Information unleashed: the coming of wireless data.
* But no single company has all the assets it will need to dominate this emerging market
* And to win long-term advantages, the sophisticated use of customer information will be essential
Wireless information delivery has been around for a long time - indeed, since the first words spoken by human beings. More recently, Wireless information has been transmitted through military walkie-talkies and two-way police radios. And now, with the development of wireless devices that can log on to the Internet and send and receive data, wireless communication is joining, the digital age. Soon you will be able to use wireless services to easily check up on your stock portfolio, log on to your company intranet, check the weather in cities you visit, and read about restaurants where you might wish to eat.
These developments are the result of improved mobile networks, the emergence of open Internet-based standards, and better technology for handheld devices. The upshot is that the market for wireless information is finally taking off. Sources of content are proliferating at an explosive rate [ILLUSTRATION FOR EXHIBIT 1 OMITTED], along with Internet and e-mail usage. Meanwhile, the number of professional people who spend time outside their offices is increasing [ILLUSTRATION FOR EXHIBIT 2 OMITTED], and they need portable devices to stay in touch [ILLUSTRATION FOR EXHIBIT 3 OMITTED]. By 2003, there could be 60 million users of wireless-data services in North America, and the market could be worth up to $10 billion.
Of course, companies are scrambling to take advantage of this opportunity. Cisco and Motorola, for instance, have announced plans to develop and build wireless networks based on the Internet Protocol(*) (IP). Qualcomm and Ericsson have agreed jointly to support and license a single world standard for the next generation of wireless communications, and this will surely speed the development of wireless-data capabilities.
Behind the deals and alliances is a growing awareness that no single player has all of the assets needed to dominate this emerging market. Such natural competitors as content providers, software companies, wireless-service providers, and equipment and device manufacturers will have to work together. Two factors will be decisive: gaining market share quickly by creating a complete wireless-data service and encouraging loyalty among customers by using information about them in a savvy way.
How wireless data finally became a reality
Three barriers prevented the earlier and wider adoption of wireless-data services.
Wireless networks were originally built to carry voice traffic; as a result, their ability to carry data was limited. This problem was addressed at first through the use of overlays of digital protocols on existing analog cellular networks.(**)
The new generation of wireless networks is being built on more data-friendly digital platforms, such as Code Division Multiple Access (CDMA) and the Global System for Mobile Communications (GSM). They make it easier to add packet-data protocols and to provide higher speeds.
The second barrier was the absence of standards. Without them, developing and rolling out wireless-data applications has been both difficult and costly. Now, however, the creation of wireless support for Internet protocols is solving the problem. Although IP-based platforms and flexible interfaces were designed for wireline environments, they have been adapted to the needs of wireless. Currently, a number of applications are successfully taking shape.
Meanwhile, additional enablers for wireless have been developed, such as the Wireless Markup Language (WML), a version of the HyperText Markup Language (HTML), which is used to design pages for the World Wide Web. WML makes it possible to adapt Web-based content for display across a range of devices with limited memory and small screens. Such devices include personal digital assistants (PDAs), pagers, and cellular/PCS (personal communications services) telephones. The emergence of these standards makes it possible to reuse content and to give applications portability.
The third barrier to the speedier and wider adoption of wireless-data services was a lack of user-friendly devices. Fortunately, semiconductor technology and the capabilities of wireless networks have improved, so wireless equipment is now easier to operate. Customers can choose among a range of portable, data-capable, and ergonomic devices offering many applications and services. The 3Com Palm Pilot PDA, for example, combines scheduling and an address book with other management applications, yet it is small enough to fit in a shirt pocket. The next generation of Palm Pilots, to be launched in 1999, will feature wireless connections to the Internet and to corporate intranets.
The first evolutionary step
Three factors will shape the evolution of wireless data. First, wireless provides a stronger and more explicit link to specific users, because they can be continuously connected to networks through their personal devices, and those networks always "know" their locations. As a result, services and data can vary according to the users' locations and the time of day. The delivery of perishable information, such as real-time market reports and urgent messages from colleagues, will therefore become an important growth area critical to the value proposition of any service. In addition, detailed information about the needs and usage of individual customers will make it possible to develop differentiated and personalized service offerings.
Second, the screen size, memory, power of the central processing unit, input capabilities, and storage capacity of wireless devices are more limited than those of their wireline counterparts. Significant intelligence for wireless-data applications therefore will probably be distributed on servers throughout the network rather than residing entirely in the device. The most successful services will use a single browser-based front end providing access to all information and applications.
Third, the method that Internet content providers now use to generate revenue may not work in wireless. Currently, providers sell space and banner advertising on Web pages, but that approach is likely to be less effective with the small display screens and narrow bandwidth of wireless. Although that bandwidth will increase, it will not catch up with the bandwidth of wireline, so new business models for Internet content will be necessary.
