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Driving Forces for m-commerce Success


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Driving Forces for M-commerce Success
Jason J. Zhang, Yufei Yuan, and Norm Archer

Michael G. DeGroote School of Business

McMaster University

Hamilton, Ontario, Canada
Abstract

Is m-commerce just an extension or a subset of e-commerce? Will it turn out to be just more hype? In this paper we discuss the realities of m-commerce and the major differences between mobile commerce and Internet-based e-commerce. Based on this understanding, we identify key factors that must be taken into consideration in order to design valuable m-commerce applications. We emphasize that the success of m-commerce relies on the synergy of three driving forces: technology innovation, evolution of a new value chain, and active customer demand.


Key words

m-commerce, e-commerce, wireless communication networks



Jason J. Zhang is currently a Ph.D. student in Information Systems at Michael G. DeGroote School of Business, McMaster University, Canada.  He received his M.E. degree in Information System Engineering at the School of Management, Dalian University of Technology, and B.E. degree in Computer Science & Engineering at North China Institute of Technology, P.R.C. He once worked as an IT consultant for Office Automation (OA) for the Chinese government. His research interests include e-commerce, e-government, supply chain management, m-commerce, and agent-facilitated decision support systems.

Yufei Yuan is currently a Professor of Information Systems at Michael G. DeGroote School of Business, McMaster University, Canada. He received his Ph.D. in Computer Information Systems from The University of Michigan in U.S. in 1985. His research interests are in the areas of web-based negotiation support system, business models in electronic commerce, approximate reasoning with fuzzy logic, matching problems, and decision support in health care. He has published more than 30 papers in professional journals such as International Journal of Electronic Markets, Internet research, Fuzzy Sets and Systems, European Journal of Operational Research, Management Sciences, Academic Medicine, Medical Decision Making, International Journal of Human-Computer Systems, and others.
Norm Archer holds the Wayne C. Fox Chair in Business Innovation, and is a Professor of Management Science and Information Systems in the Michael G. DeGroote School of Business at McMaster University. His research interests are in topics that relate to eBusiness, including business-to-business implementations, intelligent agents, and the human-computer interface. He has published in a number of journals, including Internet Research, International Journal of Management Theory and Practice, IEEE Transactions on Systems, Man, and Cybernetics, International Journal of Human-Computer Studies, International Journal of Technology Management, and others.
1. Introduction
What is mobile commerce? Is it just hype? Almost every company in telecommunications is trying to figure out what m-commerce really is, and how to exploit it. From the marketers’ vision, in the new world presented by m-commerce, consumers can use their cell phones and other wireless devices to purchase goods and services just as they would over the Internet using their personal computers (PCs). Specifically, m-commerce is about content delivery (notification and reporting) and transactions (purchasing and data entry) on mobile devices (Leung and Antypas, 2001). Unfortunately, in reality, m-commerce is often a highly frustrating experience. Industry observers attribute this drawback to the immaturity of mobile technology, but they believe 3G (third generation wireless digital cellular telephone technology) networks could change the situation (Cohn, 2001). While m-commerce is still in its infancy, enhanced devices and networks are irrelevant unless m-commerce applications are compelling and user friendly.
Most often m-commerce is understood as mobile e-commerce (Donegan, 2000; Schwartz, 2000; Liebmann, 2000). M-commerce is supposed to enable us to buy everything from anywhere over the Internet without the use of a PC. Internet access and Web browsing is assumed to be the key to extending m-commerce to customers (Harter, 2000). In many ways, m-commerce is the continuation of e-commerce with the palm handheld, wireless laptops and a new generation of Web-enabled digital phones already on the market (Keen, 2001). Thus it was once believed that if you brought together mobile communications and the Internet, two of the biggest things in telecommunications, there would be an almighty explosion of growth. However, it has not happened yet. In many ways, m-commerce and the wireless Internet have been the victims of over-excited speculation (Darling, 2001). Among 1,700 people surveyed in Spring 2000 by Jupiter Communications, the majority said that they would not use nor pay for the wireless Web (Lindsay, 2000). WAP (Wireless Application Protocol) services were disappointing, particularly in Northern Europe countries, where mobile communications are most advanced and consumers know well the limitations of the wireless Web (Monica, 2000). Consequently, the enthusiasm that originally greeted the concept of the mobile Internet has waned.
Contrary to conventional perspectives on m-commerce, forward-thinking marketers should not view m-commerce as e-commerce with limitations, but rather as wireless in its own unique medium, with its own unique benefits (Cotlier, 2000). Even though wireless technology is sometimes regarded as an enhancement tool rather than a brand new medium (Ramakrishnan, 2001), successful players in the m-commerce market space must take a much broader view of the technology, the market, and potential consumers. M-commerce is not simply a new distribution channel, a mobile Internet or a substitute for PCs. Rather, it is a new aspect of consumerism and a much more powerful way to communicate with customers. Obviously, people will not shop with their phones in the same way they shop with PCs. Unleashing the value of m-commerce requires understanding the role that mobility plays in people’s lives today. That calls for a radical shift in thinking (Nohria and Leestma 2001).
In this paper, we will identify driving forces for the success of m-commerce. To clarify the nature of m-commerce, we discuss several fundamental differences between m-commerce and Internet-based e-commerce. Based on this new perspective of m-commerce, we identify a set of key factors that should be considered by marketers as well as consumers in making decisions concerning m-commerce applications. Finally, we propose that the synergy of three driving forces will lead to a greater likelihood of success for m-commerce.
2. Key differences between m-commerce and e-commerce
As we argued, m-commerce is not simply an extension or a subset of e-commerce. In fact, there exist fundamental differences between m-commerce and e-commerce in terms of their origins, technologies and the nature of the services they can offer.
2.1 Origin

