Full Article: QQ: China’s Monster ‘Facebook’ – on a screen near you soon

Summary: An analysis of QQ.com – a profitable Chinese social networking and instant messaging service with 1 billion usernames, 75 million peak concurrent users, and plans to grow beyond China.

Introduction

The world is full of fast-growing, hyper-fashionable social networking and user-generated content plays. Almost to a man, they lack one thing – profits, or even revenues. An English-speaking technology media and analyst/investor community obsessed by the US West Coast has practically ignored QQ.com, one example of spectacular success, because it’s Chinese.

A Profitable and Valuable Social Network

At the 30th of June, Tencent (QQ’s owners) had thrown off RMB993 million (US$145 million) in free cash in six months, even after spending RMB1.9bn in CAPEX and a further RMB593 million in financing costs. For comparison, Facebook went marginally cashflow positive for the first time in August and isn’t yet profitable.

The bottom line is impressive too; at the last count, Tencent’s gross margin was at 67.3% and net margin was 41.75% – this smashes HP’s investment criterion of “fascinating margins”, i.e. 45% gross, and Iliad’s 70% ROI on new fibre deployment. We previously estimated the gross margin for October 2008 as 63.5%, so it appears that things have consistently been going well for QQ.

The shares (listed in Hong Kong) have gone from HK$60 to 120 since April, showing that this performance is also attracting plenty of demand from investors – albeit at a somewhat toppy price/earnings ratio of over 50.

Nearly a Billion ‘Users’

There were 990 million user identities on QQ as at the 30th of June, 2009. Given the current growth rate, the billionth user will almost certainly be announced in the next quarterly results – but a nontrivial percentage of these are inactive, are multiple aliases, or are spambots. [NB. This is true of all IM communities except, perhaps, for the 17 million users of IBM Lotus Notes Sametime inside their enterprise firewalls, as we pointed out in the Consumer Voice & Messaging 2.0 strategy report.]

As impressive as this is, instant messaging user bases are usually only weakly bound to the service, they are usually non-paying, and many people have multiple usernames. A more useful metric is peak concurrent users – the maximum number of users simultaneously logged in during the period in question. To be counted, a user name has to be active in that they are online, so it’s reasonable to deduce that they exist. It doesn’t prove that they are a human being (or for that matter a useful application rather than a pest); however, whether or not a logged-in user is human, they are consuming system resources.

So, measuring peak concurrent users provides us both with better data on uptake and a more useful indicator of capacity related costs. It’s a standard telecommunications engineering principle to “provision for the peak” – that is to say, it’s useless to build a network with only sufficient capacity for the average traffic, as 50% of the time it will be congested and probably non-functional through overload. To be available, the system must supply enough spare capacity to handle the peaks in demand. Peak load determines scale, and hence cost.

In 2008, at various times, QQ’s parent company Tencent claimed to have between 355 and 570 million users. At the end of June, 2009, the user count stood at 990 million – so the nominal user base had roughly doubled. In 2008, peak concurrent users were 45.3 million, growing to 65 million in June 2009. According to QQ.com’s live statistics readout (you can watch it grow in real time here), the record at time of writing was 79 million. According to Alexa, 3.26% of global Web users visited one of the various qq.com sites in September 2009.

For comparison, Skype’s all-time peak concurrent user count is 15 million, although it has the advantage of using user-provided infrastructure, whereas QQ has a client-server architecture and therefore a constant need for rack-space.

Not just users, but Paying Users

In 2007, out of 12 million peak concurrent users, 7.3 million had spent money with QQ, or to put it another way, 61% of verifiable QQ users were buying value-added services. (How many mobile operators can claim that?)

In March, 2009, we thought it unlikely that this high proportion would continue to pay as the service grew – and that it was quite possible that the 7.3 million earlier payers were dominated by early adopters and power users, so that future recruits would be less committed to the community, less geeky, and lower-income.

However, when Tencent’s Q1 results appeared at the end of March, 36.9 million users had purchased value-added services during the quarter, growing at a monthly rate of 8.4% to reach 40 million by the end of June. This latter figure was against a concurrent user base of 65 million, meaning that 62% of concurrent users were paying users.

We think this is an impressively high proportion at such volumes, and suggests that the revenue may scale reasonably well as it grows penetration further. As one might expect the cost model of such a volume business to scale efficiently, this implies further prospects of profitability. It is likely that such thoughts are one of the influences on the aforementioned growth in QQ’s share valuation.

So, how did they do it?

In our Serving the Digital Generation Strategy Report, we identified a list of key factors that anyone who wants to attract the customer of the future would have to address, which together describe what we call the participation imperative. Specifically, four axes define the customer’s aims:

To interact socially with a peer group
To personalise and customise their environment
To express creativity – e.g. user generated content
To maintain privacy/anonymity or seek notoriety

These require and depend upon four key affordances:

Portability – broad ability to work across multiple PCs, mobiles
Payments – virtual currencies, transactions
Feedback – ratings, comments, discussion, personalisation, hackable APIs
A directory – to find other people

We assess that QQ hits 7 out of 8 criteria squarely. Really, the only one they don’t cover is privacy – although they do have rich presence-and-availability control, it’s in the nature of such a community that going offline could be a noticeable act, and there have been problems with the Public Security Bureau (Chinese secret police).

NB. The Customer of the Future can be a complex and powerful character. When the Shanghai PSB demanded that QQ filter references to the Diayou islands (a controversial nationalist cause in China), the ensuing user revolt caused even the PSB to back off.]

QQ caters to user creativity and the need for personalisation much more deeply than most social networks with the possible exception of Facebook. Although officially proprietary, the system API is documented and QQ, the company, positively encourages a hacker ecosystem of interesting new applications. This goes some way beyond the skins and avatars most socnets offer. Similarly, you can’t offer more effective feedback to more advanced users than the ability to tinker with the works. Portability is well catered for – there are multiple client applications, SMS integration, various mobile clients, and the Web site.

Print your own Digital Money

QQ’s in-world digital currency is no trivial add-on. QQ derives revenue from selling applications, other in-game goods, and extra services such as a blog, games, and a streaming music service, in return for its internal digital currency. This market creates a sink for the digital currency, and therefore gives it value, which creates a further demand for it as a gift and reputation good. It shares revenue from the store with the creators of in-game goods, thus feeding user creativity.

In Telco 2.0 terms, QQ’s business model is collecting money from the downstream side and subsidising the upstream partners, in order to encourage the creation of saleable goods and the purchase of digital currency. In return for their participation, users get the core functions of the directory and the messaging layer to service their peer group and burnish their on-line identity.

In-World Currency dwarfs Advertising

Although QQ also does contextual advertising, its core business is the in-world economy. We remarked back in March that the ad business was overshadowed by the VAS business, and this is even more true now. Online advertising grew just under 10% year-on-year, but now makes up just 9% of total revenues, falling from 11%. Internet VAS revenues were up 107% and mobile VAS was up 38%.

