The M-Commerce Value Chain

The M-Commerce Value Chain

There are seven links in the m-commerce value chain.

At the bottom is transport the maintenance and operation of the infrastructure that provides for data communication between mobile users and application providers.

The second link consists of basic enabling services, such as server hosting, data backup, and systems integration. Vendors wishing to target wireless customers need these services to make products available via mobile telephones.

Transaction support is the third link of the value chain. Many wireless services will require some form of payment—usually from the user to the service provider to pay for, say, books or CDs—but possibly also in the other direction, for refunds or customer reward schemes. Transaction support provides the mechanisms for assisting those transactions, for security, and for billing users.

The fourth link is presentation services. Providers convert the content of Internet-based applications, which are formatted in a standard known as HTML (HyperText Markup Language), into a standard such as WML (Wireless Markup Language), an HTML subset suitable for the small, low- resolution screens of wireless devices. Content that isn’t already on the Internet can be formatted directly into a wireless standard.

Personalization support is the fifth link of the chain. One of the main value propositions of m-commerce is its ability to personalize applications for individual users. Providers that wish to offer the best m-commerce services need information such as the user’s name, address, location, and billing details (the number of a credit card or a bank account, for example) and even—because the size of the screen affects the kind of information that can be viewed—the type of device used to connect to the service. Companies that can provide such information will form a valuable link.

User applications are the sixth link of the value chain. Possible applications range from those currently available on the wired Internet (including banking, book purchasing, e-mail, news, and travel) to new services designed specifically for mobile consumers (information about where to find the nearest coffee shop, for example, or the automatic notification of nearby friends).

At the highest point in the chain are the content aggregators businesses that design and operate portals, which provide information in a category or search facilities to help users find their way around the Internet.

This function is particularly important for m-commerce because mobile telephones have small screens and limited input mechanisms—notably, no mouse and a non-QWERTY keypad. Users will want portals that simplify the search, avoid throwing up too much information, and require minimum input.

Opportunities for Operators

Few industries offer the opportunity to compete in every link of a value chain, but mobile operators have the necessary technical skills, particularly at the lower end. They also have the billing systems for payments, as well as brands that potentially position them well for customer-related activities higher up the chain.

In addition, their control of the wireless infrastructure and their ability to configure

subscribers’ handsets to make themselves the default Internet access provider give them

the power to limit subscribers’ access to competitors’ services —at least initially—and therefore to build their own branded ones.

Early indications are that operators will indeed try to use these advantages to capture value in many parts of the chain. Sonera and Cellnet, for example, have already launched portals; Vodafone AirTouch and Cellnet have application services;

Telenor and Sonera offer transaction facilities; and NTT DoCoMo supplies basic enabling services, presentation services, and personalization facilities.

To withstand the competition from Internet players, mobile operators should concentrate on the four areas in which they have a strong advantage—transport, personalization support, content aggregation, and transaction support—and move quickly to capture these opportunities by adopting four strategies.

Drive Traffic Growth by Offering a Wide Variety of Data Services

Data traffic (mostly driven by the simple text-messaging service called the Short Message Service, or SMS) already contributes 10 percent of the revenues of some wireless operators and, according to forecasts, will soon overtake voice traffic as the main source of revenue for mobile operators as a whole.

In response, some operators have used their control of the network infrastructure to try to lock in value at stake elsewhere in the chain. By presetting their subscribers’ telephones to make themselves the default Internet access provider and blocking unauthorized services, operators have the opportunity both to charge application providers for access to their subscriber base and to build their own branded services.

This “walled-garden strategy” might provide higher revenues in the short term, but in the longer term it is flawed. First, it fails to maximize demand for data traffic, because users may be barred from their favorite on-line services. Second, it runs the risk of driving away those dissatisfied subscribers, who may switch to a competitor to get exactly what they want.

Since consumers increasingly choose their wireless providers on the basis of the data services available, this second point is an important one. McKinsey research in the Asia-Pacific region, for example, indicates that half of all subscribers (and up to 70 percent of high-value ones in some countries) would switch operators to get better wireless data

services. It follows that the first operator in a region to offer unrestricted access to data services could capture a lucrative portion of the subscribers of other networks.

The best way to go on profiting from transport is therefore to increase traffic on the network. This can be done only by offering subscribers access to the widest possible range of data services, an approach that has been validated in the Japanese market by the success of NTT DoCoMo’s iMode service.

