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Strategies for the U.S. Mobile Internet Market
Strategies for the U.S. Mobile Internet Market

Plotting sound strategies to navigate the rough waters of today's mobile market means charting the hazards along with the opportunities. What will it take to keep your business plan for 2003 from ending up on the rocks? Here are some helpful tips for staying on course.

In January 2002, in a Wireless Business & Technology article, entitled, "Wireless Internet...The Next Generation?" (Vol. 2, issue 1), I outlined how the wireless Internet has become a way of life for Japanese consumers and what I thought it would take to create a similar experience for North American mobile users. I also discussed the challenges of the U.S. market and a new technology that promised to provide a long-term fix to the limitations imposed by the then-current mobile technology and business models.

Many of the market and technology trends noted in that article, such as the increasing popularity and availability of Java-enabled mobile phones, are still ongoing and are having a noticeable effect on both sides of the cash register. Wireless solution providers, including carriers, handset makers, and enterprises, are continuing to move away from the older and slower browser-based WAP technology to a more robust Java-based or J2ME technology. All of this supports Gartner Group's forecast in March 2002 that predicted 1 billion Internet-connected mobile devices within the next five years, and 80% of them running Java.

This article deals with the U.S. market for wireless Internet products and services, starting with a market overview. The overview looks at how the U.S. market compares with Asia and Europe, and examines the major inhibitors in the consumer and enterprise markets. The concluding section looks at what key executives in major wireless technology firms are doing to overcome the greatest perceived challenges to market growth in order to move forward.

Today more enterprise-level executives are choosing wireless as part of a planned approach to stay competitive by boosting productivity and cutting costs. Consumers are looking for innovative services that are both fun and practical. Each market has its own hurdles, opportunities, and mindsets. Some products and services designed for one market find immediate application in the other and some don't. Conditions that inhibit one market may or may not inhibit the other. Some wireless executives operating in this jungle are focused on building global markets while others inch forward cautiously with an eye on survival.

The U.S. Mobile Internet Market Today
There are two opposing forces that are actively shaping the wireless Internet market in the U.S.:

1.   American consumers who are demanding secure and reliable wireless services that are as well matched to their culture and lifestyle as those designed for Asian and European consumers

2.   Economic recession and incompatible, competing engineering standards that cause delays in introducing innovative new mobile services that are secure and reliable.

Compared to Asia and Europe, the U.S. mobile market is 1-2 years behind in the rate of wireless Internet use and adoption and is likely to remain that way for a while. This is due to a general lack of demand among users of mobile phones for wireless Internet services. Others cite the expense and complexity of using a mobile phone to access and browse the Net. Add to that the American consumer's current lack of interest in sending text messages using a keypad designed to transmit numbers and not letters.

Other more systemic factors are perpetuating the market gap:

  • Spectrum shortages: Spectrum is still a limited resource in the U.S., just as the demand for e-mail, Internet/data services, and m-commerce over wireless phones and handheld devices is beginning to take off. There are six major carriers in the U.S. - AT&T Wireless, Cingular, Nextel, Sprint PCS, T-Mobile, and Verizon, sharing available spectrum with the U.S. Government. Most of the spectrum is taken up by the U.S. Defense Department or licensed from the Federal Communications Commission. Another interesting aspect is the spectrum that is dedicated to religious broadcasting in the U.S. The Catholic Church in America owns a large share of the spectrum, and they allocate portions to other denominations such as Southern Baptists and Methodists.
  • Double billing systems: Unlike Asia and Europe, in the U.S., both the caller and receiver of the call or data pays. This double billing system is another factor working against the rapid acceptance of the wireless Internet and m-commerce in the U.S. market.
  • Incompatible and competing standards: The major carriers in the U.S. use incompatible and competing network standards. Some carriers use GSM, while others use CDMA or TDMA.

    The U.S. Mobile Market Compared to Asian and European Markets
    As illustrated in Table 1, the U.S. mobile market has been slower to adopt 3G technology and Java-based phones and applications compared to Asia and Europe. Competing technology standards, the enormous investment in existing large-scale systems, and a slow economy have kept innovations to a smaller scale that do not impose a large financial risk for companies already under massive debt.

    Other reasons for the disparity include:

  • The lack of versatile Java-based or 3G handsets that are fun, useful, and easy-to-operate
  • The lack of exciting, new applications and content accessible from all types of handheld devices

    The faster adoption of the newer wireless services in Asia and Europe is caused by cultural as well as business factors. For example:

  • Asian and European consumers are more accustomed to longer hours using mass transit. The percentage of at-home PCs in Asia and Europe is much lower than in the U.S., which means overseas consumers are more dependent on mobile phones for Internet access and m-commerce.
  • In Europe and Asia, the government is a more active player in the development of large-scale telecommunications systems. This yields two critical advantages: uniform engineering standards and greater investment in research and development by carriers that are not operating under a massive debt load.

