Digital Commerce 2.0: New $50bn Disruptive Opportunities for Telcos, Banks and Technology Players

Introduction – Digital Commerce 2.0

Digital commerce is centred on the better use of the vast amounts of data created and captured in the digital world. Businesses want to use this data to make better strategic and operational decisions, and to trade more efficiently and effectively, while consumers want more convenience, better service, greater value and personalised offerings. To address these needs, Internet and technology players, payment networks, banks and telcos are vying to become digital commerce intermediaries and win a share of the tens of billions of dollars that merchants and brands spend finding and serving customers.

Mobile commerce is frequently considered in isolation from other aspects of digital commerce, yet it should be seen as a springboard to a wider digital commerce proposition based on an enduring and trusted relationship with consumers. Moreover, there are major potential benefits to giving individuals direct control over the vast amount of personal data their smartphones are generating.

We have been developing strategies in these fields for a number of years, including our engagement with the World Economic Forum’s (WEF) Rethinking Personal Data project, and ongoing research into user data and privacy, digital money and payments, and digital advertising and marketing.

This report brings all of these themes together and is the first comprehensive strategic playbook on how smartphones and authenticated personal data can be combined to deliver a compelling digital commerce proposition for both merchants and consumers. It will save customers valuable time, effort and money by providing a fast-track to developing and / or benchmarking a leading edge strategy and approach in the fast-evolving new world of digital commerce.

Benefits of the Report to Telcos, Other Players, Investors and Merchants


For telcos, this strategy report:

  • Shows how to evaluate and implement a comprehensive and successful digital commerce strategy worth up to c.$50bn (5% of core revenues in 5 years)
  • Saves time and money by providing a fast-track for decision making and an outline business case
  • Rapidly challenges / validates existing strategy and services against relevant ‘best in class’, including their peers, ‘OTT players’ and other leading edge players.


For other players including Internet companies, technology vendors, banks and payment networks:

  • The report provides independent market insight on how telcos and other players will be seeking to generate $ multi-billion revenues from digital commerce
  • As a potential partner, the report will provide a fast-track to guide product and business development decisions to meet the needs of telcos (and others) that will need to make commensurate investment in technologies and partnerships to achieve their value creation goals
  • As a potential competitor, the report will save time and improve the quality of competitor insight by giving a detailed and independent picture of the rationale and strategic approach you and your competitors will need to take


For merchants building digital commerce strategies, it will:

 

  • Help to improve revenue outlook, return on investment and shareholder value by improving the quality of insight to strategic decisions, opportunities and threats lying ahead in digital commerce
  • Save vital time and effort by accelerating internal decision making and speed to market


For investors, it will:

  • Improve investment decisions and strategies returning shareholder value by improving the quality of insight on the outlook of telcos and other digital commerce players
  • Save vital time and effort by accelerating decision making and investment decisions
  • Help them better understand and evaluate the needs, goals and key strategies of key telcos and their partners / competitors

Digital Commerce 2.0: Report Content Summary

  • Executive Summary. (9 pages outlining the opportunity and key strategic options)
  • Strategy. The shape and scope of the opportunities, the convergence of personal data, mobile, digital payments and advertising, and personal cloud. The importance of giving consumers control. and the nature of the opportunity, including Amazon and Vodafone case studies.
  • The Marketplace. Cultural, commercial and regulatory factors, and strategies of the market leading players. Further analysis of Google, Facebook, Apple, eBay and PayPal, telco and financial services market plays.
  • The Value Proposition. How to build attractive customer propositions in mobile commerce and personal cloud. Solutions for banked and unbanked markets, including how to address consumers and merchants.
  • The Internal Value Network. The need for change in organisational structure in telcos and banks, including an analysis of Telefonica and Vodafone case studies.
  • The External Value Network. Where to collaborate, partner and compete in the value chain – working with telcos, retailers, banks and payment networks. Building platforms and relationships with Internet players. Case studies include Weve, Isis, and the Merchant Customer Exchange.
  • Technology. Making appropriate use of personal data in different contexts. Tools for merchants and point-of-sale transactions. Building a flexible, user-friendly digital wallet.
  • Finance. Potential revenue streams from mobile commerce, personal cloud, raw big data, professional services, and internal use.
  • Appendix – the cutting edge. An analysis of fourteen best practice and potentially disruptive plays in various areas of the market.

