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Mobile Operators Seek Incremental Revenue from the Mobile Internet

Mobile Operators Seek Incremental Revenue from the Mobile Internet

Mobile operators are in a precarious position. Airtime revenue is decreasing faster than fixed costs, and competitors are multiplying. Not only is there high overhead for customer acquisition, but retention costs are also increasing. Mobile operators need to act now to ensure that they can derive the incremental revenue streams they need to survive.

While there remains no question about the effect it will have on the way people transact with each other, the mobile Internet's slower-than-anticipated uptake has had an immediate impact on a number of businesses. Because of this, many enterprises have taken a slow and more strategic approach to rolling out wireless services.

Mobile operators do not share the luxury of a slow approach. In North America and around the world, the mobile operator space has seen increased competition, bringing great results for mobile users - including faster rollout of higher bandwidth and more advanced networks and, more importantly, lower airtime costs. But for the mobile operators, these user-friendly results aren't always "operator-friendly."

With 2.5G network rollouts and the commitment to 3G well underway, mobile operators have undertaken costly network and bandwidth upgrades to ensure they aren't left behind. Meanwhile, a slowing North American economy and lower airtime costs have left these same mobile operators with no choice but to find new incremental revenue streams in order to remain viable.

Current Areas of Focus
For the most part, mobile operators have built their offerings around voice services, leaving the data area largely untapped.

Initially, services revolved around transport - something mobile operators know well and have been doing for a long time. Until very recently, their business models centered on the ability to charge fees for providing the transport service that allows people to place calls using their digital mobile phones. With an increasing number of new players wanting their share of the wireless pie, those airtime fees have been driven down and mobile operators are seeing rapidly eroding margins. This is forcing them to look at other revenue-generating opportunities.

Building on the instant-messaging mania that has swept the online world, mobile operators have plunged into wireless messaging as a means to help recuperate some of the airtime revenues they've sacrificed as part of their customer retention/attraction initiatives. Messaging has become today's focus for North American mobile operators looking to offer the next level in value to their customers.

For the most part, messaging presents a simple, self-contained, rapidly deployable, and customer-friendly application. Consumers use it as a means to easily and conveniently communicate with people and businesses anytime, anywhere. However, for mobile operators looking to build long-term revenue-generating services, the quality of revenue brought by messaging remains questionable because it is a fee-based service that - much like the airtime fee - is subject to becoming a commodity as the service matures and is made available by more and more operators.

With the advent of an increasing number of data-enabled devices - yet a still nascent data user base - the data area presents a largely unexploited source of value-added services that holds the key to mobile operators' treasure chest of incremental revenue.

Value-added Services - More Empty Technology Costs or a Solid Opportunity for ROI?
Mobile operators are uniquely positioned to impact the development of the mobile Internet and mobile services in North America, depending on how they choose to proceed in bringing value-added services to the marketplace. There are a number of opportunities in the mobile operator value chain where, given the right strategy, vision, and technology, mobile operators can derive much-needed incremental revenue while helping mobile services become more widely available and attractive to a larger consumer base.

But with large portions of cash-strapped budgets already committed to network and bandwidth upgrades, how much will mobile operators need to spend to offer these value-added services, and will these just become commodities like transport and messaging?

Breathe easy - it's not as dismal as it seems. There are solutions available today that can leverage a mobile operator's existing infrastructure to bring in short- and medium-term incremental revenue, while other solutions are geared to medium- and long-term revenue generation. All of these are designed to deliver return on investment (ROI) today - and into tomorrow.

One solution that presents a big opportunity for mobile operators to recognize immediate ROI is alerts. Leveraging messaging's technology and user base, alerts help consumers move from merely communicating with people and businesses to actually transacting with them, driving network usage and stimulating mobile transactions. For consumers new to mobile data services, alerts are a natural progression to receiving voice calls, helping to introduce a new set of customers to the mobile data world.

From a revenue-generation standpoint, mobile operators can view alerts in two ways: as an internal application, and as an application they can extend to businesses and enterprises as a value-added offering. Internally, a mobile operator can use their messaging infrastructure to notify customers of important details such as approaching their prepaid maximum for the month. Personalized alerts allow mobile operators to easily and economically give high-touch customer care without taxing their resources, while helping drive traffic away from costly call centers.

Alerts can also help mobile operators generate revenue by offering enterprises the ability to use a suite of toolkits to build alerts that leverage the mobile operator's messaging infrastructure, yet are customized for their specific business. By offering "build-your-own" alerts toolkits, mobile operators can target businesses in any industry without having to understand and learn the intricacies of each business.

As infrastructure providers to these enterprises, mobile operators remain in their core competency area as messaging providers while the enterprises leverage the operators' messaging technology and the uniform and consistent development user interface to build customized alerts. These alerts help them conveniently and securely interact with their key stakeholders - whether they're consumers, employees, contractors, or other businesses.

To truly reap the value of alerts, mobile operators must take them to the next level and make them actionable. Actionable alerts give the receiver of the alert the option to immediately act upon the information they've received. To make this available, mobile operators should aim to implement a solution that leverages their authentication capabilities and their billing systems to create a secure transaction offering that is scalable, reliable, and interoperable with any device and any security scheme.

Looking at the mobile operator's internal alerts application, this means that when the customer receives a notification on his digital mobile phone saying he's about to reach his prepaid limit, he's also given the option to immediately top up his prepaid with the simple click of a button and the entry of his personal identification number (PIN) or digital signature. If the customer decides to top up his prepaid, he enters his PIN or digitally signs the transaction, and is advised that the charge will be added to his next cellular bill.

