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February 27, 2007

IMS - Getting NGN Architecture Aligned with the Commercial Future

Below is an update on the Technology Insiders track at the up coming Telco 2.0 Industry Brainstorm. It includes a list of the latest expert speakers.

Back in December we outlined our thoughts (here) on the imperatives around IMS and SDP in the context of NGN architectures. This was on the back of our IMS Services brainstorm in October and worries that IMS was still being over-hyped by certain vendors (expressed here).

Since then, we’ve been analysing the NGMN (Next Gen Mobile Networks) initiative (described here) - speaking closely with their leaders - and looking at how this links to the ‘commercial context’ for operators, as expressed at 3GSM (here) and as part of our new ‘Telco 2.0 Business Model Map’ which we’ll be unveiling on this blog next week, and debating in-depth at the Industry Brainstorm end of March.

An introduction to the Technology Insiders track is here and to the interactive format (for those new to it) here.

But, in terms of speakers I’m delighted to annouce the following experts who will be stimulating the brainstorm. The session is very focused, looking at practical opportunities to more tightly align technical strategy with new ‘telco 2.0’ commercial realities and trends :

* Martin Geddes, Chief Analyst, STL Partners - He’ll present analysis of NGMN and Telco 2.0 Business Model Map and results of new research into ‘Voice & Messaging 2.0’ run with the GSM Assocation.

* Dan Applequist, Senior Technology Strategist, Vodafone Group Services - The most effective ways of translating ‘mobile web 2.0’ concepts to technical strategies.

* Thomas Welzel, Head of Product Design & Provisioning, Next Generation Enablers, T-Mobile International - How to generate value from ‘integrated messaging’. Lessons from recent IM service launch. New business models for operators and impact on technology strategy.

* Rory McKenna, Director Web 21C, BT Group - Opening the APIs: Lessons from BT’s ground-breaking project to offer its core IP based services to the worldwide development communities across .Net, Java, PHP and Python technologies.

* Shane O’Flynn, VP Managed Services, Openet - New ways to leverage telcos’ payment and identity assets (latest analysis from GSMA charging programme).

* Aude Pichelin, Head of Multimedia Services Standardisation - Latest developments in leveraging Federated Identity to deliver consistent customer experience across different networks, service platforms and services.

* Tilo Heckmann - Head of Technical Architecture & Strategy, O2 (Germany) - Developing a more flexible Service Platform, incorporating the best parts of IMS.

* Thomas Magadanz, Head of 3G Beyond Division, Fraunhofer Institute Fokus - How best to trial new IP-based services.

* Colin Pons, Senior Architect, Innovation Management, KPN - Will be acting as ‘Analyst-in-Residence’ at the session, helping to guide the debate towards new, practical improvement opportunities.

We will be confirming 3 more senior speakers to add to our list of ‘expert witnesses’ in the next few days. To register for the workshop, go here.

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February 22, 2007

The Telco 2.0 ‘Business Model Map’: Part One, Introduction

If you’re heading to a new world, navigation is everything. The Vikings made it across the Atlantic without really knowing where they were going or where they’d got to. Columbus got his units mixed up, didn’t know he hadn’t got there at first, but claimed the credit anyway. Amerigo Vespucci did make it, and got immortalised in the process (thankfully avoiding precipitating the United States of Vespuccia in the process).

The Telco 2.0 Business Model Map is our best effort at distilling half a decade of exclusively studying the tectonic forces colliding telecoms, media and technology industries, and ripping apart connectivity from application services.

Why is it important?

If you a telco exec or supplier, and are worried about structural change and Internet encroachment, you need to understand this map: the shape of the world, where the land is, and which way is up.

Where am I?
Where do I want to go?
Which way do I need to go to get there?

We’re presenting this here because it seems to crop up in most consulting proposals we’re writing for top industry names. One picture seems to crystallise the situation in a way that a thousand Powerpoint bullets never will.

It ties together several of the most important themes about industry change:

  • The telecoms industry is indeed in fundamental structural change — 90% in our survey of over 560 insiders agreed that “The Telco industry is undergoing fundamental structural change - the move to a New World Order” (excuse the unintentional pun).
  • The “de-layering” that T-Mobile referred to at 3GSM is the driving force.
  • This is confirmed by our survey results as well: around 80% agreed that “The critical driver of change in the industry is the separation of network connectivity from devices, services and content.”
  • You have to choose which layers to play in.
  • And you have to know where to position yourself in those layers, i.e. what business model to adopt…
  • …and around 75% agreed that “[The new] world will require operators to compete in radically new ways with new business models. Those companies that do not embrace these will fail.”

Our telegeography course: four lessons

There are a couple of stages to being able to understand our map:

  • What the problem is with the current maps and worldview.
  • Why we’ve re-drawn the world with “up” in a different direction.
  • Where the land (“value”) and sea (“void”) is.
  • How to interpret the map to navigate your business.

Our Business Model Map is the most important article you’ll probably read on this blog, so if you’re short of time press “print” and read this preview and the follow-ups quietly when you’ve time to digest and reflect.

In this introduction article we’ll bite off the first two bullets. Later, we’ll present the map itself (patience, dear reader) and talk more about its importance and implications.

Caveat explorator

As far as we’re aware, this is the first such map. There are travellers’ tales about each of the distant lands, new islands of value arising from an ocean of opportunity, as well as cataclysmic waves of destruction. Being first, it’s not a perfect map: more explorers and cartographers will be needed to complete the detail.


Public domain image courtesy of the University of Texas Libraries,
The University of Texas at Austin.

From heresy and apostacy to renaissance and enlightenment

Just as Gallileo nearly got a roasting at the stake for saying the world was round, telecom has brewed its own heretical worldviews. It’s not that orthodoxy is necessarily wrong, just incomplete for further journeys from the known. A 2D worldview works for short voyages; Newtonian physics works for engineers if not physicists. In our industry, the “layered model” of telecom networks as most famously espoused by the “OSI 7-layer model” is a useful reference point for network engineers.

There are two heretical ideas bound up together that every reader should be aware of. If you’re not, you’re illiterate about telecom strategy.

The first was the end-to-end principle, which is a design principle for networks. It says that embedding even elementary service functionality (e.g. assured delivery, QoS, security) into networks generally adds little or no value. (Don’t rush to cancel that IMS NGN order quite yet though…)

The second was the Rise of the Stupid Network, which is a value statement that not only is it technically better to make the network dumb, but keeping the telco out of the services space is good. This is because (paraphrasing) it maximises the option value of the network to accommodate unforeseen innovation and user needs — and stops the interests and assumptions of telcos getting in the way of meeting them.