In part, this is the unavoidable downside of being hackable; advertising is a tax on your attention, so some people will want to be rid of it. Just as many Mozilla Firefox users install Adblock Plus to screen out Web advertising, multiple unofficial QQ clients exist that strip the ads. But if the users buy the clients from the QQ Store, who’s complaining?

QQ’s ‘Two-Sided’ Business Model Strategy

We’ve identified three types of generic ‘two-sided’ business model strategy, and concluded that the most successful companies were those who operated at the creative edge between each type.

Strategy One involves giving away services before and after a transaction, and collecting a percentage of the transaction. Think Amazon – or a casino.
Strategy Two involves giving something away to create a trading hub, then selling something to the crowd. Think of the original Lloyds’ Coffee House – it didn’t write marine insurance itself, it sold coffee to the insurance brokers, who came for the liquidity and rumours, and stayed for the coffee.
Strategy Three involves selling access for third parties to the trading hub – like BAA plc renting shops at Heathrow Airport, or Google giving away a whole range of services in order to create inventory it can sell adverts next to.

QQ would initially appear to straddle Strategies Two (selling to the crowd) and Three (charging for access) in the two-sided business model. But the domination of in-world trade over advertising in its P&L statement suggests something else – much of what it sells to the crowd originates in the crowd. Isn’t this an example of the Amazon-like Strategy One, facilitating transactions in return for a turn on the deal? If so, they’ve brought off the impressive feat of exploiting creative ambiguity between all three.

Next: your market?

Where does QQ go from here? The answer appears to be “right here” – in August 2009, Tencent launched an English-language portal (imqq.com). Interestingly, the site is marketed directly at business, which is an extension of a strategy shift they have already undertaken in China. For some time, Tencent has been marketing a version of the client at business users which borrows the look-and-feel of Microsoft Live Messenger (apparently being boring can be a valid strategy).

The business version of QQ is paid for – sensibly in our view, Tencent don’t expect small companies to be spending much time trying to achieve legendary status in the QQ user community. As (supposed) serious, responsible adults, they’re meant to have a secure identity and reputation already, so they’re not likely to contribute that much to the in-world economy by trying to burnish them. Therefore, a traditional, one-sided model is being used to derive revenue from this submarket.

Conclusion: Watch with Care

Our conclusion is at this stage that the Telcos who aren’t yet familiar with QQ should keep a close watch on them in both home and away markets. At a minimum there’s a lot to be learned from how this smart and complex operator employs the ‘two-sided’ business models. At other extremes are competitor threat and partner opportunity scenarios that we’ll be looking at in more depth in our future analysis.

Even though there are a lot of mobile industry execs with scars from trying to transplant successes from (usually) Japan into WENA (Western Europe & North American) markets, complacency would be extremely unwise faced with a potential competitor that has demonstrated such a deft grasp of two-sided business models, such a close understanding of user needs, and such a solid base of competence in high scalability Internet engineering.

And Finally…

Bill Gates recently gave a speech in which he claimed that two out of the five most profitable firms in China “don’t pay for their software”. He was telling the truth, in a sense; a quick “curl -i im.qq.com” demonstrates that Tencent isn’t paying a penny for its server software – the site is served with Apache running on BSD Unix machines. That may not be what Bill meant, but perhaps he should have.

Serving the Digital Generation

Report Summary: This 120 page Strategy Report focuses on the ‘Digital Generation’ – the cohort which has grown up with new applications and technologies – whose behaviour will ultimately drive the future shape of the Telco business.

The report is a ‘must read’ for CxOs, strategists and product managers seeking to evolve telcos to succeed with the next generation.

To share this article easily, please click:

This report is now availalable to members of our Telco 2.0 Research Executive Briefing Service. Below is an introductory extract and list of contents from this strategy Report that can be downloaded in full in PDF format by members of the executive Briefing Service here.

For more on any of these services, please email contact@telco2.net/ call +44 (0) 207 247 5003

The Needs Gap – a strategic threat to Telcos

The report shows that there is a deep disconnect between Telecos and the Digital Generation.

The Digital Generation wants:

Communication to be free
To express identity and content
To move seamlessly between media
To connect with their social groups
New applications, fast

Telcos want:

ARPU
To connect calls and lines
To control as much as possible
To minimize capital investment
Years to develop new products and services

The Digital Generation has integrated some technologies and applications with their lives and discarded the rest – those that don’t fit – rapidly. Many other applications and services familiar to our readers (Facebook, QQ, Apple, Google, etc) now serve some of the needs that Telcos alone used to serve.

Telcos have generally been slow to produce services that meet the needs and expectations of these customers. Unchecked, this will ultimately lead to the disintermediation of the telcos from their ultimate source of value – their customers. This is a strategic threat not just for the youth segment but ultimately across all generations. This report outlines the threat, the urgent need for change, and a framework to support that change.

Report – Key Points

Definition of the digital generation – youth-oriented but aging fast
Key digital generation needs and behaviours – the need for participation
Drivers of service value for these customers – supporting interaction and self-expression
A new approach to product development – the Customer Participation Framework
The economics of end user participation – driving ROI from customer interactions
User participation and the two-sided business model – kicking off Telco 2.0 strategies
Social forces shaping young people’s actions – a risk culture
Age, gender and national variations in the Digital Generation – similarities and differences
Attitudes to technology – only a means to an end

Overview of the Customer Participation Framework

Fit with Telco 2.0 Business Model Innovation Strategies

In previous STL Part.ners’ reports the focus has been on how Telco assets could be used to open new revenue streams from upstream service providers wanting to interact with end-users. Reports such as the 2-Sided Telecoms Market Opportunity have focused upon the business opportunity of how operators could reduce digital friction and protect themselves from over the top providers eager to circumvent the operator and gain access to the end-user directly.

In this report we shift the focus to examine end-users and their behaviours, explaining how:

Operators can improve their retail offering to these customers by better meeting their needs;
Operators can increase the value of their assets by better engaging with these customers and, in so doing, how they can enhance the value of the two-sided business model.

Serving the Digital Generation focuses on why and how young people are adopting digital and communication technologies into their lives. By doing this, STL Partners can help Telco industry management better anticipate, and respond to, the main drivers and unmet needs of tomorrow’s Telco 2.0 customer. What we may regard as quirky segmented behaviour today (blogging, twittering, social networking, for example) is, in fact, mass consumer behaviour tomorrow. Here STL Partners gives an insight into mass-market behaviours for a new breed of customer, which will shape the future of the communications and media sectors.

