Dumb Pipes


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With the arriving of Over-The-Top
players, Mobile Network Operators
are being called “dumb pipes”.
If marketing and innovation are the
only variables that create value, the
path to success is only one: to
generate innovative value.

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Dumb Pipes

  1. 1. Product orLifestyle?Technology has evolveddramatically over the past 20 years,however, most businessorganizations maintain its strategicvision rooted in the foundations ofindustrial economics.With the arriving of Over-The-Topplayers, Mobile Network Operatorsare being called “dumb pipes”.If marketing and innovation are theonly variables that create value, thepath to success is only one: togenerate innovative value.The first GSM mobile network was Meanwhile, handset manufacturers were The average revenue per user (ARPU) in thelaunched in 1991 in Finland, and by the end manufacturing terminals with more features European mobile network operators hasof 1993 there were already 1 million and adapted to the mobile Web experience. been declining consistently over the lastsubscribers spread over 48 countries. The In early 2007, Apple surprised the market by decade. The decline is even more significanttarget customer was mostly business market. announcing its entry into the mobile considering that the average utilization ofWith lower fares and especially with the communications industry, with the iPhone voice and data has been increasingentry of pre-paid tariffs in 1995 (Portugal handset. It had begun the true era of dramatically over the same period.was a pioneer), the mobile voice service smartphones. Revenues for OTT players (search andfinally arrives to the mass market. The iPhone brings together the three key advertising, content and applications) areAt the end of 2000 the penetration rate in features of any Apple product: design, style growing more than twice as fast as theWestern Europe was around 60% to about and easiness. It is a powerful handheld network operators. With developed markets240 million users. computer with Web browsing, email, reaching saturation levels in the penetrationTill then, the industry value chain (Fig. 1) sophisticated applications, multimedia of mobile services, operators are strugglingwas composed by two entities only - mobile (including games) and, in addition to all this, with a serious problem: where and how cannetwork operators and handset includes the most basic functionality of a be found future growth?manufacturers - and the customer services phone: voice calls. User Interface 5 500included voice and text messaging (SMS), In March 2008, Apple once again surprised 400provided by the first ones. That is, operators the market with the announcement of the Online services 2had the process reasonably controlled. application store for the iPhone platform. 300 Enabling technology/ The world programmer community is 200 services3 invited to develop games and software for 100 Connectivity4 the latest brand gadget. Content rights1 0 Google follows Apple’s strategy with the 2004 2005 2006 2007 2008 2009 2010 1 announcement of the Android mobile Notes: Average for Disney, NewsCorp, Time Warner, Warner Music Group, Vivendi and Electronic Arts 2 Average for Amazon, Google, Yahoo!, eBay, Baidu, Expedia and Partygaming 3 platform which was first released in October 4 Average for Akamai, CyberAgent, Google, Valueclick, Verisign, and WPP Average for AT&T, Vodafone, NTT, British Telecom, Deutsche Telecom and France Telecom 5 Average for Microsoft, Apple, Dell, Acer, Nokia and McAfee Fig.1 – Initial value chain 2008. Fig.3 – Value chain market capitalization, by A.T.KearneyIn mid 2001 is launched the data service forGSM mobile networks, called GPRS, andthe industry is faced with a new reality: the Who is actually benefiting with the growthInternet begins to take the first steps in of mobile Internet businesses are the OTThandheld terminals. The contents that were players, well positioned above the valueoriginally made available through a fixed chain. The market capitalization of theaccess network were being adapted to various stakeholders is the best proof of that,mobile devices with small screen size. The as regards A.T.Kearney in "A Viable Modeldata service access speeds, however, were for the Future Internet" (Fig. 3).still low. Accustomed to compete only on price andIn 2004 was introduced the 3rd generation with little scope for generate innovation withmobile networks (UMTS) bringing 384 value, the mobile network operators arekbit/s. In 2006 we witnessed a new Fig.2 – Actual value chain. deadlocked.technological leap when the networksincluded the HSDPA protocol with access This path has been changing gradually the What’s the reason for this scenario?speeds up to 14.4Mbit/s. The existing mobile industry value chain, which is nowmobile terminals, however, were not able to comprised of several entities (Fig. 2) calledminimally reproduce the web browsing over-the-top players (OTT). With theexperience obtained through a computer. Internet entering into pocket terminals, operators began to lose pace.
