We’re wary of crying wolf about threats to core operator voice and messaging revenue. Too often you end up vigorously licked by a cute puppy instead of viciously dismembered by some noisy new disruptor.
For example, Skype still represents only around five percent of global voice traffic, and most of that appears to be incremental to paid PSTN use. Only the narrow segment of international calling cards got hit. On the basis that your enemy’s enemy is your friend, and Skype also drives voice termination minutes and broadband uptake, the short-term impact has probably been positive. Skype was a form of “better telephony” but hobbled by the form factor of the PC — “much worse handset”, and thus served different needs from traditional fixed and mobile services.
We’re not so sure that complacency is in order when it comes to the new challenger for user attention, social networking services (SNS). Chatter has been a function of the Internet from before the Web; and indeed geeky users were communicating via bulletin boards long before even home Internet access became the norm. People have always been far more willing to commit time and money to talking with each other than they have in absorbing packaged media goods. The proximity of music, video clips and celeb gossip is just fodder to feed the users’ conversations.
We’ve been thinking about this area as a prelude to our forthcoming Telco 2.0 event and Digital Product Innovation Summit. So this is the first part of the Telco 2.0 outlook on the social networking phenomenon and what it might mean for operators.
What kind of meeting place?
“Social networking” is a misnomer. Most of what goes on within the walls of MySpace, Facebook and Bebo is plain old conversation among existing friends and colleagues, extended to new media types. The act of “networking” to discover new contacts is a secondary use case overall, and is tied to buying goods or dating — activities that require vertical search and reputation systems to overcome gaps in social capital and trust.
This should give operators both concern and comfort. The obvious problem is that any meeting place that offers a compelling arena for conversation is a potential competitor to telco voice and SMS. If teens launch every IM, SMS and call from within the mobile client of their preferred SNS, someone else mediates your customer experience and may control who gets origination and termination revenue.
The contra viewpoint is that the real “network” — the relationships between people — is external to the SNS (and telcos too). That means the stickiness and lock-in of the social networking service is probably lower than might be supposed. Users will merrily churn from one SNS to the next according to the whims of fashion. Their business model more resembles that of a nightclub than a telco: be the in place to hang out, at least for this season.
This plays to the strengths of operators: simple, dependable, ubiquitous services, conveniently packaged.
So if social network services aren’t really in the business of social networking, to what extent are they in the business of telephony and messaging?
Friendster or foester?
We have the following simple pyramid model of interaction around telephony, looking from the smallest to the largest scale of social interaction.
From the bottom up, the five layers are:
- Rendezvous. The process of synchonising the meeting of two or more people to interact, and having a medium and means of doing so. Every (successful) phone call has at least one rendezvous. However, it might take a number of rendezvous attempts (via calls or messages) to get to the point of actually engaging in meaningful talk. For instance, you play voicemail tag, or someone asks if you can call back in a few minutes, or you have to set up a call via someone’s secretary.
- Call. There is nothing more natural than people talking to each other, and the telephone wispers in our ear from afar, magically suspending disbelief that we’re yappping at a lump of plastic.
- Conversation. Colloquially we’d say a single call is a conversation, but really it’s wider than that. A conversation may involve a sequence of interactions with some common purpose, initiated in different directions, and potentially with a varying set of participants. An email or newsgroup thread is closer to the meaning here. Telephony includes some limited “conversational” features, like missed call alerts.
- Relationships. The more you interact with someone, the stronger the relationship becomes. If you aren’t talking, where’s the relationship? Ask any marriage counsellor. Your phone doesn’t generally do a good job of helping you manage relationships — “wife’s birthday” and “wedding anniversary” remain to be baked into the provisioning process of my next handset.
- Community. An aggregate of relationships forms a community — workplace, club, family, sports team, etc. The user interface and pricing of telco voice and messaging products don’t lend themselves well to group use.
Go where the enemy isn’t
The diagram suggests that there’s only a partial overlap of the two businesses when it comes to telephony. Some SNS sites are looking to incorporate click-to-call and voice capabilities, but that’s not how people use them today. Still, voice will undoubtedly become embedded into the experience. So in reaction to encroachment from up above in the stack, why not hunker down and improve things in the bottom two layers, where you are strong? The answer to a challenge from a competitor product is to improve your own.
In particular, telephony isn’t nearly as good as operators like to think. Just listen in on what people around you do and say when they answer the phone or make calls. In particular, listen for:
- People doing manual transfers of presence, location and availability data — “I’m on the train”, “I’m in another call, can I get back to you?”, “I’m driving, call me in 15 minutes when I’m there”. These sound like what should be machine-to-machine transfers of data, very expensively and inconveniently being parsed and passed through humans.
- People establishing the context of the call. “I saw your advert in the newspaper”, “I’m calling about last quarter’s sales figures”. Some answerphones have a screening feature where you kick callers to voicemail and then jump back into a live call if you really want to talk to them. Users want to have context to help them judge whether to answer the call, but caller ID doesn’t provide it. How come nobody can tell I’m calling them back about the voicemail they left?
Your network might deliver five-nines call quality, but from the user viewpoint it’s broken: many (if not most) of the calls are unsuccessful because the rendezvous process is incomplete.
Our suggestion then is that operators need to enable better telephony features, using the network presence, location and device status they already have a natural advantage in brokering. The best approach to doing this is via an API or platform approach — we’ve already discussed the merits and difficulties in operators building a “PSTN 2.0” version of telephony alone.
