Finding growth outside of network assets
"Convergence" is typically used to describe a process whereby the anarchy of the Internet will slowly bow to the economic (un)reality of Telco 1.0 and controlled introduction of "combinatorial" services. Unsurprisingly, we eschew such language here in favour of more precise terminology. Nonetheless, if there is one place where "convergence" does happen, it is in devices. Since mobility is valued so highly, users are willing to make functional and user interface compromises to achieve their goals. (The usual jokes about nobody buying combined microwaves and fridges wouldn't look so funny if told from the perspective of a Mongolian nomad in his yurt, who might find such a device quite useful tethered to a small generator!)
Many "intimate" and personal objects have been sucked into the mobile device already: radios, cameras, watches, dictaphone, address book, diary, and so on. Ring tones compete with neck ties to add colour into drab corporate environments. (Who will want to work in cubeville in 20 years' time? I'm not going back!) Phones even evolve into pieces of jewellery.
Yet there are a few notable exceptions sitting in our pockets. Time is already running out for our wallets. No doubt identity documents like driving licenses will follow suit. A biro, scrap of paper and a handkerchief will hide in every handbag until the end of time.
But what's the one thing you won't leave home without -- even above your mobile phone?
Your house keys.
So as a thought experiment, let's look at the door entry market as a short case study for Telco 2.0.
The button for number six doesn't work, so I call up when I visit.
We've done no research on door entry systems here at Telco 2.0. (My parents bought a door chime about 20 years ago, and it's still maturing in the garage, with the door knocker having a good few hundred years of life left. Still, there's hope. The ladder hooks reached full maturity after just 15 years, and are now up on the wall doing their job.) We've no idea how compelling the market is. This is not investment or product advice. For all we know there could be a successful existing market, or it's already been a flop. It's the principle, not the practice.
OK, caveats done.
Our thesis is that a Telco 2.0 operator will adapt to a "horizontal" world with layered interactions and extended value chains. Those who remain in the services space with a deep customer relationship will combat Internet players by understanding that the network is only part of the puzzle. Many of the assets that are hard to replicate stand outside the core network. For a US telco, sales tax management and interfacing with the individual states and their regulations is a big deal. A telco can help a small idea grow big. We see other important assets. "Billing" is often glibly trotted out, but it's really an amalgam of functions which include more subtle issues like the ability to implement and manage large marketing promotions without overwhelming your call centre or e-commerce site. The list is quite long, and indicates there's substantial hope for those parts of the industry that adapt to a more modular world. (If we didn't believe in it, we wouldn't be investing our careers in it.)
The door entry market looks attractive to us as a telco partnership proposition in several ways:
- Extends the existing device business model and functions. This is a network of compatibility, not a network of communications (more like USB than GSM). It grows the "telecom" ecosystem, even if that term has decreasing meaning. Collaborating operators could produce both de facto and de jure standards: the outcome is standardisation, which acts as a business magnet.
- The telcos have some great existing customer data and relationships to market the service. Simple information can be hard to get. Is a property is a second home? (This is a key target market for remote entry.) Low-use households enjoying a rebate are likely to contain an elderly person who again might fit the target demographic. Granny might have difficulty telling the difference between a bona fide visitor and a conman, but her daughter won't.
- It has the potential to extract more value from the strong identity inside cellular devices already in the field. SIM cards and multi-factor authentication mean telcos can build more confidence into the system at lower cost.
- The retail stores and logistics of the operator can be included in the picture. Even if the product isn't promoted in-store, you might be able to go to the store to pick up the equipment or to provision and pay for the service.
- The existing field service network of landline operators fits the installation need. You've trained someone to staple a cable to the wall, and equipped them with a van and a staple gun. Now tell them how to wire a box onto the end that fits into the door.
- Last, and maybe least, the network itself. The door system may communicate through a wireless WAN, and where remote entry is enabled the activator might be using a 3G handset to see who is at the door. But there won't be a separate billable event every time someone knocks at your door, so keep that billing system in the box where it belongs.
Such a system would require some change of habit in users. That means it will only offer compelling benefit at first in some niche markets. The implication is that the operator is unlikely to succeed on their own. The key (pun intended) is to find a partner in the existing security and door entry market whose solutions can be made cheaper and penetrate further towards the mass market. If you've got assets these partners can use, you've won the dumb pipe game: not by making the network smarter or faux-circuit emulation to retain control, but by having a portfolio of complementary business activities where the network -- to steal a phrase -- at the core of the business without being the core business.