Telco 2.0 Interview: Steve Zimba, Microsoft

Continuing our series of interviews with major industry thinkers, Steve Zimba is Microsoft's Managing Director, Global Telecoms Business. We interviewed Steve about their 'Telco 2.0' strategy. This integrates their PC, IPTV and mobile offerings with a combined software and services offering, supported by telecoms-specific capabilities and a third party ecosystem.


Steve Zimba

Microsoft is a particularly interesting company to us because they are in a unique position. They bridge the consumer and enterprise markets, which places them well to create technologies and operational businesses for two-sided markets. Their Internet competitors are consumer-centric, and don't have channels into the enterprise. Rivals such as IBM don't have the consumer brand or media properties to run experiments on the scale Microsoft can. Furthermore, Microsoft is active across all of the B2B value-added service areas we believe will drive future telco growth: identity, advertising & marketing services, e-commerce, order fulfilment, content delivery, billing & payments, and customer care/CRM. The difficult challenge is whether Microsoft can make the whole more than sum of its software conglomerate parts.

Telco 2.0: Microsoft's Telco 2.0 vision is very much about supporting the current one-sided business model. This is a vertically integrated supply chain, which needs to be able to produce services quicker and cheaper. In contrast, our Telco 2.0 vision is much more about facilitating interactions between players in different value chains. How does Microsoft view the two-sided business model?

Zimba: We think there is a crucial missing element in this journey to two-sided markets: an initial B2B stage that aligns smaller businesses in new value chains. Telcos have a great opportunity to become a new channel to market for media content, and for all kinds of services based around communication and IT. This can also extend business services to consumers and consumer-originated ones back into the enterprise. Advertising and subscription are still very viable business models, but we now have licensing models in place that enable revenue sharing, and other measures in place to let telcos essentially become mass retailers [in a 2-sided platform model].

Telco 2.0: Do you see an evolution towards a 2-sided model?

Zimba: Yes, but I don't know if we'll even call it a telco -- it may be much more like a retailer, like Home Depot. [Ed - For more info on this 2-sided business model see here.] They don't develop their own products; but they are a very efficient transactional engine. This is where the telcos will have to go: they need to recognise the importance of third parties, the importance of user generated content, and how they can match those with customers.

Telco 2.0: How are they responding?

Zimba: Slowly and cautiously. They've got a certain business model in place that works, and their operations, transactions, and thinking are geared that way. But the higher levels are aware they need to get there. But not everyone will.

Telco 2.0: When will they start feeling the pressure?

Zimba: The people who are shaking this up are the new entrants. They don't share the same DNA, the same experience. Once they start taking share from the core business, that's the biggest wake-up call of all.

Telco 2.0: Which new entrants, in particular?

Zimba: Google. They're clearly beginning to catch eyeballs and provide a lot of services. Amazon. It's not a long stretch to imagine they could capture the core services, or least own a lot of the VAS. The telcos could be left with only their core services, which are getting less valuable. A company that excites me is Cbeyond -- their key metric is applications per user, and they're seeing it trend up.

Telco 2.0: What is Microsoft's place in all this?

Zimba: We're having to play the game both ways -- direct to consumer with Live, which you're familiar with, where a real customer base is building up. But there are limitations to what we can do alone with Live, so we're working on what we can do with the telcos, and draw more subscribers to a combined Microsoft/telco platform.

Telco 2.0: How do you integrate them into Microsoft?

Zimba: If you wanted to do a next-generation service -- address book in the cloud, with SMS/MMS, say -- you need to know how to price it, how to monetise it. Can it be ad-funded? We're executing on these questions now.

Telco 2.0: Any operators you think are leading the way?

Zimba: I'd point you to things we're doing with Orange -- on the desktop, on the mobile, with SMS. We're establishing deep connections between Orange SMS infrastructure and the MSN Live Messenger cloud.

Telco 2.0: Telco customer data can be used to create services that would be difficult for purely "over the top" companies. How do we do this best?

Zimba: Don't limit yourself to just customer data! Some disruptors are built entirely on understanding their customer data model; but telcos can know so much more. They need to develop a really deep understanding of their customers' desires, wants and needs, across the PC, phone, and TV. They need to use this for genuinely innovative, new, and responsible applications. Of course, let me stress "responsible".

Telco 2.0: Yahoo! recently created a Chief Customer Data Officer. Should there be someone like that in every telco?

