IBM Institute for Business Value
Mobile portal strategy: When did business
partnerships become so critical to
customer value?
In tomorrow’s market, profits will be driven by the ability of wireless carriers to
offer services that their customers value. To be successful in a quickly evolving
industry, wireless carriers must adopt new business strategies — and new
methods of partnering — to help ensure the fusion of technology, service and
support that customers expect.
By Darryl Sterling
IBM Institute for Business Value
Contents
At a crossroads
The wireless industry is at a crossroads as it struggles through the transition from a mature
voice business to a nascent data market. Mobile portals have been the key carrier strategy
to embrace the emerging data opportunity. Despite the importance of mobile portal strategy
to the industry, very few wireless carriers have been successful in offering profitable mobile
portal services that their customers value. Mobile portals require innovative business plans
and strategies that package technologies and service in new ways to create customer value.
According to a recent study at the IBM Institute for Business Value, a mobile portal strategy
that includes the creation of a business ecosystem of companies working toward a common
goal of enhancing the end-user experience can increase operating income in as little as
three years.
1 At a crossroads
1 Wireless or less wired?
1 How important are mobile portals
to the wireless industry?
2 What makes mobile portals
attractive to the end user?
3 What is a successful mobile
portal strategy?
6 The collaborative ecosystem
8 At the center of the ecosystem:
Wireless carriers
Wireless or less wired?
10 The bottom line: A financial model
Mary is a single working mother with two school-aged children. When she was promoted last year and
12 Conclusion
started having to spend more time at the office, she decided to get a cell phone. The contract with her
13 Goals to grow on
wireless service provider lets her choose between extra minutes or free Web browser service. It would
13 Path forward
be great to be able to get text messages from the kids or the babysitter — that way they could get
14 About the author
important messages through even when she was in a meeting. Now that Mary has had the phone for a
while, however, her Web browsing feature hasn’t lived up to her expectations. Mary had envisioned how
convenient it would be if she could access the Internet, just like she did at home, from her mobile phone
when she was commuting or shopping. But in reality, every time she tries to get on her wireless Web
browser, she gets an error message. Because of this, she’s often skeptical that her Web browser would
work if the kids did have to reach her in an emergency. She has become so frustrated with the browser
service that she never even thinks to use it. When her contract is up with her present carrier, Mary
has decided that she will go with a cheaper plan that she saw advertised, take the extra minutes and
forget about wireless Internet.
How important are mobile portals to the wireless industry?
With the exception of a few specific markets, the global wireless industry is currently
considered to be in a state of stagnation or even decline. Despite strong global subscriber
growth, several factors have challenged the key assumptions of the wireless carrier business
model. Investment requirements are rising; at the same time, investment dollars are harder
to find and operating expenses are increasing. Technology in the industry is evolving faster
than it can be assimilated, threatening to displace current wireless capabilities. To continue
the service of legacy technologies and keep up with new technologies as they emerge, carriers
could have to support as many as three different network technologies at once. Add to that
the fierce competition of fewer but stronger players in the industry, and for most wireless
carriers the demand for cash becomes a formidable obstacle to continued profitability, not
to mention growth.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
Given the context of the market, mobile portals are a critical service strategy for generating
the additional cash flow that is necessary to fund the industry’s next phase of growth. In fact,
the time span for wireless carriers to implement an effective mobile portal strategy, before
their businesses succumb to market forces, is shrinking. To fuel subscriber growth and the
customer loyalty necessary to create additional cash flow, the wireless carrier’s ultimate goal for
its mobile portal strategy must be to develop a service that has traction in the marketplace and
reduces customer churn. Customer control — though highly prized — has no shareholder value
if the portal does not offer services that customers want to buy. That means the mobile portal
must offer customers what they want, when they want it, at a price that they accept.
What makes mobile portals attractive to the end user?