Together these ideas explain most of why the Internet world is encroaching on and eroding the value of the telecoms world. You probably tell the telecoms horror story to your kids at night when they want something scarier than the usual fairy tale gore.

The critical part of our map is understanding the limits of these ideas. That’s where the new beachfront property will be built.

Latitude and longitude

Latitude is the easy one to measure. Just look up at the sun at midday and see where the shadow lands. (You can tell why the great explorers didn’t come from a drizzly and backwards Middle Ages Britain.) The conceptual equivalent of latitude in telecoms is vertical integration of transmission network and user services. Up in the north near Svalbard are the original telegraph and analogue telephony networks. Somewhere around Alaska is the modern digital telephony network. These networks have very strong technical vertical integration.

The Internet is the Antarctic — and it took a long time to get there and explore it. Its success is mostly driven by the end-to-end principle and “Stupid Network” concepts. (It’s not at the South Pole, however — there are too many private IP addresses, strange cache controls, content delivery networks and intranet proxies. It’s somewhere out along the Antarctic Peninsula, maybe.)

So latitude to us is about how the functions of an application are embedded in the core network vs. the edges of the network. This is all well known and good.

Now for the crux — time to pay attention.

Longitude was a nightmare to measure, and took the invention of accurate mechanical clocks that worked under hostile oceanic conditions. If telecom’s latitude is about the functional aspects of the network, longitude is all the non-functional bits of the puzzle. The limits of the end-to-end principle and “Stupid Network” are that they say nothing about payment, law, user identity, property rights, copyright, etc. That’s OK: they’re not about those things. It’s not a criticism or omission. It’s an orthogonal axis.

If there is an irresistible oceanic current and violent wind driving you southwards towards the technically de-coupled Internet, then your opportunity lies in sailing east and west along the journey taking advantage of all the quirks of those non-functional aspects of the system. Heading north will just exhaust your resources in a futile gesture against the storm.

A pause in our journey

So Galileo’s insight was that we lived in a 3D world with the sun (apparently) at the centre. Ours is that we live in a 2D telecosm, and not a linear world with “dumb pipe” at the left extreme and “smart network” to the right as most analyst slides would have it. We’re saying that the industry has latitude and longitude mixed up because the promised land is at 90 degees to the route currently being proposed: not fighting the prevailing wind towards decoupling of the network and services, but tacking around those forces to achieve alternate goals.

We believe that telcos have an identity crisis that is easily resolved. Their job is not network operators, per se. They are distributors of value, and they specialise in the distribution of information (as opposed to physical) goods. That distribution can be on physical media, near-field radios, mobile or fixed networks, as well as wide-area broadcast networks.

The Telco 2.0 Business Model Map places a dozen different sources of value of how operators engage in distribution activities. Each one differs from the others in the technical or functional integration (latitude) as well as non-functional integration (longitude).

In our next article we’ll give some more concrete examples, show you the map itself, and talk a little about what change of course is needed.

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User-Generated Content and Social Networking - Lessons from Three UK and o2

We heard CEOs at 3GSM pronounce that ‘User-Generated Content’ and ‘Social Networking’ were two key areas that the industry had to explore, and fast. But who’s really doing anything commercially effective today?

The Digital Youth stream at the Telco 2.0 event in March is exploring this issue and, as you can imagine, proving extremely popular with registrants so far. This is partly because the youth market is hot for operators and partly because we have a superb line up of ‘stimulus speakers’ from across the value chain - EA Mobile, France Telecom Ventures, Habbo Hotel, MoBlog, Orange Home, SonyBMG, and SubTV.

One other stimulus speaker is David Springall, CTO of YoSpace, the company that powers two highly successful ‘mobile web 2.0’ services: Three UK’s SeeMeTV and O2’s LookAtMe! I met up with David at 3GSM last week and he described what many see as a ‘poster child’ for mobile ‘User Generated Content’ and what the key lessons for the industry are.

The website says “SeeMeTV is a new channel on 3UK where you’re the star. Simply record a 12 second video clip on your mobile phone or digital camera, submit it (email or text) and get rewarded every time someone else downloads it”.

The service was launched in October 2005. Content creators MMS their clips to a shortcode, users browse the content for free and get charged 10p for downloading the clip or up to £1.50 for ringtones and wallpapers. Users can rate the clip for free or leave a comment for 5p. Creators gets 10% revenue paid via Paypal. Since the start the service has had over 12 million purchases, with £250,000 (GBP) paid out in revenue share to content creators. There’s a 30 second limit to a video clip, and all clips are screened by a human before publishing. There’s a service age restriction of 18+. Some users download 20-30 clips per visit and others have earned up £500 GBP per month. Popular downloads include: “Hot dog boy - the quickest frankfurter eater in town” and “Pretzel girl - a real-life office contortionist”. You start to get the picture…

3UK claims the service brought in more than £1m (GBP) in data revenues in the last quarter of 2006.

O2 UK launched LookAtMe! in June 2006 on the same platform, and has had similar take up. They’ve recently augmented with a music version, YourShow, which allows users to upload homemade ringtones and audio clips. In January 2007 they reported 40,000 downloads on a single day, and it has become the No.1 service on theirportal.

So, with Vodafone launching a similar service at Cebit in March, what are the key ingredients for making these concepts work, and what are the lessons?

1.) Easy for Operator: YoSpace’s heritage is in MMS sharing and rendering. They created a turnkey solution that integrates quickly and easily with operators network and IT systems, leveraging operator’s existing billing, authentication and rendering systems.

2.) Relevant for a Mobile Experience: Supports ‘instant gratification’, ‘content snacking’ (view thumbnails), it’s very low cost to download (10p includes the data charge), and it uses a non-network, but universal method to pay contributors (PayPal).

3.) Added Value: It has active moderation of the contributions, and it pays people to contribute. It’s not a “YouTube on the mobile”.

David told me that, apart from these factors, the biggest benefit was that, like SMS, the system was completely interoperable with other mobile networks. As such, the potential viral effect is enormous if other operators adopt the same tool (and why wouldn’t they?). This, of course, opens up all kinds of possibilities for advertising (more on why here), and is no doubt a key reason why YoSpace was very recently bought by Emap, a major publishing company. (UGC has the potential to be a very nice channel for their digital advertising inventory…)

David was keen to point out that ‘Social Networking’ is something rather different to what we’ve described above, but the principles of creating a mobile-centric approach apply. So, for those interested, there is a very good article on why “social networking on mobile” (MySpace, Facebook etc on my mobile) is VERY different from “mobile social networking” here.

