The race is on for players in the m-commerce market to find revenue models that will recoup the huge outlays they made in technology upgrades and license fees. But squeezing money out of the consumer is harder than ever - particularly since users already have their fill of general content such as news, weather and sports with many operators either offering these services at dumping level prices or giving the goods away for free.
The answer is to add value - although the jury is out on exactly what this value is and how it can be added. Currently it's a toss-up between elements such as entertainment, information and location-based offerings. But at the end of the day a mobile data service will sell if - and only if - it's targeted. Put simply, the service has to be personal - and that's where the trouble begins.
Transitioning from selling voice services to million to targeting data services to individuals amounts to a "paradigm shift" in the way service providers operate, according to Paul Thomson, a partner with Andersen, a global business and technology consultancy. "The last 12 months have seen a shift away from the land grab approach, where providers were just going for volume, to where providers are delving into their databases to identify which customers might buy more services and thereby generate more revenues."
Profiling is even more crucial in Europe where the industry holds wireless data to be the Holy Grail that will point the way to higher usage and lower churn. "Mobile data is crucial to driving up the ARPU (average revenue per user) among both business and consumer users," notes Ross Parsons, an analyst with BWCS Ltd. in the UK, a company specialized in wireless communications.
The industry is locked in a downward spiral with some analysts predicting that ARPU figures will fall by between 15% and 43% over the next five years. BWCS, however, believes that mobile data services will reverse this trend with data accounting for over half of operator revenues by 2005. "The pieces will all come together for those providers who understand mobile data and know which services appeal to which customers."
Making an offer you can't refuse
Without a rulebook, smart operators are borrowing a few lessons from the retail sector. "It's the rule of "Know Thy Customer" that is the basis for any successful marketing campaign-and mobile is no different, notes Gerald Corbae, an associate partner within the Consumer Goods and Retail Practice at Roland Berger, a global business consultancy.
A textbook example approach of this is the UK supermarket chain Tesco. It monitors shoppers' habits but never let's on that it's doing so. If, for example, Tesco notices that a shopper hasn't bought meat it send the customer offers for vegetarian cuisine. "To work and not intimidate the customer profiling has to be done in the background," Corbae says. "Since the mobile is a personal device, users expect a personalized sales pitch." Otherwise, he warns, a campaign can degenerate into spamming - and users will rebel.
This is also the message in "Mobile Commerce: Winning the On-Air Consumer," a report published by The Boston Consulting Group (BCG). Based on a first-ever global survey of 1,633 current and potential mobile users in the United States, Japan, Germany, France and Sweden, as well as results from a similar BCG survey of 217 consumers in Australia, the report came to an eye-opening conclusion: The biggest barrier to personalized services may be the mobile user. It found that users are not wiling to pay high subscriber fees, nor are they open to accepting untargeted push advertising.
"Concerns about privacy, security and control permeate consumer views and may be keeping people from trying m-commerce applications or using them more frequently," notes David Dean, BCG VP and Global Practice Area Leader of the company's Technology & Communications Practice. While almost 80% say they would accept promotional messages tailored to their personal interests; nearly 90% say they want to control the type and timing of advertisements.
The report also revealed a high level of interest and anxiety regarding location-based services. About half of those who already use or would like to use such services fear that their privacy could be compromised. Such concerns are highest in Japan (68%) and the US (59%).
"Before such personalized applications can succeed providers will have to address these concerns," Dean says. " Providers will need to do profiling to identify the segments to sell to before they launch the service. If the service is not aligned to the customer's needs it will be hard - if not impossible - to sell."
Striking a balance
And so it's no wonder providers are increasingly finding themselves stuck in a "Catch-22" situation where it seems they simply can't win. "The skill is to marry pull with push - but without being obvious about it - otherwise it will backfire," says Tony Mooney, head of Customer Relationship Management (CRM) for Orange in the UK.
To this end Orange has ramped up its profiling efforts as a part of its overall CRM strategy. While Mooney is predictably tight-lipped about the details of any pilots of programs underway in Orange, he does reveal that the operator is far past the exploratory phase and well on its way to "reconfiguring its organization to allow a more integrated customer contact."
"Organization, Mooney stresses, is one of the three factors critical to success. With most providers split around the product group and not the customer group the data itself is not integrated around the customer relationship. This fragmented data creates a fragmented face of the customer and "dooms the whole profiling process to failure," Mooney says.
In addition, the data quality has to be high and information has to be complete. "There's an awful lot of talk about profiling, but too much of what is being done just ends up as information in ring binders which misses the point completely," Mooney says.
"A customer is multidimensional - and so, too, is his profile," Mooney says. "A customer's needs will change dramatically if he moves house, for example. That's an event that triggers a shift in his profile and in his preferences."
A provider should respond with a personalized offer that fits the user's situation - but shouldn't overdue it. "There has to be a way to close the loop. You have to know if the customer doesn't respond and when to stop. Otherwise the customer can get really hacked off."
Tom Lewis, Director of Business Consulting at Andersen agrees, "Profiling is a sophisticated tool and it can't be used as a sledgehammer. When it is, then you can be sure the customer will reject it."
A brand new model and a "brave new world"
Overall, the provider walks a thin line between too much customer knowledge - and not enough. "The customer wants to be in control of the service, but at the same time he wants it to be simple and relevant - which means he really wants the operator to do some of the thinking for him," Mooney complains. "Anyway you look at it there's going to have to be a trade-off and customers are going to grow to accept that."
It's when users realize the advantages of having truly personalized services that Big Brother scenarios and fears of being watched will frighten users less. "The push element will no longer cause so much anxiety because it's the learning that's the value," explains Andersen's Lewis
Part 2 in this series will look at how providers are learning new tricks to collect data and lure in the customer.
Peggy Anne Salz monitors the global telecoms markets and contributes regularly to Communications Week International. Her articles have also appeared in a number of daily and weekly publications including TIME, Fortune, The Wall Street Journal Europe and The International Herald Tribune.