Dial M for m-commerce

Is m-commerce for real? Yes, says GAURAV PATRA. As cellular operators devise ways to earn more revenues from the ever increasing subscriber base, strategies like application- driven SMS will make m-commerce happen

If you’ve noticed cellular operator Hutch’s latest animated ad of a guy wooing his girlfriend using SMS services, you’d realise that mobile commerce (m-commerce) is finally happening in India.

The next big thing?

According to Nasscom’s ‘Strategic Review 2003’, in the year 2002, the m-commerce market was in the region of $50 billion worldwide. While the US and European markets are expected to dominate forecasted revenues until 2005, Asia-Pacific and the rest of the world are expected to account for 40 percent of the estimated $225 billion m-commerce market by 2005.

Mobile commerce still shows great promise as one of the most compelling ways to offer profitable services to the customer on the go, says Devendra Deshmukh

However, the m-commerce market in India has not seen as much growth as was expected. Experts opine that it is still in a very nascent stage and will take time to reach the maturity level to match EU and the US standards. "The m-commerce segment was in fact over-hyped. However, the market has started emerging only in the last one year. Before that it was mostly free stuff that was available in this space," says Anil Lekhi, VP–IT for Spice Telecom in Punjab. Even Spice, which hardly witnessed any m-commerce transactions a year ago, is now doing business of around Rs 25,000 to 30,000 daily through m-commerce. The average value of these transactions varies from Rs 1.50 to Rs 10. Presently almost 9 percent of Spice’s overall revenues come from value-added transactions of which m-commerce is a part.

U Narendra Nayak, country operations manager for Motorola’s PCS Division, is very optimistic about this business opportunity. "M-commerce has immense potential and is expected to be the next big thing in India." The Indian cellular industry is registering phenomenal growth and is expected to achieve nearly 50 million subscribers by 2005. "Think about it, the ability to address 50 million people through a single medium offers tremendous scope for m-commerce," he says.

Nayak isn’t jumping the gun here. Indian cellular operators today are under tremendous pressure to sustain and grow their ARPU (Average Revenue Per User). Fierce competition among operators has consistently driven down tariffs, reducing revenue from the voice-based operations of the wireless networks. Operators today are providing value-added services to sustain and grow their ARPU. "You are already checking movie schedules and airline/railway booking status among other things using your handset. It is only a matter of time before you will be able to start booking tickets as well. The advent of wireless Internet in the form of GPRS and CDMA 1x will boost m-commerce in India," says Nayak. "Mobile commerce still shows great promise as one of the most compelling ways to offer profitable services to the customer on the go," says Devendra Deshmukh, CEO, E-Zest Solutions.

The works

There are two types of transactions take place in m-commerce—low-value and high-value. Low-value transactions usually imply music downloads, logo downloads, picture downloads, ring tone downloads, etc. There can be some banking and value-added services like news and stock alerts. Then there are services like m-coupons and wallets. On the other hand, there are high-value transactions, which involve credit and debit card transactions, point-of-sale terminals, going to the merchant location and paying through the handset. "Presently in India only low-value m-commerce transactions are happening; the concept of m-coupons and wallets has not yet picked up. There is no major development in terms of high-value transactions," says Lekhi.

Major hurdles

Experts believe that plenty of business applications could benefit from advancements in this space. However, major advances in m-commerce are not going to happen until higher-bandwidth networks are deployed and wireless service providers cooperate with each other instead of pushing competing standards.

"One of the major reasons why m-commerce has not yet taken off is that commerce-capable cellular networks, which can route real-time transactions over the cellular network to a remote payment gateway and guarantee security over the transaction, are yet to be seen in India," says ACL Wireless CEO Sanjay Goyal. Operators need to instil confidence among mobile users to start taking buying decisions on deals initiated from mobile phones and turning the mobile into a wireless debit card. "Until cellular networks offer the right environment for easy and secure transactions, we are not going to see much progress," he adds.

"One of the main reasons for the slow growth is the lack of steadiness in terms of technology and security," says Srijnan Sanyal, chief marketing officer at Cellnext Solutions.

The different parties involved in the entire m-commerce value chain are wireless infrastructure providers, wireless service providers, certifying authorities, applications/software providers, equipment manufacturers, credit card companies and banks. And the absence of proper coordination between them will hamper growth. "I think cooperation between companies, mobile network operators, portals, mobile service providers, media houses and global brands around the world can only help m-commerce to click," says Deshmukh.

