Digital Economy: who will prosper in ‘The Great Compression’?

Summary: Value is squeezed out of industries as they become increasingly digital – i.e. accessed by mobile and online, driven by data and defined by software. We call the collective economic impact of this pressure ‘The Great Compression’. But which companies will survive and prosper – and how? 90% of the Execs at our Silicon Valley brainstorm identified ‘management mindset’ as a key factor in Telecoms, Media, Finance and Retail. (May 2013, Executive Briefing Service, Transformation Stream).

Scale of Transformation Needed April 2013

  Read in Full (Members only)   To Subscribe click here

Below are the high-level analysis and detailed contents from a 62 page Telco 2.0 Briefing Report that can be downloaded in full in PDF format by members of the Premium Telco 2.0 Executive Briefing service and the Telco 2.0 Transformation Stream here. The Digital Economy, and the changes needed to ‘management mindset’, organisation, technology, and products, will also be explored further at the EMEA Executive Brainstorm in London, 5-6 June, 2013. Non-members can find out more about subscribing here, or find out more about this and/or the Brainstorm by emailing contact@telco2.net or calling +44 (0) 207 247 5003.

To share this article easily, please click:

 



Introduction

Part of the New Digital Economics Executive Brainstorm series, the Silicon Valley 2013 event took place at the InterContinental Hotel in San Francisco on the 19th and 20th of March, 2013. This report covers the Digital Economy track on the first day.

Summary Analysis: who will prosper in ‘The Great Compression’?

Telecoms, telco vendors, entertainment, device makers, financial services, retailers, entertainment services, and brands in developed economies are experiencing the ‘Digital Hunger Gap’ – a shortfall of revenues versus past levels as industries become increasingly digital i.e. accessed by mobile and online, driven by data and defined by software.

Other industries are also feeling pain from the process of becoming digitised which both changes the model and the dynamics of competition. Others, like consumer goods and car manufacturing, see opportunities to enhance services with digital connectivity to build loyalty and new value. Government services and healthcare face huge cost challenges. Digital services can be of huge value here, but the challenge for third parties is how to make money when money needs to be saved.

According to the participants in the Silicon Valley brainstorm, almost every industry faces massive changes in every area of its business model, with management mindsets most in need of a dramatic overhaul, and customer relationships marginally ahead in the total of partipants thinking a dramatic or significant change is needed.

Scale of Transformation Needed April 2013

New markets are emerging rapidly, particularly in Asia. However, many companies from North America and EMEA lack depth in local knowledge and face skills, cultural and political barriers to entry, and the mindset challenge of operating in a radically different economic environment.

As a result of the combined difficulties of growth in home markets and expansion abroad, there will be massive consolidation among traditional industry leaders in developed economies over the coming years. Those that are successful will continue to innovate as they consolidate, but it will be a huge struggle to survive for many.

We’re calling the collective economic impact of these pressures ‘The Great Compression’ as value is squeezed from existing industries. Those best positioned to profit through it have built defensible global or major regional strengths in horizontal areas with large-scale application and high barriers to entry, and/or that serve as ‘arms dealers’ to the rest of the digital economy. For example, chip makers and IP companies (e.g. ARM, Intel, Qualcomm), very large-scale / sophisticated IT manufacturers (e.g. Microsoft, Oracle, SAP), and ‘platforms’ (e.g. Apple, Google, Visa).

However, being well positioned is no guarantee of success, and all companies will face significant challenges requiring innovation and transformation. This in turn will require immediate and ongoing action by leadership teams in every company.

Digital innovation is increasingly itself becoming a little like the entertainment industry in that it is constantly seeking hits and highly vulnerable to hype. There are centres of innovation such as Silicon Valley and elsewhere, and there can only be a small number of highly successful ‘hits’ among the many thousands if not hundreds of thousands of attempts to make a hit. Finding, gaining a share in, nurturing, and ultimately profiting from these hits is a massive industry in itself. The recognised difficulty of doing this is a further barrier to success for many of the established players. Yet those that are to survive will need to overcome it.