 

Digital Commerce: Leading Apps and Strategies for Retailers, Online Players and Telcos in the $10Bn Loyalty Market

Summary:  The advent of smartphones and tablets is disrupting the $10Bn+ loyalty market by opening up new ways for brands and retailers to engage with their customers in a highly interactive fashion.  This briefing analyses that market, why mobile is a compelling medium in it, key mobile app types, and leading edge strategies used by online players and traditional retailers. It concludes by outlining the strategies telcos need to employ to add value and exploit their assets and capabilities to play a major role in the value chain. (July 2013, Executive Briefing Service, Dealing with Disruption Stream.)

Loyalty and Mobile Venn Diagram 2013

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Below is an extract from this 44 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Dealing with Disruption Stream here. Non-members can subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

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Who is this report for?

  • CxOs, strategists, marketing strategists and managers, loyalty programme managers, digital commerce and experience managers, new business development and sales people
  • In Telecoms operators and Vendors in Digital and Mobile Commerce, and in Financial Services and Online and / or ‘Bricks and Mortar’ Retail
  • More broadly, any executive or investor looking for an informed new perspective on the digital loyalty market

Key benefits

  • Better and more benchmarked decisions about your own company’s use of digital and mobile media to deliver loyalty progammes, increase loyalty and reduce churn
  • Better and more informed views about the potential needs of 3rd party digital loyalty programmes in this $10Bn + market, and how telcos in particular could address them
  • A broader understanding of the loyalty ecosystem and links to other aspects of digital commerce

Introduction

STL Partners defines Digital Commerce 2.0 as the use of new digital and mobile technology to bring buyers and sellers together more efficiently and effectively. Fast-growing usage of mobile and social networking is opening up direct communication channels for bricks-and-mortar companies that could strengthen relationships with customers and, as a result, improve both sales performance and operating efficiency.

With consumers permanently connected via mobile and social networking, leveraging the collective influence of loyal customers has never been more important. Now, more than ever, retailers are looking to facilitate information access and sharing – such as comparison tools, vouchers, personalised offers, and loyalty points – with their customers. An engaged and loyal customer base is likely to spend more and act as a ‘brand ambassador’ community for the company.

This executive briefing builds on STL Partners’ previously-published reports, Digital Commerce: Show me the Money and The Mobile Commerce Land-grab, which map out a comprehensive mobile commerce strategy and systematic approach to deploy services. In this briefing, STL Partners focuses on a specific aspect of our Digital Commerce “Wheel of Commerce”: Mobile loyalty. It explores opportunities for mobile operators to establish themselves as strong strategic position in the mobile loyalty space. In this briefing, we:

  • Define the loyalty market and explore the role of mobile technologies as an loyalty-enabler
  • Estimate the size of the loyalty market in Europe and in the U.S.
  • Identify, categorise and analyse some of the best global practices of both start-ups and Internet players, such as FidMe, Foursquare or Shopkick and well-known retailers and brands; namely Starbucks and Sephora
  • Examine how telcos can participate in the loyalty value chain
  • Highlight the key next steps for telcos to become successful in the mobile loyalty space

Market size and opportunity

The growing importance of mobile in commerce

In the mid-1990s, e-commerce platforms began disrupting the retail sector by promoting a new consumption model that gave consumers greater control and access to a wider choice of products, price comparison tools, and customer feedback information. Online players thus not only enjoyed cost advantages, but also customer experience advantages over high-street retailers.  Bricks-and-mortar players had to re-examine and re-evaluate their relationships with customers.

While mobile technology continues to create challenges for high-street players by enabling, for example, ‘show-rooming’ in which customers browse products in the store while simultaneously finding the best price for the same product online, mobile also provides the tools for a ‘high-street fight-back’.  By communicating with individual customers through the mobile channel, brands and shops have the ability to provide relevant personalised messages and offers that promote brand loyalty, as well as directly affecting purchasing behaviour.

