I recently received yet another glowing report on m-commerce. This time the Boston Consultancy Group (BCG) put their weight behind a study covering the subject.
Following a global survey, that organisation have concluded that people are unhappy with m-commerce; that more than a quarter give it away after trying it a few times; that basically everybody finds it too expensive; that it is hard to use; and so on. Yet the company forecast that in a mere two years, 300 million worldwide will use m-commerce to the tune of US$100 billion (US$50 billion residential and US$50 billion business). The estimate for Australia is a ‘modest’ US$1 billion worth of m-commerce revenue for the business-to-consumer market.
Despite the many problems that the BCG has recognised, they base their optimistic conclusion on the fact that the Internet was not popular either when it was introduced, and they believe that m-commerce will catch on even quicker than Internet.
I am at a loss to understand how a reputable company such as BCG can reach such a conclusion. They report that in Australia the survey was conducted in conjunction with Telstra – a company that, of course, has a vested interest in the success of m-commerce. Similar reports have been presented by other management consultancy groups and we have covered these in our various analyses. But these companies are increasingly forming joint ventures and other associations with the telcos in the areas of e-commerce, ASP, B2B, etc. Surely that must influence their status of independent observers? I think it is most important for companies using consultants to establish what business relationships they have, since those can taint the outcome of their reports and their advice.
We have made similar statements regarding the financial analysts – most of them, also, have a vested interest in talking up share prices and we have all seen what disastrous results that can have.
But, to return to the BCG report, I truly find their conclusions quite extraordinary. Most people are unhappy with WAP. True, there are some diehards and, yes of course, we are all aware of the Japanese iMode phenomenon, but to proceed to the conclusion that m-commerce will be a $100 billion market ?
While there was some initial resistance towards the Internet in the mid-1990s, I have never heard reports of a quarter or so of its users logging off in frustration – on the contrary, growth during the mid-1990s was in the hundreds of percentage points.
There is nothing happening in m-commerce that even remotely resembles the Internet phenomenon. And even taking into account the positive acceptance of the Internet, now, after 5 years, we have just generated something like AU$10 billion in e-commerce. Advertising on the Internet is worth less than AU$1 billion. And the BCG want us to believe that m-commerce will be double the size of e-commerce (which grew over a 5-year period) in only two years’ time.
I stand by my earlier predictions that m-commerce will constitute less than 5% of total mobile revenue by 2005. The killer app on the mobile phone is voice. Voice is a commodity and prices are dropping rapidly (20%-25% pa at current rates). In order to discourage churn (30% plus) the operators will have to throw in free, or very low cost, value-added voice services. This will include on-hold, redirections, directories, voicemail, SMS, etc. Mobile data, as in m-commerce, will remain a very small part of this. In a few areas it will develop PDAs – palm computers etc will be used in the business and professional markets for very specific applications, typically catering for people on the move. This will be an interesting niche market, since people are prepared to pay premium prices for both the hardware and the services. There is no necessity for discounting and if operators offer the right applications churn will be virtually non-existent in this area. We estimate that this market will grow from the current 50,000 to 200,000 users by 2005.
Furthermore, the 5% of mobile users that will utilise the mobile data applications on their mobile phones will do so for transactional services, bookings, banking and other applications based on numbers that are easy to key in. As for the rest, given the appropriate business models, young mobile phone users will adopt WAP and SMS services more easily than other groups and there are certainly applications that can be further developed there. The problem, however, is that, apart from the funkiness of SMS, the other reason these youngsters are using it is to save on expensive calls – SMS traffic is huge in the off-peak periods when it is free or very cheap.
It is easy to dazzle analysts with stats of multi-millions of SMS messages, but are they generating new revenues and how much and at what cost? Despite its success, iMode has only slightly increased profit margins for the Japanese operators. The ARPU might increase by 15%-20% but the costs of marketing and network upgrades is equal to, or higher than, the revenue gains. Also, at the same time competition is driving prices down in the savage youth market that doesn’t concern itself with loyalty.
By the end of this decade we still believe that m-commerce will be less than 20% of all e-commerce activities. We base this on the premise that people will not suddenly completely change their behaviour. They will always prefer to use most of the e-services from their homes and offices. E-entertainment will be by far the largest residential e-commerce application by 2010 and this will mainly evolve around the TV set, PC or whatever other home device is on the market at that time. And it is highly unlikely that this will involve the mobile phone.
As an alternative to fixed wire, fixed wireless technologies will, of course, make an impact in regional centres and other niche markets, but in these situations the TV and PC will be linked to the networks and again it will not be a mobile phone device that will be used for the majority of our e-services.
On a more positive note, changing business models will see permission-based marketing activities also entering the mobile market. In order to establish a one-to-one communication relationship, certain companies will be prepared to pay for part of the costs of communications services such as calls, mobile, Internet, broadband, pay TV etc, in exchange for access to certain personal details that make it possible for the companies to create this one-to-one model. However, to do this the total structure of the telco market will have to be transformed. These permission-based marketers need open networks; they want to establish their own virtual network operations. Furthermore, very sophisticated customer relation management systems (CRMs) will have to be developed, connected to gigantic data centres which track customers.
At the same time companies will have to establish a relationship of trust with their customers, so that they feel comfortable disclosing their personal details. This has more to do with human behaviour than with technology. Both the companies involved and their customers will have to go through a steep learning curve and we all know from past experience that this takes time – certainly more than two years.