John is an executive for a global consulting firm. His work regularly takes him abroad, and his daily
schedule is so hectic when he’s in the U.S. that he rarely has time to access his company’s LAN to
download e-mail, not to mention that he has little time to keep up with world events. Today, he is flying
from Paris to New York for meetings with an important client. While walking through JFK airport on his
way to baggage claim, his mobile phone beeps, letting him know he received an urgent e-mail while in
flight. It is his assistant informing him that the scheduled meeting location has been changed. Also, his
assistant reminds him that it is his boss’ birthday. In the taxi on the way to the new meeting location,
John accesses the local sports scores he has missed while abroad. He sees that the New York Knicks —
his favorite basketball team — are headed for the championship. Knowing his boss is an even bigger
fan than he is, John accesses his address book on his personal Internet account, locating the e-mail
address and phone number of a friend who can always get last-minute tickets to games. Though he
leaves a phone message, John’s text message reaches his friend first. By the time the taxi pulls up
in front of the new location where he is to meet his clients, John has secured two courtside seats to
the Knicks game.
In a recent Nielsen Norman Group study that tracked the experiences of mobile phone users
over one week, users responded that while they knew the information that they accessed
through mobile portals would not look the same as the information that they accessed on
the Internet, they expected the same level of information. For 90 percent of those users,
that was not the case. As a result of this and other disappointments with Web browsing on
wireless networks, nine out of ten respondents reported that they would not likely purchase
wireless devices that year.1
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
Many customers have seen promising advertisements in the media that feature e-mail, instant
messaging, access to news and entertainment listings and the purchase of goods through
mobile portals on wireless-enabled devices. But these services are valuable to the customer
only if they are easier to use than conventional methods like the telephone and home- or
business-based Internet service. Mobile portals must offer customers constant connectivity and
time-sensitive information accessed through highly mobile, individually owned, inexpensive
equipment. Other critical features are location awareness, social interaction and high transaction
functionality. As the industry matures, these features will become the basic requirements for
any wireless carrier to compete. However, while many wireless carriers offer these features, few
currently offer the level of service necessary for the features to create revenue.
Wireless carrier service will achieve differentiation only when critical features are combined
with excellence of service, quick adoption of new technologies and services, and an offering
price that is perceived as justifiable for the service provided. Mobile portals can generate
increased revenue, but only when they elicit changes in user habits by offering the ease of
use and seamless functionality that improves the quality of life for the customer. Therefore,
successful offerings will need to change customer perception and practices.
What is a successful mobile portal strategy?
Wireless carriers have typically attempted to create offerings within the confines of their
traditional business; however, the data communications and service creation expertise necessary
are not typically core competencies for wireless carriers, and the offerings have achieved
limited success. Mobile portals require increased collaboration across internal technology,
service and network organizations — the resources for which are not usually available in the
wireless enterprise. In addition, many companies have been operating under a “build it and
they will come” philosophy — designing wireless services based on what is available instead of
on actual customer needs — and have underestimated both the shrewdness and the intelligence
of their customers with regard to services that they want to use and are willing to purchase.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
The challenges that wireless carriers face in creating a successful mobile portal fall under
four key strategic elements:
Customer strategy
Customer strategy involves the aspects that make it easier to create incentives for customers
to use mobile portals. This strategy is deeply rooted in the reasons why customers adopt
consumer electronics in general: because they are convenient, affordable and easy to use.
Mobile portal customer strategy for the wireless carrier includes providing open access and
open availability, improving user-interface and customer-experience design, offering services
that are convenient and easy to use, and clarifying the pricing strategy to offer affordable
yet valuable service.
Content provider strategy
Many mobile portal offerings are currently “walled gardens,” where users can access only
limited information through the mobile portal. This approach compromises a fundamental
value to end users that effectively drives them away from mobile portal service offerings.
The initiatives of the wireless carrier need to be aligned with the content and applications
provider to create an open-access offering for customers. Although this strategy appears to be
heavily focused on the customer, it is rooted in the mechanics of the business relationship
between the wireless carrier and the content and applications provider. Content provider
strategy determines not only what content and applications will be made available to end
users, but how content and application contributors will be compensated and how brands
will be represented.
While traditional wireless business models derived a portion of their value from infrastructure,
in new business models, the value shifts from infrastructure to the content itself (see Figure 1).
That means that how content is created, presented and distributed through mobile portals will
be the true revenue driver for new wireless carrier business models.