The impact of mobile technologies on purchasing decisions is, therefore, increasing rapidly.  As well as using their handsets to buy more, consumers are also using mobile phones as a key tool for research and to make buying decisions.

Figure 1: digital buying is a multi-channel process

Consumers Take a Multi-Device Path to Purchase May 2013

Source: Google

Defining the loyalty market

We define loyalty as covering three principle activities within the ‘Retain’ section of STL Partners’ Digital Commerce ‘Wheel of Commerce (see Figure 2) – a schematic representation of all the key elements of a holistic digital commerce offering:

  • Loyalty programmes: A loyalty programme is a marketing initiative that rewards – and, therefore, encourages – loyal “buying behaviour” amongst an existing customer base. Examples of successful loyalty programmes are Tesco Clubcard and Nectar in the UK, Air Miles or AMEX cashback rewards.
  • Advocacy programmes: “Customer advocates” are customers who have a high degree of affinity or emotional equity towards a brand and will proactively talk about a brand, engage others in discussions about it, and influence people to buy a specific product and service. These ad-hoc promotional activities are usually not monitored or regulated by the brand itself. Luxury hotel chains, such as the Hilton or Carlson, are examples of brands with these kinds of advocates.
  • Brand communities: A brand community is essentially a group of ardent consumers organised around a lifestyle and the interests, activities, and ethos of the brand. Those users are “continuously” in touch with the brand and each other, not only responding to company initiatives, but also initiating and continuing conversations of their own about any aspect of the brand/business. Apple, Nike, Harley Davidson and Oracle are examples of brands, which have successfully created brand communities. Although brand communities have traditionally existed offline, the internet has strongly facilitated communication and information sharing between people. The primary difference to Advocacy programmes is that the key interactions are within the brand community as opposed to with potential new users and customers.

Things are complicated, of course, by the fact that the other sections of the ‘Wheel of Commerce’ are used in loyalty activities – customer profiling (in the plan section), offers and deals (promote), recommendations (guide), coupon redemptions and loyalty rewards (transact), and customer ratings (satisfy) are all potentially part of an effective loyalty or advocacy program.

Figure 2: STL Partners’ ‘Wheel of Commerce’
STL Partners’ ‘Wheel of Commerce’ May 2013

Source: STL Partners

A loyalty market estimated at $1.7+ billion in Europe and $9 billion in the US

For the reasons outlined above, it is not easy to size loyalty as a distinct market separate from other marketing and payment activities associated with digital commerce. 

As one benchmark, the AIMIA UK coalition estimates that £1 out of every £15 spent by UK consumers was eligible for a loyalty reward – or 6.7% of their spending. According to Payment Council, the UK spent around £312 billion in retail in 2012, so using the AIMIA UK coalition’s 6.7% estimate, this equates to a total retail value of £21 billion being eligible for loyalty schemes. Based on the major UK loyalty schemes (Tesco, Nectar), for each pound spent in retail, customers are rewarded with a penny voucher (1:100 ratio).  Therefore, the estimated UK loyalty spending by retailers in terms of rewards issued (as opposed to redeemed) is £210 million, i.e. US$325 million.

The UK loyalty marketplace is mature compared to other European countries. According to Global Vision, the UK represents 15 percent of the EU25 Purchasing Power Parity (PPP), suggesting a potential USD1.4 billion European loyalty market value.

Moreover Colloquy estimates that the perceived value of points sold to third-parties in 2011 in the US was worth $9 billion.

Figure 3: US Loyalty Market $Bns
US Loyalty Market $Bns May 2013

Sources: Colloquy, AIMIA, Payment Council, Global Vision, STL Partners
Exchange rate: £1= USD1.55

Some estimates of the value of the loyalty market are much higher. For example, Colloquy estimated the 2011 U.S. loyalty market at USD 48bn, while AIMIA has predicted that the global loyalty market will be worth USD 100bn in 2015. Those higher estimates refer to the broader loyalty market, which notably includes the transport and hospitality industries (with their popular ‘Airmiles’ type schemes). In this study, STL Partners is only considering the retail industry. Also some industry estimates include valuations relating to consumers’ perceived value of their earned and collected points, as opposed to the effective cost to the merchant, which we have used to give a more relevant comparison for players considering the business case in more depth.