This report explains this behaviour and explores how the desire to participate represents a new opportunity for Telco value creation. To realise this opportunity, we have developed a new framework for future product development and services, The Customer Participation Framework (CPF). Developed initially as a template for validating new service or application ideas, the CPF is a tool that can be used to support different phases of the product or service innovation process:

At concept initiation, to validate ideas against customer needs;
During the development and trial phase, to ensure usability issues are properly addressed;
In the execution phase, as a means of feedback iteration and a measurement of success.

The CPF framework can help operators increase the value of the Telco Value-Added Services platform and lead to entirely new ways of defining, evaluation, developing and marketing Telco services (retail) to both upstream service providers/partners and end users.We believe that The Customer Participation Framework represents an opportunity for operators to increase the value of their platforms and retail strategies and thus help to realise the $375billion two-sided business opportunity outlined in the 2-Sided Telecoms Market Opportunity and the Future Broadband Business Model reports.

Who is this report for?

The report is for senior (CxO) decision-makers and business strategists, product managers, strategic sales, business development and marketing professionals acting in the following types of organisations:

Fixed & Mobile Operators – to set and drive product development and strategy.
Vendors & Business Partners – to understand customer need and develop winning customer propositions.
Regulators and Standards Bodies – to inform strategy and policy making.

Strategists and CxOs in IT and Investment Companies may also find this report useful to understand the future landscape of the Telecoms and related industries, and to help to spot likely winning and losing investment and operational strategies in the market.

Key Questions Answered

What is driving the behaviour of the digital generation and what does this segment value in products and services?
Which companies are best meeting the needs of these customers? What can operators learn from them?
What is the short and longer term benefit to operators of meeting these needs?
How should operators and vendors go about developing products and services that achieve this?

Background – The need for a new innovation process in telecoms

During the period of rapid growth when markets were emerging, the process of product or service development for Telcos was driven by a focus on network roll out, capacity issues, spectrum licences, supply chains, vendors, traffic forming, the regulatory environment and so on.

This was understandable. Uptake of Telco services was rapid and the challenges of meeting demand immense. Innovation was predominantly in hardware, which required long development cycles, massive investments and a stable regulatory environment. Everything was tested to destruction to ensure robustness and the ability to scale. The industry thrived, driven by some outstanding innovations in core networks, capacity handling etc.

Today, however, as markets mature and become saturated, this approach to innovation has run its course.

Increasingly, core propositions and networks are being commoditised and new services are being developed and delivered by others over the Telco infrastructure. Operators are under increased pressure to:

Hold onto market share (or put more negatively, prevent churn) as an overriding consideration. Operators strive to increase customer retention and ‘stickiness’ on existing core services;
Find new revenue streams – outside of the core personal communications services.

But to build stronger customer experience and innovate in new spheres, requires a shift in focus from being Telco-centric to customer-centric. Placing end-user engagement and participation at the forefront of what Telcos do requires a cultural revolution.

It means a change in processes and the revaluation of core assets.This report focuses on what areas of innovation operators should seek to focus on in their existing retail operations, as well as the core enabling services that form a cornerstone of the future business models.

A move from Telco-centric to customer-centric innovation

Case Studies, Companies and Services

Detailed Case Studies: Blyk, Buongiorno, Cartoon Doll Emporium, Facebook, Maplestory, Mo1, Mobagetown, Puppyred, QQ.

Companies and Organisations Covered: Amazon, Blyk, Buongiorno, Cartoon Doll Emporium, Ebay, Facebook, Firefox, LinkedIn, Livejournal, Maplestory, Mo1, Mobagetown, O2, Orange, Puppyred, QQ, Skype, Xanga, YouTube, Zygo

Summary of Contents

Introduction
Executive summary
Defining the Digital Generation
A Framework for Future Service and Product Development
Kids and Communication
The Changing Contours of Childhood
Digital differences: Age, gender & nation
Making technology their own

The Research Process

We interviewed senior marketing and product development executives in a dozen operators to fully understand the how the current innovation process is managed and what evaluation criteria are adopted when developing potential new propositions, products and services. This helped us to identify the shortcomings of current innovation approaches, rooted in a tradition of network deployment and subscriber acquisition.

For our other stream of research, we drew on the extensive body of existing industry and academic research into young people’s use of digital communications technology and their adoption of social software. We looked at what they are doing with technology and how adoption has occurred (including exploring nine case study examples).

Research Format

120+ page manuscript document

This report is now available to members of our Telco 2.0 Research Executive Briefing Service. Below is an introductory extract and list of contents from this strategy Report that can be downloaded in full in PDF format by members of the executive Briefing Service here. To order or find out more please email contact@telco2.net, call +44 (0) 207 247 5003.

Full Article: Retail Services 2.0: Digital Natives – how to serve a new breed of customer; Executive Briefing Special

NB A PDF version of this briefing can be downloaded here.

This special Executive Briefing report summarises the brainstorming output from the Retail Services 2.0 section of the 6th Telco 2.0 Executive Brainstorm, held on 6-7 May in Nice, France, with over 200 senior participants from across the Telecoms, Media and Technology sectors. See: www.telco2.net/event/may2009.

It forms part of our effort to stimulate a structured, ongoing debate within the context of our ‘Telco 2.0’ business model framework (see www.telco2research.com).

Each section of the Executive Brainstorm involved short stimulus presentations from leading figures in the industry, group brainstorming using our ‘Mindshare’ interactive technology and method, a panel discussion, and a vote on the best industry strategy for moving forward.

There are 5 other reports in this post-event series, covering the other sections of the event: Devices 2.0, Content Distribution 2.0, Enterprise Services 2.0, Piloting 2.0, Technical Architecture 2.0, and APIs 2.0. In addition there is an overall ‘Executive Summary’ report highlighting the overall messages from the event.

Each report contains:

Our independent summary of some of the key points from the stimulus presentations
·An analysis of the brainstorming output, including a large selection of verbatim comments
The ‘next steps’ vote by the participants
Our conclusions of the key lessons learnt and our suggestions for industry next steps.

The brainstorm method generated many questions in real-time. Some were covered at the event itself and others we have responded to in each report. In addition we have asked the presenters and other experts to respond to some more specific points. Over the next few weeks we will produce additional ‘Analyst Notes’ with some of these more detailed responses.

NOTE: The presentations referred to in this and other reports, some videos of the presentations themselves, and whole series of post-event reports are available at the event download site.

Access is for event participants only or for subscribers to our Executive Briefing service. If you would like more details on the latter please contact: andrew.collinson@stlpartners.com.

Background to this report

New research shows that customer behaviours and expectations from ICT products and services are changing globally. Customers are not simply using the internet and mobile passively for information and entertainment; there is increasingly a culture of participation and involvement. Customers want to contribute: to wikis, to blogs, to mash-ups, to product and service reviews, to product development. These changes are not confined to the “Digital Kids” but are happening at a pace that challenges traditional telco innovation processes and timelines. This session focuses on what operators can do to better address these new needs and behaviours.

