Wireless Web portals duke it out

In Europe alone, the market for mobile consumer services is likely to be worth up to $62 billion (70 billion euros) a year by 2005. Mobile portals, which aggregate content and services for mobile users, will probably carve out a market worth $5.3 billion to $10.6 billion.

Although the struggle will eventually go global, Europe--with its high mobile telephone penetration and common mobile network standard--will witness the first skirmishes. More than 200 mobile portals have been launched there during the past 18 months by a combination of mobile operators, pure-play mobile-portal companies, wired Internet portals, mass-media companies, handset manufacturers, and transaction providers. The business could prove to be an important one, and these portals are using a variety of business models to establish themselves.

Yet all of them are struggling to make money. The Finnish operator Sonera, for example, charges users of its Zed portal for each transaction; it costs just under 15 cents to get the Helsinki weather report. So far, the high cost of the service and time-based fees for connections have deterred users. Quios, available not only in almost all European countries but also farther afield, has chosen to offer its services free of charge and to concentrate on advertising revenue, which has so far been disappointing.

This lackluster European performance contrasts with the success in Japan of NTT DoCoMo's subscription-based I-mode portal, which has attracted upward of 17 million subscribers since its launch in February 1999 and generates an upside of more than 20 percent on top of NTT DoCoMo's voice revenue. This is not to say that I-mode has hit on the only viable business model; others will prove successful, but only if they build on a strategy that recognizes the economics of mobile portals.

Those economics work in the following way. Mobile portals can have low levels of assets tied to operations because service providers own and maintain the infrastructure hardware. Apart from marketing and sales, running costs are fairly independent of scale. But revenues--in the form of payments from customers, sales and transaction commissions, traffic kickbacks, and advertising fees--largely reflect the size of the consumer base, and so, as a result, does profitability.

To ensure a big customer base, a portal must provide easy access to its services at a reasonable cost, build awareness of the portal by managing the brand and creating a network of users, and offer services that customers want. In Japan, DoCoMo's I-mode delivers all three. In Europe, the current players don't. Only portals that excel in these three areas will survive the inevitable shakeout, but those that do will find themselves well-prepared for the ensuing worldwide battle for dominance.

Who wins?
Mobile operators arguably have the most to lose in the mobile-portal game. A substantial share of their market value is based on their ability to provide value-added services, and mobile portals will be the key element in capturing a part of that market. If operators become more bulk-traffic carriers, their market value will drop. We believe that 20 percent to 40 percent of the operators' market value is at stake.

In addition, mobile operators have committed huge amounts of their capital to purchase third-generation (3G) licenses and to develop these networks, and they need a big share of the traffic and the value-added services that 3G makes possible. Meanwhile, the life of incumbent operators is becoming no easier as deregulation and the increased availability of wholesale capacity continually bring on new competitors. For many operators, mobile portals thus offer an escape from the role of pure capacity provider to the more profitable one of service provider.

Mass-media companies and financial institutions face a similar predicament, for they too will be striving to keep their customers by controlling the customer interface. The winning mobile portals will be able to amass and respond to information about the consumer's mobile behavior and preferences--knowledge that could give those portals a powerful intermediary role. Unless mass-media houses and financial institutions themselves own the mobile portals, they risk being distanced from their customers in the important mobile dimension.

As for Internet portals, they are searching for a way to shore up their valuations. The opportunity to reach customers at any time and place with highly personalized services is an attractive one for these portals, because it is likely to generate higher revenues per customer than they could get on the wired Internet. Moreover, the dominant portals of the future are likely to control all channels--wired and wireless alike--as personal computers, digital television, and mobile services converge. The future development of Internet portals are therefore linked tightly to the battle among mobile ones.

Handset manufacturers such as Motorola, Nokia and Palm have much to gain from entering the mobile-services arena because they can then move downstream, into providing applications and services to businesses and consumers. No wonder such companies are moving into mobile services even though this move creates conflict with their customers, the operators. Nokia, for example, having incorporated a chat feature into its 3310 handset, is already active in certain consumer services and offers a portal called Club Nokia for its handset users. Here, its strong brand in the youth segment is clearly an asset.

Ease of access
The most important element of a portal strategy--ease of access--ensures that customers get a fast, reliable connection, at a reasonable cost, wherever they might be and regardless of the handset they use. It also enables users to reach as many of their fellow users as possible. Ease of access depends on technology, pricing, and openness.

DoCoMo's "always-on" packet-switched network and I-mode handsets provide fast, ubiquitous access throughout Japan. But the Wireless Application Protocol (WAP), the platform used in Europe to deliver Internet content to mobile telephones and other mobile devices, hasn't worked well with the circuit-switched European network standard GSM (Global System for Mobile Communication). Neither have the handsets that support WAP. Consumers endure a 30-second setup before browsing; data transmission is slow, which adds further traffic charges because consumers pay by the minute; and customers abroad must make expensive long-distance calls to home country operators to access portals.

Most of these problems will fade as the faster, always-on General Packet Radio System (GPRS) network becomes established over the next three years, along with more robust WAP specifications and infrastructure components. Ease of access will also improve with the advent of software technologies such as the Extensible Markup Language (XML), a programming tool that will let portals supply the same range of services to end-user devices ranging from palm tops to mobile telephones. Further down the road lies the promise of "the mother of all portals": the convergence of wired and mobile platforms to bring personal computers, digital television, and mobile services under a common portal.