    Overseas markets tend to be consumer-driven. Consumer applications that prove popular in the consumer market work their way into the enterprise market packaged for business use. The U.S. market is enterprise-driven with applications designed for enterprise use such as e-mail and scheduling eventually finding their way to the consumer side.

    U.S. Mobile Market Trends
    The segmented, but still growing U.S. market is ready for renewed growth and transformation. Here are some trends that are shaping the U.S. market:

  • The consolidation of carriers: This should solve spectrum shortages and improve network performance, as well as minimize incompatible standards and geographic coverage issues.
  • Increased availability of Java-based and 3G handsets and useful applications: Browser-based mobile devices are no longer adequate for business users. U.S. carriers are moving toward Java phones and are looking for more enticing graphics and interactive multimedia applications to offer new services and create new sources of revenue. At the same time, new technology that is device-agnostic, which means compatible with all wireless devices instead of just one or two, is becoming a general requirement. Compatibility with multiple networks gives any enterprise-focused solution a decisive advantage.
  • Permanent changes in American consumer behavior: Mobile phones are an entrenched feature of American business and recreational lifestyles. The freedom, convenience, and security that mobile phones provide cannot be duplicated by any other device. While most consumers are satisfied with voice communications, wireless service providers are anxious to increase revenue by luring mobile users to the wireless Internet, and are continually seeking the killer app that will make it all happen.
  • Enterprise adoption of 3G services: U.S.-based companies with international sales organizations are the early adopters of 3G enterprise services. This should accelerate general acceptance and use of the wireless Internet and SMS and IM services.
  • Anticipated increase in the use of data services: A conservative Gartner projection assumes 10% of enterprise users will have wireless access to e-mail on small devices by the year 2007 as opposed to the 1% who currently have this feature. The new generations of smart phones are equipped to provide this service.

    The Enterprise Market
    In the enterprise realm, in the next few years the newer technology available from Asia and Europe should become a more attractive option to U.S. wireless solution providers looking for:

  • A competitive advantage
  • Access to global markets not limited by local technology standards
  • A solution to the limitations of current wireless technology

    Growth Inhibitors in the Enterprise Market
    In the short term, the major barriers to the continued growth of enterprise mobile data usage will remain:

  • Lack of uniform coverage
  • Reliability of network connections
  • Security of transmitted and stored data

    The main challenges facing wireless providers in the enterprise market are:

  • Overcoming the risk-averse nature of major U.S. enterprises that prevents them from making large-scale investments in new wireless technology and applications
  • Winning over executives who are looking to mobile solutions as a fast and convenient way to boost productivity and profitability, but are wary of sacrificing security by enabling wireless access to corporate databases
  • Trying to justify a new or expanded wireless system as a means of achieving a stated business goal such as ROI or a targeted reduction in operating expenses
  • Designing wireless applications that deliver a functional service that not only yields a tangible benefit but also does so without imposing undue disruption to ongoing operations, complexity, or expense

    The Consumer Market
    Mobile phones have enjoyed quick adoption by the younger Internet generation and older consumers who enjoy the convenience. The trend toward a single multipurpose device to access personal and business data in real-time has been slowed by the availability of efficient laptops, palmtops, and notebooks specially designed to provide one or more functions of a full-function PC. The main challenge in this arena is to persuade mobile consumers to adopt the habit of using data services that are entertaining or useful or both.

    Growth Inhibitors in the Consumer Market
    The significant barriers inhibiting the return to a more robust and growth-oriented consumer market are:

  • Lack of consumer interest in the wireless Internet and SMS and IM services
  • Numerous alternatives to mobile phones that provide a more satisfying means of accessing and browsing the Web
  • Lack of irresistible features and services other than voice transmission
  • A slow economy and massive debt that inhibit experimentation and innovation among wireless providers

    The main challenges facing wireless providers in the consumer market are:

  • Creating demand for wireless services that consumers will value enough to use frequently
  • Dealing with the abundance of mobile devices, PDAs, and home PCs that make it difficult to persuade consumers to use one device for a multiplicity of services
  • Overcoming cultural conditions and mindsets that are not conducive to the SMS and IM phenomena that are so popular in Japan and Europe

    For both consumer and enterprise sectors, many of the challenges in the U.S. mobile market will be resolved in the coming years with the consolidation of U.S. carriers and the arrival of a flat rate plan for wireless data and voice. AT&T Wireless's "mLife" and Sprint's "PCS Vision" are already moving in that direction. The strength of the major world wireless markets will continue to fuel development in peripheral areas not yet fully equipped with a robust wireless network.

