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Rebuilding Telco value & control via a two-sided business model
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Rebuilding Telco value & control via a two-sided business model

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How telco operators can add value by adding a two-sided business model to their existing one-sided retail model

How telco operators can add value by adding a two-sided business model to their existing one-sided retail model

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  • The Marketplace is the context in which a business model operates. It consists of alternate service offerings offered by competitors to the same customer segments. Regulatory framework too. Service Offering is what a firm delivers to specific customers/ end users in particular market segment. Value Network is the configuration of actors who together perform activities that create value for a specific customer. Technology is the technical architecture and functionality that is needed to realise a certain service offering. Finance describes how a company intends to generate a return from a particular service offering. More detail available – e.g. domain breaks down into several components which interact with each other and with components in other domains. Useful when developing a new business model and in analysing strengths and weaknesses in one of the 5 domains but need something less granular when diagnosing industry business model issues and opportunities.
  • The ability of the 5 domains of a business model to influence two factors will ultimately drive the success or failure of that business model: Value = value within the value network. Value network = collection of actors in an industry. E.g. Mobile telecoms industry = operators + partners/vendors Control = amount of control an individual company or collection of companies that do same role can exert on value network. E.g. Mobile telecoms operators have very strong control over mobile telephony market
  • Things are changing fast: Reduced control for mobile operators: Less vertical integration means new players can come in with solutions and take control away from operators (cherry pick influential parts of the value chain and seek to dominate) – wi-fi operators around connectivity, handset manufacturers around apps and services etc. Alternative service providers can now reach end customers directly via the mobile channel – OTT players (apps developers) More modular technology increases innovation but it can be carried out by companies that are not mobile operators Network intelligence has shifted to the edge (decentralised network topology and more powerful devices) = less control in the network Reduced value in the value network: Market saturation for core services means lower growth from end user revenues Less control = more competitors now offering substitute products (VOIP (Skype = biggest international voice carrier); social networking) New revenue model of alternative service providers (ad-funded) means operator prices are being forced down Regulatory environment (certainly in Europe) is tough – roaming charges; local access unbundling etc.
  • Currently operators provide core services to individuals within their customer segments (P2P) communications and they collect money from millions of customers in thousands of segments using hundreds of devices. In doing this they have a collection of assets and skills that can be reused to develop new platform services for delivery to upstream customers (like the merchants in amazon model). Operators can be paid for these services by new upstream customer group . Now going to cover what they are and challenges of realising the opportunity…
  • Critically, the 2-sided business model strengthens the operator business model by increasing both control and value for the operator: Operator platform becomes destination for multiple industries so lots of partners and lots of customers rely on Telco and it becomes key player. Operator does NOT own customer relationship but operator retains key gateway to customer and learns about customer Telco platform builds intelligence both about service provider community and end customers New revenue source – upstream customers. Involves capturing small % of value of other value chains rather than large % of comms Operator complements other products – woven into fabric of other businesses in form of services or business processes Interactions with customer means they contribute to platform and become vital component of value (ie vertical integration extends from end customer to upstream player). Amazon has done this with customer reviews on its platform Great customer intimacy means operator builds strong relationship over and above price and product leadership Potentially more favourable regulatory environment outside Telco (or could be that Telecoms regulators follow operators into theese markets) Key question: how to realise success?