The emergence and development of e-commerce was due to the rapid growth of the Internet. The Internet originated from several U.S. government-sponsored programs (ARPANET, CSNET and NSFNET, etc) aimed at providing a networked computing environment for researchers (Kalakota and Whinston, 1996). Starting from the early 1990s, the Internet was extended to business community applications. With such great business potential and rapid growth to millions of users, the term “electronic commerce” was coined, and e-commerce applications expanded rapidly (Turban et al., 1999). Because of widely-expanding networks and nearly free access to the Internet, e-commerce bridges distances and enables companies to display and sell goods and services cheaply to consumers and businesses around the world. In the Internet world, much is given away free or at a discount in the hope that a way will eventually be found (presumably through advertising income) to turn traffic into profits.


Contrarily, m-commerce is rooted in paid-for service in the private mobile phone industry where business competition is stiff. In the telecom world, users pay for airtime, by the size of the data packet transmitted, and by the service used for what they get (Fox, 2000). Global wireless networks are segmented and owned by different mobile operators such as AT&T, Pacific Bell Wireless, Vodafone, Orange, Deutsche, NTT DoCoMo, etc. Compared to almost free Internet access, high cost has been seen as a major characteristic of m-commerce (Shim and Rice, 2001). Mobile communication through cell phones is costly, and any additional services will attract extra charges. The reason is that establishing a mobile communication network requires heavy business investment with no government support (Ramakrishnan, 2001). M-commerce carriers therefore must look for a great deal of business activity to generate revenues that justify the huge infrastructure investments (Lamont, 2001).

Due to their different origins, the customer bases of m-commerce and e-commerce are quite different. Researchers and university educators were the early users of the Internet. The Internet user population was originally dominated by highly educated people. As Internet household penetration increases, the demographics of users continue to shift closer to those of the population at large (Pastore, 1999). This growth pattern is clear in U.S. and tends to be repeating in the rest of the world (http://cyberatlas.internet.com/ big_picture/demographics). In contrast, other than business users, most cell phone users are young people or relatively less well-educated consumers. Over the next decade, billions of people will gain access to mobile devices, but many of them will be functionally illiterate and technologically unsophisticated users (Feldman, 2000; Barnett et al. 2000). Because of their differences in background, consumers tend to have quite different expectations for m-commerce, compared to e-commerce. For example, one reason for the low uptake of the wireless Internet in the U.S. is that most Americans already are familiar with the wired Internet and expect to pay for wireless Internet access as they do for wired access: unlimited access for a flat monthly fee (Fox, 2000).


