Why the Next Best Thing May Be the Next Big Thing
By Kevin Werbach, Thu Jun 21 00:00:00 GMT 2001

A funny thing happened on the way to the mobile Internet. Several new technologies that were supposed to launch massive new markets have failed to reach their potential.


Third generation (3G) wireless services, wireless access protocol (WAP) and mobile e-commerce (m-commerce) have all been disappointments so far. Analysts who recently trumpeted the enormous potential of wireless now question whether anyone will be able to make money in this sector.

Because of such disappointments, vendors and service providers are lowering their expectations. They are deploying incremental advances on existing infrastructure, instead of promising imminent revolution. Yet evolutionary technology, if it hits the market at the right time, can have revolutionary results. By betting on less-radical technologies and business opportunities, at least initially, smart companies are positioning themselves to thrive.

Dreams of the mobile Internet


It all sounded so promising. Read the predictions in early 2000, and you couldn't help getting excited about the convergence of the Internet and wireless. Mobile phone usage was skyrocketing in Europe and Asia, with the US showing signs of hitting the same inflection point toward hyper-growth.

Wireless data services such as SMS and NTT DoCoMo's iMode were generating fantastic levels of traffic and billions of dollars in annual revenues. The Internet, which seemed so world-changing as it made its way onto a few hundred million PCs worldwide, was on its way to having even greater impact on several billion mobile devices. And, it seemed, that was just the beginning.

Much of the frenzy about the mobile Internet over the past two years stemmed from the belief that that something truly novel and radical was on the horizon. After all, it was about time for a new communications medium to emerge. Mobile phones have been available since the 1980s; some forms of circuit-switched and low-speed packet wireless data networks have been around nearly a decade; and the Internet, even in its commercial Web-browser form, is seven years old in 2001. If the combination of those three phenomena was powerful, so the thinking went, just wait until the Next Big Thing hit.

A dream deferred


The Next Best Thing in the wireless Internet world had three primary manifestations: 3G networks, WAP, and m-commerce. In all three cases, the idea was that something new would usher in a vast expansion of the market. 3G meant new network infrastructure, supporting rich media and sophisticated applications on mobile devices. WAP meant new standards, which would bring the desktop Internet experience to the palm of your hand. M-commerce meant new services and user-experiences, allowing users to transact from anywhere and to tie their activities to an emerging location-based infrastructure. All three waves were supposed to hit right about now... and all of them were going to be huge .

Needless to say, things haven't worked out that way. European carriers spent over $100 billion on 3G licenses, only to face rampant skepticism from the capital markets that they could ever recover their costs with service revenues. Most are now struggling under the immense debt loads they took on, even before the massive infrastructure investments necessary to take advantage of the spectrum they paid so dearly for. According to the Wall Street Journal , the average European telecom stock is down nearly 60 percent over the past 13 months, caused in part by this 3G overhang.

Meanwhile, 3G rollout schedules are being pushed back around the globe due to technical difficulties. The most recent announcement came from NTT DoCoMo, long one of the most aggressive proponents of 3G. DoCoMo now says it will test 3G with a few thousand users, and hopes to launch general availability later this year.

WAP has suffered the same fate for different reasons. Promised as a miracle standard that would unify wireless data and bring the Web to mobile devices, it quickly devolved into a mess of incompatibility, poor performance and clumsy user interfaces. Though more than 90 percent of handsets sold today support WAP, and some 18 million people worldwide use it, the takeup rate for WAP services has been far below expectations. J.D. Power and Associates found that only a quarter of UK subscribers used their WAP phones for anything other than voice calls or SMS text messages. And a Meta Group survey found 80 to 90 percent of corporate WAP users complained of a "wholly unsatisfactory" user experience.

When it comes to m-commerce, the news is even worse. A survey released last month by A.T. Kearney and the Judge Institute of Management at Cambridge University found that only 12 percent of respondents in January 2001 intended to use mobile phones to perform transactions, compared to 32 percent in June 2000. In the US, the drop-off was even more stark - from 34 percent to 3 three percent. In other words, ten times fewer Americans expressed interest in mobile e-commerce in the space of six months.