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Mobile portal strategy
IBM Institute for Business Value
Infrastructure framework
Content framework
IBM Institute for Business Value
User interface
Layout and navigation
Content logic
Relational and contextual
Content database
Content
Integration
Middleware
Operating system
Access devices
Hardware
Networking
Distribution network
Physical
Figure 1. Content and infrastructure are the fundamental components in the new business models.
Source: IBM Institute for Business Value.
Technology strategy
Technology strategy requires service providers to look beyond the confines of the global
wireless market, and even the global telecom market, to recognize general trends in technology
and apply them to wireless businesses. Although wireless businesses tend to be technologically
savvy, a wireless company must also be able to discover and assess the impact of global trends,
both in technology and urban culture.
Technology developments can be grouped into four main categories: communications,
computing (including processing, storage and operating systems), applications and integration.
From a communications perspective, mobile portals need to be supported by packet-based
network architecture. In the areas of computing and applications, an open development
platform, like Java™, Linux, Web services or other Internet standards, makes it much easier for
mobile portals to create value for end users and partners. But perhaps the most important aspect
of technology strategy is the ability to tightly integrate and coordinate various components of
technology, including software, device and network solutions, in a way that enhances the user
experience and encourages increased use by creating real value.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
In the year 2000, wireless
Network strategy
service providers in Japan
Network strategy is the way that a wireless carrier creates the business partnerships and
seamless interworking between partners in the mobile portal to create value for end users.
Examples of network strategy initiatives include:
generated 65 percent of global
2,3
wireless Internet revenue.
Why are these wireless carriers
so successful? Businesses in
• Adopting a Web services business model for content distribution
Japan typically view joint
• Providing end-to-end bandwidth solutions to partner companies, including security-rich
features, authentication, and billing and payment services
ventures as channels that
provide the opportunity for
• Developing tools to better understand network architecture, bandwidth and trafficmanagement solutions
each partner to increase their
own individual revenue;
• Providing an open-access network within the security framework
whether or not the joint venture
• Offering value-added network services, such as location-based services.
itself makes money is much
less important. Wireless
Until recently, wireless carriers have enjoyed a certain amount of isolation in their industry.
But as market forces and the economy continue to exert pressure, wireless carriers will have
to look for new business models to drive perceived customer value and realize desired revenue.
For many carriers, this means learning to share the market with companies they previously
had not considered competitors, much less possible partners. These new partners might
include content providers, device providers, and billing and payment service providers.
carriers in Japan have proven
to be more adept at building
the types of revenue-sharing
business arrangements that
encourage strong mobile
portals than their counterparts
The collaborative ecosystem
in other parts of the world.
A “collaborative ecosystem” is a community of businesses that work together to create value for
customers in a way that is mutually beneficial for each business within the ecosystem. Each of
the businesses involved in the system collaborates to leverage its unique resources, capabilities
and economies of scale to create value for the customer, grow the overall revenue and properly
allocate revenue among the entities in the ecosystem.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
When each of the components of value is combined in the end service or product, it is
difficult to replicate by competing business communities. Each contributor in the mobile
portal collaborative ecosystem has value to offer in the areas of specific expertise or capability,
revenue model and assumed risk. Figure 2 explores how each of the players in the collaborative
ecosystem contributes to the success of the mobile portal.
Wireless carrier
Content provider
Device manufacturer
Value position
Revenue mechanism
Risks and benefits
•
•
•
•
Network bandwidth
Network quality of service
Customer access and relationship
Primary customer service and
support provider
•
•
•
•
•
Airtime fees
Transaction fees
Subscription fees
Advertising revenue
Network services revenue
Risks:
• Idle bandwidth
• Cost of network expansion
• Flexibility in content development
• Ability to respond quickly to
market changes
• Access to different types of content
• Content development guidelines
•
•
•
•
Licensing fees
Revenue sharing
Advertising fees
Subscription fees
Risks:
• Product adoption and success
• Competing content developers
• User interface design
• Large impact on customer experience
• Quality original equipment
manufacturer (OEM) components
• Units sold
Benefits:
• New revenues
• Competitive offerings
• Brand image
Benefits:
• Brand strength and customer base
Risks:
• Cost of R&D and product design
• Product adoption and sales
• Handset replacement cycles
• Product life cycle
Benefits:
• Competition in consumer
electronics sector
Billing and payment
services provider
• Easy payment for services over network
• Customer finances linked with new
purchasing medium
• Preexisting security features on
trusted system
• Transaction fees
• Percent of transaction value
Risks:
• Threat of new purchasing mechanism
cannibalizing business
• Low credit or debit card penetration in
certain countries
Benefits:
• Prepaid and cash economies
Figure 2. Contributions of members in the collaborative ecosystem.
