How to identify and meet new customer needs

Customer-led innovation at Telia and Elisa

In order to secure competitive advantage and long-term growth, telcos need to identify and meet new customer needs. The importance of this is confirmed by the STL Partner’s Telco investment priorities survey published in January 2021. Understanding customer needs and innovation, both essential for addressing new needs and driving growth, featured in the top ten priorities.

Telco top investment  priorities

top-telco-investment-priorities-stl

Source:  STL Partners, Telecoms priorities: Ready for the crunch?

This report seeks to identify best practice for telcos. Through in-depth interviews with senior managers in Elisa and Telia, and an expert in disruptive innovation, we identify the critical success factors and lessons learned in these organisations.

Telia created Division X in 2017, a separate business unit focused on commercialising and growing revenue from emerging businesses and technologies such as IoT (including 5G), data insights, and digital B2C services. Its focus is on customer needs and speed of execution, to spearhead and accelerate innovation, which it deems necessary in Telia’s drive to “reinvent better connected living”.

International Digital Services is Elisa’s third main business division, alongside Consumer and Corporate, which serve the domestic market. As International Digital Services has matured, it has focussed specifically on addressing new needs and developing new services, in both industrial and corporate domains.

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The report is based on interviews with:

  • Liisa Puurunen, Vice President, Brand, CX and start-ups, International Digital Services, Elisa — Liisa has a background in leading new businesses and start-ups in Elisa in the Consumer division and International Digital Services. Liisa’s role is to understand where there are new needs to be met, and to get best practise in place across the whole customer journey, within both industrial and corporate domains.
  • Annukka Matilainen, Development Director for Omnichannel and Smart Automation, Elisa —Annukka led the Consumer team’s response to COVID-19
  • Stephanie Huf, Head of Marketing, Division X, Telia — Stephanie’s role is to support the business lines in Division X to in engaging with customers to identify their needs. For example, her team identifies what customers want, defines the value propositions and works with product and business teams to test these in line with customer insight. (Since participating in this research Stephanie Huf has moved to a new role.)
  • Anette Bohman, Strategy Director, Division X, Telia  — Anette supports and guides Division X in defining Telia’s future.
  • John McDonald, FIRSTEP — John is a strategist in disruptive innovation in the health industry in Canada. He helps leaders create alignment around how the forces of disruption are unfolding and where to place the bets. FIRSTEP works with health organisations searching for fresh insights that spark new opportunities for growth.

Create a separate team to maximise new business opportunities

A separate team has many benefits

New business requires a separate, dedicated team. Its needs are different from day-to-day business and it needs its own focus.

One of the biggest learnings for Elisa in addressing new opportunities, is that there needs to be a ‘sandbox team’ with its own resources and budgets, rules, methods and mindset. It must have access to senior managers for decision making and funding, and strong leadership.

The sandbox team needs to be remote from the demands of day-to-day operations and implementation. If finding new needs is only part of someone’s job it is difficult to manage, as short-term demands will inevitably take precedence. Delivery and experimentation are different functions and they should be separate.

Liisa Puurunen’s team is a start-up in its own right. It is leaner than the usual Elisa approach and people are only brought into the team when there is a test to be done, keeping it flexible.

Rationale for a separate team

separate-team-rationale
Source: STL Partners

Contents

  • Executive Summary
    • Create a dedicated and separate team
    • Take a customer centric approach at all stages of innovation
    • Types of innovation will meet different new needs
  • Introduction
  • Create a separate team to maximise new business opportunities
    • A separate team has many benefits
    • Telia Smart Family: The case for a separate innovations team
    • Evaluate success in relevant ways that may be non-traditional
  • Take a customer centric approach to all stages of innovation
    • Ensure a customer centric culture
    • Start with a customer problem
  • Meeting needs and scaling bets
    • Co-create with customers, but choose them carefully
    • Elisa’s empowered teams enable a successful response to COVID-19
  • Types of innovation to meet different new needs
    • New needs in the core versus new businesses
    • Dedicate some resource to extreme innovation
    • Telia Data Insights: New Business innovation in response to COVID-19
    • The case for disruptive innovation
  • Plan exit strategies
    • Perseverance and pivoting can bring success
    • Be prepared to kill your darlings