Why is mobile such an important component in generating customer loyalty?

Mobile technologies open up new and creative ways for brands and retailers to interact with their target audiences. They can use the mobile channel to exchange value with their target audiences in order to generate leads, as well as on-going dialogue, which can be used, for example, to learn more about customers or to test new product and service concepts. An increasing proportion of retailers are integrating innovative mobile and digital technology into their marketing and loyalty strategy as a mean to differentiate and to fulfil customers’ needs for more personalisation, interactivity, and proximity.

Personalised shopping experiences

The relationship that retailers maintain with their customers is being reinvented. The combination of the Internet, online commerce platforms and advanced analytics tools is enabling new forms of interaction with online consumers.

Consumers are now expecting more personalised shopping experiences.  Amazon has, for example, strengthened its customer relationships by offering support across the whole customer life cycle – recommendations, purchase decision, delivery, after-sale service and customer retention.

As shoppers grow more fluent in browsing and comparing prices via smartphone, pure ‘bricks-and-mortar’ retail channels are struggling to keep pace with discount online merchants that contribute to the rise of “showrooming”, in which customers browse for products in stores and then buy them online from Amazon and other retailers for less. Such is Amazon’s confidence that it can offer prices unmatched by stores that its ‘price checker’ application is even encouraging consumers to visit bricks-and-mortar retailers to trial products before ordering them online from Amazon.

By placing the Internet in the hands of consumers all the time, mobile devices are enhancing consumers’ information and control over their shopping experience. Retailers of any kind must respond by offering competitively-priced and personalised offerings.

Effective customer engagement and interactivity

As more consumer attention and transactions move on to mobile, it is no surprise that retailers and brands see this as an increasingly important way to engage with customers.  Mobile advertising, heavily hyped between 2005 and 2007, is finally beginning to attract material budgets.  However, there has been a shift away from traditional display advertising (common on the Internet) towards more interactive forms of engagement that take advantage of mobile’s unique characteristics of immediacy and ability to influence consumers while they are out and about combined with an effective ‘return path’ – whether that be via SMS or WAP.  Moreover, the ubiquity and intrinsic characteristics of mobile phones have enabled and facilitate “on-the-go” dialogue and content sharing activities.

Retailers are now encouraging loyal customers to populate social media channels with engaging content: (Micro)-blogging sites, photo galleries, forums, polls, and videos are all examples of social communication channels that are being used by merchants and brands to interact with existing customers. It is no surprise that the battleground for Internet players that offer marketing and advertising support, such as Facebook, Google and Microsoft (Online Services division), is shifting rapidly to mobile.

Mobile increases merchant timeliness and reach

As the level of ‘marketing noise’ for consumers rises remorselessly on the Internet, merchants increasingly need to offer appropriate relevant messages at the right time. For example, product offers need to be made while consumers are in-store (and before they reach the point of sale), not while they are at home opening mail or, worse, overseas in a different time zone. Mobile does not just provide reach but, with the addition of location and presence, also allows merchants to interact with consumers efficiently at the right place and the right time.

Figure 4: Three ways mobile can support retailer and brand loyalty schemes
Three ways mobile can support retailer and brand loyalty schemes May 2013

 Source: STL Partners/Telco 2.0

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

  • Two major mobile loyalty app categories
  • Physical loyalty card replacement
  • Loyalty-oriented digital commerce applications
  • Retailers’ loyalty strategies
  • Starbucks – Deepen customer relationship to drive loyalty
  • Sephora – loyalty scheme to unify its social and mobile marketing strategy
  • Where and how could telcos play in the loyalty market?
  • 1. Implement and experiment with your own loyalty programme
  • 2. Create compelling and powerful rewards
  • 3. Exploit your customer data to enable third-party businesses
  • 4. Build loyalty into m-wallet services
  • 5. Provide connectivity to deepen the communication channels between retailers and their consumers
  • What should operators do?
  • 1. Explore, Experiment and Collaborate
  • 2. Develop a compelling “in-door” coverage proposition to retailers
  • 3. Invest in customer data skills
  • About STL Partners

