Companies Fight over Wireless Users
by Corey Grice and John Borland
Staff Writer, CNET News.com
Special to CNBC.com
Despite the limited size of today's mobile Internet industry, a battle is already brewing over which companies' wireless Web portals will dominate the nascent market.
Wireless carriers, major Net portals and a handful of wireless-specific Net companies all are scrambling to be the first thing U.S. consumers see on their mobile phones when wireless Net access takes off.
Industry analysts and company executives believe that, although Internet service providers and start-ups will put up a fight, the 800-pound gorillas of the Net -- such as America Online Inc. {AOL}, Excite@Home {ATHM}, Microsoft Corp.'s {MSFT} MSN and Yahoo! Inc. {YHOO} -- may win the wireless race because of their size, reach and stature with consumers.
AOL: 52-Week Performance Chart
ATHM: 52-Week Performance Chart
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MSFT: 52-Week Performance Chart
YHOO: 52-Week Performance Chart
The ability to take information, entertainment and e-commerce on the go has many consumers salivating for new "smart phones" and high-speed wireless connections. That same demand has driven many wireless stocks sky high and has led to a variety of recent deals that underscore the importance many companies are placing on mobile access.
Excite@Home, for example, this week joined the WAP Forum, a wireless-standards organization. The company also signed a partnership with Vodafone AirTouch Plc {VOD} to deliver mobile content in Britain. Wireless-Net company Phone.com Inc., which is developing its own mobile portal, acquired unified messaging firm Onebox.com for $850 million on Monday.
And Microsoft's MSN Mobile 2.0, an updated version of its wireless portal, is expected to launch during the cellular industry's annual trade show in two weeks.
The deals are evidence that the wireless Net market is expected to explode over the next few years. For now, only about one-third of Americans own a mobile phone, few of the handsets are capable of receiving wireless Net transmissions, and even then, today's network connections are woefully slow.
Still, many companies are furiously developing wireless Web applications and customizing content for cell phones while striking partnerships worldwide.
The trouble is, cell-phone screens don't lend themselves to navigating around the Web with ease. At best, the small screens can display only a short list of links, and typing Web addresses to go to new pages is difficult using the telephone's number pad.
This makes control of that tiny screen space important -- and many carriers are doing all they can to make sure they have their fingerprints squarely on the new portal market.
Sprint PCS {PCS}, which has been the strongest booster of the "wireless Web" in the United States to date, maintains what is effectively its own portal page as a mandatory start-up screen for its users. It strikes deals with other content providers such as Amazon.com Inc. {AMZN}, Ameritrade Holding Corp. {AMTD} and Yahoo!, to put them on the top of its directory of surfing options.
Sprint PCS: 52-Week Stock Performance
"PCS has forged content-provider relationships with the best [sites]," Sprint spokeswoman Mary Osako says. "We see that as a very important aspect of the wireless Web."
Not all carriers are playing the portal game, however. AirTouch Communications, for instance, says it allows its subscribers to use whatever start-up page they want.
Sprint PCS
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Analysts aren't bullish on the carriers' prospects of staying on top of the portal market. Wireless-phone carriers don't know the content business, while Web companies, such as MSN and Yahoo!, already handle consumers' e-mail, online calendars, stock portfolios and other services, the analysts say.
"That's where the value proposition is now, not through the ISP," says Jane Zweig, executive vice president at wireless consulting firm Herschel Shosteck Associates. "The carriers don't want to deal with the reality of becoming just a pipe. But it's inevitable."
That doesn't mean the carriers and the Web giants won't have to work together, however. The limited screen space on cell phones and the difficulty of navigation, mean that the partnerships carriers strike are critical in order to send traffic to the Web-portal companies.
The biggest Web companies know that and are trying to strike deals as quickly as they can.
"Microsoft has found out over the years that we're not going to be successful unless we partner with folks," says Brian Riseland, a product manager for Microsoft's MSN. "The phone model is a new thing."
A memo inadvertently sent to CNET News.com recently indicated that Microsoft was negotiating with Sprint and AirTouch Communications to forge closer ties between those carriers and MSN, possibly to be announced at the Wireless 2000 trade show this month. The companies declined to comment on any potential announcements, however.
Other portal powerhouses say the time is right to deploy wireless services, in spite of the limited audience.
"We're going to all this trouble because wireless is exploding," says Rob Wilen, senior director and group manager for wireless at Excite@Home. "There aren't many users today, but you can see where it's going in two or three years. Now is the time to put together the content offerings and gain expertise."
Others agree. According to market-research firm the Yankee Group, there will be more than 1 billion mobile-phone users by 2003 with about 60 percent capable of receiving wireless Internet.
"We know that this is going to be really big, and we really need to be there early just like we were on the PC," says Sadhana Joliet, producer for Yahoo! Everywhere, the portal's wireless initiative.
The limited capabilities of the devices present challenges from a design and revenue-model perspective.
"Anyone who tells you they know which revenue models will win out doesn't know what they're talking about," Wilen says. "There's not going to be a strong banner-ad business on three-line WAP phones, no question about it. It's going to be quite a challenge to build things that will make for a good consumer experience, and we think it'll take time to get it right."
Most analysts believe the top Internet portals also will play a significant role in the wireless world.
"If it's an advertising model where you give content away for free, what you need is scale, and that then favors the incumbents," says Bill Whyman, an Internet strategist at Legg Mason's Precursor Group.
But some say that, until recently, the large portals have moved slowly into the wireless arena, leaving the door cracked for a handful of wireless-specific portals.
"The big established portal players are paying lip service to wireless," says Phillip Redman, associate director of wireless mobile communications at the Yankee Group. "They have been slow to adopt wireless technologies. In some ways they're justified because access to the Internet on a phone today is slow. But they'll have to move quickly in the next year."
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