“Pay-by-Phone Dialed Back” is NOT bad news for mobile payments in the US

If you don’t read past the headlines, things look pretty gloomy for Isis, the AT&T/T-Mobile/Verizon Wireless joint venture for mobile commerce:

• Pay-by-Phone Dialed Back (Wall Street Journal) 
• Operators scale back Isis m-commerce network as NFC competition mounts (Fierce Wireless) 
• Wireless Carriers Losing Isis M-commerce network in favor of simpler mobile payments solutions (Mobile Marketing Watch).

Sounds pretty grim with all those negative words: "Dialing back… losing… mounting competition." It almost sounds like this is the end, doesn’t it?

Actually, no. In fact, it indicates that Isis (and presumably the companies behind it), are maturing and facing the realities of the mobile payment market. And, perhaps, they were also reading my blog. So what's happened so far?

Isis started out with a business plan that basically put the mobile operators in the middle of the transaction, collecting fees on transactions. Everything passed through their system – and ONLY their system – using their specifications and their business systems… the entire process from start to finish. If you’ve been in this business a while, you’d recognize it as a pretty typical heavy-handed first draft from the telcos.

The dissent showed up pretty quickly when Research in Motion announced that its NFC-equipped handsets would not be compatible with the Isis approach. The result was a public row over who “owns” the customer  (personally, I don’t care to be “owned” by anybody.)

The reaction was hardly predictable, though. Isis seems to have realized that their requirement that they own mobile financial transactions would delay or even kill the prospects of the technology.  (http://alloymarketresearch.blogspot.com/2011/03/should-have-known-mobile-payment.html). Instead of taking their toys and going home, Isis appears to have taken a much more mature approach and called for open standards that would allow everybody to participate. (I mean, seriously, Isis, did you think you could have your own nationwide financial transaction system and leave VISA and MasterCard out of it? Seriously?)

What did Isis do?

The Fierce Wireless article by Jason Ankeny says,

Citing sources familiar with the matter, The Wall Street Journal reports the three operator partners are now in talks with Visa and MasterCard to bring the credit card giants into the Isis equation after determining building a rival payment network would have been too complex and time-consuming.

"Too complex and time consuming? I'd like to add "nearly impossible" to that list.

The article also says,

Isis previously said it would partner with Discover Financial Services to build out the necessary mobile payment structure, but in April the firm stated the service would be available to all payment networks, merchants, banks and mobile carriers. The Wall Street Journal notes many merchants expressed major doubts over Discover's reach: In 2010, 57.2 percent of debit or credit card purchases were transacted through Visa, nearly a quarter were executed via MasterCard, and Discover accounted for a market share of only 3.3 percent.

What does this mean for mobile payments in the US?

ViVOtech 4500m Contactless transaction device

Forget the doom-and-gloom sound of the headlines. What this about-face really represents is the first acknowledgment that the carrier-centric closed mobile payments system was not really practical from a commercial point of view. There are a lot of people who need to own part of this and Isis appears to be taking steps to open things up.

The best approach would be to offer a handset that provides a way to use Near Field Communications technology to securely include credentials and payment methods from a wide range of sources, including financial institutions, credit card issuers, loyalty cards and even identification cards like your library card or gym membership.

A mobile wallet that can replace your leather wallet is going to require an open system. If that’s where Isis is headed, I can once again be optimistic about getting mobile wallet in the US.

Due to a Overwhelming Interest, Symbian has Been Canceled

While this is outside my customary topics for this blog, it represents work I have been doing in forecasting handset and smartphone shipments. Recently, GigaOM Pro published my global five-year smartphone platform forecast at almost the same time Nokia made an earth-shaking announcement.

Nokia Drops the Bomb
It wasn't all that long ago -- back on February 11th 2011 -- Nokia announced it was getting to bed with Microsoft and turning its smartphone platform from the incredibly successful Symbian to the incredibly unsuccessful Pocket PC Phone Edition/Windows Mobile/Windows Phone/Windows whatever-Microsoft-is-calling-it-this-month.

Naturally, industry watchers went nuts, including this Wired article saying Nokia was "killing Symbian." (Such statements, by the way, violate my First Rule of Thinking About Technology).

And the impending death of Symbian? Well, that's not entirely accurate. The official press releases said they have, "the intention to form a strategic partnership with Microsoft to combine complementary assets and expertise to form a global mobile ecosystem and to adopt Windows Phone as our primary smartphone platform..." [emphasis added].

