The caution comes as executives of Internet media firms, which rely heavily on advertising, are facing a backlash over the meltdown in their shares, some of which have fallen 90 percent from highs a year ago.
After hyping the first stages of the Internet, including online advertising potential, executives appear to be a bit more cautious about new areas, in hopes of trying to avoid another Internet bubble.
As online advertising dries up, many Internet media companies have been forced to temper their growth forecasts and look for other revenue sources, such as high-speed Internet access and wireless Internet.
"We thought 2001 would be a different landscape, but we are now seeing even more intense advertising skepticism (toward wireless)," Jamie Byrne, DoubleClick Inc.'s director of emerging platforms, said at the Spring Internet World trade show in Los Angeles.
"The reason we are not further along is because of a lack of compelling services," he added. "The content platforms that carriers are putting forth are not compelling."
Several issues need to be ironed out before executives put their buzz machines behind the sector, including the content currently available and the type of devices most people use.
Currently, many cell phone users can access news, e-mail, financial quotes and city guides thanks to alliances struck by companies like AOL Time Warner Inc., Yahoo Inc., Microsoft Corp.'s MSN and others with wireless players such as Sprint PCS Group, Research In Motion Ltd., OmniSky Corp., and AT&T Wireless Group Inc.
However, analysts have said these deals were badly put together and that carriers have to change the way they approach the sector.
"Mobile operators have not thought about what people want and they have made it difficult to get things. They have just made a mess of it," said Kevin Dulaney, an analyst at Gartner Group.
"If you look at Sprint's phone today to get weather, you have to go through three or four screens. It's easier to call someone up." Applications have to be accessible much more easily--often within the first or second screen a user sees, he said.
While the control in the nascent industry appears to lie currently with the carriers, analysts say that will have to change if the industry is going to take off.
"They (major Internet media and service providers) have to begin to exert their prowess. They are experimenting but they haven't shown leadership. It's more reactive," Dulaney said.
DoubleClick's Byrne agreed. "They have been tenuous about adopting advertising, but they can drive it. They have to figure out how advertising is going to fit into their business models and adopt," he said.
Companies like AOL Time Warner, Yahoo and MSN are battling to expand their reach and capture the increasing number of users on wireless devices. A recent report commissioned by AOL said that about 72 percent of its 28 million users owned a cell phone or a pager.
Internet service provider (ISP) EarthLink Inc. has already taken an aggressive approach.
The Atlanta-based company, which is a distant No. 2 to AOL in terms of Internet subscribers, has set its sights on becoming the leading wireless Internet service provider, said Lance Weatherby, executive vice president of the company's "EarthLink Everywhere" initiative.
Most executives dabbling in the arena have said they are trying to find out what users want. Among the most popular features on wireless are e-mail, content and instant messaging, Weatherby said.
Most industry executives believe that the cellular phones owned by most U.S. wireless users are too small to benefit from most of the content applications available. Until more people are using devices with larger screens, they see the potential for content applications and wireless ads as small.
Location-based advertising, which targets a passerby on the street for ads such as a coupon for Starbucks or news of a sale at a retailer, is overhyped, Byrne said.
"Location-based advertising is expensive to do and hits a very narrow audience that it becomes ineffective to market to," Byrne said. "It is not realistic. Location needs to be layered in to make content more realistic, but targeting someone on the street doesn't make sense."
The way location-based ads could work is if they are developed in a geo-sensitive manner, sending ads about an East Coast ski resort to those living on that side of the country for example, he said.
Location-based services, rather than advertising, were applauded by most executives. James Ryan, director of mobile Internet sales for AvantGo Inc. said he thinks it will be the "killer application," or the service that is going to drive the sector.
The services do not require the level of targeting location-based advertising do and have gotten good feedback in its early forms, he said at Spring Internet World. Such services would include finding the closest movie theater playing a certain film, locating the nearest ATM machine, getting directions or finding a restaurant and making a reservation.
"Failure makes people do smart things and that's what's going to happen," Dulaney said. "Some things are going to have to crumble before carriers do it."