    The right technology exists to provide a long-term fix to the limitations imposed by current mobile systems and business models. At the same time, large-scale efforts to experiment, innovate, and convert to new systems are on hold until evidence accumulates that next-generation technology will actually produce new revenue streams and increase profitability.

    Perspectives for Moving Forward
    Faced with the challenges outlined previously, how do wireless executives view their own markets and how are they mapping out their own individual routes for moving ahead? How do their strategies mesh with conventional wisdom about market trends and projections?

    NTT DoCoMo's Perspective
    Dr. Yasuhisa Nakamura, a senior vice president at NTT DoCoMo USA, is a widely recognized specialist in the wireless telecommunications industry. His more-than 20 years of experience includes 50 patents (awarded and pending) and several papers on wireless technology. A frequent speaker at international conferences, his expertise in dealing with business and technology challenges includes work in markets spanning four continents and memberships in professional organizations in Japan.

    Dr. Nakamura views the challenges in the wireless industry on two levels. "For the short term," he says, "the biggest challenge I see for wireless companies is to focus on the customer. U.S. companies still describe their wireless services in technical terms. Customers do not buy the technology; they buy the service itself. So the challenge is to focus more on the customer and on how the technology will make a busy lifestyle easier to manage.

    "The biggest challenge in the long term is the trend of globalization," he continues. "This is very difficult for one company to manage alone, so this means a trend toward partnerships or, in other words, alliances beyond domestic borders. I see at most two or three large groups or alliances of companies surviving this trend. Globalization means intense competition in the marketplace for mobile services. The key here is finding the right partnerships with companies that already operate in the major world markets. The big providers of wireless services already have partnerships with companies in foreign markets. This is true of Japan, Europe, and the Americas.

    "So, for the short term," he says, "companies must focus more on the customers and how to customize technology to them. For the long term, globalization and alliances will shape strategies for survival."

    And what of the strategies themselves? Dr. Nakamura's perspective calls for viewing the challenges on two levels. Successful strategies are based on the same split-level perspective.

    "Strategies are simple once the challenge is known," he says. "Many companies have strategies to study customer requirements. The challenge is to find solutions that the customer will value enough to buy. We know that customers value mobile phones because sales go up every year. Not all customers value the wireless Internet enough to use it or even care about it. So we look for a killer app to convince the customer to value the wireless Internet and use it often.

    "So the solution is to know what the customer wants and design services that the customer is excited enough to buy and use," Dr. Nakumura says. "SMS is popular in Europe but not in the U.S. Japan has the i-mode service. But right now we don't know what American customers really want to buy beyond mobile voice service.

    "History indicates that many technology booms are youth driven," he points out. "This was true of the Walkman. So, I think the killer application for the wireless Internet in the U.S. may well be a product designed for the youth market. In this sense, I think games combined with music and colorful graphic displays are very attractive options for the U.S. wireless market.

    "One overwhelming phenomenon which has happened over the past year-and-a-half in Asia," he says,"is the digital camera built into a mobile phone. DoCoMo sold 2 million camera-embedded mobile phones in a two-month period this past summer. It is cool for teenagers to send e-mails with photos - on the spot - at a party, a sporting event, or a music concert using their mobile phones. Sharp Electronics just started to sell 3D image phones in November of 2002.

    "Regarding globalization, my advice," he says "is to work hard to make good strong long-term partnerships that give equal benefits to all partners. Each partner must contribute a needed service or technology, or a large number of customers. Because we are talking about survival, choosing the right partners is a very important business strategy. I am very optimistic about the future of the wireless industry, so I think it is worth the hard work of finding partners that will ensure long-term stability and survival."

    NEC America's Perspective
    Scott Spreen is the director of strategic product planning for the Wireless Engineering Division at NEC America based in Irving, Texas. With more than 18 years of product management, marketing, and manufacturing experience in the telecommunications industry, he is directly responsible for feature and technology planning, product road map development, product definition, business strategy, and business planning for NEC's next generation wireless handsets.

    Mr. Spreen is NEC America's delegate to a global team that includes representatives from NEC Japan and Europe. This group is directly responsible for defining global road maps and common platforms for NEC worldwide. They focus on the growth of GPRS and W-CDMA technology standardization, content, and tariff issues associated with Java, Synch ML, downloadable applications, and browsers.