  • Lots needs to be done but 3 key things are important: Leadership. Concept has to be embraced at the top of the organisation. New way of making money from new customers using new skills = major shift. Without board level leadership then 2SBM will fail. Encouraging signs = Telco 2.0 exec brainstorm attended by senior commercial players – marketers and strategists from operators Action group potential Colao painted very similar vision of future in recent presentation Skills. Mentioned that platform knowledge and information exchange is key to future success. Google = 2-sided master because it can capture and manage data so well. Starting to invade telco space – maps, triangulation, chrome, accounts etc. and most recently opt-in to traffic monitoring service using mobile phone location being offered direct to end user. Operators have lots of assets but others will work around. Value depreciating and operators have to find a way to become very skillful and managing upstream and downstream customer data well (and within privacy laws). 2 options – do anonymously or only use data on transactions that take place within telco (Google model) Collaboration. As mentioned – scale is king. Problem for operators is that none are big enough to dominate on their own as they have network boundaries (defined by regulation and economics). Upstream customers want to reach ALL telco customers not just those on a single network in a single retion. Therefore if they are to develop a large-scale platform for upstream providers, operators are going to have to work together and with partners to overcome this fragmentation. Aggregation services will be key. This could happen via a 3 rd -party aggregator like Mblox and Ericsson IPX in premium SMS or it could be via operators collaborating directly as with Zoompass (a JV in Canada between Rogers, Bell Canada and Telus) to provide digital wallet.
  • Lots needs to be done but 3 key things are important: Leadership. Concept has to be embraced at the top of the organisation. New way of making money from new customers using new skills = major shift. Without board level leadership then 2SBM will fail. Encouraging signs = Telco 2.0 exec brainstorm attended by senior commercial players – marketers and strategists from operators Action group potential Colao painted very similar vision of future in recent presentation Skills. Mentioned that platform knowledge and information exchange is key to future success. Google = 2-sided master because it can capture and manage data so well. Starting to invade telco space – maps, triangulation, chrome, accounts etc. and most recently opt-in to traffic monitoring service using mobile phone location being offered direct to end user. Operators have lots of assets but others will work around. Value depreciating and operators have to find a way to become very skillful and managing upstream and downstream customer data well (and within privacy laws). 2 options – do anonymously or only use data on transactions that take place within telco (Google model) Collaboration. As mentioned – scale is king. Problem for operators is that none are big enough to dominate on their own as they have network boundaries (defined by regulation and economics). Upstream customers want to reach ALL telco customers not just those on a single network in a single retion. Therefore if they are to develop a large-scale platform for upstream providers, operators are going to have to work together and with partners to overcome this fragmentation. Aggregation services will be key. This could happen via a 3 rd -party aggregator like Mblox and Ericsson IPX in premium SMS or it could be via operators collaborating directly as with Zoompass (a JV in Canada between Rogers, Bell Canada and Telus) to provide digital wallet.
  • Lots needs to be done but 3 key things are important: Leadership. Concept has to be embraced at the top of the organisation. New way of making money from new customers using new skills = major shift. Without board level leadership then 2SBM will fail. Encouraging signs = Telco 2.0 exec brainstorm attended by senior commercial players – marketers and strategists from operators Action group potential Colao painted very similar vision of future in recent presentation Skills. Mentioned that platform knowledge and information exchange is key to future success. Google = 2-sided master because it can capture and manage data so well. Starting to invade telco space – maps, triangulation, chrome, accounts etc. and most recently opt-in to traffic monitoring service using mobile phone location being offered direct to end user. Operators have lots of assets but others will work around. Value depreciating and operators have to find a way to become very skillful and managing upstream and downstream customer data well (and within privacy laws). 2 options – do anonymously or only use data on transactions that take place within telco (Google model) Collaboration. As mentioned – scale is king. Problem for operators is that none are big enough to dominate on their own as they have network boundaries (defined by regulation and economics). Upstream customers want to reach ALL telco customers not just those on a single network in a single retion. Therefore if they are to develop a large-scale platform for upstream providers, operators are going to have to work together and with partners to overcome this fragmentation. Aggregation services will be key. This could happen via a 3 rd -party aggregator like Mblox and Ericsson IPX in premium SMS or it could be via operators collaborating directly as with Zoompass (a JV in Canada between Rogers, Bell Canada and Telus) to provide digital wallet.