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The Fragmented World of On-Line and Mobile Advertising

As we prepare for our big ‘Telcos in Advertising’ workshop on 29 March, here are some thoughts:

What we need to do is learn to work in the system, by which I mean that everybody, every team, every platform, every division, every component is there not for individual competitive profit or recognition, but for contribution to the system as a whole on a win-win basis. William Edwards Deming

For those not familiar with Deming, he is widely recognised as the man behind the massive improvement in quality and scale in the Japanese manufacturing industry after the Second World War (providing a precursor for such things as Total Quality Management and Just-in-Time in the 70’s and 80’s).

Current Mobile Advertising Fragmentation
His philosophy was in the forefront of my mind as I wandered around the dozens of exhibitions from companies offering mobile advertising solutions at 3GSM last week. My guess is that there is probably 100 start-ups focused on this area (and another 100 just about to launch) plus a plethora of established vendors in adjacent markets looking to position their existing offerings in this space. Several operators (O2, Orange/FT, etc.) are conducting trials with different start-up enablers to explore the required customer experience for such things as mobile portal advertising.

The Need for Scale - A Reminder
All this is natural enough, especially in the modern world where VC’s are reasonably happy to back a few businesses in a hot area on the basis that one might make it big. But is it sustainable? Well, we have already indicated the Telco 2.0 view that a large-scale Telco advertising platform is key if this market is going to develop to become an attractive proposition to operators. Clearly, there is a role (and potentially an important one) for start-ups in this space but the critical thing is for operators to develop an open, standardised platform which unlocks the widest possible audience of Telco customers to advertisers.

Every other large-scale networked market has 1 or 2 dominant platforms (Windows on the PC, Google and Yahoo! on Web search, GSM and CDMA for mobile telephony, etc). At the moment on-line and mobile advertising remain fragmented from an operator standpoint:

On-Line. Consolidated Internet platform players (Google, Yahoo!, MSN) have created a valuable and growing paid search and banner market but operators receive breadcrumbs because they remain fragmented minority-players and add little value.

Mobile. Fragmented supply side (start-ups) and fragmented operators mean the market is too complex and expensive for advertisers to use as a single channel. Currently, the market is like dozens of separate channels each of which require a slightly (or radically) different approach from advertisers and media buyers.

This matters because if Telcos want to build a market which will add around 10% revenue growth (as indicated by respondents in our recent survey) then the industry needs to be worth over $100 billion to them across fixed and mobile. That is a helluva lot of money and a goal that remains out of reach with the current fragmented approach.

So What Does the Future Look Like?
One way or another, the next 3 years will see massive consolidation amongst mobile advertising enablers and either 1 or 2 will make it big or Google and Yahoo’s mobile offerings will become established as the undisputed platform kings for search and banner advertising.

As for operators, the future is in their hands. For them to be sucessful they need to resolve the strategic questions we outlined in our last post and ensure:

  • They unite around a common platform - either through partnerships or through building a set of standards which allows them to interoperate and unlock the entire Telco channel.
  • They adopt advertising as a core, rather than peripheral, part of their businesses. This involves a significant effort to: work through the business models for advertising; understand how to deliver advertising to customers (and knowing which customers want what type of business model); and weave advertising into their core voice, messaging and content services so that it adds value, rather than hinders, the customer’s ‘transaction’ whether that be communication or consumption.
  • They can provide value off-portal to the advertising community. Operators, whether mobile or fixed, should be looking to use their position as ISP’s to exploit preference and usage information that they hold about customers for on- AND off-portal activities. Operators know that their fixed and mobile customers move outside their portals and that the world of the walled-garden is becoming less secure. One way they can become more than bitpipes when customers are off-portal is become a trusted provider of selected customer information which enables content providers and advertisers to target their services for customers more effectively. We suspect that this will probably be the biggest area of opportunity for operators in the medium term, but will likely be the slowest to develop owing to greater technical complexity and the reluctance of many operators to embrace a model which at first seems to reduce their role.

Much remains to be done to be done by the Telco community to realise value in these developing markets. Management in this area should look at our new 100 page report, Telcos Role in the Advertising Value Chain, (published next week) and the workshop on 29 March as part of the Telco 2.0 event, or, if you’re based in the USA, another GSMA event we’re involved in on the 30th March in New York.

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Telco 2.0 Industry Brainstorm - How the Interactivity Works

We’re overwhelmed by the interest in the next Telco 2.0 Industry Brainstorm on 27-29 March in London. We tested the market a year ago with a 30 person workshop, and after growing to 220 people in October 06 the event has now grown tenfold to fill out our capacity of 300 people. (Next event is end of October 07 if you can’t make March).

People seem to like a.) the laser focus on the cutting-edge strategic issues, b.) the structured facilitation by STL Partners’ Telco 2.0 experts, and…c.) the application of our ‘Mindshare’ interactive process. No other public event does this, and people seem to see it as a breath of fresh air from all the normal ‘Death By Random Powerpoint’.

Some people have asked for more details of how the interactivity works. There’s an introduction to the ‘Mindshare’ process here. But here’s a more detailed description of the method:

Speaker presentations are designed to stimulate a debate as part of a structured large scale brainstorm. Presenters in each section of the brainstorm make up a small panel of 2-3 people carefully selected experts. We ask each presenter to deliver a short presentation (10 mins, 6-8 slides) on a very specific topic which is complementary to the others, and we work with them in advance of hte event to define each slide to ensure relevance.

The audience (‘participants’) is seated at round tables of up to 8 people. After stimulus presentations in each section of the brainstorm the participants are asked to discuss what they’ve heard with those next to them and then feedback their thoughts anonymously and simultaneously, within a structured format, using brainstorming technology (wireless laptops + special software).

They can see other people’s input on their screens as well as their own, and all the data is beamed onto the main presentation screen too. This feedback typically takes 10 mins and results in 100s of comments and new ideas.

While this data is inputted, our team of analysts reviews it and discusses it with the panel of speakers. We pick out the key themes of the feedback and agree what topics are in scope and out of scope for a discussion with the speakers. Our facilitator then runs a panel discussion based on this feedback for 20-30 mins. As part of this process we also allow some open Q&A with the audience and, depending on the topic, we sometimes run an instant vote to test the climate. on controversial issues.

On Day Two and Three of the Telco 2.0 event we use a similar process, but allow more time for debate, and structured discussion.

All discussions are captured and turned into a verbatim report after the event, which participants have access to.

Essentially, we’ve applied the interactive brainstorming/workshop approach we use with our consulting and training clients to a larger scale public event.

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February 21, 2007

TelecomTV partner with Telco 2.0

We’re delighted to welcome TelecomTV as ‘Gold Partners’ for the Telco 2.0 event in March.