Eventually, mobile wireless services will stimulate the development of new, wireless-specific applications and information. In the short term, however, wireless data services will mainly provide access to applications and information sources (including integrated messaging, e-mail, personal news, scheduling, and corporate information) that are already accessible through wireline. These Internet- and intranet-based services will be delivered in bundles that exploit mobility, real-time access, and the ability to pinpoint the locations of users. For the most part, those users will be mobile professionals and heavy e-mailers who will access the services mainly for brief bursts of communication, for information updates, and for synchronizing applications like calendars and address books, not for extended Web browsing or lengthy transactions.
A range of increasingly sophisticated and diverse devices will provide access to this data. Customers value "hybrid" connectivity: the ability to get to information through more than one device. Business users, for example, will be able to connect with their calendars through their PDAs, to receive updated information about meetings by receiving short messages through their PCS telephones, and to consult their address books through voice interfaces on any telephone.
Given the range of user needs and applications for wireless-data services, it is not likely that any single kind of device will dominate the market. Cellular and PCS telephones, PDAs, and pagers will all play roles, as will new integrated devices that offer a number of functions. The Qualcomm and 3Com PdQ telephone, for instance, combines a CDMA telephone with a Palm Pilot, and the Casio Win CE Cassiopeia combines Palm-like functions with voice features.
The first wave of wireless data services is already appearing and will gain momentum because several basic pieces of the solution already exist. Applications and information are in place; operators have been upgrading the data capabilities of their wireless networks; and gadgets that display information are available. Customers are showing interest in mobile services that offer news and e-mail. Many companies now have a substantial opportunity to weave these pieces into a single web.
The general case for success
Winners in the wireless-data market will have to do two things: first gain market share by rapidly establishing at least a rudimentary service that meets essential needs of customers and then lock them in by using information gained from them to compile user profiles, target individuals, and deliver personalized services.
Gain market share
To be a market leader, companies will have to meet the requirements of customers quickly, establish strong webs of partners, take advantage of open standards, and achieve broad national coverage, much as America Online (AOL) and Yahoo! have done for the wireline Internet.
Meet customer requirements. Mobile professionals and other business users will probably be attracted by easy, low-cost access to three sources of content. They are personal information (such as calendars and address books) stored on individual computers or PDAs or on corporate local-area networks; business data, including sales forecasts and shipping information; and Internet sites with content such as weather conditions, stock and investment reports, sports results, and restaurant reviews. Accessing and integrating these sources will require a synchronization-and-replication technology, probably in the form of middleware.(*)
Establish strong webs of partners. No single company has access to the content, middleware, transmission-and-access technology, and devices needed to deliver an entire business solution. Business webs that offer two or three of these components and lower the cost and complexity of implementing the rest will have an advantage over their competitors.(**)
Open standards. The IP, subsets of HTML, and other open standards make it possible to exploit a growing foundation of content already based on those standards. In this way, services can come to market more quickly and more cost effectively than they could with proprietary standards, which require the re-creation or reconfiguration of content.
Broad national coverage. Nationwide operators such as AT&T and Sprint and paging networks such as PageNet and SkyTel have a number of advantages over regional service providers. The latter will have to support a common service - so that their subscribers can gain access to it when traveling - or offer broader coverage by developing a wireless-data roaming capability and clearing houses to settle data-roaming charges.
Gaining market share quickly will be essential but not sufficient. Locking in customers by creating switching costs is the surer path to long-term success. Customer profiles will be the crucial factor.
Sources of profile information could include address books, calendars, charge cards, bank account information, data on customers' content preferences at different times and places, e-mail addresses, wireless telephone numbers, and authentication certificates.(*) Subscribers will permit this private information to be collected from them in return for privacy guarantees and enhanced services from providers who know more about their needs and desires.
As subscribers become more dependent on their mobile data applications, and as features and content are tailored to match subscribers' needs, profiles will become more valuable to the companies that own them. Over the longer term, a company or web of companies maintaining customer profiles will have a strategic advantage: the ability to make it harder for subscribers to switch devices, services, and content providers.(**)
Companies hoping to lock in customers might well spend too much money at first on marketing and acquisitions. But it is less costly to lock in customers early than to lure them away from other services at a later time.
Strategies by company
The detailed strategies of competitors will depend on whether they are content providers, software providers, wireless-network operators, or equipment and device manufacturers (Exhibit 4).
By developing mobile services based on wireless protocols, content providers could offer access to the same data they currently supply through personal computers with wireline access. Such providers as Yahoo! and AOL already have strong brand names, databases of customized user profiles, and experience in customizing portal services, such as My Yahoo!