Brainstorm Topics

Preview of new Telco 2.0? research report: “Serving the Digital Generation: Innovation for a new breed of customers”
How are customer behaviours and expectations changing?
Which service providers are best addressing these changes?
What are the challenges and opportunities for operators seeking to develop services and support 3rd party service providers?
What changes are required to Telco product/service design and innovation processes?

Stimulus Presenters

Scott Adler, VP, Amdocs Interactive
Mo Firouzabadian, Global Business Line Director, Buongiorno
Norman Lewis, Associate, Telco 2.0? Initiative
Richard D. Titus, Controller Future Media, BBC
Marc Davis, Chief Scientist, Yahoo! Mobile

Panelists

Richard D. Titus, Controller Future Media, BBC
Marc Davis, Chief Scientist, Yahoo! Mobile

Facilitator

Simon Torrance, CEO, Telco 2.0 Initiative

Analysts

Chris Barraclough, Managing Director, Telco 2.0 Initiative
Dean Bubley, Senior Associate, Telco 2.0 Initiative
Alex Harrowell, Analyst, Telco 2.0 Initiative

Stimulus presentation summaries

Delivering a Personalised Experience to the ‘Tera-Sumer’

Scott Adler, VP, Amdocs Interactive said that there would soon be one trillion permanently connected customers. Device proliferation would continue, with an ever increasing proportion permanently connected. You could call it the ‘tera-sumer’ – not thousands, but a trillion segments. Each individual is a valid segment.

What’s the impact? Call centres would be at risk; the off-portal trend accelerates even further. Cash will be squeezed out of more and more sectors, but customers will pay for personalised and integrated experiences. As Rory Sutherland, vice-chairman of Ogilvy, pointed out, they will pay for applications but not for Web pages.

Brian%20Shepherd_Amdocs%20Interactive_May%205.png

We need to sell, provision and bill bundles of apps, goods, and services together; we need to extend the ”portal experience” outside operator or vendor portals into other services and across many different devices. It’s the ”universal storefront”, by analogy with Amazon. We should consider services as ”network goods”; people will use reviews etc, so we ought to provide them and get ready for them rather than try to stop it. A smart network should know what I do on the Internet and act accordingly, he said. Formats used to be unique; they are now spread across many devices. This should include the cloud.

Scott Adler, VP, Amdocs Interactive: ”Cultures of innovation are difficult in general. You need to create a separate organisation, with enough budget and authority to get on with it – a skunkworks.”

We need to start innovating now and see what works and what doesn’t. There is no one answer, and each operator is trying to find their own way. But the important thing is to start today. It is vital to recognise there are not thousands of segments, but a trillion segments of one – much better to provide things the user wants, than to provide everything and let them click through. The historical silos for selling all goods must be broken up.

The Customer Participation Framework

Norman Lewis, Associate, Telco 2.0 Initiative presented findings from the latest Telco 2.0 Strategy Report. If we can understand user behaviour, we can deliver on the two-sided business model that the Telco 2.0 Initiative has been popularising. At Orange, when I talked about changing user behaviour they would always say I was talking about the long term; it’s actually a short term thing. This is not about unexpected outcomes, a battle that might be lost or won. It’s going to happen; the question is whether we cope or not.

I-Mode gained 20 million subscribers in 2 years. This was instant user behaviour. So we’re trying to look at the digital generation, to understand what drives this behaviour – now, and in 20 years’ time. I’ve talked about risk culture, the rise of the bedroom and the decline of the street; this technology enables them to create autonomous space. It’s not the technology – it’s the culture.

The fastest-growing group of Facebook users are between 26-40; so we are all part of the digital generation now. This is the mass market. People are forming relationships and interacting with popular culture through this technology, now. We’re going to see this behaviour in the mass market. For example, the users no longer make a distinction between online and offline.

Marc Davies, Chief Scientist, Yahoo! Mobile: ”Facebook is as fundamental now as e-mail or text. You have to look at the history of media; the rate of change is speeding up.

So we created the Customer Participation Framework (CPF) – how you represent yourself to your peer group and how this filters back to you. We’ve created this framework to understand the kind of services needed in the future. There are eight axes – ”it’s all about me”, ”my peers and me”, ”the world and me”, ”my money”, ”my space”, ”the creative me”, ”me and others”, and ”me to the power of us”. All of these match a different mix of telco capabilities. He gave as examples, respectively, Firefox extensions, Facebook groups, QQ, Ebay, Linkedin, YouTube, Twitter, and Amazon.com.

Nlewis%20Telco2_New%20Gen.png

Blyk is an example of the economics of participation; roughly 29% of subscribers respond to the ads. Subsequent ads go to the responders only, and so on. There’s a radical boost in revenue per campaign due to this social filtering. It’s a flywheel – participation creates information, which creates opportunities. Upstreamers get better targeting, more join; more products; more customers, and so on. This recruits more and more innovation into the operator platform…

Nlewis%20Telco2_New%20Gen2.png

How could we redesign a core service? For example, what would ‘SMS 2.0’ be, based on the CPF? It would function as a social authentication mechanism. It would provide group messaging, both individual to group and group to individual; it would use the billing engine to collect credits that can be spent in the real world. We came up with the service in 15 minutes.

The Customer Participation Framework is also a mechanism through which you can check your innovation product cycle. Is this idea still relevant? Check it. This is a ruleset for understanding the future; rather than trying to guess the essentially unpredictable.

Retailing to Pre-Paid Customers

Mo Firouzabadian, Global Business Line Director, Buongiorno reminded us that prepaid customers represent 65% of the world total mobile users. How can we do more with them?

We need to leverage your existing data assets. An example – ‘O2 Extras’, a service from 2003, which educated prepay customers as to things they could do with mobile phones. As a by-product of that, we started the customer life cycle management process – how can we make customers move up the slope of value?

‘Orange Wednesdays’ is a 2 for 1 cinema ticket giveaway promoted to Orange customers. It’s a two-sided business model – cinemas benefit from more footfall, and opening Wednesday night. For the operator, it provides differentiation and helps retain customers.

‘Win Every Time’ – a scheme that offers prizes at top-up time – is another good example. All user contact with the network provides an opportunity, so we’re doing event-driven marketing based on analysis of past contacts. The analysis is done in real-time – this is an especially valuable feature and causes a drastic boost to effectiveness. More convenient top-up – and more physical feedback of the airtime sale. Checks customer records, causes logging in the company core.

We got the time-to-market down to two months. The operator sets up advertising rules based on 9 parameters. The approach creates engagement; it cuts churn; it went ROI-positive in 1 week. Brands can now pay telcos to reach their users effectively…

[Mo’s full presentation is available at the event download site. He will be writing a more detailed case study on this topic in the next few weeks. This will be available at www.telco2research.com].