For those who don’t know them, Telecom TV is the world’s first online TV channel that provides video streaming, live Webcasting and interactive media programs to the global ICT sector. TelecomTV is viewed every day by 30,000 decision makers who get up-to-the-minute news, analysis, and interviews with industry thought leaders to make their strategic business decisions.

TelecomTV is the official online TV provider to the industry’s most important events, with leading associations including the GSMA, the ITU, the TeleManagement Forum, the IEC and IBC. The editorial team has recently returned from the 3GSM World Congress 2007, covering important announcements and interviewing influential people such as Ben Verwaayen, CEO, BT; Peter Erskine, CEO, Telefonica O2 and Kris Rinne, SVP, AT&T. You can watch all of this and more here.

You can register for TelecomTV FREE at www.telecomtv.com and sign up to receive their daily mailers allowing you to keep abreast of the ever evolving and converging ICT industry!

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February 20, 2007

3GSM - CEOs say 2007 is ‘Year of the Business Model’

For the Chinese, 2007 is the Year of the Pig. For Hamid Akhavan, CEO of T-Mobile International, it’s the Year of the Business Model, or so he suggested in his keynote at 3GSM in Barcelona last week. We support this, of course, as it’s what the Telco 2.0™ Initiative is all about.

If 2006 was the Year of the Dog (telco investors might agree with this description), the Year of the Pig looks more promising, as our translation shows:

The pig is highly regarded for its chivalry and pureness of heart (“We’re just trying to help people ‘make the most of now’”), and often makes friends for life (“We call it ‘Customer Lifetime Value’”). For pigs in 2007 any recent setbacks or obstacles (decline in share price, new technologies, lack of confidence, sub-optimal strategy) can be overcome, so look forward to a year in which to really shine (“We need some of that ‘Blue Ocean Strategy’ the Telco 2.0 team have been telling us about).

To market, to market, to buy a fat hog

Hamid’s presentation talked about the key changes in the mobile industry around three themes:

  1. Customer Needs — Tailor-made services, Ease of use, Simple and worry-free pricing,
  2. Markets — Even stronger competitive and regulatory pressure, and market saturation and price erosion, and
  3. Technology, specifically:
    • Digitisation of comms and content,
    • Broadband mobile and IP networks,
    • Acceleration of innovation in devices and apps,
    • Delayering of access and services, i.e. apps becoming network-independent, therefore operators losing control.

He described ‘Tomorrow’s World’ as being about:

  • Multiple devices per person, rather than one converged device.
  • Targeted offers for individuals — ‘hyper-segmentation’ needed.
  • Overlap with adjacent markets: Operators, handset manufacturers, and service providers “stepping on each others’ toes” (e.g. Nokia buying Intellisync for push email).
  • Super-broadband mobile networks: wireless 100mbps a reality by 2010 — beating Fibre/DSL (!)
  • Mobile phone evolving to becoming the ‘personal companion’ (SMS/IM/Email merging into ‘social networking’ tools).
  • Rich services on the Internet at your fingertips (entertainment, information, transactions, etc).

“We’ve just scratched the surface in terms of leveraging customer insights”, he said. “We’re not harvesting our existing customers very well today”.

Keeping snouts in the trough

The Key Success Factors for the industry to maintain and increase it’s monumental cashflows are:

  1. NGMN to deliver Personal Broadband vision (‘extension of HSDPA’)
  2. Fair share of ‘digital dividend’ (i.e. Regulators make new spectrum, especially from TV broadcasting, available to mobile operators. Lobbying needed for this.)
  3. Operators own IP comms services — “We need to move our business models to IP”.
  4. Worry-free pricing for voice, data and roaming (“Avoid bill-shock”) — and “sort it out before regulator does it for us!”.
  5. IP Interconnect to create an end-to-end value chain collectively between operators.

He summarised by saying “Operators have no choice but to actively take part in new business models - the operator as access provider, enabler, or partner. 2007 is going to be year of business model experimentation.”

He qualified this a bit by advising other operators who might be running ahead to trial “innovative business models” to be careful they “don’t destroy value for the rest of us” (perhaps referring to Hutchison 3G and it’s X-Series launch).

This little piggy ate roast beef

Arun Sarin, while proudly announcing Vodafone’s 200 millionth ‘proportionate customer’, described the “three imperatives for the industry”:

  1. Grow a bigger pool of revenues.
  2. Create common standards.
  3. Move faster in execution.

To grow bigger pool of revenues he advised:

  • Competing in adjacent markets (he said Fixed-Mobile Substitution “was a reality” and cited Vodafone@home and ZuHause success, with 2m subs in Germany already)
  • Creating New Forms of Communications (give people access to ‘web 2.0 services’, reminding us about Vodafone’s very recent deals with MySpace, eBay, Microsoft, Yahoo, Google, and YouTube.
  • Generating new revenue sources.

For the last of these he said faster technologies and better devices were driving new opportunities, especially advertising. He reminded us that while 1bn people across the world use the internet, 1.4bn watch the TV, and 2bn use mobile phones. “Mobile offers unique reach, targeting and intelligence for advertising”. (More on this here and you can debate this notion here).

He told us of Vodafone’s new corporate direction (announced back in May 06): to get into fast growing, innovative emerging markets (cf. Telsim and Essar deals), in parallel with developing in mature markets (via the ‘Imperatives’).

He ended with a burst of PR clichés - “The industry is standing at a crossroads”, “We are seeing the evolution of business models” - and introduced us to some new jargon - “We are ‘de-walling’ Vodafone Live!”

And this little piggy ate none

We also heard from Sanjiv Ahuja, CEO of Orange, who talked a lot about “putting the customer first” and “the customer will define our success”.

Naguib Sawiris, CEO of Orascom, gave a more down-to-earth message: all he was focused on was shareholder value, because if he was successful at that, then he must be giving the customers what they wanted. He also compared the efficiencies of his portfolio (100m customers in 6 countries) with the sprawling nature of Orange’s (100m customers in 23 countries).

Do pigs make better pets than dogs?

So, what are we to make of these mobile CEO messages? What’s new and good, and what’s still problematic?

1.) NEW & GOOD - From Rent-Seeking to Value-Creation

From the T-Mobile and Vodafone CEOs, and implied by Orange, we see an acknowledgement (maybe for the first time in such a public arena) that the core of service value is outside the telco (“de-layering”, “de-walling”).

Hamid Akhavan talked about “tailor-made services”. This turns the telco from a gatekeeper of access to users by other service providers to a supplier of personalisation services and capabilities to those (upstream) 3rd parties. A move from rent-seeking to value-creation. Those upstream services will be part of a commercial platform that will include not only technical services like APIs into identity, profile, billing capabilities, but also services and interfaces into workflow for provisioning, customer care, retail, and analytics. This echoes Redknee’s presentation from the Telco 2.0 event last October, where they suggested telcos could supply privacy and anonymity services as a middleman (just one example of the platform’s role).