Next steps for STL Partners

  • To define and detail the practical actions needed to drive cross-industry transformation and innovation (in terms of ‘management mindset’, organisation, technology, products, etc.) at our Executive Brainstorms in:
    • Europe, London, 5-6 June 2013; MENA, Dubai, 14-15 November 2013; APAC, Singapore, 5-6 December 2013; Silicon Valley, San Francisco, 19-10 March 2014.
  • To publish 150+ page ‘Strategy Reports’ on:
    • The detailed benchmarking of leading players’ Telco 2.0 strategies; Digital Commerce; The Future of voice and Messaging Services.
  • To publish c.15-30 page ‘Executive Briefings’ covering:
    • Software Defined Networks (SDN); The business case for personal data; ‘Show me the (mobile) money’ – an Executive Briefing on the business case for Digital Commerce.


To read the Digital Economy note in full, including the following sections detailing additional analysis…

  • Session 1: Digital Transformation
  • Strategic Growth Opportunities for a Hyper-Connected World
  • Stimulus presentations
  • Voting, feedback, discussions
  • Questionstorming: how to overcome the blockers?
  • Key takeaways
  • Session 2: Digital Consumer
  • The New Mobile Battleground
  • Stimulus presentations
  • Voting, feedback, discussions
  • STL Partners’ next steps
  • Session 3: Digital Infrastructure
  • The Impact of 4G, Software Defined Networks  & the Cloud
  • Stimulus presentations
  • Voting, feedback, discussions
  • Brainstorm Output: What new opportunities could new forms of digital infrastructure create? For whom? How?
  • STL Partners’ next steps
  • Session 4: The ‘Digital Me’
  • The role and value of ‘digital identity’
  • Stimulus presentations
  • Voting, feedback, discussions
  • STL Partners’ next steps

…and the following figures…

  • Figure 1 – Concurrent disruption in multiple lines of business
  • Figure 2 – Music since 1997, a case study
  • Figure 3 – Consolidation is a consequence of disruption
  • Figure 4 – Reviving the album format
  • Figure 5 – The future is brutal indeed
  • Figure 6 – The hunger gap, 2013-2017
  • Figure 7 – Measuring the impact of social…
  • Figure 8 – The bottom line impact of social at Bloomberg
  • Figure 9 – How realistic is the ‘Hunger Gap’?
  • Figure 10 – How accurate is the market sizing?
  • Figure 11 – How accurate is the forecast breakdown?
  • Figure 12 – What is the scale of the transformation needed?
  • Figure 13 – The ‘Telco 2.0’ opportunities for CSPs
  • Figure 14 – Learning about your customer from Amazon recommendations
  • Figure 15 – 80% are already engaged with BYOD
  • Figure 16 – Customer-centric commerce
  • Figure 17 – Mobile web user engagement takes off
  • Figure 18 – Are app stores that good for developers?
  • Figure 19 – Making mobile Web “more like apps”?
  • Figure 20 – What are the downsides of native apps?
  • Figure 21 – Would iOS users  benefit from alternative app stores?
  • Figure 22 – when should you give data back to customers?
  • Figure 23 – How long before the ‘data surveillance backlash’?
  • Figure 24 – Will voluntarily provided info be better than surveillance?
  • Figure 25 – The media industry is static, the Web/tech players gain at telcos’ expense
  • Figure 26 – The evolution of connectivity products
  • Figure 27 – Integration between industrial, enterprise, and public network domains
  • Figure 28 – Key issues for an “elastic operator”
  • Figure 29 – Verizon’s enterprise platform
  • Figure 30 – Defining SDN – with Star Trek!
  • Figure 31 – Strategic conclusions on SDN
  • Figure 32 – Impact of SDN?
  • Figure 33 – Digital feudalism, enlightenment, or something else?