Without the intelligent networks of wireless operators, it is difficult for content providers to deliver such advanced services as reverse billing,(*) pushing content to users, and delivering content that depends on users' locations. Wireless operators will probably want to have their own brands on wireless data services and to give those services a distinct look and feel. On-line providers like Yahoo! will need business models that do not depend on banner advertising. They should explore alternative payment models for their services charging a few cents per "click," for example, or a flat monthly rate.
The answer is for content providers to form joint ventures with wireless operators to co-brand their offers. The content providers should take responsibility for the servers, databases, and customer profiles that make it possible to deliver content and information to end users. Netscape appears to be taking such an approach in its recently announced partnership with Nextel, a wireless operator, and Unwired Planet, a software provider.
Because the products of software providers are essential, they will have a strong position. Yet they will not "own" the relationship with end users, so they are not likely to enjoy a large portion of the value that wireless-data services will create.
Software development companies - particularly systems or infrastructure firms - typically try to establish proprietary standards, a strategy that will be hard to apply to wireless data because of the sheer number of companies competing in the market and the need to use open Internet protocols. Yet software providers can employ a variant of Gillette's approach to razors and razor blades: selling razors at a low price and blades at a premium. Likewise, software providers could give away their microbrowser software to support more lucrative sales of back-end servers, hosting data and applications, conversion middleware, and services. Microsoft's WirelessKnowledge joint venture with Qualcomm appears to be adopting such an approach to software, although the project as a whole seems to be broader.
Some software companies could also try to persuade network builders and owners to adopt their server and browser technologies by adding proprietary extensions to their software. These extensions could perform many value-added functions, such as speeding data transmission.
Wireless operators, such as AT&T Wireless, Bell Atlantic, and Omnipoint, could offer customers the ability to get all the information they need, wherever they are, from a single service provider. Such operators enjoy several structural advantages. Regulations do not require wireless operators to sell capacity on their networks to other information service providers; unlike wireline telephone companies, they may tightly link wireless transport with Internet access. Their existing customer relationships make it possible to bundle and cross-sell new services. And besides hosting customer information and aggregating content, wireless operators can deliver intelligent network services, such as reverse billing, pushing content to users, and delivering content that depends on their locations.
But wireless operators also face obstacles and risks. They have shown limited skill in selecting, aggregating, and customizing content. Incumbent telephone companies may find it difficult to attract sufficient Internet-related expertise, as many of them have already found in other areas of their businesses. And their lack of integration with such existing wireline portals as Yahoo! has the effect of reducing their scale and possibly their access to the best available content.
These companies should quickly experiment with alternative bundles and offers. To gain information about customers, for example, they could price their services on a flat-rate, "all-you-can-eat" basis and thus encourage adoption and usage. In addition, they should try to retain control over the appearance, user interface, and brand of the service, as well as personalized information about customers. They should also enter partnerships with name-brand content sites to attract usage, an approach that would give them access to content, critical skills, and information for establishing customer profiles.
Of the four kinds of competitor, wireless operators are best placed to assume the role of kingmaker because they control the wireless networks and own the subscriber relationships. The choices wireless operators make will largely determine which coalition and kind of company harnesses the most value.
So far, it appears that to supply customers quickly, many wireless operators are choosing to deliver services developed by others. This may be necessary to stay in the game but probably will not be enough to win it. By rushing into the market, these companies may be compromising their opportunity to create long-term value and consigning themselves to the role of commodity transport provider.
Equipment and device manufacturers
Various strategies are open to equipment and device manufacturers. Equipment makers could choose to remain independent and sell network gear and services to wireless operators. Or they could try to ally with a winning coalition of content, software, network, and device companies, or any combination thereof, to build a winning end-user service. The challenge of independence is that companies have to build ever-increasing wireless-data capabilities; the advantage is that these can then be sold to the whole market. So far, Lucent Technologies seems to be pursuing this approach.
Pure device manufacturers wishing to retain their focus will build intelligence into their devices. They would have to establish relationships with wireless operators and middleware vendors, respectively, to support their products and to obtain links to corporate intranets. In addition, they could form consortia to develop proprietary operating systems and browsers.
Device manufacturers have several advantages. The base of successful devices, such as the Pall Pilot and the Psion, is growing rapidly. Devices that contain all necessary data and applications can deliver faster response times, are less susceptible to network outages, and do not depend on the quantity or quality of wireless Web content.
But device makers face their share of difficulties, too. Installing wireless-data functions will make devices larger and more expensive, which could put off customers. Manufacturers will have to drive down costs to mass-market levels and establish dominant shares because the emergence of network-based applications will reduce the ability to differentiate devices through embedded applications. And without the collaboration of wireless-network operators, those manufacturers will find it hard to provide advanced services requiring intelligent networks. Finally, although independent wireless Internet service providers, such as GoAmerica, do exist, support from leading wireless operators will be needed to sell enough devices to achieve scale volumes.