2.2 Technology

The Internet, the fundamental infrastructure of e-commerce, adopted a well-established protocol, TCP/IP (Transmission Control Protocol/Internet Protocol), which solves the global internetworking problem and ensures that computers communicate with one another in a reliable fashion. Over the past several years, the World Wide Web (WWW) has come to dominate Internet traffic, and the vast majority of e-commerce applications are Web-based. It is also easy to connect the Internet with existing business information systems. Uniform Internet standards significantly reduced e-commerce entry costs and helped fuel the rapid growth of e-commerce.


In contrast, m-commerce services are constrained by a variety of wireless media communication standards ranging from global (Satellite), regional (3G, IEEE 802.11a/b, DoCoMo I-mode), to short distance (Bluetooth) (Shim and Rice, 2001). Cellular carriers use different systems and standards such as GSM (Global Service for Mobile), TDMA (Time Division Multiple Access), and CDMA (Code Division Multiple Access) to compete with each other (Leung and Antypas, 2001). M-commerce applications tend to be device and carrier dependent. The wireless applications today primarily use two technologies: WAP and SMS. WAP (Wireless Application Protocol) is the display language designed for cellular handhelds. It was created by Motorola, Ericsson, Nokia and Phone.com in 1997 when they founded the WAP Forum. WAP is a derivative of the XML/HTML language family, but it is designed to operate without a keyboard or mouse. SMS (Short Message Systems/Services) is a derivative of the old numeric paging network, with additional functionality for two-way communication and support for text and attachments. There are more users of SMS today than of WAP, thanks to cheaper service and the widespread availability of low-cost, two-way paging devices from companies such as Motorola (Leung and Antypas, 2001).
Until now, there has been no generic world-wide framework and standard for application development using universal mobile connection and access. In fact, wireless technology is still in its infancy and hindered by limited coverage and a smorgasbord of competing standards, which can explain the slower-than-expected adoption of m-commerce in the United States (Shim and Rice, 2001). Choosing from conflicting standards, products and features, gives even hardened technophiles a headache. The pyramid of m-commerce applications thereby presents a much more complicated process, in which many pieces must fall into place before the mobile phone can be seen as a real revenue generator.
In addition to underlying networking infrastructure and standards, it is the client devices that actually determine what specific services can be delivered. The boom in e-commerce applications is actually due to the widespread use of PCs, which have a complete text input keyboard, large screen, substantial memory, and high processing power. Contrarily, various m-commerce applications rely on the use of handheld devices. These devices range from pagers, cell phones, and palmtops, to pocket PCs. Mobile devices such as cell phones and PDAs (Personal Digital Assistants) have tiny screens, some of which display only three lines of text at once (Lucas, 2001). The displays are black and white with low resolution; there are no QWERTY keyboards, and no support for animation (Leung and Antypas, 2001). Although WAP devices support a limited graphics format called Wbitmap, because mobile devices have limited bandwidth and small screens, any application that is heavily graphic or animation driven would not be suitable at this time. In addition, software applications are relatively crude. There are no cookies or session controls, meaning that if the connection is lost, the application will restart rather than continue from previous screens (Leung and Antypas, 2001). Web browsers and drop-down menus are unavailable, so companies must plan on character-based terminal applications with cursors and key entry forms. Long selection lists or deep menu layers will wear out the fingers of even the most patient users (Moustafa, 2000; Jainschigg and Grigonis 2001). However, in contrast to PCs, cell phones do have their own unique features: mobile, portable (small size), smooth voice communication, and connected to persons (primarily because of portability) rather than to home or office.
2.3 The Nature of Services

The wide accessibility of the Internet makes any e-commerce service globally available. The Web enables search and delivery of rich information, and sophisticated electronic transaction processes can be integrated easily with backend enterprise information systems. In contrast, the delivery of m-commerce applications relies on private wireless communication carriers. These services are usually delivered to a specific region, and are rather simple, more personalized, location-specific and time-sensitive. Since a mobile device usually accompanies a person wherever he or she goes, mobile services can be delivered to a person anywhere and anytime rather than to a fixed office or home. M-commerce therefore creates more of a perception of enhanced intimacy with consumers than other office-based distribution channels. Time sensitive, simple transactions such as movie ticket purchases, banking, and travel reservations are believed to be the key applications that will stimulate m-commerce (Lucas, 2001; Swartz, 2001-2). Other key drivers to m-commerce growth are location-based applications such as traveler navigation, emergency response, etc. (Secker, 2001; Rockhold, 2001; Swartz, 2001-1).