Rebuilding Telco value & control via a two-sided business model Rebuilding Telco value & control via a two-sided business model Presentation Transcript

  • Rebuilding value & control via a 2-sided business model Chris Barraclough, MD, STL Partners/Telco 2.0
  • Agenda
    • What is a business model?
    • Problems with Telco 1.0 business model
    • New opportunity: Telco 2.0
  • A business model is the COMMERCIAL architecture of a business: how it makes (or loses) money Source: Faber et al; Designing business models for mobile ICT services, 2001; adapted and developed by STL Partners Note: Each domain breaks down into several inter-related components that make up the overall business model. Service Offering Finance Value Network Technology The marketplace A 5-domain model
  • The success of a company’s (or collection of companies’) business model is ultimately a function of two factors Value Control +
  • Telco 1.0 business model is now under pressure in several domains
      • Low/no growth in end user revenues
      • More companies sharing revenues and generating costs
      • More substitute products
      • Unable to match free
    Source: Ballon 2007; STL Partners analysis
      • More modular technology
      • Decentralised network intelligence
      • More punitive regulation
    Control Drivers Value Drivers Control & Value Drivers
      • Less vertical integration
      • Weaker customer relationships
    Value Network Technology Service Offering Finance The Marketplace
  • Sexy new services paid for by end user will NOT yield continued revenue and profit growth
  • Sexy new services paid for by end user will NOT yield continued revenue and profit growth
  • Sexy new services paid for by end user will NOT yield continued revenue and profit growth
  • Sexy new services paid for by end user will NOT yield continued revenue and profit growth
  • Sexy new services paid for by end user will NOT yield continued revenue and profit growth Short term revenue growth only + Medium term capacity & cost issues = Falling margins, lower profits… 
  • Amazon – retailer-cum-platform provider
    • Pre-2005
      • Retailer of books and games
    • Now
      • Retailer + platform (Amazon Marketplace)
  • Amazon – retailer-cum-platform provider
    • Pre-2005
      • Retailer of books and games
      • 52,000 SKUs
    • Now
      • Retailer + platform (Amazon Marketplace)
      • 100,000s of SKUs
  • Amazon – retailer-cum-platform provider
    • Pre-2005
      • Retailer of books and games
      • 52,000 SKUs
      • Revenue from end user sales
    • Now
      • Retailer + platform (Amazon Marketplace)
      • 100,000s of SKUs
      • New revenue from enabling services to traders
  • Amazon – retailer-cum-platform provider
    • Pre-2005
      • Retailer of books and games
      • 52,000 SKUs
      • Revenue from end user sales
      • Profitable but margin squeeze
    • Now
      • Retailer + platform (Amazon Marketplace)
      • 100,000s of SKUs
      • New revenue from enabling services to traders
      • Profit underpinned by platform
  • Amazon – retailer-cum-platform provider
    • Pre-2005
      • Retailer of books and games
      • 52,000 SKUs
      • Revenue from end user sales
      • Profitable
      • Best-in-class logistics
    • Now
      • Retailer + platform (Amazon Marketplace)
      • 100,000s of SKUs
      • New revenue from enabling services to traders
      • Profit underpinned by platform
      • Improved, lower cost logistics (more scale)
  • Amazon – retailer-cum-platform provider
    • Pre-2005
      • Retailer of books and games
      • 52,000 SKUs
      • Revenue from end user sales
      • Profitable
      • Best-in-class logistics
      • Big consumer base, strong relationships:
        • E.g. peer reviews
    • Now
      • Retailer + platform (Amazon Marketplace)
      • 100,000s of SKUs
      • New revenue from enabling services to traders
      • Profit underpinned by platform
      • Improved, lower cost logistics (more scale)
      • More customers, stronger relationships:
        • E.g. Premium logistics – Amazon Prime
  • A new telecoms business model Source: STL Partners Analysis $ $
  • A successful Telco 2.0 business model restores elements of value and control to the Telco industry
    • Single platform for multiple industries
    • Operator remains gateway to end users
    Source: Ballon 2007; STL Partners analysis Control Drivers Value Drivers Control & Value Drivers
      • New revenue source from upstream customers
      • Services more complementary
      • End-users add value to platform
      • More customer intimacy
      • Centralised intelligence – resides in platform
      • Unclear – potentially a move into less regulated markets
    ? Value Network Technology Service Offering Finance The Marketplace
  • Three things required to bring Telco 2.0 to fruition Source: STL Partners analysis L eadership Skills Collaboration
  • Three things required to bring Telco 2.0 to fruition Source: STL Partners analysis L eadership Skills Collaboration MY CONTEXT Location Presence On/Off Roaming MY CREDIT Bad debt Demographics Average balance MY PERSONAL DATA MY CONTENT MY IDENTIFIERS MY INTERACTIONS MY RELATIONSHIPS MY DEVICES Name Address Gender Profile Preferences SIM SoftSIM Serial Number Device details Number SIP Number IP Address Pictures Videos Calendar Address Book Bank School Friends Workplace Browsing History .mobi domains QR Codes
  • Three things required to bring Telco 2.0 to fruition Source: STL Partners analysis L eadership Skills Collaboration
  • $375 billion opportunity (not guaranteed!) $1,230bn $689bn EU-27 and North American Telecoms Source: STL Partners, Telecoms Two-Sided Business Model Opportunity and Future Broadband Business Models , both published in 2008
  • Thank You More at www.telco2.net