Seriously? You Think Nokia's Gonna Kill This?
What a shock we got two months later when Nokia announced two new Symbian-based phones: The E6 and X7, both with the latest update of the Symbian OS. The world was aghast! How could Nokia bring out new Symbian devices when they were about to kill Symbian??!!

First of all, in a letter  to developers released the same day as the Microsoft announcement, Nokia said it is still planning to sell an additional 150 million Symbian devices... nearly two years worth of sales even with a declining market share.

But what happens after that? Does Nokia kill Symbian altogether?  In 2010, Symbian was the most popular smartphone OS in the world with more than one-third of the global market. There were nearly as many Symbian phones sold as iPhone and Android combined. I don't see any killing there at all. With all its troubles, don't you think Nokia would continue to embrace the most popular smartphone on the planet for as many years as it can?

Nokia's Possible Scenarios
I'm thinking there are three things Nokia could do at this point:

1. Dump Symbian and lose the lower end of the market (and the majority of smartphone sales). This seems to be what is expected.
2. Dump the new strategy of CEO Stephen Elop--who, by the way, was just hired away from Microsoft--and continue with the Symbian growth curve.
3. Let the two platforms live side-by-side and move Windows to the upper end while continuing to support Symbian at the lower end as the market adjusts to more-expensive  smartphones worldwide.

Know which one I'm betting on? Number 3. Give it a year or so and watch what Nokia does.

The Forecasts
The Nokia/Microsoft announcement came at a time I was just finishing up a forecast for GigaOM on mobile handsets and smartphone platforms. I'd been working on it for a LONG time and was eager to just get it published.  And, to tell the truth, I don't believe  Nokia would embrace Scenario 1 above and dump Symbian, regardless of all the other  forecasters seemed eager to do. So now there's some controversy -- even from within GigaOM in an article called When, Exactly, Is The Timing of Symbian's Demise -- about the validity of all the forecasts in this market.

My forecast calls for this: Android and iPhone continuing their dash to market domination. Combined, they'll eclipse Symbian's market share during 2011. However, my  assumption is that Nokia sees that it can sell more than 700 million Symbian phones by 2015, instead of stopping at 150 million in 2012.

Here's one other assumption that's being made by other forecasters (look it up... don't make me call them out): That Microsoft's OS will magically replace Symbian's market, nearly phone-for-phone. I'm here to tell you, the resource-hungry Windows Phone system will not become the worldwide bestseller -- after 10 years of struggling -- simply because Nokia's out there trying to sell it to their (decreasingly) loyal customers.

Here's what my original forecast looks like. If there were a title for it, I think it would be, "Nokia realizes what a good thing it has in Symbian before it's too late."

Source: Alloy Market Research, February 2011

If Nokia doesn't change its strategy, it's likely that the greatest increase will be in the "Other" category, epitomized by the Samsung "badu" platform, as they rush to fill the void left by Symbian. Eventually, Microsoft will start to improve its position, but during the 5-year forecast period is unlikely to rise higher than fourth place in market share behind Android, Apple iPhone and BlackBerry.

Hold the Phone! NFC Isn't Just About Mobile Payments

The buzz about mobile payments is becoming overwhelming these days.

• Apple is going to have NFC in the next iPhone
• Apple ISN'T going to have NFC in the next iPhone
• Everybody wants mobile payments
• Nobody wants mobile payments
• RIM wants to own the customer
• Why aren't NFC mobile payments here yet?

Despite the fact that I'm a big fan of Near Field Communication (NFC) being used for mobile payments, I think it's important not to lose sight of the fact that it can do so many more things. And those other functions are going to become critical to the well-being of the NFC ecosystem.

Here's why:

1. In the US, the battle has broken out among all the players who make up the mobile payment ecosystem, just as I predicted last year (and in my first Mobile Wallet report from 2006). This could delay or totally derail the NFC payment world as these giants battle over the three- to five-cent fees most mobile payment transactions will generate.
2. Handset vendors, point-of-sale terminal makers, application developers and merchants will be forced to wait-and-see which technology will ultimately win out. While they're waiting, they're not building compatible NFC devices or apps.
3. HOWEVER, if there is some other reason to use NFC -- some reason other than mobile payments -- you can get a head start on making handsets, applications, and building  a profitable ecosystem.

So what sort of things could you do with an NFC-equipped smartphone?