Feedback: General (verbatim comments)

Good to have concrete examples. But… most two-sided market theory suggests that you can only really make a profit from one side. thus we need to understand which side of the market will generate the largest profit and choose to focus effort there [#8]
Buongiorno and Telco 2.0 presentations were very good – practical and relevant for two-sided business models. [#11]
[I liked] the practical examples implementing the theory [#10]
Business transactions work best when there is value shown to both sides, need to show value to upstream and downstream to make this concept viable, not just a single direction monetary transaction. [#28]
Operators are often too slow and protective to open up to the 2-sided model. Will probably take brands and enterprise to force the model as customers of operators rather than operators push the model from their side [#92]
The 2 sided models looks fine but what is the best case? [#114]
There are barriers to achieving the 2 sided business model which are not being discussed [#75]
Not sure the 2-sided model works at all levels of the value chain leading to margin pressure for some parties [#83]
Would like to hear more about the ‘how to’ [#7]
How do you ensure the upstream and downstream get value, currently seems biased to the SP [#25]
How are you going to resolve the issue of wholesale and retail competition? two-sided business models have to deal with both sides [#53]
o re 53: many operators have already done this, ask the European operators that have successfully launched MVNO’s [#120]
Two sided bus model might be a side track. Most social communications is in social networks regardless of which Telco the user prefer. This is really about layers of communications services where a social communications needs to work across operators. thus either needs a Telco monopolist or implementation of open standards that is used by all operators [#48]
Are there better details on which models are best 2-sided and which may remain 1-sided? [#64]
How is it possible to avoid resistance from internal retail division that can foreseen a possible cannibalization of retail market related to third part offering based on open APIs? [#87]
How to share revenues between Telco and upstream? [#78]
There is no two-sided Telco model. As a media company we have a great customer relationship. Once the customer has bought access to unlimited internet use then we have everything [we need from telcos], thank you. Can you explain what network annotation needs to be built in to the infrastructure so that we can get differentiated services from the Telcos? [#90]
Is there a risk that Telco 2.0 has overestimated the $250bn revenue from distribution platform? A lot of this is access, backhaul etc but isn’t this already a significant part of Telco revenue? [#106]
Do we really think slow incumbent operators will open up with any reasonable speed to the 2-sided model or will it take brands and enterprise to push the model as customers of the operators? [#108]
Is there any best case of 2-sided model other than MVNO? [#123]
How do you build intimacy and relevance with digital consumers to leverage the 2 sided business model opportunity? [#124]
How do we convince the retail department in the Telcos that adopting a platform or NaaS [Network-as-a-Service] business model will not cannibalise their existing business? [#127]
Can you name examples of operators opening up data and helping service providers defining new value added products? Who are the leaders in this field? [#22]

[[[Ed. – The Telco 2.0 team will respond to these questions in future Analyst Notes at www.telco2research.com]

Feedback: Better Retailing to Pre-Paid Customers

An example of a “proto-2.0” service was demonstrated bv Buongiorno. Although its immediate focus is on helping extend a 1.0 model (O2’s prepay mobile) via enhanced customer interaction, it actually represents a roadmap towards more 2-sided models. In addition, the interactivity is itself a good example of using the innate capabilities of the network (SMS and top-ups, in this case, linked to the web) as a mechanism for adding value beyond basic person-to-person communications. The presentation stimulated a number of positive comments, as well as queries about the details of the service.

On the Buongiorno example, I wonder if the “O2 treats” programme would reveal any interesting insights if the data is compared across territories (e.g. UK vs. Italian vs. Czech Republic) prepaid consumer.
Does it run the risk of being perceived as “unfair” – it is less of a random lottery and more targeted according to behaviour [#27]
Not normally convinced that ‘real-time’ is as important as many think – but the Buongiorno example of immediate reaction to top up events is really good [#36]
Do Buongiourno do any O2 promo or VAS with the O2 arena in London? [#51]
In the Buongiorno example, I would be worried to make post-paid to unattractive compared to to prepaid. Has this been considered? [#77]
How far does the bribery go before it become unsustainable as consumers demand bigger and bigger prizes [#121]
Expanding the Win Every Time concept to advertisers paying for the rewards: more interesting maybe for brands who are not confident with how to approach mobile advertising [#33]
Will top up prizes go the same way as free gifts at petrol stations – i.e. we now only want cheaper petrol. [#44]
Which carriers, if any, are adopting WET?

[Mo from Buongiorno will respond to these and other questions in a follow up case study article. Watch www.telco2research.com for details]

Feedback: Customer Participation Framework and ‘SMS 2.0’

Norman Lewis’ presentation on consumer behaviour and requirements generated a very large amount of feedback, mostly concerning his concepts of the Customer Participation Framework and SMS2.0. While some comments were very positive, there was also debate as to whether SMS2.0 was simply a recast form of Mobile IM. In Telco 2.0’s view, there is actually clear water here – SMS2.0 is about extending the life and usefulness of an existing service and technology, with little impact on the device. Conversely, many variants of mobile IM have attempted to compete with Internet IM – often with a business model that does not fit with consumer expectations of the service (eg cost).

A good framework, but needs to be tested, consumers seeking value, not all about me, needs to consider charity as well [#16]
I found the participation framework to be very interesting. It certainly stimulated my thinking for a project I am involved in right now. [#35
Involving the customer is from my perspective the only way how services can run in future [#
Recognised the need to serve customers, did not account for how to develop personalised customer services. [#65
Participation Framework is right – ME first. [#70]
Focus first on what end-user wants, and offering end-to-end offering, not on technologies… [#74]
I liked Telco 2.0’s framework for evaluating products, however I feel there is more work to be done and feeding these parameters into economic business case for a product. [#9]
Love to hear Norman talk – always very insightful. [#15]
Excellent approach regarding reformulation of the actual services (ex SMS2.0), and leverage their usage / experience. Nice to go and do that exercise for other services. [#31]
Liked the participation framework and using it to enhance an existing service e.g. SMS2.0, but can operators charge more for these new features [#37]
Hybrid models of services that create missing links from SMS to mobile internet: the SMS 2.0 concept is very powerful, universal yet simple enough for mass adoption [#17]
Disagree with point 17, SMS 2.0 is just mobile IM, which already failed [#45]
Agree with 17 that linking SMS to web & social networks has a lot of possibilities. Vodafone’s Connect to Friends app on Facebook is an interesting mash up of this [#60]
Regarding Norman’s SMS innovation: DiGi in Malaysia launched a mobile and web community called Kakiis in Feb 2008 with group SMS function, and rewards and perks to purchase digital goods. [#42]
SMS plus Norman’s model = twitter [#111]
Twitter – totally overrated and in many cases value-negative. Unlike Facebook, it’s a flash in the pan – a quick burst of hype and then a slow slide to oblivion [#115]
Isn’t Google’s Grand Junction a subset of what could be done by a Telco for Voice enhancement, far beyond SMS2.0? [#67]
Isn’t SMS 2.0 idea just mobile instant messaging which already failed to take off? [#21]
Adopt enhanced Norman model to upstream parties. What are the driving elements for the upstream? Apply an integrated model for the eco system. [#63]
Participation is well spotted, but it requires localisation/identity/depth… otherwise true interactions is lost [#103]
Why does Norman think all the social innovation is taking place outside of Telco’s, when they should be the experts in communication not start-ups. [#98]

