A colleague recently bent my ear regarding mobile commerce and how she can barely wait for some of the new services (like this one) to become available in her area. I love a good gadget as much as the next guy, but having lived through electronic wallets and many of the other “great ideas” on the front-side of the dot com boom, I’m a bit skeptical.
For those that are willing to learn, failures teach us more than successes, so this got me thinking about what the past can teach us about these new service offerings. I’m not talking about ringtones and wallpaper; I’m only talking about stuff you buy with your phone, not for your phone.
We are now are seeing a number of services that use mobile phones as point-of-sale terminals. A few of these are:
- Magazine ads
- Food orders
- Banking
- Social money, the transfer of money between individuals
- NFC transitions (requires hardware-enabled phone)
Let’s take a look at several emerging offerings and how likely they are to see success in the market, at least in the near-term.
Magazine ads
How it works: Selected magazine ads include an alpha-numeric code that you text-message to instantly order. You are emailed an electronic receipt and your purchase is sent to the address you indicated during registration.
Commentary: Unlike the CueCat, these services require no hardware and support purchase rather than inquiry by the consumer. I think we are a long ways from understanding the appeal, so it will be interesting to see who uses this service. One obvious group is fashionable, affluent women. It would be great for merchants if it turns out to be a broader range of die hard loyalists, but my gut says the broader appeal will be for impulse-type purchases: books, music, food and gadgets. Because consumers must set up the appropriate account and preferences, it will only appeal to consumers that plan to make impulse purchases, so there is something missing. At least initially, this probably cuts out a lot of men. It may turn out that merchants will have to incent consumers via discounts. At that point, it is just another form of promotion, and whether it makes sense is a math problem.
Ordering food via SMS
How it works: You SMS a code indicating your order. The message is forwarded to a terminal at the restaurant where your order is filled and waits for your pickup. The services typically work like this. Since your order is pre-paid, you don’t have to stand in line.
Commentary: While services from OrderTalk, SeamlessWeb and others offer the benefit of no lines as your order is pre-paid, they do require setting up preferences that are accessible via SMS. If you have a favorite restaurant from which you always order a couple of favorite items, this may be just the ticket. People that use these services are going to love them, LOVE THEM. Like Webvan, strong affinity from a fairly narrow customer base is not going turn the creators of any of these services into the next Bill Gates, but unlike Webvan, the infrastructure investment is far less daunting, so this one probably has legs. There are lots of reasons not to use the service “this one time,” including: you want to order a different menu item, you are ordering for several people, etc. Consolidation will drive adoption, but there may be room in the market for a few of these services.
Banking
How it works: Several banks are working on or testing systems that allow you to perform a variety of banking functions from your mobile phone.
Commentary: I bet this tests well in focus groups, but the flatness of the actual adoption curve will surprise a lot of people. Security is going to be important, as you sure don’t want to store usernames and passwords on a phone that is easily lost or stolen. But that means you have to remember and enter them which will discourage use. Imagine having to triple-click a secure password each time you want access. Just how often do you want check your checking account balance or move money between accounts? Not only that, but there are lots of alternatives available. This one probably has legs, but like online banking and electronic bill payment, it will take time – maybe a very long time.
Social money
How it works: A group of individuals enter shared expenses and then settle up via a payment service.
Commentary: BillMonk and similar services are intriguing because this is a new solution to an old problem. The guys I know never use a calculator to split bills; we total the bill, someone rounds it off, and everyone tosses cash into the pot. Better yet, if it is a regular group, we simply rotate who pays the entire bill. Women may be more likely to use a service like this, but it seems designed with a gadget-happy guy in mind. The real potential is for larger or multiple expenses such as during a trip when the amounts, while not huge, can be substantial. This is new ground and I don’t think we know enough to understand its potential (or perhaps its failure to reach its potential).
Near-Field Communications (NFC)
How it works: NFC is a RFID-based electronic wallet. You simply wave your NFC-enabled phone over the point-of-sale terminal to pay. There are lots of different potential variations, from credit/debit card alternatives to Mondex-type smart card applications.
Commentary: This one could be its own article–or series of articles. The big hurdle is that people need new phones and merchants need new POS terminals. VISA and MasterCard are working on a number of contactless payment solutions such as payWave, PayPass, phone and SMS-based solutions. Watches too. The card associations bring a lot of much-needed clout, but a workable solution requires investments by: the issuing bank, the consumer, the merchant’s bank, the processor and the merchant. Don’t say it cannot be done as most of us carry a wallet with several credit and/or debit cards that can be used at millions of merchants worldwide, and that infrastructure did not appear out of nowhere, but a lot of work has to go into lining up all the right pieces and creating and deploying the necessary standards. There is a lot of chicken or egg to it.
The non-technical problems are significant as well, and should not be discounted. Every bank is going to want to have the NFC payment linked to their branded card (credit or debit). We have very competitive financial markets and the issuers of all the other cards in our wallets will fight tooth and nail to discourage you from showing this much preference to a competitor’s card.
While it holds mostly for the US and Canada, credit card use today is pretty convenient and without a lot of deep pain. Remember the mini-VISA cards you could put on your keyring? It seems like a great solution, and VISA still offers them, but I cannot remember the last time I saw one. I used to see them all the time, so my intuition says they failed to catch on. If that idea cannot catch on here, phone-based NFC payments are not likely to take North America by storm in the near term. We are likely to see success with NFC payments in markets where credit cards are not so ubiquitous long before we see broad adoption here.
Conclusions
None of these services are zombies returning from the dead, but executives interested in any of these payment processes should always check the past for useful lessons. Entrepreneurs have a spotty record in this regard, so do your own work, and never forget that “do nothing” is often a powerful alternative.
Phones are rapidly becoming much more than merely devices for talking to other people. A couple of years ago, Nokia tried to ban internal use of the term “phone” to describe what they make in favor of “mobile multimedia computer.” As we learn what we want to do with our phones rather than what vendors want us to do with our phones, some of the currently emerging services will become vital to our daily lives while others will end up like the mini-VISA card–perhaps used somewhere in the world, but forgotten other markets.
Predicting winners and losers is harder than it has ever been because the electronic payments market varies so dramatically between continents while at the same time international markets are more important than ever to US-based companies. Merely sorting the winners from the losers isn’t enough any more–you have to pick the time and place that are right for the winners. Always remind yourself that very few fortunes are built on great technology alone; it takes a great solution to an actual problem and great marketing to win markets.
