network, Local Content

So, broadly speaking, what needs to happen before m-commerce takes off?

“The answer that comes quickly is local content — content that is specific and unique to the markets in which the growth is hoped,” Air2Web CTO Dale Gonzalez told the E-Commerce Times. “In the case of India, a lot of that has to do with Bollywood ringtones and wallpapers of Sachin, the local cricket star.”

“First and foremost, security and privacy concerns must be addressed at the hardware, carrier and content provider levels,” added Announce Mobile’s Mould. “Consumers want to know that their transactions are secure. A method for securely identifying the user to the phone must also be included. Currently, users do not have to typically authenticate themselves to the phone. In order for m-commerce to be truly secure [on] mobile devices, the user and phone must be ‘tied’ together securely,”

“From a handset/operating system/application standpoint, consistency and capability needs to be addressed. With various makes, models and technologies on the market currently, it is almost impossible to efficiently and effectively deliver content to all subscribers,” Mould added.

New hardware and new technology must remain or become compatible with current m-commerce applications. Too much confusion or compatibility issues will drive consumers away, Mould noted.

“My hope is that it goes beyond local content and grows to a variety of content — that we start to use the mobile device as a vehicle to purchase everyday things, as just another way to pay,” Gonzalez said. “If that were to happen, you would see the broadest and fastest growth in the m-commerce space.”

“I think there will be things where the use of the cell phone is more compelling, anything that’s perishable, anything that’s impulsive,” he continued. “If you look at Internet commerce, the thing that’s missing is that stack of stuff by the register as you’re checking out. And you think, ‘I do need batteries or I do need a flashlight.’ The mobile device could be a way to capture some of that inventory and revenue. If ‘m-commerce’ became ‘commerce’ and you could just drop the ‘m,’ and then it would take off.”

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