Finally, in general we categorize Internet based e-commerce into B2C (business to consumer) and B2B (business to business). The rapid growth of e-commerce started from the booming of dot.com companies aimed at online shopping and customer services. Gradually, the emphasis shifted to B2B, and more recently e-business, to take advantage of the real business value of the Internet. In contrast, mobile commerce started from person to person communication, and gradually more services were introduced through interactions between people and systems: checking the weather, finding a local restaurant, etc. M-commerce applications can be used to serve both consumers and business people. Rather than apply B2C and B2B classifications to m-commerce, P2P (Person to Person) and P2S (Person to System) would be more appropriate to address the nature and trend of m-commerce applications. The details of m-commerce applications will be discussed in the next section.
The major differences between m-commerce and e-commerce are summarized in Table 1.
Table 1. Major Differences Between M-commerce and E-commerce






E-commerce


M-commerce



ORIGIN








Sponsorship

Government-sponsored Internet

Private mobile phone industry

Business entry cost

Low

High

Customer access cost

Free or low cost Internet access

High mobile service charge

Customer base

Highly educated computer users

Less educated cell phone customers


TECHNOLOGY








Message transmission

Packet-switched data transmission

Circuit switched for streamlined voice communication

Protocol

TCP/IP, HTTPML

GSM, TDMA, CDMA, 3G

Standardization

Highly standardized

Multiple incompatible standards

Connectivity

Global

Mainly regional

Bandwidth

High

Low

Identity

URL with IP and domain name

Phone number

Application development

General computer applications

Device-specific applications

Interface device

Personal computers

Cell phones and PDAs

Mobility

Fixed location

Mobile

Display

Big screen

Small screen

Main input mode

Keyboard for full text input

Voice with small key pad

Main output mode

Text and graphics

Voice with small text display

Local processing power

Powerful CPU with large memory and disk space

Limited processing power with small memory chip

Software and Programming

Support a variety of programming languages

Java or specific script languages

Trend

Towards sophistication

Towards minimization


SERVICES








Service range

Global

Regional

Delivery destination

PC in office connected to the Internet

Person accompanied by a mobile device

Transaction complexity

Complete and complex transactions

Simple transactions

Information provided

Rich information

Simple and short messages

Timing

Less time-critical

Time critical

Location-based service

No

Yes

Target mobility

Service to a fixed point

Service to a moving target

Backend business connection

Strong connection to backend business information systems

Weak connection to backend business information systems

Service classification

B2C (business to consumer) and B2B (business to business)

P2P (person to person) and P2S (person to system)


3. Key Factors in Designing M-Commerce Applications
Once we have identified the major differences between wireless mobile communication based m-commerce and Internet based e-commerce, we can identify the key factors that must be taken into consideration in designing useful m-commerce applications.
3.1 Mobility

M-commerce opportunities can be very significant, if investors understand consumer groups intimately and develop ubiquitous solutions that recognize the role that mobility plays in consumers’ lives (Nohria and Leestma, 2001). In business services, not being forced to be hardwired enables a company’s employees to remain connected while moving from office to office, or state to state; they can tap into the corporate network from airport lounges and hotel lobbies. For individual consumers, mobile devices basically allow them to keep in touch with their friends and families anywhere and anytime. For instance, videophone users can take pictures wherever they go and send them attached with short notes to friends while shopping, traveling, or simply hanging out (Kunii, 2001). Beyond person to person mobile communication, additional value can be generated by linking mobile consumers and existing services. Mobile consumers can access various services anytime and anywhere, presenting new marketing channels for businesses. While traveling, a user may use a mobile phone to control a home burglar or fire alarm system and to turn lights on or off as if at home (Fox, 2000).