…and the following figures…

  • Figure 1: digital buying is a multi-channel process
  • Figure 2: STL Partners’ ‘Wheel of Commerce’
  • Figure 3: US Loyalty Market $Bns
  • Figure 4: Three ways mobile can support retailer and brand loyalty schemes
  • Figure 5: Key Ring aggregates loyalty cards within a single ‘wallet-like’ application
  • Figure 6: FidMe – a simple loyalty card scheme for local brands
  • Figure 7: Snapp’ business model
  • Figure 8: Foursquare’s SoMoLo app
  • Figure 9: Shopkick’s automated shopper rewards – ‘kicks’
  • Figure 10: Mobile Shopping Apps Average Time Spent per Month
  • Figure 11: Starbucks’ Facebook page
  • Figure 12: Starbucks’ promotional offers on Twitter
  • Figure 13: Starbucks’ Pinterest boards
  • Figure 14: Frappucino.com
  • Figure 15: Starbuck’s mobile application
  • Figure 16: Starbucks leading approach to digital loyalty
  • Figure 17: Starbucks 2000 – 2012
  • Figure 18: Sephora’s employees on Pinterest
  • Figure 19: Sephora virtual mirror application
  • Figure 20: Sephora on Passbook
  • Figure 21: “Beauty Insider” is unifying Sephora’s customer experience
  • Figure 22: Sephora 2000 – 2012
  • Figure 23: How the MinuTrade cash back programme works
  • Figure 24: MinuTrade value proposition
  • Figure 25: Value of telcos’ capabilities to retailers
  • Figure 26: How Wi-Fi fits into O2’s mobile commerce strategy
  • Figure 27: Telcos advantages to support retailer and brand loyalty activities
  • Figure 28: Relative value to telcos versus ease of implementation

Members of the Telco 2.0 Executive Briefing Subscription Service and the Dealing with Disruption Stream can download the full 44 page report in PDF format hereNon-Members, please subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Technologies and industry terms referenced: 

Telco 2.0: Killing Ten Misleading Myths

Summary: ‘Telco 2.0’ has evolved considerably since we put forward the original concept for telcos’ future success in 2006. Here we dispel ten myths and misunderstandings that have also evolved that can misdirect strategy. (August 2012, Executive Briefing Service, Transformation Stream.)

impact of 2sbm aug 2012

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Below is an extract from this 24 page Telco 2.0 report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Telco 2.0 Transformation stream here. Non-members can subscribe here and for this and other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

We are about to publish a new strategy report ‘A Practical Guide to Implementing Telco 2.0‘ and will be previewing findings at the invitation only Executive Brainstorms in Dubai (November 5-7, 2012), Singapore (3-5 December, 2012), Silicon Valley (19-20 March 2013), and London (23-24 April, 2013). Email contact@stlpartners.com or call +44 (0) 207 243 5003 to order the report or find out more.

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Executive Summary – Killing Ten Myths

As an organisation devoted to driving innovation, Telco 2.0’s thinking has continually evolved. Today, most of our work is focused on how to implement new business models, and helping industry players develop strategies and activities to address new threats and opportunities presented by adjacent players.

We have also learned that as the thinking has evolved it has spawned some myths and misconceptions. (NB. This is not an attempt to stifle insightful criticism or debate, as intelligent challenges and critiques are essential to the development of sound strategy and well informed decision making, and we welcome such challenges.)

What matters about these myths is that they can inject a misleading or distracting idea capable of derailing balanced strategic consideration. The propagandists’ favourite weapons of ‘fear, uncertainty and doubt’ can easily and accidentally be triggered in this way. To counter this, here in summary are our ‘Telco 2.0 realities’ to what we’ve found to be the most prevalent and injurious misconceptions of Telco 2.0.