• Ticketing for public transportation
• Movie and other performance tickets
• Point-of-sale information (imagine if your product's mobile entire web site could pop up on a buyer's phone with a single swipe)
• Location-based services such as search and navigation
• Loyalty cards (such as your supermarket discount card)
• Coupons
• Membership credentials (gym membership, library card, even checking in at the doctor's office)
• Personal information transfer (swap business cards by bumping phones)

It's time to focus on non-payment NFC applications and devices

It's time to get away from the focus on mobile payments and start thinking about ways to make NFC useful for everything else. That way the warring banks, mobile operators and handset makers will have to follow and we won't have to rely on them to lead in that direction.

Should Have Known Mobile Payment Prospects Were Too Good to Be True

Yeah, it's started. The bickering and squabbling among the players.  Now I'm on a roller coaster of thoughts about how soon we'll start to see mobile payments using Near Field Communications (NFC) on our cellphones.

Cool New NFC Logo

I was quite pessimistic when first I wrote about mobile wallet in November 2010. I thought all the players who would be involved would spend so much time bickering over technology. And there is always the problem of figuring out who gets paid.

Then I was just ecstatic when the joint venture Isis was announced just a few weeks later. "At last," I thought, "maybe the key players will actually learn how to agree on things and get along."

Nope.

My mistake. They're fighting already. Before things get off the ground.

In a Wall Street Journal article called RIM, Carriers Fight Over Digital Wallet, by Phred Dvorak and Stuart Weinberg, say the battle is now coming down to, "who owns the customer?"

The dispute centers on where key data related to mobile payments will reside on the next generation of smartphones, slated to come out later this year. Now, such information is stored in the magnetic strip on a credit or debit card. RIM [makers of the BlackBerry] and other handset makers are poised to make phones that will store this data, known in industry parlance as "credentials," in the devices themselves. In a transaction, the customer would wave the phone near a special electronic reader at a store's checkout.

 But RIM and carriers like Rogers Communications Inc. in Canada, and AT&T Inc. and T-Mobile USA in the U.S., disagree over exactly where on the phone the credentials should reside—and thus who will control the customers, revenue and applications that grow out of mobile payments.

Great.

What's the big problem?
Apparently, if your credentials/password/bank account info is stored in one part of the phone, the handset vendor "owns" you. If that's all stored somewhere else, the carrier owns you. And, I'm sure, it won't be long before your bank thinks it should own you, your credit card company wants to own you, Starbucks wants to own you and iTunes wants to be in there as well.

What does it mean?
These squabbles will all lead to more delays (or, at worst, total failure) for mobile wallet and mobile payments using NFC. Already, the lack of standards has caused Appple to wave off its first attempt at NFC, which was expected to be in the iPhone 5.

Is there any hope?
Of course there's still hope. There is no question that NFC payments work; systems have been in place for years in Japan. But the key is that Japan's system was built with cooperation among all the players. All the mobile operators in Japan have adopted the same technology and all their phones are compatible. But it works. And it could work here in the US... providing, of course, everybody finally agrees how it's going to be done.

The Three Revolutions in Cell Phone Design

There has been a lot said about "disruptive technologies" and how important they are. but in the 25+ years since we've had cellphones, there have been only three revolutions, three changes that have actually changed the way we think about the design of mobile phones.

Stuff car phone components in a bag and you have a hand-portable cellphone!

Where We Started: The Bag Phone
Cell phones were car phones. There was a handset inside the car with a transmitter/receiver mounted in the trunk. Your car's electrical system supplied 12 volts to run the thing. Was that good enough? For the first couple years it was, until the need for portability arose and all the components were stuffed into a bag... handset, transceiver, antenna and a 12-volt lead-acid battery. It was big and heavy, but you could carry it anywhere. Plus, it operated at 3 Watts, five times the power of portable handsets. Those bag phones would operate even in very low signal areas (and, face it, in 1991, there were a LOT of low signal areas).

Motorola DynaTAC.

First Revolution: The Brick
Starting with the venerable Motorola DynaTAC, (was that a great phone, or what?) there were generation after generation of "brick" phones, that gradually became smaller until they became what we now describe as "candy bar" phones. They got smaller, added features, lost the external antenna and got made over with fancy color screens. But it was still the same basic design (reading from top to bottom):
Earpiece
Screen
Buttons
Mouthpiece

The Second Revolution: The Clamshell Phone

Motorola StarTAC, 1996

In 1996, the Motorola StarTAC turned the cellular world upside down. Designers at Motorola split the basic candy bar phone in half, putting the earpiece above the hinge and the screen, keyboard and mouthpiece on the other half. If you don't remember, the StarTAC was an absolute sensation. Cellphones were still the province of the wealthy and connected at that time, and crazed stockbrokers were paying two and three times the suggested price to own one of these treasured devices.