3.2 Personal identity and built in payment mechanisms

Since mobile devices, particularly cell phones, are registered by their subscribers and normally accompany the person, it becomes possible to identify and deliver personalized services to the user. A cell phone with additional security information such as a PIN number or biometric identification technology can be used to identify a person. A payment mechanism may also be built into the cell phone system. It is then possible to allow consumers to use their wireless phones as devices to make or trigger a payment (bus ticket, vendor machine etc.), similar to the use of a smart card or an ATM machine. And there are even a few vending machines that let users pay for soft drinks using their cell phones (Fox, 2000). Credit card numbers could also be replaced by cellular phone numbers for wireless transactions. Relying on a third party payment mechanism is always a big hurdle for Internet-based e-commerce because an IP address cannot identify a person. However, this difficulty could be easily overcome in m-commerce with the use of an identifiable mobile device. Hence, cell phones naturally support e-Wallet applications in m-commerce, which is crucial to the success of other applications. Certainly, systematic security solutions involving PKI (Public Key Infrastructure) and biometric services should be adopted as well (Young, 2001). As an example Obongo has modified its e-wallet software for use on wireless devices. A so-called m-wallet contains the cardholder’s account data, name, and mailing address, and is accessed with the push of a button. Once opened, the data within the wallet are transferred to the merchant to complete the payment (Lucas, 2001). M-wallets make micro-payments easier and help carriers charge for advanced services such as digital media and game applications that consumers cannot get any other way (Swartz, 2001-2).


Besides financial services, personalization in m-commerce can migrate into entertainment (music and games, etc), content services and even personalized marketing. Since mobile operators maintain personal information on subscribers, a CD vendor, for example, could simply ask customers to verify payment information and a shipping address through their cell phone displays rather than have them fill out forms each time from scratch (Barnett, et al. 2000). Good potential applications of the content revolution are personalized software that deliver highly targeted offers for large- or small-ticket items that consumers can act upon, even while waiting in line (Lucas, 2001).
3.3 Location-Based Services

To date location-based services have been regarded as key enablers of m-commerce’s future success, according to the current hype (Swartz, 2001-1). Portable geographic positioning systems (GPS) are becoming smaller and more affordable, at costs in the neighborhood of only about U.S. $200. These systems can be used not only to identify locations, but also for business to deliver location-sensitive services to users. The ability to target rich and relevant information to end-users provides great potential value in location-based applications. For instance, it would be quite useful to provide driving directions and local commercial services where users happen to be, such as near specific restaurants, movie shows, bus schedules, weather reports and guided tours in museums (Shaffer, 2000; Taaffe, 2001). Hence, one of the selling points of m-commerce applications is proximity. Go2Systems, in Irvine, Calif., one of a swarm of vendors eyeing the uses of ALI (automatic location identification) data, linked with Coca-Cola to steer wireless customers to stores selling Coke products (Jones, 2000). Coca-Cola, the world’s best-known brand, has ventured into the wireless world by providing its fountain clients (McDonalds, Burger King and more than 800,000 U.S. restaurants) with the opportunity to attract additional business by placing their names on Go2 Systems’ wireless services. Their 5-year, U.S. $30-million deal will allow customers to find the nearest Coke fountain location through their cellular phones with Go2 location-based direction services, which include addresses, turn-by-turn directions and one-click calling (Swartz, 2001-1). CT Motion, a location-based services developer, provides an m-coupon application, by which the mobile user can receive an electronic coupon from a retailer in his or her specific location (Secker, 2001). Imagine that a young teenager is riding his skateboard through the park on a Saturday afternoon, when his cell phone beeps. It is a message from the Soda X portal that the local professional soccer team is playing tonight, and the store that he is approaching is offering him half-price tickets for the game if he buys a pair of jeans today.