Hamid’s ‘hyper-segmentation’ is part of the same deal - it’s just the sales and marketing part of “tailor made”. After Flext’s success, T-Mobile have some credibility here: let the customer decide the right bundle combination for them (with you giving them the tools to make it painless and keep the deal fair for both sides).

“Worry-free pricing” is part of an holistic approach to creating value to users. The car manufacturing industry has a “dust to dust” concept of the whole lifecycle of a product - it’s cost, energy use, etc. Having an answer to the question “will my boss let me expense this [telco service]?” is as important to the user as whether the service actually works (if you want people to buy it). (T-Mobile UK’s current data pricing is a good example of taking out the ‘bill shock’, by the way. They charge 0.73p/Kb for data, but cap charges at one pound per day.)

2.) STILL PROBLEMATIC - Re-thinking the mobile broadband model

The problem with these noble aims, however, is that they require re-thinking the “mobile broadband model” to allow a blend of pure Internet access as well as subscription/ad-funded services that do not contain consumer data charges or drain your usage bucket. NGMN is part of the answer (and IMS is part of the problem).

3.) STILL PROBLEMATIC - Impact of ‘De-layering of service and connectivity’

The lack of operator control Hamid describes means potential user experience problems with provisioning, capacity, security, and so on. For example: If a broadband connection appears not to support the needs of a VoIP call, don’t just go ahead and give the user a bad experience. Instead alert them, ask them if they want to go ahead, and offer alternatives (e.g. a callback to a landline number). Designing for this heterogeneous world, with the ability to cope with variance and failure, is the big opportunity, and also the big challenge.

Hamid seems afraid of telcos being sucked into a destructive price war in their relatively undifferentiated core voice, messaging and broadband products. An example of how to avoid this, however, might be Verizon with EV-DO and FiOS: get the next level of capacity out there ahead of the competition and you’re a market of one with the heavy users.

4.) STILL PROBLEMATIC - Ignoring innovation in core voice and messaging

Arun Sarin talks about “giving users new services”, but what about the core revenue from voice and messaging products you have today? We note a serious lack of vision around presence, availability and other value-creation activities in this space, and a danger of handing over too much value to partners. The inability to identify real sources of value could cause some very naive business deals. For example, Vodafone should insist that any presence information that the MySpace user creates (e.g. simply being online) should be shared with Vodafone as the mobile distributor and federator of that data into multiple other services.

5.) NEW & GOOD - Big Opportunities in the ‘Multi-Polar’ World

Overall, the public messages from the top brass of the big mobile operators are good news. The “bipolar” world (broadband internet access only vs vertically integrated networks) gave telcos only two possible futures: “history continues” and “telepocalypse”. The multi-polar world offers more possibilities as telcos embed themselves in a broader set of value chains, albeit with less control. There are many new and different ways in which connectivity, services, content, devices and support can be packaged together which are difficult or impossible today.

Hard to herd swine

We have a hunch that back-office IT is what will sort a lot of the carnivores from the vegetarians here. Those who are stuck with mid-90s technology from the initial growth phase won’t be able to adapt fast enough; those who invested in service-oriented architectures, workflow and (business event) messaging infrastructure will be OK. Execution dominates strategy when you’re a dancing porker.

Bringing home the bacon

So, to conclude, some famous people were born in previous Years of the Pig: Humphrey Bogart, Thomas Jefferson, Ernest Hemingway, Alfred Hitchcock, and Arnold Schwarzenegger - all renowned for ‘breaking the mould’.

In the spirit of creative thinking, I leave you with this question: “how would each of these people execute strategy if they were in charge of a telco these days, and what (if anything) can we learn from this conjecture…?” (Come to London for the Telco 2.0 Industry Brainstorm on 27-29 March, and we’ll see if the question has stimulated any new insights).

And remember: the best treatment for a sick pig is…oinkment.

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February 19, 2007

‘Free’ as the new ‘Premium Content’

Short version: The ultimate high-margin premium content is an international roaming call, and anything that provokes one — even if you need to forego some revenue to create the stimulus — is a net positive.

Long version: Sometimes, you’re just plain wrong. For the forthcoming Consumer Voice & Messaging 2.0 report, I’d been planning a section on “The end of pricing plans as the focus of competition”. In doing my research, I’m coming to nearly the opposite conclusion: there’s lots of mileage left in mining out pricing. It’s just buried deeper — North Sea oil, not Persian.

If you’ve survived a basic economics course, you’ll have seen supply and demand curves. The more you pay, the more the supplier is willing to supply. Today’s telco pricing has worked by segmenting the market and offering a handful of bundles at fixed price points along the supply curve to cater for the different demand curves of various market segments and usage levels. A few operators (e.g. Sprint’s Fair and Flexible and T-Mobile’s Flext) have taken this to its logical conclusion: rather than offering a few discrete choices, let the user pick any point along the curve. Hence the thesis that there’s nowhere more to go — every combination of geography, service, timing and quantity was being covered off.

Except…

Stimulate demand, make more money

This takes too simplistic a view of the market. Demand isn’t fixed — you can work to move the demand curve too. One way is to market the hell out of your product and help people understand their life is incomplete without your service, and only by parting with a small amount of money can their satisfaction be made whole again. This is demand creation, and is a difficult thing to achieve. BT spent a fortune on TV ads in the 1990s on the slogan “It’s good to talk”, as if it wasn’t an innate desire of every human from near birth.

There’s a better way. Rather than focusing on the macro marketing push, you work on tuning the micro processes that make people want to communicate more often. The vast fortunes of telecom are built on accumulated pennies and cents, and it’s down in those tiny interactions that the marketing needs to occur.

Phone calls and text messages don’t exist in isolation: they’re part of a conversation and relationship. Most personal communications are responses in an ongoing dialogue. (Go look in your email inbox: excluding the informational newsletters and circulars, which we don’t use phones for, I bet most personal messages will begin “Re:”.) Furthermore, only the participants have the context of the interaction. The person best-placed to sell you a phone call is someone among your family, friends and colleagues — not the telco.

So to play the new pricing game, telcos need to make better use in the uniquely two-way interactive networked nature of their products: if I contact you, you might then contact me back. If the cost of the response exceeded the incentive discount for the initial contact, you’re a winner. Forgo a buck, make two bucks, and you’re a buck up, not down. And the best incentive you can offer? FREE!

