White Space : Digital Ecosystems in the New Mobile Web !!

Presentation1

The Telco 2.0 Initiative Gurus believe that the emergence of the New Mobile Web is creating a white space for operators seeking to (re)build their role in the digital marketplace. The New Mobile Web is a term used to describe the transformed mobile Web experience achieved through advances in technology; HTLM5, faster, cheaper (4G) connectivity, better mobile devices. The New Mobile Web will lead to a shift away from native (Apple & Android) app ecosystems to browser-based consumption of media and services. Web RTC is a technology that promises to bring voice and video into the web browser. At the same time, it offers an excellent opportunity for Telcos to innovate by extending telecom services into the open web and freeing voice from closed telecom networks.

“Software is eating the world,” says Marc Andreessen, co-founder of Netscape, who himself was once on the receiving end of  competition from Microsoft. For most industries it’s not a matter of ‘if’, but a matter of ‘when’ you will face a software-driven competitor with a unique business model.Low (or zero) marginal cost of many modern technology products is the key enabler for the success of new age business models. This is why these business models ( pioneered by the software goliaths )are different from traditional loss leader and bundling tactics. As these business models are self-sustained, the new age  competitors fundamentally alter the market dynamics in the “victimized” markets. The new market conditions are often rendering the business models of incumbents unsustainable.

Lured by the promise of attracting higher-ARPU smartphone users, Telcos have worked hard to flood the market with smartphones at a wide range of price points. This strategy served the short-term goal of boosting the connectivity business, but may have jeopardized the long-term competitiveness of the service business by surrendering the customer ownership associated with authentication, user identity management and billing services. As the basis of competition changes to “choice and flexibility”, vertical integration (ie : notion of all-in-one telco spanning network operations, telephony, messaging, data access, user identity management, authentication and billing, as well as distribution and retail ) has lost its competitive lustre. The lack of flexibility inherent to vertical integration explains why Telcos lost out to smartphone and Internet platforms in the areas of location services, authentication, single sign on, user identity, and billing.

Although many Telcos believe that they urgently need to build strong digital businesses, most are struggling to do so. Creating a Digital Telco means looking beyond traditional telco business models in the context of the changing telecom value network.The challenge for Telcos isn’t that OTT companies outspend or “ out imagine “ them in digital innovation. It’s that marginal cost analysis steers Telcos towards investments in capabilities that were relevant in the old basis of competition, rather than toward developing new capabilities relevant for the new basis of competition. For example marginal cost analysis makes RCS (e ,5) backboned on IMS is an attractive choice for new presence and messaging services designed according to traditional telco service models. However, according to the new basis for competition, the scalability and interoperability offered by IMS are less important than flexibility. Telcos could be better off investing in new, more flexible infrastructure better suited for experimentation with new services, use cases and business models. As such the focus of Web RTC innovation should be on building developer ecosystems for voice services, discovery of new use cases and experimentation with new business models, and not on technology. If Telcos won’t do this, competitors will.

Imagine for a moment that you run a mobile operator who derives 10% of its revenues from SMS (which commanded 70% margins in the heydays of mobiletelecom). In a matter of few short years, these pesky free messaging apps destroyed your most profitable business. At first you thought that these “free apps” would go away after they burned through the money provided by the venture capitalists. Then you tried to compete with homemade competitors like WAC and Joyn, only to discover that it’s a sure recipe to lose money.Unfortunately, since the new generation of messaging apps have unique business models, they can sustain free services indefinitely and forever change the dynamics of the mobile messaging market. WeChat, Viber, Line and others monetise by using their platform for e-commerce, selling digital goods (stickers, games), physical goods and services (like taxi rides). They don’t have to charge for the messages or even voice calls to be commercially successful.

Opportunities in digital content fall into two broad categories: production and distribution. In IBM’s opinion, content production offers little potential for telecom providers; most operators will do better by partnering with content providers than by attempting to produce content themselves. However, they can also play a role in facilitating the trend toward user generated content by enabling consumers to enhance their own content with a range of telecom capabilities, including location, presence and interactive services. To defend and grow their share of the digital content market, Telcos will ultimately have to make a substantial organizational, cultural, technological, operational and business model transformation as they transition from providing network connectivity to enabling the consumer’s digital experience. With the transition to Internet Protocol (IP) and the proliferation of content distribution platforms, consumers increasingly want choice, flexibility and control over the multi media multi screen experience. Telecom operators can draw on their unique skills and capabilities to capitalize on this trend and distinguish themselves from rival platform providers.

Vision Mobile states that Telcos must move their innovation focus from technologies (be it HTML5, NFC, IMS, VoLTE, M2M or RCS-e) to ecosystems. Ecosystems are much better at delivering choice and flexibility.Ecosystem economics are driven by network effects and lock-in. iPhone apps attract Apple users, who in turn attract more developers, who make more apps, which attract even more users, and so on. This network effect between developers and users drives the explosive growth of the iOS platform. Lock-in creates natural “walled gardens,” as users develop habits around apps, while developers are locked-in by high switching costs created by their investments into the platform. A platform business model is about leveraging an operator’s underutilised, walled network assets, taking a cut from the delivery of innovative services, in the same way that Apple takes a cut from the delivery of mobile apps or Facebook takes a cut out of ad delivery.

Over the longer term, Telcos can look for ways to build parallel ecosystems, using lessons from the ecosystem economics textbook. M2M holds the potential to create a vibrant ecosystem of users and solution providers, thereby establishing strong network effects and lock-in. Telcos can become the central force in this emerging ecosystem if they learn to engineer the ecosystems to their advantage. By looking at M2M through the lens of ecosystem economics, operators will see opportunities that are much bigger than just selling modems and data connections.But when it comes to making strategic decisions, the digital leaders have proventhat there is no reason to be bound by this artificial framing of markets.

The study of markets worked well for industrial age but in the Digital Era companies can get unfair but deserved advantage by smashing industry boundaries : That is by competing across multiple markets at the same time.Apple created an unfair advantage by competing in both consumer electronics and digital content markets. Google created an unfair advantage by competing in both online advertising and mobile markets. Amazon created an unfair advantage by competing in both e-commerce and tablet markets. Their direct competitors (Nokia, Yahoo, eBay) didn’t stand a chance as the mobile revolution unfolded.

In the future, our communication will revolve around social media platforms, dominated by Internet firms such as Apple, Facebook and others that do not even exist yet. The Google+ video telephony project launched in 2011 shows the way forward for integrated communication environments that, building on a personal or organizational network, set up telephony, messaging, mail, chat or video links at the click of a button : Hey …..Customers don’t buy access, they buy service ecosystems !!

Sadiq Malik ( Telco Strategist )

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