Priming the Data Pump

By eweek  |  Posted 2001-03-05

Priming the Data Pump

We arent there yet.

The wireless data industry has been muttering this mantra for the past year. And though disappointing, its an improvement over its previous chant: Wireless data is here. The new one, at least, shows weve made it over the hype hump.

Information services — like news and weather — delivered to phones, personal digital assistants (PDAs) and pocket computers will likely jump-start the wireless Internet. But many hope mobile commerce (m-commerce) will produce mouth-watering revenue, and the numbers show exactly why the buzz about the wireless Web continues to build.

M-commerce services are expected to generate $200 billion by 2006, up from less than $1 billion in 2000, according to a recent study by Strategy Analytics. Those figures look believable next to projections for wireless data subscribers, which Cahners In-Stat Group projects at 1.3 billion by the end of 2004, up from 170 million in 2000.

The question is: How do we get from here — where only about half the phones in the U.S. are digital and even are fewer Internet-ready — to there?

Operators will have to start by targeting the right markets. Although NTT DoCoMo has seen substantial success delivering consumer services in Japan, similar offerings havent done so well in the U.S.

"I think B2C [business-to-consumer] is going to develop over time," said Roy Dube, partner and Americas leader for mobile business and wireless at PricewaterhouseCoopers. But first, coverage, bandwidth and devices will have to improve. Nevertheless, large companies are pursuing a different sort of wireless Internet strategy. "They see a lot more prospects implementing wireless in their own organizations," he said.

Countless start-ups are developing products for corporations hoping to mobilize their work forces. They provide secure bridges into corporate intranets, so salespeople, for example, can quickly access databases while on the road. Some corporations may also find it easier to equip mobile work forces with wireless-enabled PDAs or sophisticated smart phones instead of laptops, which take longer to boot up, cost more and are run by an unreliable operating system.

"When was the last time you had to reboot your phone?" Dube asked.

Show Me the Money

Show Me the Money

Operators, developers, entrepreneurs and vendors must clear the obstacles blocking the path to a widely deployed wireless Internet. The roadblocks range from lame user devices and slow bandwidth to lack of consumer education and too many competing transmission standards. The industry may spin its wheels for a few more years, and in the meantime, hopeful customers will be left standing roadside clutching useless wireless devices.

Lucky for wireless operators and mobile Internet start-ups, the wireless Webs vast revenue potential is turning heads at venture capital firms.

Many venture capitalists, burned in the landline dot-com downturn, see hot prospects in wireless. "Wireless remains a relative oasis in todays Internet investment desert," Tom Kucharvy, president and practice director of Summit Strategies wrote in a recent report. In fact, in the first quarter of 2000, $620 million in venture investments flowed to wireless equipment and service providers, more than the amount that reached those sectors in the first two quarters of 1999 combined, market researcher VentureOne reported.

Investment dollars are flowing from new sources and some backers have shifted gears, preferring to stay close to their fledgling companies beyond the start-up stage. These firms, like ideaEdge Ventures, Ignition and iSherpa, have powerful experience in their portfolios and can provide hands-on help.

Vendor funds are also emerging as a significant source of cash for wireless start-ups. Gearmakers are sinking money into new companies that will help them achieve their own strategic goals, according to the Summit Strategies report.

But while the money seems to be there for smart start-ups developing applications or solutions, wireless service providers are still struggling with how to build a business out of mobile data. Thats because wireless data is a new ball game for most operators. "Theyve been forced to be very focused on voice services because thats how theyve been measured by the financial community," said Hans Davidsson, managing partner at ideaEdge.

Operators have begun investing in systems and marketing programs for wireless data services, but the revenue has not yet begun to flow. As a result, wireless carriers must educate Wall Street about what it will take to deliver wireless Internet services. "The financial community isnt necessarily promoting operators that are brave enough to get going on the mobile Internet," Davidsson said. "They are spending more money per subscriber, and thats what [the financial community] sees."

That scenario makes it tough for operators trying to make careful investments and attempting to align themselves with profits and earnings, said Jim Collas, managing partner at ideaEdge. It also forces them to open up to new types of businesses that can help them earn money quickly. For example, in Europe, the concept of mobile virtual private networks has become especially hot as operators consider selling airtime to resellers as a way to fill up their networks and make a quick buck. Davidsson envisions a day when each market will have 25 or 30 service providers, most of which are non-facilities-based carriers.

Operators will also likely establish creative pricing models, charging customers for different services based on speed or content. Carriers will offer tiers of service, packaged almost like cable TV offerings, said Mike Walters, manager of third-generation (3G) system marketing at Nokia. They could offer sports packages, games and entertainment packages, and executive deals. "It takes creativity. It has been easy for operators — all theyve had to say is: We sell voice, " he said.

Jump Start

Jump Start

A number of factors, both tangible and intangible, must be improved upon for the wireless Web to take off.

"A lot has to do with calling it the wireless Internet," Dube said. Using a wireless handset to access information via the Internet is nothing like surfing the Web with a PC, so customers must be taught to expect that difference.

"Internally, we think a challenge for us is consumer education," said Sridhar Ranganathan, general manager at Yahoo! Everywhere. "People get into a fixed pattern of usage." Even though Yahoo! users are often technically savvy, they need to learn that the experience of accessing Yahoo! content from a mobile phone will be quite different than on a PC, he said.