Another reason for the sluggish growth of m-commerce, according to experts, is that vendors are moving very slowly. "Industry players need to come together to establish industry standards for m-commerce transactions," says Goyal. This means all the players in the value chain, from biometrics to SIM card providers, cellular operators, network providers, application developers, banking to semiconductor companies have to coordinate to figure out how to get in on the m-commerce act. And, that is a tough task. "It is not only the lack of vendor coordination, but also the lack of new investments, bandwidth constraints, as well as the lack of supporting technologies that are major bottlenecks for m-commerce in India," says Deshmukh.

However, Nayak feels otherwise. "I would not agree that the vendors are moving slowly. M-commerce can only happen when infrastructure rollout is completed and cellular adoption has reached relatively high levels," he says. "If we look at India we are almost in the final phase of network rollout, with operators not only focusing on growing their network width but depth within a circle as well." And fact is that in their rollouts the operators are actively deploying next generation wireless Internet technologies to facilitate data services as well. Even the cellular subscriber base is growing phenomenally and reaching respectable levels of adoption. So, the stage seems to be set for m-commerce and the industry is already seeing the first signs of evolution in value-added services that operators have started providing. Quick adoption is imminent, keeping in mind the ARPU decline from voice.

U Narendra Nayak feels that m-commerce can only happen when the infrastructure rollout is completed and cellular adoption has reached relatively high levels

Bottlenecks

On the infrastructure/technology front, there is no clarity in terms of standards with two competing standards, namely WAP (Wireless Access Protocol) and SIM (subscriber identity module).

As far as value transactions are concerned, low-value transactions are easier to control than high-value ones, for credit card companies. Also, in case of high-value transactions customers need to have enough faith in the security system. "Presently regulations also do not allow m-commerce transactions between banks or credit card companies. For instance, while you can pay a merchant from your bank account through your mobile you cannot transfer funds from one bank account to another. This is a major hurdle," says Lekhi.

However, this is not what is bothering users. The aspects they are concerned about are usability, clarity in terms of the form factor, the services available, and security. Another issue on the user side is the online receipt of the money paid.

Besides, even if the process does work, buying a product over a phone or a PDA is not so easy; problems include small, low-resolution screens, spotty network support, and less-than-secure transactions. These hassles make the entire process seem not worth the trouble. "Even if you see a new process or innovative way of conducting m-commerce, all the components do not get a head start from day one. The process takes time to evolve. And I think, as we go along, we will be able to overcome each of the bottlenecks," says Goyal of ACL. "It is difficult to purchase something through a PDA or mobile considering physical limitations of wireless devices. European network operators, together with technology companies, have already started working on Premium SMS. Premium SMS makes it possible to send and bill cost liable information via SMS," says Deshmukh.

Emerging trends

M-commerce is an entirely new sales and promotion channel; the enabler for an entire range of mobile Internet services, allowing payment for telecom, information, media and entertainment services, available anywhere, anytime. Several recent technologies, industry and standards developments are enabling the m-commerce market.

One of the emerging trends in this space is that of integration with portals. Though this is not happening to a great extent now, experts believe that this will definitely happen in the days to come.

We might not see high-value transactions in India, till there is some clarity on the arrangement between the different parties involved. As far as applications are concerned, some that might fuel the m-commerce growth are pictures, MP3 downloads, games and smaller vending machines. Lekhi dismisses any concerns about the form factor: "The form factors will continue to evolve. The display part will continue to evolve. Most of the decent form factors are costly, but costs will come down."

Certain verticals—banking and finance, travel and transport, media and entertainment, and retail—can benefit quicker from m-commerce than others and they are likely to drive its growth.

M-commerce in India

If statistics are anything to go by, the SMS rage will drive m-commerce in India. According to Merrill Lynch, SMS could bring in as much as $75.6 million of revenues for Indian GSM operators by the year 2005. The stock broking firm predicts that by the end of 2003, close to 700 billion application-driven SMS would be sent from mobile phones, which would be almost half of the total SMS traffic. During 2000–2003, while peer-to-peer messaging has been growing at a CAGR of 46 percent, the application-driven SMS traffic has been growing by a whopping 204 percent during the same period. Of late, the trend has been visible in India too. Take Escotel, for instance, whose territory does not include any of the big cities, as much as 25–30 percent of the total SMS sent on its network is application-driven. Idea Cellular in Delhi claims a similar figure. These figures, however, vary from month to month, with the cricket season, for example, taking the average up. "I believe that m-commerce in India will largely be driven through SMS initially as that is something users are familiar with. Operators are enhancing the value of an SMS—beyond just messaging," says Nayak. "As things progress we should see mobile becoming the de facto messaging and commerce tool," says Goyal.

The industry is quite optimistic about the future of m-commerce. Wireless is considered to be the next big thing in the communications industry. The growth rate of mobile phones has already outnumbered the growth of fixed line phones in India. Once a secure, easy-to-use method for paying over a mobile is devised, m-commerce will become a reality in India.