Full Article – Case Study: how to grow when your core market shrinks

Summary: Only the fit survive market changes, and evolving the business model to adapt is key. Strategy lessons for telcos and vendors alike from Boungiorno, a content aggregator that evolved to beat the shrinking portal services market. :


As traditional revenue streams come under threat, operators are starting to look at new business models. But how should they make the transition? The case of Buongiorno provides some clear lessons as it has successfully moved from being an aggregator of basic mobile content to a strategic partner of operators seeking to deepen their retailer capabilities and their customer intimacy.

For Operators, building such CRM capabilities will help maximise the value of the existing business model and provide a stepping-stone to new sources of value. It will provide operators with substantial near-term revenue growth as they will be able to offer more appropriate content and applications to their customers and will open up a $125+ billion medium-term growth opportunity by helping other upstream service providers interact more effectively and efficiently with their customers via a Telco platform.

Buongiorno’s success

Buongiorno has successfully circumvented the decline experienced in ringtones and other portal services since 2007, it’s core market only a few years ago, and moreover has continued to grow.


As well as promoting greater customer interaction, Buongiorno has employed a systematic and sustained acquisition strategy that has clearly added substantial revenue to the business over the last several years (including around €130m from iTouch in the 2008 figures). It is not realistic therefore to suggest that all of Buongiorno’s success is derived from its increased customer interaction strategy.

Nonetheless, the company has successfully repositioned itself from being a content aggregator to being a strategic partner of operators seeking to deepen their retailer capabilities and their customer intimacy, and fundamentally changed it’s position and role in the value chain – which is the key strategy parallel for Telcos.  We analyse Boungiorno’s repositioning and transformation strategy below.

Background History – the fundamental problem of growing in a shrinking market

Buongiorno was founded in 1999 as a content aggregator for the mobile market, providing a distribution platform for developers and media companies, and acting as a wholesale provider for operators. The company usually ‘white labels’ its services so that operators can use their own brand when retailing to their customer base. It initially focused on basic mobile content such as music, games, video, wallpaper and ring tones. Buongiorno enjoyed strong growth in its early years. However, by 2004 management could see that revenue growth from many of these basic services was going to slow down for four principal reasons:

  • Alternative ways of downloading content for free or more cheaply – peer-to-peer networks on PC followed by sideloading on to the device;
  • Excessive pricing of ring tones by operators and other retailers;
  • Hidden subscription charges for some services – reflected in fines being levied on some content providers;
  • More sophisticated devices that enabled, for example, ring tones to be created from music stored on the device.

The company therefore then faced the same problem as operators increasingly do now: how to generate greater revenues from end users at a time when revenue growth from core services was starting to dry up?


Strategic Solution: A focus on being a better retailer

In 2004-5, Buongiorno management decided that in addition to the existing assets (content and a technology platform) the company needed to grow its CRM and marketing capabilities. This would better enable them to support operators seeking to strengthen their relationship with customer bases that were spending increasing amounts of time and money off-portal. In so doing, they would also provide pull through for Buongiorno content.

The company had launched an advertising and digital promotion company, Buongiorno Marketing Services, in 2002 but the focus of the much bigger Consumer Services company now also shifted towards database building and management, CRM and consultancy, all underpinned by a flexible technology platform.

The first part of the strategy was to introduce CRM capabilities to the content platform so operators could better understand the buying patterns of their customers. This enabled operators to automatically provide targeted advertising and marketing, including personalised offers based on users’ past purchasing and click histories. Buongiorno thereby aimed to help operators be more relevant to their customers to encourage on-portal activity and increase loyalty, resulting in:

  • Increased ARPU;
  • More inactive users converted into buyers;
  • Reduced customer churn;
  • Reduced off-portal activity.

Example Operator Retail Campaigns: O2 ‘Extras’ and ‘Top-Up Surprises’

Buongiorno helped O2 in the UK create O2 Extras, an opt-in ‘club’ that provides update texts, bespoke advertising, free downloads and location-based services for its 1m+ members. The results below are clearly impressive, showing a tangible difference in value for O2 between O2 Extra customers and the rest.


[NB What is not clear fom this data is whether the behaviour of members changed after they joined the club. To some extent it is possible that the club’s success is predetermined – those people that use O2’s portal more and are more loyal to the company sign up for O2 Extras thereby confirming their value rather than the incremental benefit of being part of an opt-in club. It is also possible that the club has tied in more deal sensitive users who are more likely to churn. Overall, we believe that the club has tangible benefits but would advise further analysis to quantify the benefits for clients considering implementing a similar programme.]