Members of the Telco 2.0 Executive Briefing Subscription Service and the Telco 2.0 Transformation Stream can download the full 62 page report in PDF format here. Non-Members, please subscribe here. The Digital Economy will also be explored in depth at the EMEA Executive Brainstorm in London, 5-6 June, 2013. For this or any other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Background & Further Information

Produced and facilitated by business innovation firm STL Partners, the Silicon Valley 2013 event overall brought together 150 specially-invited senior executives from across the communications, media, retail, banking and technology sectors, including:

  • AT&T, Bain & Co, Beecham Research, Bloomberg, Blumberg Capital, BMW, Buongiorno, Cablelabs, CenturyLink, Cisco, CITI Group, Cordys, Cox Communications, CSG International, EMC, Ericsson, Experian, GE, GI Partners, Group M, GSMA, IBM, Intel, Kore Telematics, MADE Holdings, Merchant Advisory Group, Microsoft, MIT Media Lab, Motorola, MTV, Nokia, Oracle, Orange, Panasonic, Placecast, Qualcomm, Rainmaker Capital, Reputation.com, SalesForce, Samsung, SAP, Sasktel, Sprint, Telus, The Weather Channel, T-Mobile USA, UnboundID, University of California Davis, US Cellular Corp, Verizon, Visa, Vodafone.

The Brainstorm used STL’s unique ‘Mindshare’ interactive format, including cutting-edge new research, case studies, use cases and a showcase of innovators, structured small group discussion on round-tables, panel debates and instant voting using on-site collaborative technology.

We’d like to thank the sponsors of the Brainstorm:
Silicon Valley 2013 Sponsors

Digital Entertainment: What Gets Measured Gets Money

Summary: For mobile entertainment services to generate revenues commensurate to the attention they receive, the industry needs to improve ‘discovery’ tools, create more effective creative inventory, and deliver proof of its effectiveness. A summary of the Digital Entertainment 2.0 session of the 2013 Silicon Valley Brainstorm. (April 2013)

Digital Entertainment 2.0: What Gets Measured Gets Money

  Read in Full (Members only)   To Subscribe click here

Below are the high-level analysis and detailed contents from a 27 page Telco 2.0 Briefing Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here. The Digital Economy, Consumer Experience (including service ‘discovery’), Digital Commerce and the Internet of Things will also be explored in depth at the EMEA Executive Brainstorm in London, 5-6 June, 2013. Non-members can find out more about subscriptions here, or to find out more about this and other enquiries, please email contact@telco2.net or call +44 (0) 207 247 5003.

To share this article easily, please click:

 



Introduction

Part of the New Digital Economics Executive Brainstorm series, the Digital Entertainment 2.0 session took place at the Intercontinental Hotel, San Francisco, on the 20th March, 2013. The title and objective of the session was ‘How to Make Mobile Work’.

Analysis: What Gets Measured Gets Money

The key steps for mobile entertainment services to generate revenues commensurate to the attention it receives in North America are: to improve measurement of the success of ‘discovery’ tools, create more effective creative advertising inventory, and deliver proof of its effectiveness, not just the attention.

Mobile is a ‘break out’ entertainment media

Mobile has for some time been an entertainment media in the eyes of consumers, and particularly younger ones who soak up ‘dead time’ by playing games, using apps and even just communicating for fun, although to date not all these forms of entertainment have been connected.

In the past 3 years there has been a significant increase in ‘on demand’ and mobile consumption in North American and European markets, particularly in these younger segments, although a key challenge has been that monetisation has not followed the use of time spent on mobile.

Mobile entertainment itself can be defined as related to a context (e.g. ‘out and about’, ‘dead time’, ‘second screen’), devices (featurephone, smartphone or tablet), or type of connection (e.g. none, 3G, 4G, Wi-Fi). In general though, there are two main scenarios: mobile as a medium in its own right; and mobile as a ‘second screen’ experience. So in either scenario, we think the clearest answer to ‘what is the role of mobile?’ is that it is a ‘break out’ media, either extending the context of a form of entertainment, or extending the nature of entertainment in the existing context.

For video in North America, TV is still the dominant form of consumption, but mobile is growing rapidly as the ‘second screen’ that controls or supplements the main screen, especially with the explosive growth of tablets since the introduction of the Apple iPad.

Segmentation – there’s no single dominant business model

There has been much debate about the viability of different business models, broadly: advertising funded; consumer ownership; and subscription. While most participants believed that the ownership model would be most successful in music, where there is a higher likelihood that a consumer will want to listen to a track or album numerous times, ‘collectors’ or owners will still exist for videos, books and games.