Zimba: It's interesting; I think telcos don't realise the importance of customer data. There are efforts around business intelligence, but it's not yet an integrated whole. It's nothing like WalMart's knowledge of its customers and what happens in its stores. Telcos need to act! Third parties, ISVs, Microsoft are expecting them to do it, but I don't see it yet.

Telco 2.0: Moving on to something else, there's an emerging competition between IPTV and Web video. What do you think the telcos' role is in video delivery?

Zimba: They need to become a fully fledged, mass media system across different devices and media. In TV itself, there's a race by all incumbents and some disruptors to get into TV. A range of devices will get deployed to provide TV, but the 10ft experience, the TV in the room, is still going to be valuable. But we see people using the Internet and TV simultaneously.

Telco 2.0: So interactivity wins?

Zimba: It certainly could. The TV may well become more of a big screen for the PC, with more traffic migrating to broadband. Will people still pay three hundred bucks for a TV package and then watch 10% of the channels, when they can mix-and-match and only pay for what they watch, or keep it all to watch later?

Telco 2.0: What do you think the best practice for online video distribution is?

Zimba: AT&T and Yahoo!'s integration of IPTV and Web; serious kudos to the Yahoo! guys. I'm intrigued by what Verizon's doing on the Web - I watched football on there recently, and it's pretty compelling. ESPN also doing interesting things.

Telco 2.0: Are there any disruptors you find particularly interesting?

Zimba: Nothing I've particularly noticed; the company I keep an eye on is Joost.

Telco 2.0: We've touched on business models for telcos. What about Microsoft? Qualcomm has an end-to-end applications ecosystem in BREW. How does the Communications Service Applications Framework benefit MS?

Zimba: We looked back at our own ecosystem of developers and ISVs, and we realised that we had to help them to develop products that the telcos will market and deploy. It's a tough change; as well as a czar of business intelligence, telcos need someone high up in charge of developers and development. We have a pilot project with SingTel and they've done just that.

Telco 2.0: So Steve Ballmer was right that it's "developers, developers, developers"?

Zimba: Yes. This is what SingTel has done -- said "we've got these customers and they look like this", and offered a revenue share to anyone who wants to develop for that market. As for service creation, there's a need for new investment here, in things like Jamcracker. You clearly can't have projects that spend 6-12 months working on OSS BSS integration any more.

Telco 2.0: The second part of the problem is operating the thing. Telcos have low self-care rates and a reputation for poor customer service. What changes are needed in operator technology and organisation?

Zimba: There are three messages I'm pushing at the moment. First, business intelligence. Second, investment in transactional engines - the platform for the old world won't work any more. And the developers don't focus on this -- they want to do something cool. It's no different, really, to the expectations of suppliers to Home Depot. They're not interested in how their back-office works. Third thing is telcos optimising their sales and customer care activities, particularly in relation to leveraging their retail store presence; TVs should be bundled with connectivity as they become IP endpoints.

Telco 2.0: What's stopping them making the necessary changes?

Zimba: It's not really in their DNA. They need to invest in stores, and embrace online. Shame on the telcos for not becoming destination sites!

Telco 2.0: How does Microsoft help?

Zimba: Dual branding is important. All the stuff we're rolling out is co-branded, like Orange Messenger. Orange and Microsoft together -- there has to be something unique. We've always been focused on the enterprise, but now we're doubling down on the consumer. We've got a new consumer channel organisation, and there's a great new ad campaign with Jerry Seinfeld coming up.

Telco 2.0: One of the areas of 'Telco 2.0' that we're getting more and more passionate about is "communications-enabled business processes". What are you doing in this area?

Zimba: We're embedding voice in both enterprise and consumer applications - Messenger and Xbox, for example. But we've barely scratched the surface of what's possible. We need to continue to accelerate the drive to reach that level of integration.

Telco 2.0: Finally, what's your over-riding advice for a telco today?

Zimba: Embrace the 3-screen experience, so your services embrace all IP endpoints. Without that kind of portfolio you won't survive. Embrace being a mass retailer, mastering customer data and transactional processing. Telcos need to be able to do all these, and do them second to none.

Telco 2.0: And what should the Telco 2.0™ Initiative be doing to help?

Zimba: More of what you're currently doing. Telcos will need more tactical advice on how to make this happen. Show them a roadmap.

[Ed - We are pleased to welcome Microsoft as a sponsor of the 5th Telco 2.0 Executive Brainstorm, 4-5 November, London, where Steve will be joining a panel on 'Key industry next steps'.]