Figure 1 – Telco 2.0: Misleading Myths Vs. Realities

Misleading Myths and Realities of Telco 2.0

Source: STL Partners / Telco 2.0

Background: Telco 2.0 – then and now

When we first started the Telco 2.0 Initiative in 2006, the decline of the traditional telecoms industry business model based on voice and messaging seemed a long way off to most. ‘Broadband’ and ‘mobile data’ were still relatively immature propositions with great prospects for growing the industry further. ‘Smartphone’ was barely even a word, let alone a global phenomenon, and ‘tablets’ were what you took for a headache.

Most of our initial concepts have stood the tests of time and hindsight well. We drove for radical change in how the telecoms industry looked at:

  • Voice and messaging communications services;
  • The separation of services and network;
  • How networks would be increasingly powerful and intelligent ‘at the edge’;
  • The ongoing empowerment and participation of consumers;
  • Platforms’ that enabled new business to consumer services by re-purposing telco assets.

Subsequently, we looked at:

Next Steps

Our next action on the overall Telco 2.0 strategy agenda will to be to publish a new report: ‘A Practical Guide to Implementing Telco 2.0’. We will also presenting key findings at the Digital Arabia (Dubai, 5-7 November 2012) and Digital Asia (Singapore, 3-5 December 2012) Executive Brainstorms.

We are also launching two new services:

  • The Telco 2.0 Benchmarking Index, starting with a major report on the strategies of the top and most innovative telcos, and showing how the world’s telcos measure up to the leading standards of innovation;
  • The Telco 2.0 Innovation Scouting Service, designed to identify and evaluate, in a structured but flexible process, the best innovations for client members.  The service focuses on a full suite of revenue-generating products and services but can encompass other initiatives such as process improvements in customer care, operations etc.

To find out more about these or apply for an invitation to the Brainstorms, please email contact@stlpartners.com or call +44 (0) 207 247 5003. Additionally, we’ll be publishing major new research into Strategies in Voice and Messaging, ‘Telco Strategies in the Cloud’, and the impact and opportunities of combining personal data and digital and mobile commerce.

The rest of this report outlines the myths and their antidote realities in more depth (first two sections previewed below).

Telco 2.0 is about transforming telecoms business models

Myth 1: Telco 2.0 is just about two-sided business models

The concept of the two-sided telecoms business model has certainly had an impact on the industry, as can be seen for example in the illustrations below from Vodafone and Telefonica investor presentations.

Figure 2 – The impact of the Telco 2.0 Two-Sided Telecoms Business Model

Impact of Telco 2.0 on Investor Presentations

Source: STL Partners / Telco 2.0

While we’re pleased to see the idea of the two-sided business model propagated, there is a degree to which the idea has been a victim of its own success. It appears that some people now think that the two ideas of ‘Telco 2.0’ and ‘Two-Sided Telco Business Models’ are one and the same, and that the two-sided model is the totality of Telco 2.0.

This is not correct. While we still use the concept of the two-sided telco business model as a tool to explain how operators need to consider how they add value to consumer and enterprises and show that revenues can flow from multiple sources, ‘Telco 2.0’ is much more than this and includes:

  • Extending and enhancing existing core services – voice, messaging, data, content – to deliver more value to customers.
  • Developing bespoke communications and IT solutions for specific vertical industries.
  • Leveraging infrastructure more effectively to improve the customer experience (offer greater speed and responsiveness) while reducing cost (offloading traffic onto cheaper networks) and generating new revenue (‘onloading’ traffic from more expensive networks).
  • Distributing existing products and services via new channels and to new customers such as embedding voice within enterprise business processes or bundling connectivity in with consumer products.
  • Deploying assets including identity and authentication capabilities and customer data to both improve customers’ experience of existing core services and develop valuable new services for third-party enterprises and consumers.
  • Developing products and services that are largely ‘OTT’ – independent of the network.

STL Partners believes that business model innovation equates to business transformation.  Innovation can occur or be originated in many different ways and that each of these can have a knock-on effect through an organisation and beyond it to other organisations and industries.  Our analytical framework for business model innovation covers 5 domains (see Figure 3).