Clearly, the bloom is off the rose for the most highly touted aspects of the mobile Internet.

The age of diminished expectations


While 3G, WAP and m-commerce have floundered, more incremental wireless data technologies have flourished. DoCoMo is a good example. Though it has struggled to roll out 3G, DoCoMo is a success story for incremental technologies. The company chose to build its service around a subset of the familiar HTML, rather than the WML standard that underlies WAP. It went ahead with a service that runs over a low-bandwidth (9.6 kbps) packet data network, rather than waiting for a high-speed replacement. The result: 24 million customers in less than two years.

On the infrastructure side, unlicensed wireless technologies, most notably those based on the IEEE 802.11b wireless LAN standard, took off as 3G and Bluetooth, a newer short-range technology, were pushed back. Cahners In-Stat predicts 10 million 802.11b products will be deployed by the end of this year, virtually out of nowhere. In addition, companies are throttling back their 3G dreams and taking a closer look at lower-speed but cheaper wireless packet data technologies collectively referred to as 2.5G. The most significant of these is GPRS, which with relatively modest infrastructure upgrade costs will support always-on wireless data at rates of 20-50 kbps in the near future and eventually up to 115 kbps.

Though 3G promises theoretical rates up to 2 Mbps, realistic speeds in the field are an order of magnitude below that, thanks to technical limitations and the costs of the supporting networks. Few of the services users want, it turns out, require anything close to a megabit per second. Streaming video to a mobile phone may sound exciting, but how many people would pay $200 per month - or even $20 per month - to get it? Not enough to justify the massive costs involved.

Finally, when it comes to applications, the leading edge is not m-commerce but messaging. People love to communicate with one another. That was the lesson of AOL's success in the early 1990s, instant messaging's rapid growth in the late 1990s, and the staggering SMS wireless text messaging activity in Europe (now over 25 billion messages per month). Messaging may not be sexy, but it's what people want to do, whether for personal communication or for business reasons. And it can drive real revenues.

From evolution to revolution


In other words, instead of "if you build it, they will come," the emphasis has shifted to more pragmatic approaches. Even leading-edge startups such as Danger Research, a stealth company in Palo Alto, California, are starting to place bets on GPRS rather than 3G in the near term, if press reports are to be believed. Danger, according to a New York Times article, plans to launch a new handheld device based on Java and optimized for wireless Internet access. Though in many ways Danger's technology is cutting-edge, it appears to have paid heed to the difficulties of waiting for 3G, WAP and m-commerce.

We often forget that new communications technologies generally take time to gestate, and grow exponentially only after a long period of slow accumulation. Television was demonstrated at the World's Fair in the 1930s but only became a mass phenomenon in the late 1950s. The basic technologies and standards of the Internet were in place a decade before the Mosaic Web browser catalyzed its explosive growth in the mid-1990s. Mobile phones, VCRs and fax machines all gestated for many years before they hit the right price point, business models, usage levels and features to take off in the mass market.

Consider the history of the technology industry. In almost every area, the big long-term winners have been those companies able to enhance and package existing technologies rather than those constantly ahead of the market. Microsoft, AOL, DoCoMo and Palm all fit in the former category, while competitors such as General Magic and Apple's Newton overshot their customers and overpromised on their technologies.

This doesn't mean innovation won't take place, or that it won't feel dramatic. Often, what seems like a revolution is an evolutionary technology that actually reaches the mass market. A great technological breakthrough that few people use has far less impact on society than a gradual change that reaches a critical mass of users and businesses. That's the story of the Internet itself.

And given the experience so far, it looks to be the story of the mobile Internet as well.

Kevin Werbach is the Editor of Release 1.0, an influential monthly report that covers the converging worlds of technology, communications and the Internet. He also co-organizes the annual PC Forum and High Tech Forum conferences for technology industry executives.

Kevin and Esther Dyson also publish a free email newsletter, "The conversation continues," where they periodically distribute analysis, pointers to interesting Websites, and reader comments. Sign up at http://www.edventure.com/conversation.