How can Mobile network operators innovate?

747.jpg

There is an interesting post from telecoms Europe which talks of Mobile’s over confidence problem and uses the phrase I am from the Mobile industry (i.e. Operator) and I am here to help ..

This is a play on Ronald Reagan’s words: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.’”. By the way, Reagan also said “I am not worried about the deficit. It is big enough to take care of itself.” – Something we so regret now .. But let’s leave Reaganomics aside for the moment .. :)

The article goes on to say ..

But that is the problem. Very little of the innovation is coming from the operators themselves, and that’s why today’s self-confidence seems dangerously misplaced. Carrier leaders need to recognize that the industry culture has evolved to deliver scale and reliability. Even among small and young cellcos, it isn’t geared to innovation.

But the real challenge is to operators that seem not to have realized the world is changing. One cellco executive I chatted to recently was still peddling the line that “only we truly know what the customer wants and how they use their phone.” Evidently, they knew it so well that they didn’t bother supplying an apps store, a touchscreen phone, compelling downloads, or anything other than ringtones and walled-off access to the internet.

This is by now a well known problem .. The more difficult question is: Where can the Operator innovate and how?

For starters, let me say that many senior execs I know within the Operator community are genuinely interested in innovation and we have initiatives like GSMA awards Mobile innovation exchange and GSMA network APIs and others

Let’s break down the concept of innovation a bit further ..

When people talk of innovation, they imply that

a) The innovator invests commercially in the innovation and

b) The innovation benefits the innovator commercially.

However, the Web based innovation which we have seen over the past few years is primarily driven by a model of zero cost(or very low cost). So, with relatively low investments, the monetization is based on acquiring scale i.e. a large volume of content, large volume of users or some other parameter. Once this is achieved, the model then depends on getting small amounts of money from this user base – either through direct payments or through advertisements

This model does not apply directly to Telecoms since the network investment is significant, global interconnect is complex and costly and scale is hard to achieve.

To make matters worse, investments in networks (i.e. innovations) may not directly translate to greater revenues(as innovations should by definition). To add to more woes, the capabilities of the network are increasingly being decoupled from the network itself. By that I mean, value is abstracted at higher levels of the stack. The same function(example Location) can be implemented at higher levels of the stack(ex via cell id databases) on a ‘best case’ basis.

Thus, network capabilities alone do not play out as innovation(by that I mean innovation which benefits the network commercially). For example: Location capability at the network could be seen as an innovation. But increasingly with GPS, Cell id databases and other technologies, monetization of Location is not easy for an Operator.

The important thing to note is: ALL innovation is ULTIMATELY driven by the customer. The two caveats here being: In some cases – the customer may not initially recognise the need. In other cases, venture capital may sustain the innovation until such time that it starts making money(example Twitter). But ultimately, a group of customers need to be found who will pay for the service.

The dotcom era taught us that the model of simply acquiring a user base with no additional innovation does not work. In contrast, the winners of the dotcom era (example Amazon and then Google) have significant technological innovation coupled by a clear value proposition to the customer.

So, the customer drives innovation in ALL models

If we question this, then lets consider how the requirement for a new 747(Jumbo jet) arose. It comes from the airline industry i.e. the even when such a big endeavour is undertaken, it is driven by the customer – in this case the airlines (747: Creating the World’s First Jumbo Jet and Other Adventures from a Life in Aviation (Hardcover)

So, like or not – customers drive innovation – whether it is data traffic or air traffic ..

So, the next questions are:

What are customers willing to pay for? And

What do they understand?

There are two possibilities: Data or services

Data when sold as access is easy to understand and monetise. It is a big success story for Operators(HSDPA). Data when sold as data itself(Differential IP traffic/QOS etc) is a much harder sell -for the simple that it is not easy to guarantee a service(ex mobile user could pay more for guaranteed service/bandwidth – he walks under a freeway – loses connection – sues Operator for lack of service which he paid extra for). Variants of this example are impossible to prove

That leaves us with services

Users understand services. They are used to paying for services on the web(dating = match.com, travel = expedia etc) on a model of basic service is free but extra features are paid for.

When it comes to services, there are three possibilities

a) Deep integration of web based services

b) Third party pays access

c) Providing capabilities to others (Long tail model)

(a) Is the topic of a subsequent blog

(b) Third party pays for access is similar to the ‘free wifi at conferences/hotels’ model. This works quite well as an access level. Note that it is not the same as differential charging for IP traffic since it is not based on discriminating against some users to benefit other users

(c) Raises the question – which capabilities should the Operator provide to third parties? Over time, traditional capabilities are being decoupled from the network and are being provided by the Web on a best effort basis.