Attract Content Providers by Offering Good User Information

Customer data are a valuable asset in the off- and on-line worlds alike, for the more a vendor knows about a customer, the more it can personalize the information or service it provides. The end result is likely to be a more valuable service, reckoned both by price charged and by the vendor’s ability to attract and retain customers.

In the wired world, Internet vendors use various techniques to personalize a customer’s visit to their sites. These techniques range from “cookies” pushed to the user’s computer to ensure that repeat visitors are recognized and appropriate data recalled, on the one hand, to complex collaborative filters that predict the preferences of customers from their behavior, on the other. (An example is

Amazon.com’s “customers who bought this book also bought . . .” service, which exploits the purchasing patterns of similar customers to suggest books or CDs that users might enjoy.)

In the wireless world, personalization will be even more important, for screens are small, limiting the amount of information that can be shown, and information can be tailored with the help of a few personal details. (A search for a restaurant, say, might be refined by the user’s location and spending bracket.)

The kind of device that is used will also determine the kind of information that can be sent a stock quotation service, such as Yahoo! Finance, could supply share-price graphs to devices with sufficiently large screens.

Input capabilities too are limited, which means that users will benefit if input forms can be filled in automatically on their behalf. A CD vendor, for example, could simply ask customers to verify payment information and a shipping address rather than have them fill out forms from scratch.

Mobile operators hold plenty of this kind of personal information on subscribers and are well placed to supply application providers with the data they require (subject to legal restrictions, which differ from country to country).

Mobile operators can also use this information to drive traffic growth, for application providers are likely to be attracted to the networks whose operators supply the most useful customer data.

A larger number of application providers will in turn attract more customers to the network. The upturn in traffic will attract more application providers, more customers, and so on in a virtuous circle.

Assume the Role of a Wireless Portal

Like portals in the wired world, wireless portals have a degree of control over what users see on the Internet, so the portal provider can charge service providers and advertisers high fees. Given the projected penetration rates of mobile devices and mobile consumers’ increased reliance on portal services, many observers expect wireless portals to be as highly valued on the stock market as their established Internet equivalents.

Operators enjoy some natural advantages in providing portal services. First, the operators can control the configuration of telephones for all their new subscribers and thus make their portals the default start screen.

Second, the operators’ information about subscribers permits them to tailor the content provided. Indeed, the way portals use this personal information could turn out to be the main factor distinguishing well from mediocre portals. (A good one, for example, wouldn’t require users to fill in personal details for each site they visited —an off-putting task on a small keypad.) But Internet experience indicates that operators will have to move quickly to succeed as portal providers.

Operators must also decide whether to build the portal alone or with a partner. Despite some natural strength as portal providers, operators have so far shown limited skill in selecting, aggregating, and customizing content, for though they are good on the technical side, they are light on the kind of media and marketing skills that characterize successful Internet portal providers.

And the value at stake at this level of the chain ensures that operators will face stiff competition, not least from existing Internet portals with strong brands, a large subscriber base, and plenty of experience. Several established companies, including Microsoft, Yahoo!, Excite@Home, and America Online, have already launched wireless portals.

Provide Transaction Support with a Wide Range of Payment Choices

All operators have systems to bill and charge their subscribers. The same systems can be used to bill subscribers for goods and services sold by third-party vendors on the network and to levy a per-transaction charge to vendors.

Some operators have already spotted this opportunity. Sonera makes it possible for subscribers to buy soft drinks from vending machines by dialing a number, and the cost is then charged to the subscriber’s mobile telephone account. Subscribers to NTT DoCoMo can add all of their m-commerce transactions to their monthly mobile bills.

Not surprisingly, this role is being contested by credit card companies that have their own billing systems, established relationships with service providers, and expertise in making customers’ credit and transactions secure.

These credit card companies are even threatening to bypass operators altogether by forming relationships directly with handset vendors. Visa and Nokia, for example, are jointly developing a system permitting consumers to pay for goods and services using bank information stored in a telephone’s memory.

Yet mobile consumers will probably demand a choice of payment mechanisms their credit card account, their bank account, and their monthly telephone bill, for example. To offer customers a choice of payment methods, smart operators are thus likely to join up with one or more banks or credit card companies. Sonera recently did precisely this with MasterCard.

In the Indian m-commerce scenario, mobile payment services such as paymate. com and ngpay.com are gaining popularity. Redbus.in, a website for booking bus tickets allows mobile payments through ngpay.com.