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.

1. Product or
Lifestyle?
Technology has evolved
dramatically over the past 20 years,
however, most business
organizations maintain its strategic
vision rooted in the foundations of
industrial economics.
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.
The first GSM mobile network was Meanwhile, handset manufacturers were The average revenue per user (ARPU) in the
launched in 1991 in Finland, and by the end manufacturing terminals with more features European mobile network operators has
of 1993 there were already 1 million and adapted to the mobile Web experience. been declining consistently over the last
subscribers spread over 48 countries. The In early 2007, Apple surprised the market by decade. The decline is even more significant
target customer was mostly business market. announcing its entry into the mobile considering that the average utilization of
With lower fares and especially with the communications industry, with the iPhone voice and data has been increasing
entry 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 and
finally arrives to the mass market. The iPhone brings together the three key advertising, content and applications) are
At the end of 2000 the penetration rate in features of any Apple product: design, style growing more than twice as fast as the
Western Europe was around 60% to about and easiness. It is a powerful handheld network operators. With developed markets
240 million users. computer with Web browsing, email, reaching saturation levels in the penetration
Till then, the industry value chain (Fig. 1) sophisticated applications, multimedia of mobile services, operators are struggling
was composed by two entities only - mobile (including games) and, in addition to all this, with a serious problem: where and how can
network 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
500
included voice and text messaging (SMS), In March 2008, Apple once again surprised
400
provided by the first ones. That is, operators the market with the announcement of the Online services
2
had 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.Kearney
In mid 2001 is launched the data service for
GSM mobile networks, called GPRS, and
the industry is faced with a new reality: the Who is actually benefiting with the growth
Internet begins to take the first steps in of mobile Internet businesses are the OTT
handheld terminals. The contents that were players, well positioned above the value
originally made available through a fixed chain. The market capitalization of the
access 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 Model
data service access speeds, however, were for the Future Internet" (Fig. 3).
still low. Accustomed to compete only on price and
In 2004 was introduced the 3rd generation with little scope for generate innovation with
mobile networks (UMTS) bringing 384 value, the mobile network operators are
kbit/s. In 2006 we witnessed a new Fig.2 – Actual value chain. deadlocked.
technological leap when the networks
included 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 now
mobile terminals, however, were not able to comprised of several entities (Fig. 2) called
minimally reproduce the web browsing over-the-top players (OTT). With the
experience obtained through a computer. Internet entering into pocket terminals,
operators began to lose pace.

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 above
In an industry where the game rules were With a product that failed convincingly his structures and systems (Fig. 4), as advocated
known by everyone (network operators and initial market test (1987), Red Bull began a by Steve Jobs, Apple’s CEO. Figure 6
handset manufacturers), Apple and Google journey that lead it to the marketing Hall of illustrates the value that one want to create
have managed to create a Blue Ocean(1). Fame and to the creation of a Blue Ocean. It (value for the buyer) and will come
What differs consistently these two global was the first brand to realize that an intense packaged in the final product to be sold by a
brands 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 to
Network operators have adopted a campaign. The brand building path was the consumer (Fig.5), because people are in
structuralist 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 proposition
organizations. The analytical model of taste does not matter", "Red Bull isn't a
industrial organization proposes a structure- drink, it's a way of life." HIGH
conduct-performance paradigm, suggesting A brand will never be effective if it does not
a causal flow from market structure for the provide consumers with enthusiasm.
conduct and performance. This view often Enthusiasm is excitement, intense pleasure, Mobile Operators strategy
leads to strategic thinking based on adrenaline, passion for life.
LOW
competition. To remain on the market, the Product Service Advertising Events Brand Events Content Lifestyle
followers of this strategy are focused on The participatory culture shifts the focus of attributes attributes sponsoring engagement creation creation cultural capital
developing competitive advantage, usually literacy of individual expression to Fig.5 – Example of a strategic value chart: mobile
by assessing what the competition does and community involvement operators (Structuralist view) versus Reconstructionist
trying to do better. By adopting this strategic proposition
vision, the network operators compete in a For adults the Internet primarily means the
bloody red ocean, struggling for the World Wide Web, while for young people it The final product developed here is the
conquest 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-added
Google 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 of
focused on innovation with value, ie the The young generation shifted from culture strategy. The final product is a Blue Ocean
creation of innovative value, to create new of consumption to participatory culture. The is an uncontested market space, where there
demand. The pillars of reconstruction are the Participatory Culture is a neologism is no competition. We can even get to the
elements of value to the buyer, which stand referring, but in the opposite direction, to the paradigm of Red Bull: "It's not a phone, it's
beyond 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 only
By positioning itself on the demand side, the as consumers but as active participants or
reconstruction breaks the cognitive barriers creators.
imposed by the current competition rules. Anyone wants to be a consumer in a
By reconstructing a new market space, particular situation or an active participant in
where it will be generated a new level of another. Being a consumer or creator is not
demand, either Apple or Google have an attribute of a person but of a context. The
created 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 become
Can 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 a
Can mobile operators create a Blue Ocean social platform for the young generations.
and "reverse the equation" designed by The windows of opportunity are scarce, and
Apple and Google? "Yes, they can!" First, the first to arrive will gain an extraordinary
operators have to see consumers as people advantage.
not as clients. Therefore the focus must be Who will be the first mobile operator doing
on demand (attributes of individuals) and this question to young generations: product
not on offer (product attributes). or lifestyle?
"The key is to produce something that both
pulls people together and gives them
something to do", says Henry Jenkins, MIT
Comparative Media Studies. That is, the
way to go is to develop a strategy of Brand
Engagement.
The Brand Engagement evokes a marketing
strategy that directly involves consumers
and encourages them to participate actively
in the creation of the brand. Rather than Fig.4 – Reconstructionist value chain.
looking to the public as a passive receiver of
advertising messages, Brand Engagement is Thus, the focus of mobile operators should
an 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 younger
marketing rules are clear: be where they are, generations. A marketing strategy based on
be their social fabric, create legacies not brand engagement will result in a new brand
advertising, sell communities not products, dimension for operators and may establish a
and finally, create events not sponsoring. new business area: user video content
Brands like Red Bull, Nike, Starbucks and generation.
Monster Energy are an example of this
(1) W.Chan Kim and Renée Mauborgne, “Blue Ocean Strategy”