After WAPlash, Europe Gets the Message

Mobile-phone operators are turning away from wireless application protocol in favor of simple, effective, and profitable text messaging

By Andy Reinhardt

The history of technology is rich with stories of dark-horse ideas that prevailed over pedigreed, big-money rivals. Palm Computer's organizer shamed Microsoft's decade-long quest to supply software for handheld computers, scrappy Ethernet trounced IBM-backed Token Ring, and ingenious Napster made a mockery of the music industry's plodding efforts to sell tunes online.

The ultimate example is the Internet itself. Based on simple, reliable technology, it grew from a science project into the world's dominant communications backbone -- vanquishing a rival global-networking scheme called Open Systems Interconnect, which collapsed under the weight of its ponderous protocols and endless committee meetings. The Net may have confounded networking mandarins, but its success was no surprise to engineers, who know that simple and functional usually trumps bulky and overwrought.


  Until recently, this lesson appeared lost on Europe's mobile-phone operators. Two years ago, they tried to grab the next Net wave by embracing a grand scheme called wireless application protocol (WAP) that promised to deliver a rich stream of Web services to handheld phones. But the technology was complex, immature, and ill-suited to the mobile networks of the time -- a classic "top-down" solution that just created more problems.

Not surprisingly, consumers rejected the slow, clumsy services. In the ensuing "WAPlash," wireless startups went belly-up, and stock prices for the mobile industry fell by half.

Now, wireless providers are rediscovering the old engineering dictum -- go with what works. They're not abandoning WAP entirely -- planned improvements to the protocol, announced on June 13 by a consortium of a dozen carriers and six mobile-phone makers, should make using WAP services faster and more appealing. But to attract users and make money now, wireless companies are shifting focus to a far simpler technology, short messaging service (SMS).


  Europeans have already fallen in love with SMS, exchanging an amazing 10 billion text messages -- an average of about 50 per person -- every month. With each message priced around 10 cents, SMS is now pumping $1 billion a month into the pockets of Europe's mobile operators, according to Forrester Research.

Carriers now see an opportunity to build new information-services businesses on the popularity of SMS. Helped by companies that supply content and software for mobile services, they're rushing to retool their WAP-oriented offerings to accommodate messaging. The idea is that instead of surfing through the Web-like pages of a WAP system, users can fire off a message asking for a specific piece of information -- say, a stock quote or the address of a nearby restaurant -- and moments later get an automated answer back through sophisticated search software.

In the process, the user spends 20 cents for two messages -- and possibly anywhere from 10 cents to $3 for the information. Or the info could be free, with the carrier earning a fee from a sponsor. By 2005, Forrester figures, such "value-added" messages will make up 10% of SMS traffic and be worth $7 billion in Europe alone.


  Nowhere is the shift to messaging clearer than among the so-called wireless portals operated by carriers. These points of entry provide such services as news headlines, sports scores, stock quotes, and horoscopes, and were originally intended to be the WAP equivalents of Yahoo! Now, portals such as British Telecom's (BTY ) Genie and Sonera's (SNRA ) Zed are refashioning themselves as text-messaging hubs. Zed describes itself as "designed for all mobile phones that support SMS messaging," though its services are available via both SMS and WAP.

Want to find somebody's mobile-phone number? On Zed you can get it by sending and receiving messages. On Genie, you can set up info alerts to receive text messages whenever a stock hits a threshold price or a favorite band comes to town. "This is about what you can do today in the mobile-services market," says Antti Viitanen, vice-president for products at Zed.

Mobile-data startups that had pinned their hopes on WAP also are scrambling to rebuild their businesses around SMS. London's Joe Network abandoned its WAP-based nightlife-information service after just three months of paltry traffic and instead went into distributing movie tickets and club passes using messaging. The company, rechristened mTickets, hit pay dirt and is now negotiating a potential licensing deal with giant Ticketmaster (TMCS ).


  Another British startup scored a publicity coup when a trial of its messaging-based sales-promotion service caused a near-riot at the Lakeside Shopping Mall in Essex. The company, ZagMe, sent messages to shoppers, offering a free pair of shoes to the first person who ran through the mall shouting "I've been zagged" and made it to the Reebok store. Fifty people took the bait, mobbing the overwhelmed shopkeepers. ZagMe has since signed up 60,000 subscribers and 20 stores at two malls for its on-the-spot advertising system. "This completely changes yield management for businesses," says company marketing chief Russell Buckley.

With such evidence that messaging appeals to customers, carriers see it as the great hope for wireless-data services. They figure users will get hooked on instant info using dead-simple SMS systems and then gradually migrate to more sophisticated interactive services when the technology improves. Late this year, operators are set to roll out an interim generation of wireless networks -- known as 2.5G because it's a bridge between today's second-generation digital systems and the pricey third-generation networks envisioned for 2004 and beyond.

The 2.5G services will boost data speeds by up to three times and deliver data constantly, like a cable-modem or DSL broadband connection. But until then, carriers will be constantly reminded of the truism that the most successful technologies are often the simplest. You might say they've already gotten the message.

Reinhardt covers business and politics from BusinessWeek's Paris bureau

Edited by Patricia O'Connell

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