If it’s any consolation, even players like Skype, with a clean sheet, haven’t got very far. For example, they have a “birthday notification” feature to tell you it’s a contact’s birthday today. But if you click on the birthday boy or girl to place a call to them, they don’t get a special “Happy birthday” screen presented. No context of how the call is initiated is ever shared. Likewise, the Skype browser plug-in never seems to want for you to “call a friend about this web page”, with the recipient see the URL and thumbnail as the “caller ID”. Skype is too busy selling Telephony 1.0 to its users.
The big prize — one that eludes Skype and eBay too — is to creep up the value chain into transactions during a call. Facebook aims low, for adverts. Carriers with long-term vision will be looking to IP networks to transform what happens when their customers call a freephone number and hits an IVR. Network operators can carry their involvement right through to payment and fulfilment.
SNS sites are more of a substitute for operator products when it comes to messaging. In particular, they effectively offer a wider range of message types and delivery mechanisms. Depending on the site, you can see who has been checking out your profile (a “maybe I’d like to hear from you” signal), and can send a variety of one-press flirts, nods and winks as well as richer multi-media messages. These have different semantics to SMS. If you received an empty text message, you’d assume it was a mistake or a prank. Just like IM, they facilitate a wider range of “digital social gestures”.
A downside of the SNS approach is that you have to be within their walled garden to pick up your messages. Else you rather bizarrely receive an endless stream of email updates hinting that someone has left you a message, but reluctant to tell you who or why. It’s as if you’re not supposed to have a life away from gazing at screens big and small.
So far the PC-centric nature of SNS sites has limited their distribution. The likely outcome is a co-evolution where operators focus on the parts of the messaging system where operator assets are most important (payments, identity, etc.), such as premium SMS and services like SeeMeTV (powered by Yospace) which are dependent on not being free. The SNS messaging ecosystem will give rich functionality, but always be hemmed in by the limits of the social network interest group or brand. The interoperability problems of IM look like being replicated all over again with SNS sites, and the winners will be operators who mostly have to do nothing and wait for the users to select public telephony or messaging to get between the islands.
Conversations create calls
Telephony lets you hear what’s happening at one other place. It enhances your hearing beyond mere bionics. SNS sites (potentially) let you know what’s going on among those you care about. It’s an electric motor for your sociability: taking effort and cost out of the process of manually getting gossip.
As someone resisting having even more digital dependants to care and feed, I’m not an active SNS user. My own Facebook newsfeed lacks much of interest. Still, it’s not hard to imaging the first port-of-call in the morning not being the email inbox or world news. Who does this threaten? This hyper-personal news looks like far more of a problem to the publishing and content aggregation industry than it does to telcos. It’s easy to add in the mass media news and some adverts into your personal news; but you can’t easily do the converse without knowing who the user cares about. The only thing surprising now about Rupert Murdoch buying MySpace is that it seemed so surprising then.
Telcos have never been good aggregators and filterers of content, and there’s no reason to think that will change. It’s the IPTV and entertainment division that needs to pay more attention than the voice and messaging. Do I go to an electronic program guide to get content recommendations, or will they come through SNS services and social collaborative filtering systems like Pandora and Last.fm?
Operators also have three big assets in their co-opetition with SNS sites:
- They know who you interact with — and are willing to demonstrate your interest in cash. If I call you, and we speak for an hour, and it’s a metered call, what does that tell you? There’s a goldmine of latent social network data in usage patterns. Furthermore, the operator is a central, trusted party: if the users had to supply their own use data (e.g. downloaded from their device) it’d quickly be faked.
- They know which web sites you visit, which IP addresses you touch. The view is across all services.
- Mobile operators have a copy of your address book (although few operators have good network address book solutions).
Between these, there’s a goldmine of latent social network data. An operator can process this within their own domain to do smart call routing and advert presentation. The user has to trust the operator with this data anyway, so there’s a smaller privacy barrier to overcome compared to third parties doing the same functions.
Do what you’re good at, and no more
The disintermediation and endless price deflation wrought by the Internet seems to cast gloom over the voice and messaging business. Yet there’s a countervailing current: a more loosely coupled, modular industry structure that dances to the tune of the users. This means you can be successful by doing less and doing it better, because if the user likes your product, someone will mash it up into the other things the user prefers.
So if you’re a phone company, you firstly need to make your phone product better. We’d suggest the weakest place in the current product is how calls are set up. We need more contextual information to help people rendezvous at the right moment. Then once you’ve done that, your better product needs to be open enough to allow any and every partner to interact with these capabilities. Phone companies have a comparative advantage in synchronous (interrupting) communications; SNS sites are good at asynchronous messaging with large time gaps between sending and receiving.
The end of vertical integration means that operators will engage in less of the value chain. By focusing in on the essentials of the person-to-person communications experience, and integrating the handset, network and support functions, you can compete against players for whom this is just a bolt-on.
The battleground will come with an offence element: making telephony and messaging more conversational. This can be as simple as insisting handset vendors make their SMS inbox threaded, not just a flat list. You’re in the business of selling more phone calls, so help prompt the users to make them. Draw a line under the SMS, remind the user that the green button will call Bob back.
The defence side is to make the pre-call rendezvous process more robust.
Ultimately both SNS sites and telcos will evolve their business models to make money because of the network, not from the network. The area of competition will be owning the user transactions through to completion. Until eBay buys a SNS company and works out how to integrate Skype and Paypal too, you’ve probably got quite a lot of time to think about it.
In the next article we’ll look at Facebook’s APIs and platform strategy, and lessons from that initiative for operators.
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