Source: IBM Institute for Business Value.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
At the center of the ecosystem: Wireless carriers
The wireless carrier is at the center of the collaborative ecosystem. While the company benefits
from customer control and a core competency in network operation, without the enhanced
value of the offering created by the collaborative ecosystem, customer control is extremely
difficult to convert into profit.
Within the mobile portal collaborative ecosystem, wireless carriers create two key types of
value, customer-facing value and back-office value. Customer-facing value includes services
that the customer can see; back-office value encompasses the behind the scenes processes and
platforms that are invisible to the customer (see Figures 3 and 4).
Device or software vendor
- Device design
- Device intergration
and interoperability
- Customer experience design
- Device purchases
Customer
- Packaging
- Customer experience design
- Subscription fees
- Airtime fees
- Transaction fees
Carrier
Inside content provider
- Content design
- Content accessibility
- Network availability
- Subscription-fee profit sharing
- Transaction fees
Value levers
Outside content provider
- Content design
- Content accessibility
- Network availability
- Purchasing platform
- Subscription fees
- Transaction fees
- Bandwidth expense
Revenue levers
Figure 3. Customer-facing value is governed by four key relationships.
Source: IBM Institute for Business Value.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
Carrier
Carrier value
- Network-based services
- Service packaging and
design
- Service offering evaluation
and assessment
- Network service fees
- Service offering fees
Device or software vendor
Technology vendor value
- Device intergration and
interoperability
- Customer experience
design
- Device replacement cycle
- Device unit sales
- Licensing fees
Value levers
Content provider
Content provider value
- Breadth of content
- Content design
- Multichannel integration
- Advertising fees
- Licensing fees
- Profit sharing
Revenue levers
Advertisers
Advertising value
- Customer access, targeting
and segmentation
- Partial funding of customer
value creation
- Advertising fees
Direct relationship
Figure 4. Back-office value: The mobile portal ecosystem should be seamless and transparent
to the customer.
Source: IBM Institute for Business Value.
The collaborative ecosystem defends against customer churn, but the strength of the ecosystem
is almost wholly dependent on the wireless carrier’s ability to create solid relationships within
the network of players. In the context of the ecosystem, the carrier’s goal is to satisfy customers
by providing value and satisfy ecosystem participants by providing percentages of revenue.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
With that goal in mind, the wireless carrier can undertake several directives:
• Create incentives for the mobile portal collaborative ecosystem to develop better value for
end customers.
• Develop a revenue structure that enables content providers to share equitably in the success
or failure of the ecosystem.
• Diversify the business portfolio by looking for revenue streams beyond those generated
directly by the customer.
• Develop value-added network-operation capabilities that the carrier can use to create value
that drives subscriber growth and customer value. Examples include location-based services,
advanced security features, network management, bandwidth management and advanced
billing capabilities.
• Assess the benefits of outsourcing to a third party to gain even greater economies of scale.
