Airline 2.0: How Telcos can do miles better with minutes
In our previous post on the airline industry, we noted how they had created a 2-sided business model using frequent flyer miles. These sub-divide the product (seat reservations, i.e. "options to fly"), and the sub-divisions can be sold at a significant profit to upstream partners like banks and supermarkets. Furthermore, this generates considerable free cash flow. So how can we apply these lessons to telcos?
Hey! That's just like us!
When an ISP sells you a broadband plan, it's selling you a sequence of "options to communicate". Every time you fire a packet down the DSL line, you're redeeming one of those options. (This approach has been studied in some detail by the academic community using options theory.) Today we tend to only sell that in a one-sided market, as a $40/month "unlimited (subject to arbitrary whim)" ISP plan. This is a particularly bizarre proposition, as the best possible thing to happen from the ISP's perspective is that the customer doesn't use the product. Your keenest customers, who find the most ways of using it, also create the most cost, and you end up punishing them with threats of digital exile, or punitive overage charges.
A bucket of minutes is much the same -- a bulky product that looks amenable to being broken up. So can we sub-divide this, re-package it, and sell it at a higher margin? Or at the very least enable some value-based pricing and price discriminate between users willing to pay more, and those of a more thrifty persuasion?
*The first step towards a 2-sided market: indirect sales channels*
Just like the last article, this one is being written on a plane. I'm guessing there around 180 passengers aboard, all heading towards Madrid. I expect half the people aboard live in the UK and are just going to Spain for a short business or family trip. This is what a real microsegment looks like. Traditional market segmentation sees a static, broad demographic view. We're just a transient bunch of folks at 32,000 feet all being flung in the same direction for two hours.
The EasyJet in-flight sales trolley has only two communications products for sale. One is a pricey near-field peer-to-peer signalling system called "perfume". The other is from one of the roaming SIM card providers. This isn't good news if you're a mainstream mobile telco. The best you can hope for is that your customers smell better on arrival. The worst is that you lose 100% of your roaming fees.
The telco web portal, store or call centre will never be the right context for a targeted "Going to Spain for a quick trip" offer. The job of the telco is to support and supply those who have a truly close relationship with the customer. (Billing people isn't a "relationship", it's alimony.)
The pain in Spain is buying on the plane
So what if instead you could buy a €25 scratch card with an activation code you text to a short code on arrival? Every European operator would participate. This would give you, say, unlimited calling within Spain for 7 days, plus 100 minutes to call your home country, and 10Mb of data. Plus, you'd be sent a link to a URL to download a sponsored Java application for your handset that would include an interactive map and city guide, some m-coupons for key attractions, and a search facility for hotels, restaurants and car rental - all data charges included.
In other words, it's just your good old-fashioned prepaid calling card, but rather than being disintermediated, the mobile operator cuts itself in on the deal.
Would this cannibalise existing revenues? Not really, because just like hotel telephone charges, prices for "standard" roaming would rise to reflect the occasional, emergency or naïve usage. The price of wholesale minutes could be set above any indifference point.
Behind the scenes we'd have to evolve how wholesale and settlement markets work. But then the blockbuster telco products are always precisely the ones which get roaming and interoperability fixed.
From ten miles a minute to a minute for every ten miles
How could we move to a true two-sided market? Easy! Just invert the model of all the US long distance players. They spend a fortune bribing customers to switch carrier, using frequent flyer miles as one of the inducements. Why not instead get EasyJet to spend a fortune on buying wholesale minutes and bundling them up with flights as a combined offer? Or why not enable the low-cost carriers to offer mobile minutes as a reward? The telcos could offer such a promotional marketing platform as a 100% outsourced service to low-cost airlines.
You're just issuing a private currency, and enjoying the float from seignorage. We already see minutes as a retail currency in Africa and SE Asia. Why not in developed markets, but adapted for the needs of those markets with a richer wholesale structure? What greater gift could you give your customers than more contact with friends and family? And what better permission marketing opportunity than to once in a while remind your user "The next 50 texts are on us - do check out our new products...".
More missing middlemen
We can see the Blyk model of ad-funded communications being stretched. A weakness of Blyk is that the messages and minutes come as a "right", rather than as a gift from a named sponsor. For students, their bank should be a major minute sugar daddy. Also, Blyk has to carry the full costs of acquiring customers and servicing them, as well as keeping up with the other carriers in creating parity in their offering. Better to just be a cross-carrier platform for promotional services, using minutes and messages as a currency? All these new models will require the growth of wholesalers who aggregate and re-package access for the upstream partners.
It's also not hard to find ways to make this into a churn-buster, in the same ways that the airlines use elite flyer tiers to accentuate the pain of separation. Would a year's "free" mobile use tip your decision on where to buy a mortgage, car, luxury holiday? Would 50% off your bill get you to switch supermarket? The potential size and value of the new wholesale markets could be significant in a world where churn costs increasingly dominate the net customer lifetime value.
After all, never underestimate the power of "FREE!" - for in a Telco 2.0 world, that's where the highest margins lie.
[Ed. - more examples of business model evolution at our big event in April in London].