  2. 2. Mobile operators compete in a red ocean philosophy, and no wonder they are the most With a new vision and brand values, mobile followed in social networks. network operators can actually stand aboveIn an industry where the game rules were With a product that failed convincingly his structures and systems (Fig. 4), as advocatedknown by everyone (network operators and initial market test (1987), Red Bull began a by Steve Jobs, Apple’s CEO. Figure 6handset manufacturers), Apple and Google journey that lead it to the marketing Hall of illustrates the value that one want to createhave managed to create a Blue Ocean(1). Fame and to the creation of a Blue Ocean. It (value for the buyer) and will comeWhat differs consistently these two global was the first brand to realize that an intense packaged in the final product to be sold by abrands of mobile network operators is their personal experience is much more valuable mobile operator to the younger generation.strategy approach. and memorable than an advertising The focus in this new scenario is shifted toNetwork operators have adopted a campaign. The brand building path was the consumer (Fig.5), because people are instructuralist view of strategy, which has its drawn differently and today we can see why fact the only territory yet unclaimed.roots in the economics of industrial its founder, Dietrich Mateschitz, says: "The Reconstructionist propositionorganizations. The analytical model of taste does not matter", "Red Bull isnt aindustrial organization proposes a structure- drink, its a way of life." HIGHconduct-performance paradigm, suggesting A brand will never be effective if it does nota causal flow from market structure for the provide consumers with enthusiasm.conduct and performance. This view often Enthusiasm is excitement, intense pleasure, Mobile Operators strategyleads to strategic thinking based on adrenaline, passion for life. LOWcompetition. To remain on the market, the Product Service Advertising Events Brand Events Content Lifestylefollowers of this strategy are focused on The participatory culture shifts the focus of attributes attributes sponsoring engagement creation creation cultural capitaldeveloping competitive advantage, usually literacy of individual expression to Fig.5 – Example of a strategic value chart: mobileby assessing what the competition does and community involvement operators (Structuralist view) versus Reconstructionisttrying to do better. By adopting this strategic propositionvision, the network operators compete in a For adults the Internet primarily means thebloody red ocean, struggling for the World Wide Web, while for young people it The final product developed here is theconquest of market share. means email, chat, games, blogs, social social platform of today’s young generation.On the opposite side, both Apple and networks, youtube. Today they are content It’s not a simple terminal with a tariff-addedGoogle have adopted a reconstructionist producers. Content related to their interests, service to a voice/SMS and Web access.view of strategy. The two companies are behaviors and lifestyles. That’s the offer of the structuralist view offocused on innovation with value, ie the The young generation shifted from culture strategy. The final product is a Blue Oceancreation of innovative value, to create new of consumption to participatory culture. The is an uncontested market space, where theredemand. The pillars of reconstruction are the Participatory Culture is a neologism is no competition. We can even get to theelements of value to the buyer, which stand referring, but in the opposite direction, to the paradigm of Red Bull: "Its not a phone, itsbeyond the boundaries of existing industry. culture of consumption - in other words, a a way of life."Not the technologies or production methods. culture in which the public does not act onlyBy positioning itself on the demand side, the as consumers but as active participants orreconstruction breaks the cognitive barriers creators.imposed by the current competition rules. Anyone wants to be a consumer in aBy reconstructing a new market space, particular situation or an active participant inwhere it will be generated a new level of another. Being a consumer or creator is notdemand, either Apple or Google have an attribute of a person but of a context. Thecreated a Blue Ocean where there is no important criteria to consider are the Fig.6 – Added value in the final product.competition. personally meaningful activities. The participatory culture empowers people to be It’s possible for a mobile operator to becomeCan mobile operators create a Blue Ocean? active participants in personally meaningful a distinct brand, audacious, cool and with an"Yes, they can!" activities. authentic emotional connection. You can make a mobile network operator into aCan mobile operators create a Blue Ocean social platform for the young generations.and "reverse the equation" designed by The windows of opportunity are scarce, andApple and Google? "Yes, they can!" First, the first to arrive will gain an extraordinaryoperators have to see consumers as people advantage.not as clients. Therefore the focus must be Who will be the first mobile operator doingon demand (attributes of individuals) and this question to young generations: productnot on offer (product attributes). or lifestyle?"The key is to produce something that bothpulls people together and gives themsomething to do", says Henry Jenkins, MITComparative Media Studies. That is, theway to go is to develop a strategy of BrandEngagement.The Brand Engagement evokes a marketingstrategy that directly involves consumersand encourages them to participate activelyin the creation of the brand. Rather than Fig.4 – Reconstructionist value chain.looking to the public as a passive receiver ofadvertising messages, Brand Engagement is Thus, the focus of mobile operators shouldan active process of consumer co-creation, not be in the interactivity of the technology,in which they become part of the brand. The but in the participatory culture of youngermarketing rules are clear: be where they are, generations. A marketing strategy based onbe their social fabric, create legacies not brand engagement will result in a new brandadvertising, sell communities not products, dimension for operators and may establish aand finally, create events not sponsoring. new business area: user video contentBrands like Red Bull, Nike, Starbucks and generation.Monster Energy are an example of this(1) W.Chan Kim and Renée Mauborgne, “Blue Ocean Strategy”