Yes, they were mostly analog models in the US and, yes, you would have to buy several batteries to get through a whole day of usage. But the clamshell put Motorola at the top of the industrial design market for cellphones. The ultimate expression of that was the beloved - and later reviled - Motorola RAZR.

The Third Revolution: iPhone

Apple iPhone, 2007

If you missed the excitement the StarTAC generated, you got to witness it with the iPhone in 2007. Aside from all the hyperventilating about the user interface, iPhone has created an even greater revolution in the deployment of applications to mobile phones, forever altering the relationship between the cellular customer and the cellular operator.

The longer-term effects of the iPhone have been to breed another classification of device: the tablet computer, (re)introduced as the iPad, which is little more than a big-screen iPhone.



Looking Back From 2011
Cellular networks were launched in 1983 and started to come into their own in the early 1990s with the DynaTAC and other portable devices.

It was nearly 10 years before the StarTAC revolutionized handset design and another 10 years before the announcement of the iPhone. In the meantime, cellular networks matured, went through three generations themselves. If you're extrapolating the changes in phones, look for things to change significantly... in 2017

My rules for thinking about technology

I spent more than a decade working as an industry analyst covering telcommunications, wired and wireless.  I was part of the emergence of cellular systems, mobile internet (which we called "wireless data"), and witnessed the rise and fall of the competitive local exchange carriers during the ill-fated dotcom boom.

During those years, I developed ten rules for people who were doing my job and had the chance to witness first hand the benefits of following those rules and the problems caused by ignoring them.

Here are Chamberlain's Rules for Assessing Technology:

1. Ignore either/or beliefs about technology (e.g., Remember "WiMAX thrives therefore 3G dies?") 
2. Reality-check your assumptions by looking around you. Would YOU adopt the technology that you are expecting millions of people to use?  Would your friends?  Your Mom?
3. It is dangerous to drink Kool-Aid when technology vendors are serving. 
4. Incumbents, especially highly regulated ones, are extraordinarily adept at protecting themselves from competition.
5. “Success” for a new business or technology does not necessarily require mass consumer adoption or the creation of a publicly traded multinational corporation.
6. Remember the better mousetrap: The world, not the inventor, beats the path to the door. There are very few true technology revolutions. 
7. “Cheaper” or “free” is not a business plan, let alone a recipe for world domination. 
8. If the most compelling argument supporting a new technology includes the words “bits per second,” it isn’t very compelling.

Netheads vs. Bellheads: Disrespecting "the cloud"

I continue to believe there's a big difference between Netheads and Bellheads, but there's something I heard this morning that really points out a huge disconnect between those two worlds.

What started me thinking was a sponsor message this morning on National Public Radio that promised improvements in business by taking advantage of "the cloud." 

Mmmmm... what a lovely image. Light drifting shapes that appear and vanish all by themselves,  with no intervention or control by those of us who live on the Earth. Who made the clouds? Nature. Who controls the clouds? Thermal currents, winds, humidity, terrain. Some might even attribute clouds to the benevolent Hand of God.  Farmers and their crops depend on clouds. The utility businesses of our cities and towns rely on clouds to supply drinking water and light. 

Real clouds

But listen more carefully to the use of "the cloud" when it comes to computing.  Folks, the computing cloud is anything but light drifting shapes beyond the control of those of us on Earth.  In fact the computing cloud was built and continues to be maintained by some of the biggest and most important companies in the world. Each of those links between servers, between your computer or smartphone and "the cloud" were built at great expense by telecommunication companies, some of whom rose and fell during the dotcom boom of the late 1990s.

What does that mean in this world? It points out the difference between those who use the network (the Netheads) and those who built the network... the Bellheads. Google, Apple, and others are building by attaching devices and services to either end of The Cloud but have little responsibility for the creation and maintenance of The Cloud.

Google and Apple can't live and can't thrive without The Cloud. Will they someday compete with and even replace the companies that provide The Cloud? I have my doubts.  I think the Nethead business case falls apart when the realities of the enormous capital and operating costs (as well as the pressures of providing world-class quality-of-service) is factored in.