Online Extra: Mobile Commerce Is Coming--Modestly, Eventually

Buying concert tickets or getting coupons on your cell phone sounds great. But not many folks will be doing so til big hurdles are cleared

Picture a world where weary travelers would use their wireless Internet devices to make hotel reservations from a cab and teens could use Motorola pagers to purchase Cokes from vending machines or download tunes from subscription music services onto an MP3 player. These types of transactions, part of so-called mobile commerce (or m-commerce) could eventually match the sales on the Internet, according to analysts. Why won't people use their phones instead of their wallets, after all?

That's why m-commerce transactions will reach $2 billion by 2005, up from nearly zero today, estimates technology consultancy Strategy Analytics. Sounds pretty good. But that might be a very ambitious projection. While no one doubts that commerce will go mobile in the not-too-distant future, technological, social, and business problems will block wide adoption of m-commerce in the near term.

Cell phones, the most widely used wireless devices, remain poorly adapted for mobile Internet transactions. Wireless networks no faster than molasses might discourage early m-shoppers. Meanwhile, most carriers still have no idea how to make m-commerce profitable. The upshot? Truly ubiquitous m-commerce will not make a big splash anytime soon.

FIRST TASTE. That day could be 18 to 24 months off, says Andrew Cole, analyst with Boston-based consultancy Adventis. But the first wave of crude m-commerce is already trickling in. Phoenix-area cell-phone users are getting their first taste of wireless spam from a mortgage company that took advantage of the capability allowing cell users to receive e-mail text messages. Electronics store CompUSA is running digital coupon trials, offering 10% discounts to personal digital assistant (PDA) users. "It works, but it's still really rudimentary," says Cole.

The more complex -- and profitable -- forms of m-commerce remain years away. Location-based commerce, where the operator determines which street you are on and sends you the ads or offers from local stores, remains mired in privacy issues. And platforms for short-range commerce that allows consumers to pay for purchases using their phone have yet to catch on.

Location-based technology will arrive first. Two years from now, as you pass a McDonald's, your phone might give a loud beep. Concerned (Has your son punched someone in the nose? Does your grandfather have the chest pains again?), you might look on the screen and read: "Two-for-one special. Stop by for two Big Macs today for the price of one." But that might be too much Big Brother for the average user, particularly if the ads come in unsolicited and unwanted, analysts say. Most expect these systems won't work until consumers can control what kinds of promotions they'd like to receive.

HUGE MARGINS. Location-based commerce could also work if the wireless operator could manipulate advertising content on billboards in users' proximity instead of innundating their mobile devices. For instance, if 25 passengers on a particular train platform are avid skiers, the operator might adjust the content of a billboard in front of them to promote a nearby ski resort, explains Cliff Raskind, director for global wireless practice at Strategy Analytics.

The margins for this type of m-commerce could be huge. A wireless provider in England experimented with selling dance-club passes to teens who wanted to avoid waiting in entry lines. For the service, the teens paid $14 -- and the carriers pocketed $4 of this as pure profit, a hefty margin for an easy-to-configure service, says Adventis' Cole. The service has been popular.

But so-called short-range commerce could generate the greater gross revenues than location-based technologies, according to Cole. Five to 10 years from now, you might walk into an electronics store, check out the TV set you like, and comparison-shop for prices at other stores on a wireless device in your hand. Satisfied you have the best price, you might use a cell phone enabled with an encrypted chip that can authorize credit-card transactions to seal the deal. The purchase would show up on your monthly phone bill.

That would reduce the number of things people need to carry. And short-range m-commerce looks like the perfect transaction method for low-value items consumers don't want to use charge cards for, Raskind says. That could include parking meter fees, taxi rides, or ordering pizza.

"SQUARE PEG." Sounds promising, but the companies hoping to capitalize on m-commerce must overcome big obstacles. Cell-phone and PDA interfaces remain clunky and hard to use. Today, most cell phones are "a square peg in a round hole," says Richard Owen, CEO of AvantGo, a mobile infrastructure software and services company. They're difficult to navigate. Some models overheat. And wireless application protocol (WAP), currently used in mobile Internet cell phones, "is a very poor technology," Owen says.

Standardization is another challenge. U.S. wireless carriers work on different network standards than their European or Asian counterparts. That lack of uniformity makes it harder to create an international m-commerce coverage area. And wireless operators still have to figure out viable m-commerce business models. They could resemble traditional advertising and commerce models, charging a percentage commission or flat rate per use. But carriers might not have a business model for another year or so, until more people begin to use wireless Internet, say analysts.

That's not to say they aren't already building m-commerce into the next generation of wireless networks. Statistical consultancy Datamonitor estimates that operators will be spending $4.7 billion worldwide on m-commerce infrastructure by 2005, up from about $280 million in 2000. Europe and Asia Pacific show the greatest potential for expansion, and more than 12,000 m-commerce applications will be available by 2005.

LESS HYPE THIS TIME. Consumers in these countries are more likely to be early adopters of m-commerce. Already, cell phones can be used to pay for items at vending machines in Europe, and the success of NTT DoCoMo's interactive iMode phone service in Japan has gotten people used to the idea of phones as content platforms.

But early adoption is a relative term, and substantial uses for the nascent technology appear at least a few years off. Furthermore, after the failure of the Internet to live up to its commerce hype, few are pushing m-commerce as anything more than an additional marketing channel. "It's going to be a way to drive traffic into brick-and-mortar stores," says Raskind. That grounded view of m-commerce might disappoint those who expected mobile Internet commerce to be the Next Big Thing. But it's better than a replay of the bubble.

By Olga Kharif in New York

Edited by Alex Salkever

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