To address these challenges, manufacturers could try to maintain longer-term added value by forming proprietary partnerships to develop their own operating systems and browsers. Symbian, the joint venture of Ericsson, Motorola, Nokia, and Psion, seems to be pursuing this approach. Qualcomm appears to be taking the same route by working with Microsoft to develop a hosting and network operations service while working with 3Com to develop a winning device.
Companies that make both equipment and devices will be able to adopt what is probably the most robust strategy. On the equipment side, they can remain independent, which would allow them to participate in the overall growth of the wireless-data business and to keep their options open. On the device side, they can try to develop a winning end-user device, which, if successful, would provide exceptional returns.
Ericsson and Motorola seem to be using just such a multipronged attack. Ericsson sells network equipment while trying to develop a device with Symbian. Motorola participates in Symbian while also supplying network equipment and collaborating with Cisco to develop services. Because these companies have more than one way to play, they have an inherent advantage.
This much is clear: markets in which customer information is the most valuable currency often generate increasing returns, and companies in those markets try to lock in customers to a single technology or service. By quickly assembling even a rudimentary alliance to deliver end-user services and to begin securing control of customer information, certain competitors could gain an edge that, if consolidated, would give them a powerful market position.
Browser: Software to give devices the ability to access and browse the World Wide Web.
Code Division Multiple Access: A digital wireless-network standard (primarily deployed in North America) for voice and data.
Global System for Mobile Communications: A digital wireless network standard for voice and data. It is the dominant standard outside North America.
Hosting: Storing and managing data and applications, especially for the World Wide Web.
Internet Protocol: Software that defines the routing of Internet traffic and the interaction of Internet devices.
Server: Computer used to run and support applications (billing and transaction processing, for example) used by remote computers.
Wireless-data roaming capability: The ability of subscribers to receive their wireless data services away from the home service area - while traveling in another city, for example.
The wireless-data arena: Examples of recent moves
* AT&T PocketNet offers access to information services and scheduling through digital telephones
* Omnipoint is developing wireless-data capabilities to sell to other wireless operators
* Skytel and PageNet offer Internet e-mail and information services
* BellSouth Wireless Data offers two-way paging for e-mail, intranet, and Internet access
* Qualcomm and Microsoft are launching their WirelessKnowledge joint venture
* Unwired Planet offers a suite of products to convert wired to wireless data compatible with smaller screens on hand-held and mobile telephones
* Yahoo is partnering with PageNet to deliver My Yahoo! over pagers
* Innovative start-ups (such as DataLink Systems, Intelligent Information, and SmartServe Online) are establishing content delivery systems
* Motorola and Cisco are partnering to develop IP-based wireless data networks (with quality-of-service targets that could allow voice over IP)
* Qualcomm is developing code-division multiple access data devices with 3COM-Palm and megabit wireless technology
* Compaq is developing an applications services business to complement Windows CE product line
* Symbian is creating an alliance of device manufacturers and software providers to create next-generation wireless-data devices
Source: Literature search
The authors wish to thank Ryan McDonough for his contributions to this article.
* Terms printed in italics are defined in the glossary on page 99.
** AT&T developed these overlays, known as Cellular Digital Packet Data (CDPD), which offered data transmission speeds of up to 19.2 kilobits a second.
* Several types of middleware (software) will be important for wireless-data service. They include programs to convert data from wired to wireless formats, to replicate and synchronize personal information management applications (updating your personal information so that it is consistent across all your devices), to summarize and reformat e-mail, to format content to fit small screens, and to translate spoken language into text data and vice versa.
** For a discussion of such webs, see John Hagel III, "Spider versus spider," The McKinsey Quarterly, 1996 Number 1, pp. 4-18.
* Authentication certificates verify users' identities for secure transactions.
** For a broader discussion of the importance of acquiring and using customer information profiles, see John Hagel III and Marc Singer, "Private lives," The McKinsey Quarterly, 1999 Number 1, pp. 6-15.
* Compensating users to receive ads or other material.
Will Daugherty and Paul Roche are consultants in McKinsey's Silicon Valley office; Cris Eugsler is a principal in the Houston office; and Troy Stovall, CEO of the technology investment firm JP Holdings, is a former consultant in the New Jersey office.
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|Title Annotation:||wireless communications|
|Author:||Daugherty, William; Eugster, Cristopher C.; Roche, Paul; Stovall, Troy A.|
|Publication:||The McKinsey Quarterly|
|Date:||Mar 22, 1999|
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