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).

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.

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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.

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?