M-Commerce's Big Moment

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Smartphone Penetration Increasing

Retailers such as Pizza Hut and Starbucks (SBUX) are using apps to goose sales, too. In mid-September, Starbucks debuted an app that lets customers replenish and check their Starbucks card balances and pay by phone at 16 stores in Seattle and Silicon Valley. This and another new app, which allows fans to find the nearest open Starbucks and to browse its menu, were downloaded more than 500,000 times in their first week, says Starbucks Chief Information Officer Stephen Gillett. "We've seen a very, very high interest from customers," he says. The coffee chain is developing applications for Research In Motion's BlackBerry and Nokia (NOK) phones as well.

A big m-commerce driver is increased adoption of smartphones capable of Web browsing. In the second quarter, 28% of all handsets sold in the U.S. were smartphones, up from 19% a year earlier, according to consultant NPD Group. And more Americans will be able to gain access to the mobile Web soon. One-third of consumers without a Web-enabled phone plan to purchase such a device within the next year, according to a survey of 3,305 U.S. consumers conducted in March by comparison shopping site PriceGrabber.com. The site plans to release its own iPhone app by the first half of 2010.

Many consumers use their smartphones for shopping when they are nowhere near a PC or a physical store, such as during the work commute, while waiting in line for a cup of coffee, or while taking the dog for a walk. "It just allows them to do more during the busiest part of their day," says Laura Conrad, president of PriceGrabber.com.

Visa Rolling Out a Mobile App

Others are moving away from PCs. "A large portion of the customer base is totally replacing their online experience with mobile," says Ensign of Papa John's. "We think a lot of the times they were customers of Papa John's [before] but ordered from other restaurants, too. But now there's a new convenience with Papa John's, and we are getting a greater percentage of their purchases."

To succeed at m-commerce, retailers and carriers need to persuade consumers they can be comfortable giving sensitive information over mobile phones. "The biggest hurdle is privacy and security," says Paul Kultgen, a director at consultant Nielsen Mobile. "Consumers haven't embraced supplying their credit card." Many carriers let users charge purchases to phone bills. Payment providers such as eBay's PayPal and Amazon are trying to make mobile purchasing more convenient. On Oct. 5, Amazon introduced its Mobile Payments Service, which helps mobile app developers and mobile Web site owners let customers pay using shipping and credit-card information stored on Amazon.

Credit-card companies are working to make using cards via mobile device more convenient as well. Later this year, Visa (V) will release an app that stores a user's credit-card information on a mobile phone and, when a consumer goes to a retailer's mobile Web site to pay, "pre-populates" the payment field, says Tim Attinger, global head of product innovation at Visa.

Carriers Must Boost Capacity

M-commerce success will also hinge on reliability and affordability of wireless broadband. U.S. wireless carriers' networks are getting overloaded as users adopt bandwidth-thirsty devices like the iPhone. In an Oct. 9 note, Sanford C. Bernstein analyst Craig Moffett notes that the iPhone is "morphing into a kind of predator parasite on the wireless network, sucking out the value and leaving networks gasping for air."

AT&T, the U.S. iPhone carrier, has taken steps to improve the reliability of its network. It and other service providers will need to ensure their equipment can continue to handle what's likely to be much greater demand as consumers make more transactions via mobile phone.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.

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