    Mr. Spreen's involvement in major world markets has given him an inside channel to business development and manufacturing processes in Asian countries. Prior to joining NEC, Mr. Spreen was the senior product manager at Siemens Wireless Terminals and held management positions at AT&T and Ericsson.

    Mr. Spreen's view of the wireless industry is generally optimistic. He has a firm belief that the wireless industry will surpass market expectations and overcome the traditional obstacles that impede delivery of innovative wireless systems to mainstream markets. With developments toward next-generation and 3G wireless environments already underway, NEC America has taken a tactical and logical approach to overcoming current challenges and developing a road map for moving ahead.

    Mr. Spreen believes that the key to acceptance of advanced wireless systems in the consumer and enterprise markets lies in education. He says, "To best triumph over this challenge, the wireless industry must work together to provide a clear understanding of the benefits and advantages of enriched mobile products.

    "For example," he says, "the consumer market must understand how next-generation telephony will not only enhance daily life, but how it will better serve their basic need for mobile communication. Although consumers will be interested in options like an attractive color display and customizable features (downloading ringtones, wallpapers, and Java applications), they do not want to understand the specific back-end technologies. Only by focusing on the benefits that a mobile phone can provide in the form of real-world examples can wireless executives capture consumer interest and stimulate demand.

    "This is also true in the enterprise arena," he says. "By focusing on how wireless technology can fulfill the business needs of the enterprise, the value should be self-evident. Wireless offers mobile access to vital enterprise data. Success in the enterprise market will be realized only by the formation of strategic alliances within the value chain of companies that solve the real-life issues of secure remote business accessibility. The enterprise will undoubtedly be more interested in Java-based applications as a means of remotely accessing critical business information and network-based documents. By putting the power of enterprise applications on a consumer handset, the enterprise user will gain a profitable, competitive edge.

    "In the consumer arena," Mr. Spreen says, "NEC America is providing Tier 1 and Tier 2 developer support to spur application development. This, coupled with the launch of our consumer-focused portal, will allow consumers to have the ability to customize and download the latest content and applications to their NEC wireless handsets, making the phone as feature-rich as possible. On the enterprise side, NEC has taken all of the benefits and customization strategies that we have targeted for the consumer, and built strategic partnerships with providers of advanced wireless technology like Vuico to deliver those same benefits to enterprise users."

    Looking ahead, Mr. Spreen envisions the next hurdle in marketing wireless services to American consumers: "Many predicted in the mid-1980s that cellphone usage in the U.S. would be very low due to the high availability of home, office, and public pay phones. However, the American public proved everyone wrong, and penetration rates soared in the 1990s due to the convenience and the ability to create a personalized mobile experience. Now the same thing needs to happen in wireless data, and NEC is looking forward to being a major driver of this next-generation movement."

    What do these perspectives offer executives developing business plans for the coming year? The best advice for wireless executives looking to chart a course for future survival and growth should include as many of these practical guidelines as possible:

  • Focus on the end user's needs and how the wireless application and service will meet and exceed those needs better than a competing product.
  • When promoting any wireless service, focus on the benefits that a particular service will generate and not on the technology.
  • Ensure that your mobile strategy incorporates a technology that is not only workable for current demands, but will remain workable for the foreseeable future. Java-based devices have become a de facto wireless standard and, according to Gartner Group, will remain the dominant standard for at least five years to come.
  • Demand an enterprise wireless system that provides real-time, secure, and convenient access to corporate applications. Delays in accessing and processing the most current information impose a serious business risk and the potential for lost revenue and diminished productivity.
  • Forge strategic partnerships with technology firms that provide access to global markets and contribute a concrete competitive advantage. This applies not only to alliances between wireless technology companies; enterprise executives need to develop partnerships with the wireless companies that manage or support the wireless technology that keeps the enterprise operating at maximum productivity.
  • Don't miss out on the advantages of emerging new technologies by overcommitment to a given closed-end or non-Java technology or product. Keep in mind that there is a movement toward a client/server model and away from a browser-based model.

    Given the current market, there's one more rule of thumb you should keep in mind when putting together business plans.

    After you implement your overall wireless business strategy, closely monitor it to ensure that it is not only fulfilling your objectives, but that you are getting the predicted benefit from your investment. If you are not, you need to re-examine your initial requirements and consider available options to the current system.

    It's easy to forget that wireless solutions are simply a vehicle for getting from Point A to Point B. Unless you can describe Point B well in advance of choosing a wireless system, you'll be the one who gets taken for a ride.

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