Pick the sender and recipient carefully

The idea is to give away communications services to a very select group. You target price-sensitive users — i.e. ones who aren’t likely to expand their communications budget — so you’re not forgoing much. (You might want to check out our previous thoughts on how these can be great customers with an innovative market approach.)

You also don’t just give them any old thing for free. You pick a price-elastic communications product, so that dropping the price (ideally to zero) will greatly increase usage among those users. Preferably this is also once of your lower-margin products, mitigating the marketing sacrifice. The communication has to be designed to stimulates demand from the exact opposite kind of user: price insensitive, high-margin users of price-inelastic products. Finally, there should be only a weak substitution effect for other products that the users pay for — that is, usage is incremental, not replacement.

So in summary there are two groups of users you need to identify, who have a cross-elasticity in their use of services that will overall raise revenues by dropping prices for one of the groups. This particular cross-elasticity effect is likely to be unique to communications products, so they won’t teach it to you in business school.

This isn’t new

For instance, today my operator, T-Mobile, is deploying something like this scheme. The standard at-home cost of SMS messages is 10p, and MMS messages are 20p. MMS messages whilst roaming cost 20p, whereas SMS messages 40p — inverting the cost relationship. (I wonder if I could simply compose a multipart MMS and get a 50% discount…) So you’re on the beach, and you’re quite likely to send pictures of your holidays to those suffering back in the office. If you’re (un)lucky, someone will call you. Et voila! A high-margin inbound roaming call.

Another example: “free” voicemail stimulates return call usage, and the “press 3 to return this call” is how you market that. (I’ve heard some amazing numbers on the extra usage and revenue that one tweak caused.)

There are plenty of possible combinations of product and segment to go for. Pre-pay users are the highest-margin customers, so anything that gets them to make a call is a good thing. Perhaps you offer the kids push email solution for nothing (they wouldn’t buy it anyway), so that parental corporate users (who won’t touch pre-pay) keep in touch and every so often you get an extra phone call made.

The effect could also be one of stimulating adoption as much as usage. Give away MMS messages, and get people used to using the system. This is the exact opposite of what happened in reality, which was “punishment pricing” of a new service the users were unsure how to use and what the value was.

Future presence-based services are likely to be critical stimulants of communications use. Plenty of people seem to be addicted to Twitter, which simply lets you publish on a minute-by-minute basis what you’re up to. (Remember: the Digital Youth don’t think or act like you do.) Bundle this with some free data and give it away on mobiles! Stop trying to squeeze service revenue from what are really marketing features of your communications platform.

Optimise customer lifetime value, not product margin

This demands looking at the customer’s spend and lifetime value in a holistic manner, and not locally optimising the returns from individual products or features. That consequently probably means changing all kinds of internal metrics and incentives. But why play games of internal cost allocation anyway when what counts is total customer spend and profit? The manufacturing industry has already been here: throughput accounting that focuses on optimising the returns from the whole system, not any individual element.

Furthermore, you can foresee a flip from “pre-marketing” of standardised packages at retail to entice new customers to “post-marketing”, where you pitch offers to specific individuals that will be of mutual benefit. It’s only once you see that usage and spending patterns of a user, and who else they interact with, that you’re in a position to know who will be a profitable “free” target. Hyper-segmentation tailors each offer down to the individual.

You would also adopt a more humble, data-driven approach to marketing. Rather than pretending you know everything about the user and the cross-elasticity of every product set, you just run lots of experiments in personalised offers and see which ones create the results you want. We’ve seen the trend from “one to many” to “one to one” marketing. This is just taking it a step further to “many to one” — where the collective behaviour drives the individual offer.

Just make the cogs of the profit machine turn faster

So how does ‘free’ relate to premium content in the headline? Well, once you’ve laid a glass pipe or recorded a song, the additional cost of distributing the bits is small to negligible. Margins are high in such a fixed-cost business. Rather than seeking to enter the entertainment and content business, telcos should be milking the high-margin voice and messaging products right under their own noses. The individualised segmentation and marketing skills needed will prove extremely hard for outsiders attacking any one part of the bundle to replicate.

Want to learn more about the future of voice and messaging or telecom services? Then read our report or come to our brainstorm!

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February 8, 2007

Mobile Entertainment & Advertising - London & NYC events

We’re delighted to be collaborating with the GSMA on two linked events covering telco’s role in Entertainment & Advertising: a European-focused workshop in London on 29th March (part of the Telco 2.0 Industry Brainstorm) and a N.American-focused event in New York City (The Mobile Entertainment & Advertising Summit) on 30th March, details here.

This builds on a major research programme we’ve been running with GSMA, (described in a previous post on this blog here).

Both the London and NYC events will use our ‘Mindshare’ interactive approach to fully engage the participants, and we’ll be presenting the findings from our research and analysis at both.

We are currently briefing the speakers for the European event (they include VPs from BT and Deutsche Telekom) while, in New York, speakers include VPs from CBS, Yahoo!, Vodafone, enabling vendors and a special appearance from Martin Sorrell, CEO of WPP (the world’s largest advertising group, if you didn’t know).

Agenda for London here, and for NYC here.

(If you would like a taster, you can get a private presentation of the research at the Telco 2.0 Meeting Room at 3GSM on Tues/Wed next week - Hall 3.1 (HS91). Just book an appointment with us.)

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Telcos’ Role in Advertising: Some Critical Dos and Don’ts for Operators

We are currently finishing off our report Telcos Role in the Advertising Value Chain with support from Alan Patrick at Broadsight. It has been fascinating looking at the relatively new, but fast-growing, on-line advertising market and the nascent mobile advertising industry.

We have taken a telco-oriented approach to these markets and explored how operators might add value to what already exists (what problems do the Content and Advertising communities face that the telcos could address?) and what strategies they need to adopt to be successful in a 2-sided marketplace.

Telcos & Advertising: A First Step into a 2-sided Marketplace

In a previous post on this blog we defined the Advertising market for Telcos as being one where they could either act as enablers of better digital advertising distribution or one where they themselves provide services and content that are funded by advertising (and thus cheaper for consumers). In another recent post we also explained how Telcos could potentially become all, or part, of a platform bringing Advertisers and Consumers together. Just to clarify how new and different this role is for Telcos, take a look at the chart below:

2-sided%20market.png

In the Telco 1.0 world, operators had a simple customer-supplier relationship with their end users and value moved left-to-right with costs on the left and revenue (from customers) on the right. But in a Telco 2.0 world operators will be serving 2 customer groups who want to interact THROUGH operators with each other:

  • Advertisers who wish to use operators as a channel for their advertising and receive customer information and ad performance metrics
  • End Users who wish to consume content and respond to advertising as well as use traditional operator services. Operator services may or may not be subsidised by the advertising. Operators can choose to provide value to consumers for other people’s products and services (e.g. discounted meals) or their own products and services (e.g. discounted/free voice and messaging services) as with Blyk.

