Ulster Business, July 2001: Mobile Commerce Report

Mobile commerce (m-commerce) has been described as a lucrative (indeed potentially vital) source of revenue for mobile phone companies, merchants and network operators. Given the amount of money invested, they cannot afford to ignore any money-making opportunity.

European mobile network operators have already spent more than £100 billion on licences to operate so-called third generation mobile services. Third generation services carry the promise of constant connections to mobile information and faster access to services such as e-mail while on the move and are therefore expected to increase the amount of time (and money) people spend while using their mobile phone.

Unfortunately for many operators, they will need to invest roughly the same amount again to build the networks to handle these faster, more accessible mobile services. This burden has already proved prohibitive for several companies who are struggling to cope with massive debts, which makes it essential that they develop services and products that can generate revenue as soon as possible. Many mobile communications industry observers believe that these operators can generate sufficient business to meet the costs of the licences and the cost of building the infrastructure to deliver them. However, this will only be achieved by developing services that customers really want to use.

According to a recent report on the UMTS (third generation) market, in order to recoup their investments operators will have to push more advanced, revenue-generating services to the market. These operators can take other steps to ensure their survival - such as keeping staff levels to a minimum - but they will only succeed by developing and delivering useful applications.

In the meantime operators cannot afford to ignore current or second generation mobile technology and the services that can be delivered over the handsets we use today. It will be the middle of next year at the earliest before large numbers of customers will have access to third generation technology and the initial limitations in handsets and data transfer speeds mean the most successful applications will be relatively simple.

This is why many operators are so excited about the potential of mobile gaming and gambling. Current research does not point to a single service that will generate the necessary revenues or a 'killer application' - for example, there will always be a strong demand for simple voice services while services based on the location of the phone user have potential.

Enthusiasm for mobile gaming and gambling is based on analyst forecasts such as that issued by financial institution Merrill Lynch recently, which suggested that one per cent of total global consumer spending in 2000 (about £107 billion) was accounted for by gambling. As well as targeting regular gamblers, operators are also aiming to attract a whole new market of 'fun' gamblers who are just looking for a few minutes of entertainment. Some of these casual gamblers could be enticed by the prospect of placing bets on a sporting event at which they are present, so a phone user watching a Liverpool match might be offered a special bet on the scorer of the first goal. The hook is that because the customer is at the event, they might feel they have an advantage over other interested parties. These potential gamblers might also be offered specific information on sporting events, such as detailed local weather reports for a rugby match or cloud forecasts for a game of cricket that they feel might give them an edge when placing a bet.

Looking further ahead it is very likely that location based data will spur the development of new types of gambling. In this scenario users could be offered bets on the location of the prize in a treasure hunt.

Location could also determine the ability to gamble. For example, in the US it is legal to gamble in certain locations such as the state of Nevada and location identification is a powerful tool to verify that the wireless user is within the state boundary and therefore eligible to play games of chance for money.

The convenience of buying a lottery ticket through a mobile phone without needing to queue or search for change at a newsagent is another selling point for mobile gambling. The one proviso for the operator is that since fixed odds gambling is illegal for those under 18 and those under 16 cannot buy a lottery ticket, it is important that prepaid account users have provided proof of age. One of the possible drawbacks to gambling over a mobile phone is that if the customer places a successful bet he or she will probably want access to those winnings. The answer might be to create an account (with a minimum balance to cover bets placed) where winnings can be lodged. Alternatively, the mobile phone company might store the credit balance on the customer's bill and use it to tempt the customer to purchase other products and services while their 'account' is in credit.

Industry analysts also claim that mobile gaming is going to be big business. A recent report from research firm Datamonitor claimed that the wireless gaming market in western Europe and the US would be worth $6 billion by 2005. In 2000, revenues from wireless gaming were minimal - within three years the company says they will have soared to $1.6 billion. According to Datamonitor analysts, western Europe's current lead in the mobile industry will have direct repercussions for the wireless games market. High market penetration of mobile phones will result in market leadership in wireless games over the US.

Five years on, Datamonitor predicts that western Europe will continue to lead and account for over 50 per cent of wireless gaming revenues. Germany and the UK will the largest markets for wireless games while due to its fragmented market, the US will experience slow take-off. Gamers have traditionally been categorised as teenage enthusiasts. While this consumer segment still represents a valuable customer base for the gaming industry (since they often act as trendsetters), the market has moved towards the mass market and a broader demographic of customer. For example, end-user research estimates that 49 per cent of adult consumers playing online in the US and Europe are female. Being faced with a widening audience means the industry has to adapt. While established industry players have long known their traditional customers, they must now discover who their new users are and tailor their offerings accordingly.

A widening audience means a large array of consumer interests. While traditional genres such as sport simulations, shoot'em-ups and platform games remain a core offering for many publishers, new varieties have surfaced to satisfy this new breed of gamers. However, such a wide audience means bigger spend as well as bigger revenues - a mass audience means mass marketing and that does not come cheap. Generating revenues from advertising has the advantage of being a painless method of making money from consumers who can play for free. However, traffic is crucial for this type of business model and the majority of medium-sized sites will find it increasingly hard to sustain it. Detractors of mobile gaming have criticised the small screens of devices and text based games as being a barrier to consumer acceptance as they are simply not sufficiently appealing to prospective gamers. However, the fact that Nintendo has sold 100 million Game Boys around the world sold shows that consumers will pay for mobile entertainment on devices with small screens.

Japan's largest mobile phone operator NTT DoCoMo and Sony recently agreed to develop games for mobile phones. Unfortunately, the Game Boy-style action games that the deal promises require handsets with GPRS network technology, colour screens and downloadable code and these will not be available in sufficient numbers for a while yet. Gaming-on-demand is another option, but again it hinges on the technical ability to provide digital distribution. Games companies will have to be able to adopt a flexible business model, such as downloading games for a limited period of time, level-by-level download or pay-as-you-go. Already, Telia in Sweden offers games-on-demand to consumers through its broadband network. In the UK, Blockbuster has announced its intention to offer games-on-demand internationally early this year. US online game channel Pure has been breaking down its games into 10 Mb chunks for ease of download and to maintain stickiness. Pure makes its games available free of charge but in order to download more games and levels, users must complete a detailed questionnaire that opens them up to targeted advertising and promotions.

Despite the degree of uncertainty over network and handset development, industry watchers and participants are confident that a booming mobile gaming market will happen because it has to happen - it is simply one of the best ways for 3G licence holders to get their money back quickly.

John Whelan is a director of Alatto Technologies, which provides a range of 2.5 and 3G services from strategic advice through to development of revenue generating mobile applications - e-mail: john.whelan@alatto.com