Digital Collector Segment Size April 2013

Equally, demand exists for single ‘on demand’ services (e.g. pay per view), subscription (e.g. Spotify, cable), and advertising funded (e.g. YouTube). The balance is likely to change in video in particular with a move to increasing ‘on demand’ services in line with the current trend in consumer behaviour.

‘Discovery’: finding a model that proves it works

As the previously dominant channel-based model of curation in broadcast media gradually dissolves, and as the screen size, context and characteristics of consumption change, consumers face an increasing challenge finding out what they want to see, play or listen to.

Curation still exists through channel guides, taste-makers and review sites, and indeed through many offline sources, but is increasingly less the property of the content producer or distributor that it once was.

Content Discovery, one of the great buzz phrases of the industry, is therefore an ongoing challenge, and the application of networked computing power provide some advantages to connected and interactive devices like smartphones and tablets. Approaches used include:

  • 3rd party classification (e.g. by genre, subject), enabling more structured self-selection through menu choices etc.;
  • Recommendation engines (the Amazon/Netflix model), that can be based on a ‘Big Data’ approach (‘other people who bought this also bought that’) and/or semantic association (‘here’s another sentimental family comedy you might like’);
  • Social approaches, based on what your friends like or are watching, either through generic social media like Facebook, and specialised social media such as Zeebox.com (for video) and Goodread.com (for books);
  • Search – although this is non-trivial due to the volume of material in existence, and the ever-changing art of Search Engine Optimisation (SEO) – getting the right items at the top of the list.
  • Hybrid approaches that combine ‘Big Data’ with ‘semantic association’ (e.g. see Jinni.com) and/or other forms e.g. Social (e.g. see this intriguing article on the $1m recommendations challenge from Netflix).

For all methods, the inconsistencies of the metadata recorded (e.g. is the media described accurately using your terms) is frequently a challenging limitation.

To a degree though, content discovery has always been a process of ‘trial and error’. Consumers read, hear or see a load of ideas, try a few out, stick to the ones they like, and grow to trust the means of discovery that is most successful for them.

To this end, an element that appears to be missing in many discovery processes today is the measurement of success rate for the user – “was this a good recommendation for you”? In our view, discovery applications that accurately track success well (easily, with a good UI, and with a tangibly good and improving success rate) will ultimately prove successful. All of the above techniques could and to a greater or lesser extent do adopt this approach, although it isn’t yet clear which will perform the best in the market.

Delivering the goods

The challenges of delivering content, particularly large volume (e.g. HD Video) and/or latency sensitive content (such as multi-player virtual gaming), were not addressed in the Digital Entertainment session, though Software Defined Networking (SDN), which offers the promise of more efficient routing through networks for certain traffic, was discussed in the Digital Economy session. Content Delivery Networks and other Broadband design techniques have also been addressed at length in other STL Partners research and brainstorms

However, ‘Bandwidth’ was one of the key determinants of success according to the ‘BBC’ heuristic offered from Mitch Berman’s experience as a guide to how mobile entertainment will operate in different markets: Bandwidth; Business Model; and Culture. (NB We think this can also be seen as a shorthand variant of our business model framework, with culture being a key driver of the content proposition, bandwidth of the technical capability, and business model as the value proposition.) 

Getting money commensurate with the time spent on mobile

A major challenge for advertising funded mobile entertainment is that there is a significant gap between the ratio of the amount of time spent viewing mobile and the money spent on it, and other forms of media. This is illustrated by the stats that:

  • For The Weather Channel, mobile is 1.5 X the traffic but less than 50% of the revenue;
  • 10% of media consumption occurs online Vs. 1% media spend (from the presentation by Cary Tild, CIO GroupM in subsequent Marketing and Advertising session).

While this imbalance is genuine, there are important advantages and limitations to mobile as a medium that haven’t yet been fully exploited or overcome, respectively.