Value is created on the right AND left (cost and revenue are found on BOTH sides) and operators have to manage the commercial relationships with two distinct customer groups. Thus far, the closest Telcos have got to a 2-sided market is in distributing content on behalf of content owners for which they receive a margin. But even here it is really a 1-sided market because Telcos pay the content owner (their supplier) for content and receive revenue from their customers. Also, most commentators would agree that this has not been a great success for a number of reasons. Some of these are structural (the market is not hugely attractive for Telcos because the supply-side is very consolidated and consumers have alternative free distribution channels such as the internet). Another reason why Telcos have not succeeded as content distribution channels, even when the market is fragmented such as for games, is poor strategy and execution:

  1. Too high pricing to content owners making it unattractive for applications developers and content owners to use them as a distribution channel
  2. Too high pricing to consumers so little content is bought through them
  3. Lack of an open, standardised content management platform making it expensive to create content for Telcos (especially mobile ones)

The 2-sided advertising market is substantially more complex than simple content distribution because the Advertisers will require substantially more information back from the operators and advertisers will pay operators for access to the platform - they are customers not suppliers. In return for payment, they will seek customer data and ad performance information from Telcos as well as ad-serving capabilities. But if Operators can get the Advertising model right, it could provide the impetus to grow the content market itself by increasing the volume and reducing the cost of content.

5 Strategic Questions

In our new report, Telcos Role in the Advertising Value Chain, we have identified 5 critical questions that operators must answer if they wish to carve out a successful and sustainable platform position:

  1. What sort of platform is needed to bring advertisers and consumers together - proprietary vs open, make vs buy/partner?
  2. What products/services/activities to provide in the platform - ad-serving only or a wider range of ancillary services?
  3. Whether to subsidise Telco products with advertising (ad-funded services) OR help others to reach consumers more effectively (enable others to subsidise their products/services) OR do both?
  4. How to price services for both sides of the market?
  5. How to avoid being enveloped by rival platforms?

    We will be debating these and other issues at a workshop on 29th March in London as part of the Telco 2.0™ Industry Brainstorm event.

The Advertising day is invitation-only, as we want to get the right people along from operators, internet players and the advertising world. I have sent invitations out to a number of people, together with a link for registering.

If I have missed you out and you would like to attend, then contact me and I will send you the link to the registration page.

What sort of platform - proprietary vs open, make vs buy/partner?

I am not going to give you the STL Telco 2.0 response to all the questions - you can buy the report and/or attend the workshop for that. But let’s take a look at the kind of platform that operators might want to develop or participate in.

The first thing to be aware of is that in a platform world scale is king (see chart below). If operators can’t develop or participate in a platform that brings together large numbers of uses and advertisers then they will fail (either individually as a company or collectively as an industry).

Platform%20Scale.png

Scale is particularly important in the on-line and mobile advertising markets for 3 reasons:

  1. The cost to users and advertisers of having relationships with multiple platforms is relatively high:
    • Advertisers cannot justify developing multiple advertising solutions for different platforms, they want a single standard platform which will enable them to maximise reach cost effectively
    • Most users will not have multiple telco accounts for broadband or mobile services in order to extract the best ad-funded deals
  2. The effect of ‘The Virtuous Circle of Scale’ is strong in this market:
    • The biggest platform(s) can offer the best economic incentive to advertisers and users so there is little incentive to go to a smaller platform
  3. There is little evidence of a strong preference for unique platform features:
    • To date, there has been limited evidence that specific users or advertisers have discrete needs that can be served with smaller, differentiated platforms (though this may develop over time with, for example, specific business traveller advertiser platforms springing up)
    • Having said this, Google was not first to market with its on-line search platform BUT developed scale by meeting the needs of searchers more effectively than its rivals

We believe that operators have 4 strategic options for developing a Telco advertising platform:

Platform%20options.png

So which is the right one? Well in the report we have a set of structured evaluation criteria and I am not taking you through them all here. But, suffice to say, our view is that if the Telco communities want to go down a proprietary route, then they need to partner with an existing big platform player. We have identified a number of risks with this approach and suggest that if this is the chosen option then Telcos execute this partnership very carefully to avoid being marginalised. Caveat emptor applies when partnering with the internet players in this space.

If operators elect for an open platform and develop a shared set of standards then we believe the upside is potentially higher for them - a bigger slice of a big pie. But the execution risks of this approach are probably higher as delays in developing the standard platform could mean they miss the boat altogether.

I am looking forward to feedback, discussion and debate when we present our research on this at the workshop.

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February 5, 2007

Telco Services Survival Strategy: Open, Focused, Collaborative

In our previous post we looked at the challenges of understanding the true end-user value in existing and new services. So what does this mean in practise for network operators looking to deploy new voice and messaging services?

Well, nobody really foresaw the rise of SMS, or why it was so compelling to users. We’ve learned our lessons, but it’s still hard to tell whether new services and features will be successful. Value analysis is difficult. Hence the Web 2.0 phenomenon of the eternal beta product: you’re never finished, because you’re always trialling and retiring features to learn where value lies. It’s not embarrassing to be less than omniscient about user needs, since they themselves don’t know how they’ll use tools that don’t exist yet.

So should you push feature innovation and differentiation? Or should you insist on cross-operator standardisation — raising all telco boats, but to the same level?

Our take would probably incline to the latter: the telecom industry is not about networks, but about competing distribution systems of communications services (of which networks are one essential component). The job of an operator is to make things operate. It doesn’t matter too much where the technology comes from. All person-to-person technologies imply a network effect of compatibility. Telecoms is about accellerating network effects. They make good guesses of what customers want and break the chicken-and-egg problem of new communications tools — who buys it when there’s nobody to talk to. Yes, you read it here first — telcos are chickens, and better for it too!

The Telco 2.0 twist, however, is that much of that commonality needs to be at the platform APIs of operators, an area they are under-investing in. APIs create option value: you aren’t tied into one internally created vision of user needs. So far it’s been seen as a problem of the CTO and CIO in creating a service architecture to expose the data and business processes of each operator to internal and external customers, which business development folk then hawk in a “chase the buck” game of partnership deals. Only BT’s Wholesale division has articulated anything like a complete business vision for a network platform independent of an in-house retail division.

(My personal belief is that the collection and exchange of presence and context data will become a big businesses, as the value of telephony moves from the call itself to getting the right timing, channel, participants and message.)