Sprint PCS, which has the largest wireless Internet mind share among consumers in the U.S., has broken that trail with its marketing campaigns. "One thing that Sprint PCS has done for the wireless Web industry overall is their strong marketing campaign raised the level of public awareness on the wireless Web hundreds of percent," Walters said.

While customer education is important, so are tools, and end users dont yet have devices that will encourage aggressive use. For starters, in the U.S., only half of the phones out there are digital, Dube said. Only a very small percentage of those are Wireless Application Protocol-enabled to allow for access to Internet content.

Today, a mere 7 percent of American adults say that they or someone in their household uses a mobile phone to access the Internet, according to a study by Taylor Nelson Sofres Intersearch. Those customers come from a narrow user base, primarily males age 18 to 34 years old from households earning $100,000 or more.

But even those few wireless Web users cant all communicate with each other because of different transmission standards, which fragments the market even further. Walters has several phones sitting on his desk that he uses regularly. He could pick up an AT&T Wireless handset and a VoiceStream Wireless phone, which look identical. "Theyre both capable of sending and receiving SMS [Short Message Service] — except to each other," he said.

The success of NTT DoCoMos i-mode service may be testament to just how much a single standard can foster a market. NTT DoCoMo designed one platform end-to-end so developers dont have to gamble on which standard to use. As a result, NTT DoCoMos service has been by far the fastest-growing wireless Internet service in the world, gathering more than 19 million customers in less than two years. By contrast, the U.S. market has a slew of different technologies at work, making it a confusing market that has been slow to take off.

In Europe, all operators use a common air interface, or transmission, standard, which is surely why text messaging is so popular there. The push toward 3G networks could alleviate some of the standards problems, ultimately whittling the number of air interface standards to two instead of the current three in the U.S.

In the interim, some companies are capitalizing on the multiple-standards problem. IdeaEdge calls it "chaos theory."

"Its a new technology with lots of different standards that dont interact," ideaEdges Collas said. "We have a lot of focus on launching corporations that help companies bridge that problem."

Although the U.S. is behind many parts of the world in development and penetration of the wireless Internet, some advantages could allow the country to catch up. "The widely held view that the U.S. is well behind Europe and Japan has some credence," said Omar Javaid, co-founder and chairman of Mobilocity, a mobile Internet consulting firm. But thats only in the realm of wireless infrastructure and network build-out. "The e-business infrastructure is not nearly as advanced as in the U.S. So you have a puzzle thats different in different parts of the world."

Its both an advantage and disadvantage that the U.S. has a mature Internet market. While that maturity can serve as a leg up when m-commerce comes of age, many believe it has slowed the adoption of wireless Internet services because consumers here, accustomed to the landline Internet, arent impressed with the slow, cumbersome wireless version. (See related story on page 57.)

Regardless of where you are on the globe, though, the wireless phones arent designed for easy access to data services. "Theyre more geared toward the consumption of voice," Yahoo!s Ranganathan said. Current phones have small displays, limited browser capabilities and require users to triple-tap keys to spell out words. Developments in Japan, with i-modes color screens and easy-to-use interface, as well as the adoption rates of PDAs are positive trends that signal more user-friendly phones may be on the horizon, he said.

Bandwidth is also a significant gating factor for the wireless Internet. Today, most wireless services are capable of moving data at only 9.6 kilobits per second. Some top out at 19.2 Kbps — still a snails pace compared with the speeds most people are used to on the wired Web.

Operators are plugging away, installing new gear that will boost transmission speeds, but equipment upgrades take time. Although the increased bandwidth will open the door to new kinds of services, including video, current networks can support plenty of interesting services. "Its not to say you cant do things now," Dube said. "You just have to structure the solutions accordingly."

The Antidote

The Antidote

Even though the wireless web is rife with problems, they arent insurmountable.

Ultimately, content providers like Yahoo! expect to see a large consumer marketplace emerge, with much more market segmentation to follow. Not only will devices have to be more user-friendly, but theyll be geared toward certain types of users. For example, some devices could be designed to sit on a belt, which could be ideal for a man, while others should be small enough to fit into a purse for some women. "One day I envision someone will pick up a tie and match it to their device," Ranganathan said. "Or have a device for work and take another one for an evening party."

Though service providers acknowledge security needs serious attention, they say its one aspect of the wireless Web technology that doesnt worry them too much. "In this country we see this over and over again. We saw it with the adoption of credit cards and ATMs [automated teller machines]. Its the same story," Ranganathan said. As with many new technologies, users may be wary of security faults with the transfer of information wirelessly, but they will likely warm up to the concept with time. "If you are secure and you tell your friends about it, it drives the feeling of comfort."

Operators can also offer multiple levels of security, depending on the type of information exchanged. "If they are confidential records or credit-card information, it will need a different degree of security than just e-mail," PricewaterhouseCoopers Dube said.

Many of the issues slowing the wireless Internet have been around for a couple of years. But never before have they been as important as they are about to be.

"The whole hype around the wireless industry has slowed down. Now were focusing on real solutions," Ranganathan said. "Last year, we had a lot of hype and media attention and talk about things that were irrelevant at that point — there were no customers anyway."

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