This payment option is fine for low-priced items such as topping up a prepaid account balance, but in order to service their enterprise customers, mobile operators will need a platform that can also interoperate with a wide variety of existing payment schemes, and effectively extend those payment schemes to the wireless world. The more payment options made available to alert recipients, the more likely they are to end the communication with a mobile transaction. Multiple payment options also help businesses deal with payment scheme boundaries.

For example, due to administration costs, customers are often told that certain payment methods - such as credit cards or debit cards - cannot be used for transactions that fall below a certain dollar-value threshold. An enterprise that is leveraging a mobile operator's security and payment infrastructure, can choose to add the mobile operator's own micropayment scheme to the list of payment options for their customers, efficiently eliminating a transaction barrier.

With this type of payment infrastructure, mobile operators can offer more than just actionable alerts - they can provide enterprises with a wireless offering that supports secure, wireless transactions.

As a standalone offering or as part of a larger portal, mobile operators can bring a breadth of value-added services to an enterprise's wireless offering. Being at the middle of the transaction as the authentication and payment enabler, mobile operators stand to benefit financially from each transaction that occurs, while freeing enterprises from much of the complexity associated with delivering a wireless transaction offering. Mobile operators effectively create value for the enterprise by enabling a wireless solution that provides authentication, connectivity, management services, fraud management, reduced costs, and a secure wallet - all while making the technology virtually invisible to the enterprise.

Quest for the 'Killer App'
As with most enterprises planning a mobile deployment, mobile operators have undertaken the mission of finding the wireless world's "killer app" - the elusive and much-sought application that is so attractive to mobile users, it will spur the take-off of user adoption.

Increasingly, the thought leaders of the wireless world are moving away from the concept of an all-encompassing killer application. An array of cultural, technological, physical, and geographical differences have caused the mobile Internet to take different shapes and evolve at very different rates around the world. The new trend is to view the killer app as a moving target that will differ from country to country and possibly, from device to device.

Future-proofing Mobile Solutions
Though the idea that the average consumer will regularly use his or her Internet-enabled wireless device to securely purchase and pay for goods and services seems futuristic, solutions exist in the market today that don't require 2.5G or 3G networks and high bandwidth.

Mobile operators are in a unique position to capitalize on the revenue-generating opportunities associated with making mobile transactions happen through mass deployment of those solutions. Their success will depend greatly on their choice of strategy and technology - careful consideration of the trends and technology of the not-so-distant future will need to be taken to ensure no efforts are made in vain.

Security is the backbone of any mobile data offering that supports sensitive communications and actual transactions where payments are taking place. Various consumer studies show that wireless security is no longer perceived by consumers as the barrier to adoption it was in the industry's earlier days. This is in large part due to proactive efforts of security providers and software vendors to make the media and the general public aware of the various measures involved in securing a wireless transaction from beginning to end.

Security solutions are only getting better. With the introduction of legislation around electronically signed digital contracts, public key infrastructure (PKI) solutions and digital signatures for the wireless world are on their way to becoming de facto security standards in numerous countries around the world. PKI and the ability to work with any certificate and registration authority will be a key component of mobile operators' infrastructure technology. It will enable the protection of merchants and businesses from fraud, repudiation, and higher credit card tariffs while opening a realm of wireless applications that could be made available to consumers.

A great deal of money and resources are also going into the evolution of mobile devices. As more advanced networks and additional bandwidth become available, mobile devices are being optimized to take advantage of their capabilities. Color screens, streaming capabilities for data and video, and the ability to synchronistically interact through both voice and data - commonly known as "multi-modal" - are just some of the functions that will be supported by mobile devices in the not-so-distant future.

This functionality will create an opportunity to develop applications where transactions take place. For example, a parent with a new baby will soon be able to send pictures to family and friends who can receive the pictures on their mobile devices. For a small fee, a family member or friend can - via Bluetooth technology - go to the nearest photo-processing store, have the picture printed onto photo paper, and complete all payment using their mobile device.

Recognizing that device choice is a very personal decision for each user and not all devices will appeal to all segments of the population, a mobile operator's infrastructure technology should be able to support all of the devices available today, and easily add new devices and device types as they come to market.

As more people get switched on to the mobile Internet and mobile data services, portals will play an increasingly important role in helping consumers easily navigate through the various wireless offerings. These portals could take two shapes: they could be operated by mobile operators themselves, or by individual enterprises, similar to the leading portals that have established themselves in the online world. Both options require an infrastructure that supports the leading security, multi-modal, and payment schemes, as well as the leading devices of today and tomorrow.

There's no question as to whether the mobile Internet will take off, but rather, when. And as history has shown, although each new wave of technology takes a little longer to be accepted, it always ends up being bigger than anyone imagined. Therefore, the infrastructure behind winning mobile services will need to be able to quickly and seamlessly scale to millions of users, while offering the reliability and availability consumers demand of their mobile services. While it may still be too soon for mobile operators to decide whether they will be a portal themselves or the infrastructure provider to an enterprise's portal, they must choose technology that will support either option.

Mobile operators have to act now to ensure that they are able to derive the incremental revenue streams they need to survive. Their technology and infrastructure choices will determine the fate of their strategy - will they be able to roll out the services that create opportunity for additional sustainable revenue streams, or simply more commodity services that will leave them continually seeking new ways to break even?

More Stories By Dick Costolo

Dick Costolo is vice president,
strategy, of 724 Solutions Inc.

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