Figure 3 – Analytical framework for business model innovation

STL Partners Business Model Framework

Source: Source: Faber et al; Designing business models for mobile ICT services, 2001; adapted and developed by STL Partners

Redesigning Telco 1.0 really matters

Myth 2: Telco 1.1 isn’t part of it

Figure 4 – Existing service revenues in the UK market

Current Data Revenue Growth EMEA June 12

 

Source: STL Partners / Telco 2.0

To illustrate the challenges facing the existing business model, Chris Barraclough, MD and Chief Strategist, Telco 2.0 / STL Partners, presented the above example analysis of voice and data revenues from the UK market at the EMEA Brainstorm in June 2012 as a preview of analysis we are conducting across the main markets in Europe. Two-thirds of the delegates supported this analysis, with over half saying they thought this was ‘about right’ – although just under a third thought it too pessimistic. Whatever the eventual outcome in the market, there is little doubt that the existing business model is under increasing pressure across many regions and for many operators.

There is a natural temptation when presented with forecasts like this for executives to just seek out the nearest red pen and start to cut their way to profits. While a degree of cost reduction is clearly required, this cannot be the sole strategy or commoditisation and a total lack of flexibility is the only possible outcome.

It is obviously important to extend the life of the core business model, and telcos have long been adept at lobbying the regulator as a primary strategy. Further to this, both continuing to re-price data and bundle in new services are also proven strategies. But this really cannot change the game enough and telcos need to fundamentally improve the interactions they have with their customers to retain any relevance as consumer-facing entities.

We have looked at many ways in which telcos can learn how to improve their customers’ experience from the leading web and physical retailers, with Amazon as a particular case in point. This is critical both to telcos existing business and to their prospects for building new businesses. Better service / product experience design and delivery, and the use of customer data to drive personalisation and intelligence in their experiences, are key opportunities to improve customer interactions for telcos, as shown in Figure 5 – The ‘Telco 2.0 Flywheel’.

Figure 5 – The ‘Telco 2.0 Flywheel’

Telco 2 Customer Experience Flywheel

Source: STL Partners / Telco 2.0

And quality is not the only issue: the quantity of customer interactions matters too, and for many telcos the quantity is now declining. For customers it is a simple equation: experience = relevance, so if your customers start using you less, you become less relevant.  Telcos need to find new ways to interact with customers.  

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

  • All telcos need to innovate
  • New Digital Business Models impact all global marketsTelcos need to act now
  • Some new models will create value
  • There’s more to strategy than ‘OTT’
  • Collaboration and Innovation both have roles
  • Strategy, platforms, people, and skills are the priorities
  • It’s not just a ‘Pipe Dream’

…and the following figures…

  • Figure 1 – Telco 2.0: Misleading Myths Vs. Realities
  • Figure 2 – The impact of the Telco 2.0 Two-Sided Telecoms Business Model
  • Figure 3 – Analytical framework for business model innovation
  • Figure 4 – Existing service revenues in the UK market
  • Figure 5 – The ‘Telco 2.0 Flywheel’
  • Figure 6 – Optimism in APAC
  • Figure 7 – Time remaining on key strategic control points
  • Figure 8 – Different Business Models need Different Metrics
  • Figure 9 – The six opportunity areas have different models
  • Figure 10 – ‘Under The Floor’ Pressures
  • Figure 11 – Six Telco 2.0 implementation strategies
  • Figure 12 – Telcos need new skills, systems, structures and incentives
  • Figure 13: The STL Partners 12-stage innovation development and launch process
  • Figure 14: A non-exhaustive collection of Telefonica’s Telco 2.0 projects
  • Figure 15: Vodafone – from splendid isolation in 2005 to local collaborator in 2011

Members of the Telco 2.0 Executive Briefing Subscription Service and the Telco 2.0 Transformation stream can download the full 24 page report in PDF format hereNon-Members, please subscribe here. For this or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Companies and Technologies Featured: ISIS, E5, Oscar, 4T Sverige, Vodafone, Telenor, Telefonica, Singtel, O2, Priority Moments, Top-Up Surprises.