The second move by Buongiorno was to enable greater interactivity via their platform, allowing operators to respond immediately to consumer behaviour with contextually relevant offers using pre-defined business rules. Boungiorno says that this enables operators to implement a simple but powerful concept: ‘Customers Do X and Get Y’. The aim is to further increase customers’ interactions with the operator by incentivising specific customer behaviours. Operators define what the reward (or penalty) is as well as the behaviour to be targeted.

O2’s Top-Up Surprises, a popular campaign in the UK that rewards the consumer with a prize whenever they put money on their pre-paid balance, uses Buongiorno’s ‘Instant Mobile Marketing’ platform. O2 offers prizes that are tiered according to the amount the consumer spends (bigger prizes for topping up more than £15), so that spending is ‘encouraged’. It cleverly contains the cash cost of the programme by mainly offering ‘network prizes’ consisting of minutes, texts and browsing time and only having a few ‘headline-grabbing’ prizes such as cash, cars and computer games.

The results of the Top Up Surprises campaign are not public but, according to O2, it has been ‘hugely successful’ and has demonstrated a clear business benefit from building some excitement into a relatively unfulfilling and mundane activity. The fact that O2 chose to extend the campaign beyond its planned timescale and invest £5.5m in a marketing campaign to support it would seem to bear this out.

Future Strategy: Options to develop a two-sided business model

Several products are currently being heavily marketed through the Top-Up Surprises campaign including Nintendo DS, Sony TVs, Toshiba laptops, Marks and Spencer vouchers and even a Toyota car. There is clearly an option for O2 (and other Instant Mobile Marketing platform operators) to charge brands for access to their customers through the interactive marketing campaigns. Getting this right would enable operators to generate more value from both sides of the platform. In other words, there are two available pricing models and O2 is currently only exploring the first.



Buongiorno’s story suggests that the road to Telco 2.0 should be via ‘Telco 1.5’. In other words, the focus for Telcos should be on developing the skills that will be valuable for upstream customers initially for themselves.  If they can make their retail offerings better by being able to target and customise offerings more effectively, then this can later be translated to the offerings of third-parties.  Becoming a best practice retailer, like Amazon, and developing a meaningful two-sided business model, like Google or Microsoft, will not be achieved overnight.  Operators need to become good retailers first and then add the second upstream revenue source.

…for Operators

The initial focus of operators should be on developing a stronger, more interactive and more profitable relationship with existing customers via:

  • Developing better CRM and data mining skills so operators have a clearer understanding of what customers want. Operators need to be able to answer the questions that Amazon, Tesco, Walmart, etc. wrestle with every day:  What has this customer bought in the past?  What does this tell us about what they might buy in the future?  What does their demographic profile tell us about their attitudes and needs?  How can we capture preference information from them to better understand how we can service them?;
  • Creating a longer term strategy for generating revenue from upstream players in a way that does not cannibalise existing end user revenues or, put another way, that creates more value across both customer groups than can be achieved from one group alone. This is a key point for all two-sided platform players.  For example, Google generates more value by making its search engine free to searchers than it would by charging them.  Why?  Because a free search engine (and other Google products) generates massive usage of the Google search engine which results in high value to merchants and advertisers.  If Google charged for search then the volume of searchers would rapidly diminish and Google would lose advertising revenues.  Operators need to consider their pricing strategy very carefully as a two-sided platform player – where should they continue to charge the user and where should they give up revenue from the end user in order to derive greater value from the upstream customer?

…for Vendors and Enablers

There has always been a fine line between ‘leading edge’ and ‘bleeding edge’ in telecommunications, and all vendors and enablers of future Telco success need to ensure that they are relevant now and not just promoting solutions for the future. This is even more important in the current economic climate.

Having said this, 94% of delegates at a plenary jointly hosted by Telco 2.0 and the Telemanagement Forum agreed that innovation and revenue growth as well as operational efficiency should remain a priority throughout the recession. In other words we cannot forget the future as we struggle with the present.

Vendors and enablers need to focus on continuing to solve the immediate ‘pressing concerns’ of operator management including churn prevention, ARPU growth and cost reduction, while also developing a strong thought leadership and position about how operators can win in the medium term.  They must:

  • Develop solutions that are flexible enough to be ‘forward compatible’ and support future operator business models, including two-sided models, at low incremental cost…
  • …and deliver solutions that make operators better retailers NOW – including improved customer interactivity and intimacy.  This will drive near-term revenues for operators and enable them to build a business case for investment that is not based on ‘jam tomorrow’ – something which will not get through investment committees in the current economic climate.