Fighting for Revenues
By Joachim Bamrud, Mon Oct 16 00:00:00 GMT 2000

The mobile Internet has a huge revenue potential, especially as more handsets and services become available. Who will get the largest slice of the pie? Will operators and content providers cooperate or compete? Or both?


Talk to any key player in the wireless Internet sector these days and you will find that adjustments and revisions of business models are among the most frequent activities on the agenda.

While most operators and content providers decline to reveal their business models, a picture is emerging: Unlike the fixed Internet, content is not king (not yet, anyway). Instead, the distributors of the content -- the operators -- hold the key to the wireless Internet success.

"The operators are in the driving seat," says Carsten Schmidt, an analyst at Forrester Research. "You [typically] have the content providers coming to operators rather than operators going to content providers."

In fact, the mobile Internet has been driven by manufacturers and operators rather than content providers. i-mode in Japan was developed and launched by an operator (NTT DoCoMo), while WAP was originally launched by three manufacturers -- Ericsson, Motorola and Nokia -- and a software developer -- Phone.com.

"Clearly it's important that there [even] is a market," says Keith Mallinson, head of North American and European wireless research at Yankee Group.

Still Small

While the wireless Internet currently accounts for a relatively small share of revenue for operators, it is expected to become a significant source of income as the technology becomes better (through GPRS and 3G), content grows and improves and location-based services are introduced.

Already, some operators are seeing encouraging signs. BT Cellnet, which boasts 400,000 WAP users, is reporting that average revenue per user for WAP users is higher (GBP539 for post-pay and GBP231 for pre-pay) than its other subscribers (GBP444 for post-pay and GBP129 for pre-pay).

"That really demonstrates what data does," Peter Erskine, CEO of BT Wireless, told a group of investors in London recently.

He expected data to account for as much as 50% of BT's mobile revenues by 2004 or 2005, up from 6% of the GBP9 billion total airtime revenue today.

"The press has been keen to say that WAP is over-hyped and unsuccessful," he said. "Cynically, I believe that is fuelled by those operators who have no WAP offering."

In addition to airtime, consumers in some countries are currently paying for specific content. That's the case in Holland and Finland, for example. In Holland, KPN's WAP users choose different payment models, depending on the services they use. While some sites are free, others charge per item or a flat fee per day. Some newspapers, for example, offer free headlines, but then charge for each item the reader wants to see. KPN charges "a small percentage" of this to cover its own costs for invoicing the subscribers, says spokesman Gerard Kosters. And in Finland, Sonera splits revenue 50-50 with content providers.

But operators are also expected to get a slice of sales of products and goods over mobile phones. Just in Western Europe alone, revenues from mobile commerce are expected to reach $37 billion in 2004, according to forecasts from market researcher IDC. Operators will likely take 20-30% of total m-commerce sales, estimates Forrester's Schmidt.

Germany's T-Mobil, by far the largest WAP operator in Europe with more than 500,000 WAP users, expects airtime and m-commerce to be the big revenue generators, with advertising and content subscription fees to generate lesser revenues, according to Andre Stark, chief sales officer for T-Motion, the UK-based mobile Internet arm of T-Mobile International.

Also, some analysts see advertising as a potentially significant revenue source, although Stark says it is still "a very immature business."

"Advertising could potentially be a major source of revenue," says IDC analyst Tim Sheedy. "It is potentially lucrative."

Even considering the small screen size of mobile phones, advertisers will likely be willing to pay for having premium placement (without any competing ads on the same page) and the fact that they can more easily reach targeted consumers through mobile phones than desktop PCs, Sheedy says.

Restrictions

In an effort to boost WAP airtime revenue, some network operators have initially opted for a "walled garden" system where they try to keep their users from accessing competing portals. UK operators like Orange and BT Cellnet have had to reverse course after complaints, but there are still some operators, like Sonera, that follow closed access. Eventually all operators will follow open access systems, analysts predict.

In the interim, some carriers are deliberately choosing deals with specific handset manufacturers that impede users' access to certain gateways, Schmidt says. "Motorola have a couple of deals because they allow only one program [while] Nokia...allows people to put in another gateway," says Schmidt. "Both [are] reasons why they are favorites among operators."

Accordingly, he predicts the Ericsson R320, which allows up to five different gateways, will likely not be a favorite of operators.

The producers of phones and infrastructure are also getting in on the action beyond just selling devices and network solutions. Nokia recently signed an agreement with EMI to license the music giant's recording library for use as ringtones. Yahoo! is distributing its content not just on the portals of network operators, but also in WAP handsets from Siemens and Mitsubishi. MasterCard has agreements with Motorola, Ericsson and Nokia to offer various payment solutions that can be included in their phones.

Recouping Investments

Content providers clearly have less invested in the mobile Internet than operators or equipment producers. Yet the content and service providers also need to recover their own investments.

"While content providers and service providers have been spared the initial risks, there is greater onus on them to deliver," market researcher Datamonitor said in a report on m-commerce earlier this year. "Not only have these companies been quick to react, but they have also realized that traditional business models are not as applicable."

Shopping, ticket reservation, banking and price comparisons are services that have potential for the highest revenue per user, Datamonitor predicts. "The difficulty lies in the fact that the basic Internet content has always been seen as free," the report added. "Consumers expect this to be the case, irrespective of the access device."

Existing big-name portals like Yahoo!, AOL and Excite will likely also be big in the mobile Internet despite competition from start-ups, Schmidt says. "The user...already has a relationship with the portal [and] will very likely...keep that relationship," he says.

At the moment, many content providers are focused on being included in big portals' offerings rather than generating revenues. Most offer their content for free in order to build market share, Schmidt says. "Once they have market share...they can start charging," he says.

However, rather than charging for access per se, they will likely be charging for additional services such as SMS or push as well as advertising, he predicts. A city guide with a restaurant listing, for example, could charge a fee for each reservation made.

WAPaResult, a British WAP site with sports results, is generating revenues from advertising and plans to launch SMS as a paid service. With relatively low costs, WAPaResult actually managed to break even in its first six months, says Operations Director Martin Hunt.

WAPaResult's strategy since launching in March has been to be included in as many portals as possible and it is now on leading portals such as BT's Genie, Virgin, Room33 and Trivanti (on Palm), Hunt says. For the moment WAPaResult does not charge anything for its content, either to operators or portals that use it or to the actual readers. However, it is gathering information from other content providers that do charge to see what their experiences have been.

Everybody Needs Everybody

Operators are slated to get the largest share of wireless Internet revenues through a combination of airtime and location-based services. However, while they are taking the lead in the mobile Internet, the carriers also need outside parties like content providers, application service providers and last, but not least, equipment providers to be able to succeed.

"The content providers...want to display on mobiles...Most mobile portals need content," says IDC's Sheedy.

And equipment providers need content to draw sales of their devices, while content providers need handsets to be out on the market for people to see the content.

"Everybody needs everybody," says Yankee Group's Mallinson.

Joachim Bamrud is the editor of at Wapland.com An award-winning journalist with 17 years experience as a writer and editor in the United States, Europe and Latin America, Bamrud has worked for various print, broadcast and online media, including Latin Trade, Reuters and UPI. He can be reached at jbamrud@wapland.com.