The bottom line: A financial model
How is it possible for wireless carriers to share their profits with ecosystem partners while
at the same time increasing their own profit? The collaborative ecosystem financial model
demonstrates that wireless carriers might sacrifice a small portion of operating income in the
short term (that is, 18-24 months), but they will gain significant rewards in the long term. It
is estimated that dispersing 30 percent of data revenue would result in improved operating
income in as few as three years, and growth in operating income from 9.2 percent up to 14.4
percent over the next six years.4
Making a case for collaboration
In an effort to illustrate the power of a collaborative ecosystem at a financial level, IBM has
conducted a simple analysis of how mobile portal strategies affect wireless carrier financial
models. To determine the monetary impact of developing a successful collaborative ecosystem,
IBM ran multiple scenarios against a sample financial model based on a typical U.S. wireless
carrier where the following variables were assumed:
• 10 million subscribers at year-end 2001
• Nationwide network covering 95 percent of the U.S. population
• Uses a single wireless network technology
• All subscribers are postpaid
• All data subscribers have voice service as well.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
The model also makes some basic assumptions about customer activity as a result of the
availability of collaborative mobile portal services. It projects that by increasing the allocation
of wireless data revenue to other participants in the ecosystem, wireless carriers should realize
an increased amount of overall revenue manifested in the following ways:
• Increasing subscriber growth
• Increasing subscriber uptake of data services
• Decreasing subscriber churn
• Increasing subscriber usage.
To compare the bottom-line effects of a collaborative ecosystem, we ran two financial scenarios
(see Figures 5 and 6):
• Scenario A assumed that the U.S. wireless carrier does not share any revenue with collaborative
ecosystem partners.
• Scenario B assumes that the U.S. wireless carrier shares 30 percent of its revenue with
content providers and sees a proportional improvement in other business metrics.
Although several assumptions were made to create the “base case” wireless carrier model,
only the variables directly influenced by portal strategy were adjusted for purposes of
this analysis.
Scenario A:
No revenue
shared
Scenario B:
30 percent of
revenue shared
Total revenue before sharing
Voice revenue/total revenue
Data revenue/total revenue
$6,205,820
92.3%
7.7%
$7,000,558
85.3%
14.7%
+13%
Total revenue after sharing
Percent of data revenue shared
$6,205,820
0.0%
$6,690,861
30.0%
+8%
Operating expenses
Operating expense/revenue
$1,635,337
26.4%
$1,899,772
28.4%
Gross profit
$4,570,483
$4,791,090
General and administrative expense
General and administrative/revenue
$1,377,569
22.2%
$1,404,058
21.0%
Income before marketing
$3,192,914
$3,387,032
Marketing expense
Marketing/revenue
$480,843
7.7%
$526,386
7.9%
+3%
Operating income (EBITDA)
$2,712,071
$2,860,645
+5%
Operating margin year four
43.7%
40.9%
-6%
Change
+8%
-5%
Figure 5. Estimated financial performance year four.
Source: IBM Institute for Business Value.
Scenarios A and B assume a compound annual-growth rate of 7.4 percent and 8.2 percent, respectively, for the number
of subscribers. Both scenarios assume a compound annual-adoption rate of 48.7 percent for data services.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
Scenario A:
No revenue
shared
Scenario B:
30 percent of
revenue shared
Total revenue before sharing
Voice revenue/total revenue
Data revenue/total revenue
$8,668,246
82.0%
18.0%
$12,869,365
64.0%
36.0%
+48%
Total revenue after sharing
Percent of data revenue shared
$8,668,246
0.0%
$11,480,888
30.0%
+32%
Operating expenses
Operating expense/revenue
$2,255,466
26.0%
$3,559,481
31.0%
Gross profit
$6,412,780
$7,921,407
General and administrative expense
General and administrative/revenue
$1,835,091
21.2%
$1,958,744
17.1%
Income before marketing
$4,577,689
$5,962,663
Marketing expense
Marketing/revenue
$613,778
7.1%
$720,926
6.3%
-11%
Operating income (EBITDA)
$3,963,911
$5,241,736
+32%
Operating margin year eight
45.7%
40.7%
-11%
Change
+19%
-19%
Figure 6. Estimated financial performance year eight.
Source: IBM Institute for Business Value.
Scenarios A and B assume a compound annual-growth rate of 7.4 percent and 8.2 percent, respectively, for the number
of subscribers. Both scenarios assume a compound annual-adoption rate of 48.7 percent for data services.