Feedback: Industry cooperation and structural issues

The session highlighted numerous challenges around industry structure and partnership – the general theme from participants seemed to be that operators could struggle to collaborate with the types of organisation that are gatekeepers, such as content owners or Internet players. There is both a timing and attitude issue here – Telcos need to move fast to keep up, while at the same time dropping their perceived “arrogance” in dealing with organisations that they hope to keep as peers or customers.

Mobile advertising failed shot due to lack of sizeable and qualified audience. How would customer participation based programs tackle this fundamental issue? Is interconnection of customer knowledge across Telcos a must have to create a sustainable 2.0 model? [#93]
I don’t see the operators solving the Telco 2.0 opportunity alone, it needs innovative third parties who think outside the box and can collaborate as intermediaries with many operators [#125]
How do Telco’s form win-win partnerships with companies who are successful with digital consumers? [#86]
Will Telcos get benefits from relationships with big Internet players? i.e. Google is increasing the relationship with mobile customers without Telco [#89]
The new world of services is really made by software, which is not a core Telco capability. How should Telcos have the software developed? Outsource – too expensive? Or in new revenue sharing partnerships with software companies? How would such a business model look like [#82]
Which is the better choice for operators between collaboration with ISP and develop SDP themselves? [#109]
How do we show the value to ensure all stakeholders work together, too many still act as single entities [#54]
How do we bring it all together, users will want mobility and portability, this needs partnerships, scalability and equal value sharing propositions, this has not happened over the past 15 years in the Telco sector, only the ICT sector seems able to work across platforms, how to get the Telco’s to embrace and move forward [#91]
Are we as carriers being able to provide IT services connected to twitter/Facebook in timely fashion? [#34]

Feedback: scepticism

It must be noted that there was a significant undercurrent of pessimism in some contributions, perhaps reflecting the economic situation, and also the increasing realisation that new business models are not a “quick fix”. In particular, we sensed frustration with the slow pace of internal Telco organisational change, and also a lack of awareness of response to “real world” concerns of consumers.

No thought of tying the presentations to the real world issues, too Western and focused on the past, needs to think in the future, feel no real innovation. [#41]
Services must add value, and address the issues of the day, this did not come through [#20]
· 3 presentations about retail, however retail companies on the web for entertainment, purchase product (not network minutes) has not been addressed. [#43]
Our concerns relate to the saleability of some of the examples and also to the contextual scenarios that lack a twitter viral effect. [#55]
Not sure about moving completely off-portal. Most handsets do not have the screen and power to behave like a pc. [#57]
Need more focus on the participation aspects, still driven as a how do we impose services, rather than how do we identify demand. [#73]
Lack of analytics and underpinning data. All claims are good … [#84]
No thought of sustainability, there is lots of possibility here, but only old world thinking, how to ensure greener concerns are addressed [#32]
There are not a success example of Telco winning money in a digital market [#113]
The accountants who run most phone companies and the fear of creative destruction is the biggest barriers to new business model adoption [#116]
Has the current financial/economic crisis changed anything in the Telco 2.0 outlook with regards the retail customer? Hard to imagine it hasn’t….. [#66]
Re: Amdocs point about multi-screen apps, e.g. across mobile/PC/car etc. Is there hard evidence users actually want this, or just wishful thinking by vendors and operators [#5]
Can we find a way to make mobile operators go bankrupt? 50% EBITDA margin in an oligopolistic business is just a robbery. Wished Skype kills them [#61]
Many good ideas are presented, but fundamental different organizational capabilities and competences are needed to succeed. Should companies make a bet and focus according to which capabilities they are likely to succeed developing? [#112
Don’t you think that ‘convergence’ is sometimes much more violent than what is described, i.e. each player want the golden share more than cooperating to grow a market. for example in media delivery, CEs v. Telcos [#81]

Feedback: do telco people know anything here?

One specific sub-theme that emerged was whether Telco executives can really read the minds of youth & other groups.

How come the people discussing teenage digital behaviours have been so far male over 50? [#38]
o Note 38: people who run phone companies are generally old white guys. That’s why. [#52]
o Do 50 year old males really understand teen/youth behaviour? Yes, because we have teen children to observe and pay for their digital habits! [#62]
Suggestion: invite digital natives to the next Telco2.0 to spice the whole thing up! [#96]

Feedback: privacy, security, and customer data

Another issue, which also cropped up in the session on subscriber data management, was that of privacy

Amdocs view of the world sounded rather big brotherish. Wouldn’t the regulator have a field day? What about the issue of customer privacy – how would this be managed in practice? [#19]
o Re 19 and big brother – what confidence should consumers have that operators can control their vendors so that BSS companies can’t abuse access to customer data? [#131]
We must be careful with the use of customer’s information. Regulatory commissions are over. But Google or Facebook get a lot information of customer without problems [#102]

Feedback: Technology

Although later sections of the event went into more depth on technology, the retail section of the day also elicited some early feedback on some potential technical issues and problems

Sounds to me like the magic is in the application layer – not smart networks but rather smart applications. Think Internet hourglass – thin in the middle, just forward the packets. Keep a record CDR style but this again is an application layer thing… [#118]
What are the fundamental reasons why operators don’t roll out new business models> i would argue that it is a function of the cost of risk. the risk/cost is largely based on legacy BSS/OSS [#47]
Is there some sort of ‘middleware’ required to tie in the elements of the Telco infrastructure, corresponding to the eight axis in Norman’s talks? [#30]
About AMDOCS presentation: Looked very theoretical to me. How do you put yourself in the middle of trillions of real-time connections? [#59]
We see that customer segmentation is quite complex to manage therefore requires smart solutions in software, architecture, man power [#29]
Telcos are still very far away on having that dynamic. Today’s heavy architectures are not aligned with 2 simple things: innovation and cost reduction. How to achieve both? [#88]

Feedback: iPhone

Inevitably, some of the comments invoked the iPhone’s impressive success in developing a new end-to-end business model in mobile. What’s Apple got that everyone else hasn’t?