The one ‘soft’ capability that a network has is ‘Data’. More specifically data patterns. Services need data and certain datasets are more valuable than others. For instance fans of Nintendo wii gather in Oxford Street in central London at 6pm. This could happen for any number of reasons. Note it is based on anonymised data. So, the valuable insights are based on the Nappies and Beer concept

This means the Operator will sell insights to enable new services. It requires some convergent thinking and some legislative shift in mindset but it is not impossible. It is an idea I explored in my latest book Social media marketing .

I continue to explore these themes .. any comments welcome. A follow on blog will explore the significance of services with new innovation but to re-emphasise – Like or not – customers drive innovation – whether it is data traffic or air traffic ..

Image courtesy: http://www.liv.ac.uk/flightscience/FACILITIES/IMAGES/Jal.747.newcolours.arp.750pix.jpg

Comments

  1. Hello Mr. Jaokar,
    My two bits on your blog..
    1. I am looking at your article from an Indian telecom perspective. The business economics of Indian telcos is veered towards quantity rather than quality. The overzealous efforts towards garnering more and more subprime customers (if I can call anyone with a basic need of voice and text feature on the mobile) is supremely evident by way of cheap phones and still cheaper call rates.
    Innovation in the domain of content and features is relegated to a few content and application developers. The concern that I have is these Application and Content providers are operating on shoe string budgets and even smaller margins (being squeezed to the core by the operators). The innovation created becomes a commodity and in no time one can see replicas of the same across different operators. How can the innovators monetize these innovations in the absence of a strong and regulated Patent license framework. Global giants like google or youtube have the wherewithawl of sustenance because of the huge number of users and a kind of a near monopoly because of which users are not tempted for choices. There are so many search engines but how many of us use anything but google?
    A firm regulation for patents could pave way for innovators to invest and eventually monetize their innovation for a specific period before it becomes a common good.
    Your comments on the same would be highly insightful.
    I came across your blog on Telephonyonline.com
    I work as a Telecom Expense Management domain for BT Europe through Tech Mahindra Ltd.
    Regards
    Srikant Harihar

  2. Ajit Jaokar says:

    thanks for your comments Srikant. I agree – emerging markets have a different set of motivations. However I still dont think that patents is the way. kind rgds Ajit

  3. Paul Golding says:

    Interesting post Ajit.
    In the first place, there is a cultural corporate DNA issue. OpCos are not built or run in any way that supports innovation. Unlike Internet companies, OpCos did not have to invent their monetization model at some point in the future – they had a very real and successful financial model from the start. Thereafter, the game has been about incremental enhancements to the existing model to squeeze every last drop of revenue from the core product, and about the significant marketing effort that attracts (and keeps) users to the core product. There has been no need for any significant innovation to extend the product base. Hence, the organisations are heavily loaded with a culture and structure that is one of operational expertise (which has its own innovations too, not to completely knock OpCos) and not creativity.
    OpCos have realised for a long time that the future is about value-added services. However, what they don’t seem to appreciate yet is that the core network is probably unable to support any additional value in a world that has moved into a realm where the very concept of service (and value) is rapidly evolving – i.e. the Internet. They are in denial because they want to believe that the huge investment in the network MUST surely count for something.
    OpCos are still talking about Smart Pipes, which has to be the greatest oxymoron of the century. I have not seen any evidence yet that the so-called “operator assets” are actually that valuable. Even if they are, then they are likely to remain as diamonds buried deep in the earth because the OSS/BSS stack is like the anti-matter of open platforms. The ONLY solution is to create new assets, which means innovation.

  4. Ajit Jaokar says:

    very insightful Paul! I think its a bigger topic and I also had other posts to follow up as well. I think the question is very significant. As we see the newspaper industry struggle for ways to innovate – I think that there is a lesson to be learnt from it ie. complacency has a problem even if the existng business model works, When I see the G20 summit, there is a petituon from Operators for more spectrum http://www.theregister.co.uk/2009/04/03/gsma_g20_letter/ – this is all well and good but still tries to extend the ‘old’ i.e. continues to work on the model that spectrum is valuable(which it is) but as you said, cannot be sold directly to the customer. Thanks again kind rgds Ajit PS: I may make this into a new book/newsletter – ideas for Operators to innovate in the age of Google. Good title!