Whither mCommerce?

In the United States, the wireless carriers got cold feet about "losing control of the customer" and tried to control what was rolled out to consumers. Many carriers came out of the wireline telecoms world -- Baby Bells that ran lines to your house. In that world, long distance and data services became commodities. People switch them out whenever a cheaper, better one comes along. They saw the same thing happening in Europe and Asia. Conventional wisdom says that the way to prevent that from happening in the wireless world is to ensure the carrier controls and profits from every application that comes out over their service.

Conventional wisdom killed m-Commerce.

In Europe or Asia, a smart person with a good idea can have an exciting idea on your phone by nightfall. They just plug into the existing payments infrastructure and receive 90% of the benefits of whatever consumers do (carriers take about 10% for facilitating the transaction). Anything is available -- horoscopes, comics, all manner of fads and fashions, shopping, tv, movies, maps, and more. Even adult entertainment is common on the phones.

Consumers accept that carriers are just that "carriers of voice and data". They've been making money by providing the platform upon which all of the applications are built. Unlike the wired world, available radio spectrum means that there will always be a limited number of companies providing service, and they can compete on reliability and data speed.

In the US, by contrast, getting an application on a carrier's service is like pulling teeth. One of our portfolio companies just went through the process -- it took over a year to negotiate the deal and put the right equipment in place. The carrier rolled it out in a controlled and slow manner to test every detail -- after all, they don't want their customers to have a bad experience. They are selling a "complete experience" to their customers, not just a platform for others to provide services.

As a result, an interesting battle is shaping up. The carriers are busy trying to control customers, while the manufacturers and content providers are busy trying to give consumers what they want despite the carriers.

If you look at the new high end devices being introduced in the US, they are taking a completely different direction than the Asian and European handsets. Those handsets are getting smaller and are optimized for the wireless services available there. The high-end handsets in the US are instead providing ways to bypass the carriers and go directly to the Internet, where content isn't controlled. Look at the Danger hiptop, the Treo 600, or the upcoming line-up of Smartphones. There's a new "top secret" unit from Sony that has insiders who've seen it raving; yet another combo device. All of them begin to cut the carrier out of the loop.

At the same time, the content providers are starting to provide clients that work directly on the phones to bypass the directories the carriers provide. Handango, a web site that allows users to download their own applications directly to PDAs or phones, is growing quickly. They are serving an increasing number of applications to phones (as opposed to PalmOS or PocketPC devices).

There are some signs of change. Several providers have told me privately that one of the US carriers is now saying that are just going to be the content platform -- a la European and Asian carriers -- and are busy installing technology to do just that. If I were to place a bet today, I would say that this carrier is Verizon. They have launched a high speed wireless data network that's faster than my DSL line at home, and would be in the best position to establish themselves as a the platform of choice for future content. If so, that would change the landscape completely and other carriers may be forced to follow.

The US carriers have tried to control mobile services and mobile commerce, and all they have succeeded in doing is killing it. The barriers to providing applications are so high that the content is just uninteresting and expensive. However, the manufacturers and content providers are finding ways around them to reach the consumer anyway. This is forcing change in the US market, and within 5 years we will finally have the services Europe and Asia has today. As one contact put it at the conference, "the battle is over. Now the carriers just need to realize they've lost."

Errata: Many readers have given the feedback that my casual lumping together of "Europe and Asia" was incorrect. Europe has a very diverse wireless market, and according to readers, most of Europe is closer to the US model of carrier control over content. I stand corrected. (What do you expect from somebody at a firm called "PacRim Venture Partners"?)