Privacy concerns are critically important while implementing location-based advertising. Pull mode may resolve the issue of privacy, when a mobile user requests information and is willing to receive an advertisement (Secker, 2001). However, many location-based applications are still to be developed; few carriers have a strategy, let alone a business model (Swartz, 2001-1). Location-based services would have to be targeted extremely well, in order to avoid damaging trusted relationships that merchants already have with customers.
Location can be traced not only for people but also for other objects. Cellpoint, a supplier of location-based services (LBS) software, provides the applications used to track remote assets such as fleet vehicles and construction equipment, and also provides telemetric products that allow remote machine-to-machine communications (Secker, 2001). It is also possible to trace a stolen car or a missing child that is carrying a specially designed radio device.
3.4 Time-critical impulse purchasing

Mobile phones are carried by their owners almost everywhere and kept switched on most of the time, especially in Europe, where mobile users are not charged for incoming calls. Consumers can thus not only gain access to wireless services wherever there is a network presence but also keep tabs on time-critical information such as stock market reports or urgent messages. Time-sensitive and simple transactions are another key to stimulate m-commerce. For some applications of m-commerce such as scanning news or purchasing books or other retail items, real-time transactions are not necessary. Nonetheless, there is a great deal of value in being able to monitor dynamic information through wireless handheld devices, such as aircraft flight status, shipping status, seat reservations or stock prices, and to alert the user when the information is updated (Shaffer, 2000; Schwartz, 2000; Leung and Antypas, 2001). There will be even more value in emergency situations such as medical care, traffic accidents, emergency road service, and crime reporting. Particularly with the mandatory ALI (automatic location identification) data supplied by a few key vendors such as Xypoint, U.S government emergency systems like E911 (Enhanced 911) could be improved

(Jones, 2000). The United States’ FCC (Federal Communications Commission) mandates that the location of wireless callers be identified during a 911 emergency call. The MapInfo® (www.mapinfo.com) Location Management Platform (LMP) is used to enhance a carrier's 911 service by automatically routing 911 calls to an appropriate Public Safety Answering Point (PSAP) for handling and dispatch.
3.5 Special Market Niches

Mass-market consumers will be the really big users of m-commerce applications. And the customer base is large enough for potential revenue in the medium to long term (Sweeney, 2001). A single killer application would not work for everybody and there is going to be a whole set of niche applications that are relevant to each target audience. The mobile industry believes that location-based service advertising will have stimulated m-commerce so much that operators would eventually offer free phone charges to subscribers who are prepared to have advertising on their screens on a permanent basis. In particular, youth has a very powerful influence on this market (Secker, 2001). Actually, young people have been a major target of various m-commerce applications, particularly SMS and DoCoMo iMode services (Herman, 2000). Besides focusing on youth, mobile operators also suggest marketing future mobile data technology much more aggressively to business users (Parsons, 2000). In any case, for new m-commerce opportunities, carriers should be cautious about implementing applications that require changes in consumer behavior. If many technology hurdles are to be overcome, along with a corresponding unreasonable change in behavior, the application is unlikely to succeed. Additionally, price marketing is by far the most important in creating m-commerce value (Lamont, 2001). Mobile carriers therefore need to develop unique offerings for each target market segment or services targeted, according to geographical location and demographics (Schneiderman, 2001). Learning about and analyzing customer psychology, and taking marketer perspectives would help carriers segment the mass-market and target specific to m-commerce applications.


We actually need to shift our way of thinking to exploit the uniqueness of m-commerce applications that can be brought to bear in our lives, rather than to be confined to thinking within the limitations of mobile devices. The factors that need to be considered for m-commerce applications are summarized in Table 2.
Table 2. Key Design Factors and Typical Applications



Factors


Typical Applications

Mobility



  • Mobile communications (for business and personal contacts)

  • Scheduling and coordination (: e.g. appointment arrangements, reminders, teleconferencing, etc.)



Location-sensitive






  • Travel navigation (driving or walking directions)

  • Local tours (exhibitions, shopping malls, etc)

  • Locating local services (restaurants, gas stations, etc)

  • Locating moving objects (missing children, stolen cars, etc)



Time-critical



  • Short Message Services (SMS)

  • Time-critical information (flight schedules, weather reports, traffic information, stock prices)

  • Emergency services (medical care, accident and rescue services, crime stoppers)



Personal identity



  • Personal identification (secure entrance with biometrics check)

  • Electronic payments (e-Wallet)

  • Personalized location-aware advertisement

  • Language-specific services (automatically switch to or translate to desired language)



Special market niche-targeted



  • Demographic segmentation (oriented to young people or business people).

  • Country segmentation (tailored to specific country)


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