To attract consumers, the cost of I-mode services in Japan has been set at low levels. To encourage frequent usage, the services are also based on subscriptions. Traffic charges too are low because consumers pay only for data transferred. European operators, by contrast, charge customers each time they access a service, as well as a fee for every minute they stay online. No wonder those operators have found it hard to build a critical mass of customers.

By charging content and service providers only 9 percent of the total revenue in service fees, I-mode ensured that its providers could develop their businesses profitably--which in turn has encouraged the proliferation of content and services. Consumers can download and send pictures, logos and games; use transaction features such as mobile banking, trading securities, retailing, and travel reservation services; catch up on general news, sports, and weather; and access information databases such as telephone directories, restaurant guides, dictionaries, and recipe collections. By contrast, until competition prompted change, some Nordic operators were taking up to 90 percent of the service revenue. The result was a narrow range of features and poorer quality of service.

Success further depends on the ability to create "buzz," especially among younger people, who are quick to adopt new products and services en masse, and it is achieved through networking and branding.

I-mode generated buzz by promoting networking services such as e-mail; facilities to send photographs, logos, and ringing tones from user to user; and games that enable users to interact. These services have become a craze among young people, who market them to one another.

By marketing networking services of this kind to young people, portals such as I-mode and Finland's Zed have undoubtedly increased the penetration of mobile telephones in this age group. Exhibit 1 compares the high level of penetration of mobile telephones among youngsters in Finland and Japan with the much lower level of penetration among their counterparts in the United States, where cell phone services--for the most part, voice services--have been targeted at wealthier market segments, particularly businesspeople. Of course, the fact that Japanese and European portals have captured the very segment of the market that is most open to innovation encourages yet more innovation and the adoption of further new services. Since young people in the United States tend not to use mobile services, the level of innovation there will remain low.

In all likelihood, the portal services of greatest value to customers will be those that exploit mobile technology's three most distinctive features.

First, users carry mobile telephones almost everywhere and generally keep them switched on, especially in Europe, where incoming calls generally don't incur charges. Users can therefore gain access to wireless services wherever there is a network presence and keep tabs on time-critical information, such as stock market reports and urgent messages. Second, wireless network operators--at least those using the GSM standard--can securely identify users because mobile telephones usually aren't shared, and a personal identification number protects each device from unauthorized use. Third, it is becoming possible to establish a user's location through the mobile device, and this development is generating a whole new range of applications.

Services that take advantage of such features include location-based marketing and route services--to help users find the nearest Chinese restaurant, for example--and mobile payment facilities. Security features such as digital signatures are possible as well, along with integrated personal information-management services such as calendars and address books. In effect, mobile portals can offer a more personalized, interactive, and timely service than other channels can.

Believe what you see?
Anyone developing new services should remember that market research sometimes gets things wrong. In Japan, research indicated that mobile banking would be the most popular service, but it accounts for only 6 percent of usage, while entertainment is responsible for more than half. Mobile portals must therefore offer a plethora of services on a trial-and-error basis, keeping the most popular ones and discarding others, and work with content providers to create better services and the business models to support them.

What does all this mean for the industry's development? The proliferation of mobile portals has slowed as investors cool to new ventures. Survival, which is now at the top of the agenda, will depend on a portal's ability to offer accessibility, awareness, and the right services--and thus to build a large customer base.

The better to do so, ventures that remain on their feet after the industry's initial shakeout will initiate a wave of alliances, mergers and acquisitions. For one thing, no single owner of mobile portals now has all the skills required to offer ease of access, awareness, and valued services. Operators, for example, are good at providing ease of access because they have the necessary network infrastructure. Mass-media companies, accustomed to packaging, branding, and selling content to appropriate customer segments, know how to create awareness and an attractive user experience and also enjoy strong brands.

So to develop a winning strategy, it will be necessary to assemble and manage a network of companies with different but complementary skills. Internet portals such as Yahoo and marketplaces such as Amazon.com have much experience doing precisely that. Big operators such as Vodafone--with its reach, capital, multinational operations, and experience in mergers and acquisitions--could also do well; Vodafone is already working with the media player Vivendi on the Vizzavi mobile portal.

A winning strategy will also depend on a portal's ability to expand rapidly throughout the world. Although regional portals will play a role for some time--because the cultural peculiarities of Europe and Asia create demand for services tailored to specific areas--global winners that customize their offerings for different markets will eventually emerge. Mobile portals belong to the new economy: They thrive on scale, which will give rise to a winner-takes-all endgame.

Many mobile portals in Europe have aggressive expansion plans in place, but few will find it easy to grow rapidly, not least because of the chilly investment climate. The cost of 3G licenses means that many operators already labor under enormous loads of debt, while the currently low valuations of Internet companies will make it hard for newcomers to raise funds for expansion. Clearly, the game has changed since the days when wired Internet portals had reached a comparable stage of development.

The odds are stacked high against a majority of today's mobile portals, though most still have good reason to try their luck in this new business. Knowing exactly what is required of a winner will help them build the right partnerships and alliances. The rest of the struggle--rapid expansion to ensure long-term survival and eventually global dominion--will come down to guts and determination

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