Will operators boost m-commerce?
By Arthur Goldstuck
When the same strategy question is put to me three times in the same week by different parties, I have to draw two conclusions:
*Little is know about the issue; and
*There is huge interest in the issue.
The magic question was simple: what will cause mobile commerce to take off in South Africa?
The answer, amazingly, is equally simple, but I will have to torture you a little before I reach it.
First, we have to decide what we mean by m-commerce. The ideal is the concept of selling products and services of any description over cellular phones. Given the nature of the device, however, that is simply not practical.
Until now, the reality of m-commerce in the Western world has been confined to content for its own sake, such as logos and ring tones that are downloaded from web sites and networks through nothing more than a cellular phone call. A second, equally indirect, category of mobile commerce is access to basic information via phones using either Wireless Application Protocol (WAP) or SMS-based browsing (such as MTN ICE). Neither provides a true browsing experience, and the revenue generated comes largely via the length of time it takes for target information to be reached, or the number of SMS “transactions” involved.
This is a primitive form of the Japanese model, where NTT DoCoMo has cleaned up the market through its I-mode (Internet mode) phones and service. But here’s the real story: aside from DoCoMo itself beeping all the way to the bank, it has also made numerous content providers into huge m-commerce successes. Elsewhere in the world, it is hard to find a profitable mobile content company. Even the South African originated UK-listed iTouch, which made a great play of its 260% increase in revenues for 2001, still runs at a huge loss (anywhere between 10-million and 15-million pounds, depending on how you prefer to define loss).
What is the difference? Does Japanese culture make for more highly valued content? Not for a moment. Does Japanese culture make for more profitable relationships? Not at all. it has nothing to do with the country of origin, and everything to do with the network of origin.
NTT made one key decision in rolling out content services: it would stay out of the content ownership and production business. The reason was simple: if it tried to roll out its own content, it could never satisfy the market out there, it would be distracted from its core business, and it would lose out on huge potential revenues from the traffic generated by other people’s content.
The strategic message was clear: give all those content people as much of a share of the action as possible, and they would produce compelling content that would in turn help the network succeed. In other words, by helping to make the content rich, the network would make itself rich.
As a result, DoCoMo gives nothing less than 91% of revenue from content access back to the content providers.
Not only that, but in return for their 9%, they offer support to content providers, billing end-users on their behalf, and promoting their services.
Now we look at the rest of the world. The mentality, in havens of hi-tech like Europe, is that the network controls and owns everything that happens on the network. If people want to roll out services on the networks, those people must pay the network, or at least let the network take the lion’s share of the proceeds. Same applies in South Africa.
Notice the vast range of content and services flying towards out cell phones? Not? Aw shucks, of course you wouldn’t, because the networks don’t want to share!
According to a financial model developed by Andersen to evaluate the size of the mobile content market in Europe, such partnerships are not feasible there because of the need to recoup investment in infrastructure and licenses.
In other words, consumers and partners must pay for inept investment strategies?
Another excuse is that the markets for content in specific languages will be extremely small. All the more reason, surely, to reward the content providers more heavily? And finally, according to the Andersen model, European operators do not have the technology to bill end-users for content applications. Sounds like the operators shouldn’t be in business at all!
It’s even worse in the USA, where Jupiter Research estimates that networks will offer content providers about 10% of the pie. The figure is similar in South Africa, although no one has been willing to talk numbers until now.
Of course, very little research has gone into what makes mobile commerce work and what doesn’t, but there is seminal work out there that offers a hint. One of these was a paper entitled “Mobile Electronic Commerce: Emerging Issues”, presented at the 1st International Conference on E-Commerce and Web Technologies in London two years ago by Aphrodite Tsalgatidou and Jari Veijalainen of the University of Jyvaskyla in Finland.
They pointed out back then already that the role of the mobile network operator could vary from very simple and passive to very active and dynamic. Rather than try to be all things to all people, they could be strategically positioned between customers and content/service providers and offering portal or trusted third party services.
The simplest and most passive role that the network could play, they argued, is to just provide the mobile network infrastructure and let the customer communicate and negotiate directly with the various content/service providers or other portals. Profits would come mainly from the wireless connection.
Other roles for the network could include hosting gateways for enabling the exchange of information between a customer holding a mobile terminal (such as a WAP-enabled phone) and a merchant who doesn’t possess the necessary technology; acting as a portal offering advertising services and providing search facilities; and acting as an intermediary and trusted third party in facilitating mobile transactions.
This gets complicated, and questions begin to arise around who pays how much for what, how is it shared and at what stage is it disbursed.
But at the end of this value chain, one thing becomes clear: over time, numerous revenue streams open up for the operator – but only if the operator is willing to open its network to numerous suppliers of services.
There is far more to the issue, and neither the academic nor the commercial world has got to grips with it all. From revenue models to billing models, from business strategies to integration strategies, much still has to be thrashed out (and we will continue to attempt this in this forum).
But one thing is certain: unless the networks come to the table, we will still be debating in another two years the question of what will cause mobile commerce to take off in South Africa.
And to repeat, the answer is simple: the operators must open their networks to suppliers of content and services.
Arthur Goldstuck is editor of The Big Change and author of more than a dozen books on the Internet and urban legends. He runs the independent research and strategy consultancy, World Wide Worx.