Conclusion
The revenue opportunity for mobile portal services might still be uncertain, but the real
value of these offerings is in how they affect customer actions, how they create future businessgrowth opportunities and how they change the operating expense structure for wireless
carriers. In the end, the numbers indicate that it makes more sense for wireless carriers to
share a percentage of their profits as allies who offer increased levels of service across the
various aspects of the mobile portal. After all, a smaller percentage of a large revenue increase
is better than a larger percentage of a small revenue increase. The collaborative ecosystem is
one strategy that will allow wireless carriers to create a winning price-value proposition for end
consumers that will continue to drive the growth of the market.
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Mobile portal strategy
IBM Institute for Business Value
IBM Institute for Business Value
Goals to grow on
Without a mobile portal strategy that includes symbiotic partnering focused on improving
the customer experience, wireless carriers will lose customers to the competition. The list of
strategic goals and initiatives in Figure 7 highlights the results that wireless carriers should
target to decrease customer churn and increase their collaborative business networks.
Customer strategy
Content provider strategy
Technology strategy
Network strategy
Goals
Strategic initiatives
• Grow the data-subscriber customer base.
• Increase the number and length of subscriber
content sessions.
• Strengthen content-partnering programs.
• Invest in user interface design.
• Gain revenue by providing value-added service to partners.
• Increase the availability of content.
• Develop solutions to help partners make money.
• Increase the percentage of revenue shared with partners or
agree to higher licensing fees.
• Adopt an open-access content policy.
• Increase the number of content provider relationships.
• Adopt new technologies and services that create value.
• Learn more about customer needs.
•
•
•
•
• Increase the number and quality of relationships with key
vendors and service providers.
• Make it easy to create unique value by leveraging
the partners in the ecosystem.
• Develop tightly integrated products and services.
• Standardize middleware, security platform and
management solutions among the partners in
the ecosystem.
Adopt open standard, interoperable platforms.
Increase R&D investment in experimental technologies.
Invest in resources for capturing customer metrics.
Develop a preliminary CRM strategy.
Figure 7. Strategic goals and initiatives for wireless carriers.
Path forward
Creating a successful mobile portal means learning to play a new game, where winning
depends as much on your company’s vision and strategy as it does on the allies that you
choose. To explore how our communications industry consultants can help you create a
strategy that encourages business collaboration and joint revenue growth, contact us at
insights@us.ibm.com. To browse additional resources for business executives, we invite
you to visit our Web site at
ibm.com/services/insights
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Mobile portal strategy
IBM Institute for Business Value
About the author
Darryl Sterling is an Industry Strategist at the IBM Institute for Business Value.
Darryl can be contacted by e-mail at dsterlin@us.ibm.com.
The IBM Institute for Business Value develops fact-based strategic insights for senior
business executives around critical industry-specific and cross-industry issues. Clients
in the Institute’s member programs — the IBM Business Value Alliance and the
IBM Institute for Knowledge-based Organizations — benefit from access to in-depth
consulting studies, a community of peers, and dialogue with IBM strategic advisors.
These programs help executives realize business value in an environment of rapid,
technology-enabled competitive change. You may contact the author or send an
e-mail to bva@us.ibm.com for more information on these programs.
© Copyright IBM Corporation 2002
IBM Global Services
Route 100
Somers, NY 10589
U.S.A.
Produced in the United States of America
04-02
All Rights Reserved
IBM and the IBM logo are registered trademarks
of International Business Machines Corporation
in the United States, other countries, or both.
Java and all Java-based trademarks and logos
are trademarks of Sun Microsystems, Inc. in the
United States, other countries, or both.
Other company, product and service names
may be trademarks or service marks of others.
Contributors
Charles Gerlach, Communications Sector Leader, IBM Institute for Business Value
Matthew Ross, Strategy and Change Consultant, IBM Global Services
References in this publication to IBM products
and services do not imply that IBM intends
to make them available in all countries in which
IBM operates.
References
1
Ramsay, Marc and Jakob Nielsen. WAP Usability, Déjà Vu: 1994 All Over Again.
The Nielsen Norman Group. December 2000.
2
Telecommunications Carrier Association. http://www.tca.or.jp
3
IBM Institute for Business Value analysis.
4
Ibid.
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