How should operators work with Internet IM providers? If much of the defensible value comes from the identity and billing relationship, then you enter into a co-operative mode. It’s in MSN or Yahoo!’s interest to have a revenue source from mobile users, and as long as you stick to the things you do well (provisioning, care, billing) everyone wins. You’re charging for access to the API to authenticate the user, because the value of that API is the business process you created to issue phone numbers, PINs, etc. — and the investment you have made in usability and inducing users to follow those processes. If you simply think you can hold the user captive without creating value, it won’t work.

There’s a lot of room for innovation as a platform provider. For example, a customer who has just signed up for a new messaging service, and who calls up for support, could immediately be routed to a tier 2 specialist in messaging for a superb customer experience, rather than wasting time explaining their problem to a tier 1 generalist who doesn’t understand.

Lastly, the least glamorous parts of the value proposition can be the most attractive as businesses. Whilst recently skimming through various MySpace pages, I couldn’t help but notice the huge amounts of commercial messaging spam appearing in people’s public message areas. If you needed a mobile phone #, ideally attached to a SIM card, in order to comment on a public forum (even if entered via a PC), there’s value in that process. A telco provides the governance capability of sending negative feedback on those who abuse their access. (This also suggests a cross-media network-agnostic future for most operators, who derive little benefit from the risk of network capex.)

So we think the critical factors for adapting your voice and messaging strategy as an operator are:
* Enable open business platforms, which touch more than just network APIs but include all relevant customer data and workflows.
* Collaborate cross-industry in the distribution of new basic features that interoperate (e.g. the ability to deposit a voicemail into someone’s mailbox directly without their phone ringing).
* Stop worrying about building the ultimate voice and messaging product: it’s a world of niches, and partner accordingly.

Only by understanding the limitations of the Internet model, and how they themselves create value, can operators thrive in an all-IP world. Yet it would be surprising to see the project and product pipeline governance process of most operators pay any heed at all to these strategic imperatives. (We’re here to help — you know who to call.)

For more detailed analysis on what to do see the new ‘Voice & Messaging 2.0’ report and/or come to the Telco 2.0 Industry Brainstorm in March.

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Sources of Value in Messaging and SMS

As part of our forthcoming Voice & Messaging 2.0 report we’ve been researching every innovative new application we can get our hands on, looking for common themes. A skill we think most operators could do more to develop is understanding what the true sources of value are in their products. The problems of MMS are the obvious case in point, but the absence of compelling examples of IMS-based use-cases beyond PSTN replacement suggests a deeper lack of insight as to what creates value and what the telco role really is.

Let me take as an example some work I did for a mobile handset vendor some time ago, decomposing the value proposition of SMS. (You can see similar work for voice services from my O’Reilly Emerging Telephony keynote last year here.) Once you understand how you create value, you’re in a better position to create profitable products and partnerships.

The basic misconception is that transport of the bits always constitutes the value of the service, just because that’s how we market and bill for it. This results in endless analyst reports with tables like the following (we’ve made up our own to protect the guilty):

ServicekB consumptionExample PricingRevenue per MB
SMS ringtone/logo0.2 kB$2 (UK)$13,981
SMS message0.1 kB$0.15 (UK)$1,573
Complex ringtone/logo2.0 kB$3 (UK)$1,536
Java download (game)15 kB$3 (Japan)$204
1 min voice call144 kB$0.10 (US)$0.71

Until you run out of spectrum or backhaul capacity there is zero marginal cost of transmission to the network owner, and capacity is a sunk cost that should be ignored. $/Mb is the worst possible metric to run a network by — particularly as opportunities to offload transmission of “heavy” media onto user-supplied media and networks increases.

Postage and packing costs don’t tell you about value. I could post you a box of gold and a box of manure, but the relative transport costs tell me nothing about the postal system or the goods. You only learn about the value of the gold by being told about wedding social customs, mining costs, secure storage costs, central banking institutions, currency issuance and inflationary effects of competing stores of value. You don’t learn anything about those by looking at the value of the stamp on the box. All that tells you is gold is heavy, not why the user paid $10,000 for it.

Before assigning value to functional elements of SMS, we need to know what those elements are. In the diagram below, Aino is sending an SMS to Bo. The key components of the transaction are shown: handsets, radio networks, SMS messaging centres, long-haul interconnect, home agents/HLRs, customer database, billing and policing. Remember, the customer sees no value any of these things per se.

(The groovy guy at the bottom is a Brussels bureaucrat who makes sure that every national regulator has in place some means of dealing with nuisance users. He looks rather Walloon to me, anyway.)

Now we overlay some of the value elements:

So what does your 10¢ to send an SMS buy you? Where does the value come from?

  • The ability to enter the information into the handset, tuned for usability of text entry?
  • Is it to have it transmitted and delivered? (Think of the difference between these as being between having the package delivered to your home address and having to collect it from the depot.)
  • How much is attributable to the availability of coverage: the service comes to you, rather than you to it? The universality of the service via interconnect agreements? The ubiquity of the receiving apparatus?
  • The storage of the data sent to sometimes disconnected recipients? The resolution of mobility, delivering to the user wherever they may roam? (Think of this as the difference between a package delivered to your home address and one delivered personally to you.)
  • What value is attached to the ability to cause the recipient’s handset to ring and vibrate, indicating urgency to the message? (Do Blackberry users have their devices vibrate with every email? Rarely. Why not?) Every message is billed (or subtracts from a bucket), and thus has cost which would only be incurred if the message has relevance. Without this, how do you know the recipient will bother reading messages?
  • What if the system is abused? Somehow there has to be governance, which in turn relies on some means of tracing malicious users and accountability.

You can almost imagine getting an itemised bill for each SMS, with sub-totals from 3GPP, Verisign, NeuStar, Level 3, the FCC/OFCOM/etc., Nokia and so on.

We’ve not captured everything here. For example, because SMS messages always go to handsets, and handsets are personal devices with a taboo of fiddling with someone else’s when they’re not looking, there’s a strong privacy proposition. Indeed, this is possibly the #1 driver for teen use — no parental oversight. Thus a “value-added” combinatorial service that delivers text messages to the TV as well would be value destroying.

Cheap, open IP networks make disintermediation of carrier services possible, but not inevitable. People will continue to use SMS even when offered a free e-mail alternative. This is because e-mail does not have all the value attributes of SMS the customer desires (e.g. governance, ubiquity). It also lacks the economic structure that content and service providers need, such as premium charges to vote in TV reality shows like Big Brother or Pop Idol.

We’ll look at some of the consequences of this in a subsequent post.

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Telco 2.0 Strategy Report Out Now: Telco Strategy in the Cloud

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