Finding 'M-Commerce' Plays

If, as I said here yesterday, "m-commerce," or e-commerce transactions over mobile devices, especially the new, third-generation smart phones coming soon, is going to be big -- very big, as William Shatner says in his priceline.com (PCLN Quote) TV commercials -- how can you make money on the phenomenon?

First, look around now for companies already positioned well to profit from this shift and growth. I see at least three.

Nokia (NOK Quote) is my favorite hardware bet; it edged past Motorola (MOT Quote) a year ago to take over the top slot in mobile-handset market share, worldwide, and is now pushing toward a 30% share. Nokia understands the m-commerce opportunity very well, and is devoting an enormous percentage of its R&D dollars to advancing m-commerce tools and the readiness of its handsets for m-commerce transactions.

Ericsson (ERICY Quote) is my other favorite hardware player. I consider Ericsson a second-tier player, after Nokia and Motorola, but it, too, is investing heavily in getting ready for m-commerce and pushing hard on standards for an m-commerce world.

I also like Psion, not so much for its cool Revo PDA, which was one of the undisputed hits of last fall's Comdex computer show, but because of the enormous potential of its Symbian operation's EPOC operating system for smart phones. Nearly every wireless phone maker in the world has joined the Symbian alliance, and I think EPOC is the likely big winner in the battle for dominance of the smart-phone software market. (Psion trades on the London Stock Exchange. Most American brokers can buy shares for you, through their international desks -- but not, usually, through their online sites, and only with a hefty foreign-stock surcharge on the commission. For current quotes on Psion on some U.S. systems -- but not, unfortunately, on TheStreet.com -- try the symbol PSIOF. Or go to our U.K. partner, www.thestreet.co.uk, and search on the LSE symbol for Psion, PON.).

Nearly every mobile-handset maker will benefit from this move to m-commerce, of course, but I think those three are the best-positioned.

It's fair to point out that those three stocks I like are all currently pretty richly priced. Trading at around 200 these days, Nokia has a P/E in the neighborhood of 90. At a little under 100, Ericsson looks even pricier, with a P/E of 130-plus. And Psion, which is trading on the LSE in the mid-80s, down a little lately, looks cheaper, but is still far from cheap.

I'm afraid that's the price of playing this game.

What about Qualcomm (QCOM Quote) and Motorola? Qualcomm, of course, sold its mobile-handset business in December to the Japanese giant Kyocera (KYO Quote), which I don't think is going to be able to hold onto the market share Qualcomm built. And Motorola worries me because although the stock has doubled since last fall, it's been erratic in its focus, and is less focused on m-commerce than some of its competitors. A lot of us have trouble forgetting how Motorola kicked away the opportunity in digital cell phones.

Second, look for infrastructure plays. Beyond the three companies already mentioned, I don't see any obvious winners here, by the usual definition of "infrastructure." Soon, but not yet. In any case, the most interesting companies in m-commerce infrastructure are still privately held.

But we can define "infrastructure" to suit our purposes, at least for a minute. For example:

We can expect to see a boom in consulting firms that seek to help existing e-commerce operations develop parallel m-commerce sites. That would include shops such as USWeb/CKS (USWB Quote) (which is planning a merger with Whittman-Hart (WHIT Quote)), a good example of a consulting shop likely to benefit from an m-commerce explosion. There are many more.

But it's hard to see, at this point, which of those many existing Web site-building firms -- or which new ones -- will benefit. Or how much. As Jim Cramer has written here recently and accurately, a problem with Web consultancies as investments is that they are just that: consultancies have high "people costs," few ways to reuse and recycle their knowledge base to economic advantage and fewer ways still to leverage larger returns using the fundamentals of capitalism.

Aggressive Web-hosting companies have an opportunity here, too. Companies such as Exodus (EXDS Quote), the new hosting operation at Intel (INTC Quote), and the E.Solutions division of EDS (EDS Quote) see the coming wave of m-commerce as an opportunity to expand their customer lists, principally by prying m-commerce business away from their traditional competitors.

Indeed, how to exploit emerging business opportunities in m-commerce are providing much of the buzz in the hallways of this week's Internet and Electronic Commerce show in New York.

One more play, for iron-gut investors: America Online (AOL Quote). I know, I know: way down, thanks to worries over whether the proposed Time Warner (TWX Quote) acquisition will so slow earnings growth that the market will no longer support a Web-stock premium for AOL's share price. However, AOL is very serious about pushing its "AOL Anywhere" campaign, supporting mobile access and m-commerce on all sorts of mobile devices, and will likely be a big player in enabling m-commerce for the merchants with slots on AOL.

That was further underscored Monday with AOL's announcement of new partnerships with several important wireless partners. Count mobile-device makers Nokia, Motorola and Research In Motion (RIMM Quote); wireless-access providers BellSouth (BLS Quote) and Sprint PCS (PCS Quote); and paging-service provider Arch Communications (APGR Quote) as new AOL partners.

Seeing AOL as a potential m-commerce play illustrates one big issue in investing in m-commerce growth.

One of the difficulties in investing for big returns in m-commerce is that often, the big winners will be existing companies with substantial non-m-commerce revenue. Thus materiality, so often the bane of new-technology investors, raises its ugly head once again. Will the contributions to total corporate earnings from even a very successful m-commerce venture make a material difference in the parent company's total earnings? And thus move the stock price sharply? Or will that contribution be buried in the larger picture?

I don't think m-commerce is going to make much of a difference in the share price for AOL owners for years to come. But I also think that in three to four years, when m-commerce is hitting its stride, AOL is likely to be one of the principal routes to m-commerce transactions for both buyers and sellers.

So maybe we should see m-commerce as one of the things that someday will reward the battered, patient investors who've ridden AOL down into the dumps, following the announcement of the Time Warner acquisition.

And maybe we should just wait for m-commerce to come to life to look for some help for AOL.