Any idea why Apple is winning the loyalty of the i-phone user rather than the operator who provided it and operates it? [#23]
Because the device is the differentiator. [#58]
Over 40% of new i-Phone subs are coming from other service providers. The ease of use, apps store and feature set are compelling people to move. [#80]
i-Phone loyalty reflects the fact that people think of the device as a standalone product (like iPod or PC), not as ‘part of a service from the operator’. You don’t have loyalty to the electricity provider you use to charge your phone, do you? [#132]

Feedback: Others, Questions

Sorry, for the Telco there is no money in exposing the API for location and presence? It makes yahoo good. [#126]
Risk of a new service, lower the risk easier to test out a service before high volume deployment. Traditional Telco (wire line) very risk averse due to cost of new service deployment [#50]
There are two sides of the debate on rolling out new business models 1) limitations in the back office 2) business policies and procedures [#100]
Some interesting ideas around the consumer market but what about the significant enterprise market? What approach should be taken to this? [#94]
Are Telco brands important in the new world? [#130]
Currently the digital natives see little or no value in Telco brands; they only see value in content brands. How should the Telco’s address that challenge? [#128]
Re 21 instant messaging by Telco failed to take off but Skype does not. Many services provided by Telco I [#99]
Will Blyk ever be profitable? [#107]
Do we think the Chinese SN [social networks] will work in Western Europe? [#95]
Most of ideas are focused on Smartphones. Is their penetration and usage (majority of Smartphone users only use it for calls), enough to justify a quick change? [#104] [Telco 2.0 – not necessarily, it should be possible to run many of these new services on featurephones, especially the next generation which will have quite good web browsers]
Why don’t you use Twitter to show a real case of social participation now? [#117]
What about KPI’s regarding new services that are going to be created? [#68]
Pre-paid will be used as a part of applications, because more and more consumers know the model of prepaid will be reusable by SP. May be it is not a good idea for common usage. [#76]

Participants ‘Next Steps’ vote

Participants were asked which of the following statements best described their views on the role operators should try to play in serving digital natives?

Be a really good dumb pipe. Provide connectivity and voice messaging only and let the ‘over the top’ players get on with innovating services
Retail supermarket. Sell Telco or third-party services via online platform.
Enabler. Allow third-party innovators to do a better job by giving them access to Telco capabilities and assets (identity, billing etc).
Retail – enabler. Sell own and third-party products AND ensure they are improved through access to Telco enabling capabilities.

Lessons learnt & next steps

Taken together, the presentations, feedback and final vote highlight an industry in transition – but still very uncertain of the precise direction or roadmap. Early examples and case studies of new retail telecom business models are like gold dust – scrutinised and dissected to yield any generic insights. Irrespective of the aim to develop two-sided business models and open platforms, it is also clear that strategists are still focused on extracting the maximum value from today’s existing services.

Looking at the results of this section’s vote, it is unsurprising that few people in the industry see the dumb pipe as an attractive future strategy. But more interestingly, the concept of a retail supermarket, which had been widely seen as an attractive option in the past, seems to have fallen away, reflecting a desire by Telcos to ensure that they can still differentiate and add value through their infrastructure. This shift may also reflect the awareness that this type of retail operation would put them head-to-head in competition with Apple’s AppStore and various other service portals. It also highlights the dilemma of Telcos’ desire for exclusivity, set against application providers’ hope for the widest possible distribution.

The Telco 2.0 team agrees with the outputs of the vote – the most attractive options involve turning the operator’s network (and possibly devices – see below) into a platform of “enablers” for third party services and applications. These assets and capabilities may not be easy to deliver – either organisationally or technically – but once in place, should provide a much more defensible source of value.

Marc Davis, Chief Scientist, Yahoo! Mobile: ”Give the user ownership of this information! This is crucial! You could geocode all my photos or send me restaurant recommendations; but just give me value!”

There is a fairly even split between those suggesting that “enabled” services can be sold in retail by Telcos, versus those who believe that the exposed capabilities alone represent a more viable standalone basis for growth. In many ways, the reality will depend on a variety of factors – existing customer relationships, portfolio of existing inhouse services, ease of developing retail partnerships and so on. A tier-3 mobile operator with <1m subscribers and few smartphone users is going to find it hard to partner with the coolest web brands. A former fixed-line incumbent, in its home market, with enviable billing relationships to a sizeable % of the country, is in a much better position.

It is worth noting that various of these applications simply cannot be “sold” through an operator’s retail store, as they will be small but integral parts of much larger services. In the same way, Amazon is able to enable the development and sale of a huge variety of other products and services, but would be the wrong company to try and retail all of them to its customer base. (Sellers of fresh food or fuels, for example, would not fit with Amazon’s logistics business, but might still exploit its various online commerce enablers).

Richard Titus, Controller Future Media, BBC: ”In general, you need to remember that the data is the asset, not connectivity. Connectivity is a loss leader. But data is buried treasure.”

In the short term, the following needs to occur:

Continued emphasis on getting C-level buy-in and commitment
Identification by Telcos of areas for quick pilot deployments of new business approaches
A focus on deploying services like Buongiorno’s, which are “enhanced 1.0” models, with a relatively straightforward roadmap towards 2.0 options as they mature.
Willingness to publish details of successes and failures – despite the competitive aspects of the marketplace, we are still at a stage where the industry as a whole needs validation.
Awareness of tactical acquisition opportunities, given the contraints of the recession
Pragmatism about retail services that can use “lowest common denominator” service components like SMS and the existing installed base of legacy phones or home gateways, even if they lack the “sexiness” of those that can exploit the latest smartphones or intelligent end-points.

Longer term, the emphasis clearly has to be on developing full-fledged platforms open to developers, as well as exploiting new distribution channels.

Structure and incentivise the retail operations in a fashion that enables them to compete on a level playing field with future wholesale customers. This does not necessarily mean structural separation, but it will need some “chinese walls” and changing attitudes from protectionist to competitive.

Go back to the drawing board and develop a full strategy for voice and messaging services. Despite the move towards cheap/free minutes, there are ways to extract value through other business models.
Pragmatism about relationships with leading Internet players. Trying to compete head-on with FaceBook or Google is unlikely to succeed. There is more mileage in looking to enable peripheral service or capabilities, or partnering directly if the Telco has sufficient scale.
There is no reason that Telcos should not retail each others’ services if they are particularly good. At the moment, there are extremely few instances of Operator X selling an application developed (and maybe branded) by Operator Y. Would you really rather deal with Google than your peers?
Invest in behavioural research, but in ways that directly translate to new relationships rather than putative services with a multi-year development timeline. Think “R&P” (research & partner) rather than R&D.