One of the major limitations has been the need for more effective commercial inventory on mobile. At the Brainstorm there was, for example, much discussion on the limitations of banner type ads in a mobile environment. Many more innovative forms are now evolving, illustrated by:

  • The Weather Channel’s experimental creative commercial content within its app, in which instead of a rectangular banner at the top of the screen, appropriate commercial content is embedded on background of the weather screen (e.g. a cloud-wrapped image from a mystery film on a cloudy day’s forecast screen);
  • New trial applications that insert products virtually in existing content (e.g. a soft-drink on a table in an old TV show, as demonstrated in test form by ReinCloud);
  • And subsequently, the launch of Facebook Home, designed to increase the commercial inventory available to Facebook by taking over the screen of a user’s smartphone.

In the same way that advertising has always evolved (from print to radio, radio to TV, etc.), there is still much to be learned through innovation and experimentation – and of course the related measurements of success.

Charging differently for content rights by content owners, e.g. by the use of content rather than as an upfront fee, was also discussed, although many content owners are reluctant to move to or even test this model as they see it representing a significant risk to existing revenue streams.

The digital economy core themes of ‘big data’ and ‘localisation’ were also raised, and an example given by the Weather Company of a highly effective promotion of grass seeds based on locality and the detection of key seasonal weather changes.

Finally, a key theme in common with the subsequent advertising session was that proving the effectiveness of models to consumers, brands, and investors was the key step for most mobile entertainment concepts. We see thoughtful design, coupled with trial and experimentation, effective measurement and the ongoing application of learning processes to be central to achieving that proof.

Next Steps

Effectiveness in the ‘discovery’ phase of digital service is a key success criterion, particularly in Digital Entertainment. We will continue to research and explore this area in our Executive Brainstorms in Europe, the Middle East, and Asia-Pacific.

To read the note in full, including the following sections detailing additional analysis…

  • Brainstorm: Stimulus Presentations – summary and key points
  • Brainstorm: Table Discussions
  • Verbatim delegate questions & comments
  • Brainstorm: Panel Session in summary

…and the following figures…

  • Figure 1 – Traditional linear TV model is facing multiple disruptions
  • Figure 2 – Non-linear forms of TV becoming a massmarket requirement
  • Figure 3 – Tablets are changing the TV/video landscape
  • Figure 4 – The mobile problem
  • Figure 5 – Whither digital collectors?
  • Figure 6 – Shine on you crazy diamond?
  • Figure 7 – Sharing the locker?
  • Figure 8 – Do we all want libraries?

Members of the Telco 2.0 Executive Briefing Subscription Service can download the full 27 page report in PDF format here. Non-Members, please subscribe here. The Digital Economy, Consumer Experience (including service ‘discovery’), Digital Commerce and the Internet of Things will also be explored in depth at the EMEA Executive Brainstorm in London, 5-6 June, 2013. For this or any other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Background & Further Information

The 2013 Silicon Valley Brainstorm used STL’s unique ‘Mindshare’ interactive format, including cutting-edge new research, case studies, use cases and a showcase of innovators, structured small group discussion on round-tables, panel debates and instant voting using on-site collaborative technology. Around 30 executives from entertainment, media, telecoms and technology companies participated in this session in total.

The focus was on looking at “the true role for mobile” in the digital entertainment industry. Opening the session informally, various attendees were canvassed about their intentions & hopes for the day. This yielded a desire for information to assist in business modelling, to learn about the realities of the US entertainment market – or just to experience “inspiration and surprise” from a diverse set of speakers.

Objective: How to Make Mobile Work

The session covered three presentations and a demo, spanning the width of the entertainment business from TV to books, and from user behaviour to advertising. Its principle focus was around how content and telecom companies could generate sustainable businesses by leveraging the trend towards mobility – both devices and networks.

  • Designing compelling mobile entertainment experiences
  • 4G: The impact on video distribution and consumption economics
  • Latest models for monetisation

The session included three Stimulus Speakers:

  • Andre James, Partner, Bain & Co
  • Alex Linde, Vice President, Mobile & Digital Apps,The Weather Channel
  • Keith McMahon, Senior Analyst, STL Partners/Telco 2.0

In addition, Dan Reitan, CEO, Reincloud gave an Innovation Showcase demo, after which these four were joined on the debate panel by two other industry luminaries:

  • David Gale, EVP New Media, MTV
  • Mitchell Berman, Principal, Blend Digital

We’d like to thank the sponsors of the Brainstorm:
Silicon Valley 2013 Sponsors