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Profiting from adjacent businesses

I can commend this short article by Doc Searls to readers. The nub is in the last few paragraphs:

I’m especially interested in exploring what I’ve been calling the because effect. This is what you get when your new business isn’t just about inventing and controlling technologies and standards, but about taking advantage of the new opportunities opened up by fresh new technologies and standards. For example, making money because of blogging, or RSS, or desktop Linux, or whatever — rather than just with those things.

The because effect is a kind of jujitsu. While other people look to make money with something, you’re finding ways of making money because of something.

Prime example, because of search, Google and Yahoo make money with advertising. […]

This morning I flew from Edinburgh to London. The airport operator, BAA, makes money because of the foot traffic passing retail outlets on the way to aircraft; it doesn’t make serious money with flying, as that’s heavily regulated to a fixed rate of return. (It might however explain the telecomesque need to build glass palaces to ensure maximum capital deployed.)

In our Telco 2.0 market report, we propose that the growth engine of the telecom industry is shifting (in Doc’s language) from making money with the network, to making money because of the network. We’re not alone. Motorola wrote back in 2004 [PPT] that:

In an increasing number of cases, the conclusion is that although the mobile network is core to the business, the network is not the core business itself!

Furthermore, they conclude:

We have already established that this view is evolving, that the network is not the business itself. Indeed, the mobile telecoms market is moving away from describing businesses engaged in running a mobile network as ‘network operators’ or ‘carriers’. Surely, the businesses that successfully separate the design, implementation and management of their infrastructure from their core, customer-focused, service-driven resources will free resources and expertise to concentrate on the development and marketing of services that customers will value.

There’s a huge body of economic literature on vertical integration of industries, and Coase did his seminal work on the structure of the firm based on analysis of internal and external transaction costs. This horizontal federation of adjacent businesses is not so well studied. The crashing co-ordination costs driven by hyper-abundant and cheap technology and communications is fairly new. It shouldn’t come as a surprise to find it confusing and hard to react to: they don’t teach it in business school yet.

So, what are the because of businesses that you should be considering as a network operator? We suggest three growth areas:

  • Data assets. Google made billions out of the latent value of hyperlinks. Telcos are also sitting on a goldmine of digital social gestures in the form of call detail records, network address books, text messages and voicemail responses. With the user’s permission, you can mine the value to create new businesses.
  • Platform APIs. The really hard-to-replicate parts of the business are all the call centres, logistics, servicing, tax remittance, and so on: a long list of non-network assets, each somewhat dull, all deeply profitable if milked by allowing third party access. Amazon do it, Google do it, and a Telco 2.0 will do it too.
  • Advertising and attention. You’ve got that little screen in the user’s hand at great, subsidised expense. Shame there’s so little for sale. Buying stuff makes people feel good: empowered and in control. It’s almost as good a dopamine buzz as getting a text message. Fix the missing links to telco-assisted commerce and ads.

You won’t be surprised to know we’ll be looking at this in more detail at the Telco 2.0 industry brainstorm event next week — particularly the ad-funded content, as it has a whole day’s breakout dedicated to it. It looks like we’re getting a big crowd coming, and a rare event where participants from operators will greatly outnumber the vendor salesmen buzzing around them. Book your tickets now whilst there’s room, it’s going to be quite a show. And with that I’m off to bed, because I’m tired.

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