Full Article: Defining the Digital Generation: Young Today, Grey Tomorrow

The myth of a youth-only digital world

Terms such as ‘Digital Kids’, ‘Digital Natives’ and ‘Digital Immigrants’ have been bandied around for the last few years in an attempt to distinguish people who are comfortable using the Internet, and adopting Web 2.0 solutions, from the rest of us who are generally considered sceptical grey-haired laggards. The former group are young and have been weaned on digital technologies; the latter are older and have discovered mobile telephony and the internet in their adult lives. Indeed, when STL Partners was planning this report its working title was Digital Kids: Understanding the Customer of the Future.

So why did we switch to Serving the Digital Generation: Innovation for a new breed of customer? Research by a non-profit think-tank, The Pew Internet Project, in the US suggests that associating digital culture with younger people is over-simplistic. Differences in internet usage and adoption of ‘Web 2.0 behaviour do not divide neatly between the younger and older generations. There are not only more and more ‘silver surfers’, but they are also displaying decidedly Web 2.0 tendencies.

Internet usage skewed towards young but oldies catching up

It is true that the younger adult generations (Generation X and Y, aged 33-44 and 18-32) are over-represented on the internet. However, Older Boomers (45-54), none of whom would have grown up with computers let alone the internet, are also over-represented. Indeed, dramatic under-use of the internet can only be found in the oldest segment (G.I. Generation, aged 73+) where, it is safe to say, age and infirmity will be preventing some people from using the internet.

It is clear that there is a correlation between age and internet usage if we look at the proportion of each age segment that is online. Teens (excluded in the analysis above), lead the way, with 93% of all 12-17 year olds using the internet. They are closely followed by Gen Y (the next youngest group aged 18-32) with other segments following closely before a more substantial drop-off with those aged 64 and over.

It is interesting to note the relatively small differences in internet usage between the ‘Digital Natives’ (Teens and Gen Y), who were born after the rise of the PC and Web, and the ‘Digital Immigrants’ (Gen X and Younger Boomers) who have become familiar with the digital world through their working lives. This begs the question whether internet usage is purely a function of life-stage with teens and workers using it to manage their lives and retirees finding it less useful. If this was the case, then it is likely that the older generations would be consistently under-represented over time and suggest that internet usage of today’s young will reduce as they get older.

However, this is not the case. As Chart 3 shows, internet usage has grown fastest in the least-penetrated older segments (the Silent and G.I Generations). In other words, they may be coming late to the internet party but they are coming. If we were to look at Chart 3 again in seven years time, STL Partners forecasts that there would be a gradual downward trend in internet use through the age groups and that the rapid fall-off that we currently see over age 60 would be pushed back to over 70.

Different (Web 2.0) activities for different ages…

If all age groups or generations are moving online, albeit at varying speeds, they are doing so for different reasons and this is reflected in diverse behaviours. This is not to say that the ‘Web 2.0’ behaviours of participation and engagement (outlined in the last section) are the domain of the younger generation, only that each generation engages and participates in distinct ways. The Web 2.0 behaviour of the Gen Y segment is different to that of the Gen X and the Boomers, but both are Web 2.0 in that they involve active engagement from users.

Chart 4 illustrates this point. The three activities at the top of the chart (Use social networking sites; send instant messages; play online games) are heavily skewed to the younger (Gen Y) age group. 67% of Gen Y claim to use social networks compared with the next highest segment (Gen X) on only 36%. There may be a definition issue here, as many Gen X users are likely to only classify consumer-oriented sites such as Facebook, MySpace and Bebo as social networking sites and would ignore business sites such as Plaxo and LinkedIn. Nevertheless, the youth skew for social networking is clear. And the situation for instant messages and playing games is similar.

The reasons for lack of adoption and usage by older age groups for the three activities at the top of the chart vary by activity. STL Partners believes that there is nothing inherently alien about these ‘Web 2.0′ activities – it is just that they do not meet the specific needs of the other segments. Older segments adopt new technologies and solutions more slowly than younger ones who are more comfortable taking risks and learning new things, but these are not the reasons why oldies never adopt some things. Social networking, game playing and instant messaging are likely to remain youth-oriented not because they will always frighten older segments by their newness, but simply that they do not meet their needs as well. Social networking is a good example (see Chart 5). It mimics online what the older generations did in their bedrooms, in cafes and behind the bike sheds when they were young: experiment with their tastes, share their views on youth culture and rail against their parents’ generation with their peers. Today’s younger generation find the web, and social networking sites in particular, the best medium for these activities.

This is reflected in the statistics for Facebook usage in the US which indicates that that 13-34 year olds account for 78% of users (Chart 6).

Source: insidefacebook.com

The desire to socialise, participate and engage remains, however, a core human need that crosses age boundaries. There is a myth that younger generations are somehow different because they participate in wikis, blogs and social networks. But older generations participate and socialise just as much. Even the 64+ year old retirees, the laggards of the internet world, want to be involved and shape their world. Visit any lawn bowling club in the UK, watch French men playing boules in the market square, or sit in on a neighbourhood meeting in the US and the story is the same: older people are taking positions of responsibility, contributing to their communities and effecting change.

As Chart 4 shows, the older generations also participate online in areas that are relevant and useful to them. They are just as likely to bank online, participate in an auction, rate a person or product, or send an email as the Gen Y crowd. But even in these areas they are likely to do so in a different way. Take email, for example, where older generations are more likely than their younger counterparts to:

• Write longer and more formal emails in the style of a letter; • Ask for a ‘read receipt’ when they send a mail; • Confirm receipt with a follow up phone call; • Become anxious or impatient if they do not receive a prompt reply. …Different attitudes and activities within age segments too

Things are complicated because, while there are differences in attitude and service adoption between generations, there are also fundamental differences within them. Several service providers now segment the 55+ age group based on fine-grained demographic and attitudinal characteristics and link this to demand for products and services. See Chart 7, below, for a typical segmentation of this age group.

Just under 30% of this age group are highly engaged online and via mobile (Silver-surfing Technophiles and Entertainment Elders); 40% do so selectively (Measured Matures); and around 30% have limited engagement in digital and mobile activities except where it provides better safety for them (Safety-first Seniors and Bah Humbugs). Each age group is, it seems, an eclectic bunch.

Conclusion – Digital Generation: Young today, grey tomorrow…

It is clear that the younger generation are currently leading the digital charge. They are faster at adopting and using the internet, as well as a broad range of online activities. However, it is also apparent that, although there are clear behavioural and attitudinal differences between and within the generations, a desire to communicate with peers, participate in (online and offline) communities, and contribute to the creation of new solutions is a central part of being human.

Some forms of Web 2.0 behaviour will remain the domain of the young. Others, such as blogging, wikis and product reviews, will permeate through the generations over time. As such, the lessons of how to better foster interactivity and participation with customers, which lie at the heart of the forthcoming Telco 2.0 strategy report , will increasingly be relevant to companies providing services to all segments – young and old. In a sense, therefore, whether we aspire to it or not, we are all becoming part of the digital generation…