Related research

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Telco ecosystems: How to make them work

The ecosystem business framework

The success of large businesses such as Microsoft, Amazon and Google as well as digital disrupters like Airbnb and Uber is attributed to their adoption of platform-enabled ecosystem business frameworks. Microsoft, Amazon and Google know how to make ecosystems work. It is their ecosystem approach that helped them to scale quickly, innovate and unlock value in opportunity areas where businesses that are vertically integrated, or have a linear value chain, would have struggled. Internet-enabled digital opportunity areas tend to be unsuited to the traditional business frameworks. These depend on having the time and the ability to anticipate needs, plan and execute accordingly.

As businesses in the telecommunications sector and beyond try to emulate the success of these companies and their ecosystem approach, it is necessary to clarify what is meant by the term “ecosystem” and how it can provide a framework for organising business.

The word “ecosystem” is borrowed from biology. It refers to a community of organisms – of any number of species – living within a defined physical environment.

A biological ecosystem

The components of a biological ecosystem

Source: STL Partners

A business ecosystem can therefore be thought of as a community of stakeholders (of different types) that exist within a defined business environment. The environment of a business ecosystem can be small or large.  This is also true in biology, where both a tree and a rainforest can equally be considered ecosystem environments.

The number of organisms within a biological community is dynamic. They coexist with others and are interdependent within the community and the environment. Environmental resources (i.e. energy and matter) flow through the system efficiently. This is how the ecosystem works.

Companies that adopt an ecosystem business framework identify a community of stakeholders to help them address an opportunity area, or drive business in that space. They then create a business environment (e.g. platforms, rules) to organise economic activity among those communities.  The environment integrates community activities in a complementary way. This model is consistent with STL Partners’ vision for a Coordination Age, where desired outcomes are delivered to customers by multiple parties acting together.

Characteristics of business ecosystems that work

In the case of Google, it adopted an ecosystem approach to tackle the search opportunity. Its search engine platform provides the environment for an external stakeholder community of businesses to reach consumers as they navigate the internet, based on what consumers are looking for.

  • Google does not directly participate in the business-consumer transaction, but its platform reduces friction for participants (providing a good customer experience) and captures information on the exchange.

While Google leverages a technical platform, this is not a requirement for an ecosystem framework. Nespresso built an ecosystem around its patented coffee pod. It needed to establish a user-base for the pods, so it developed a business environment that included licensing arrangements for coffee machine manufacturers.  In addition, it provided support for high-end homeware retailers to supply these machines to end-users. It also created the online Nespresso Club for coffee aficionados to maintain demand for its product (a previous vertically integrated strategy to address this premium coffee-drinking niche had failed).

Ecosystem relevance for telcos

Telcos are exploring new opportunities for revenue. In many of these opportunities, the needs of the customer are evolving or changeable, budgets are tight, and time-to-market is critical. Planning and executing traditional business frameworks can be difficult under these circumstances, so ecosystem business frameworks are understandably of interest.

Traditional business frameworks require companies to match their internal strengths and capabilities to those required to address an opportunity. An ecosystem framework requires companies to consider where those strengths and capabilities are (i.e. external stakeholder communities). An ecosystem orchestrator then creates an environment in which the stakeholders contribute their respective value to meet that end. Additional end-user value may also be derived by supporting stakeholder communities whose products and services use, or are used with, the end-product or service of the ecosystem (e.g. the availability of third party App Store apps add value for end customers and drives demand for high end Apple iPhones). It requires “outside-in” strategic thinking that goes beyond the bounds of the company – or even the industry (i.e. who has the assets and capabilities, who/what will support demand from end-users).

Many companies have rushed to implement ecosystem business frameworks, but have not attained the success of Microsoft, Amazon or Google, or in the telco arena, M-Pesa. Telcos require an understanding of the rationale behind ecosystem business frameworks, what makes them work and how this has played out in other telco ecosystem implementations. As a result, they should be better able to determine whether to leverage this approach more widely.

Table of Contents

  • Executive Summary
  • The ecosystem business framework
  • Why ecosystem business frameworks?
    • Benefits of ecosystem business frameworks
  • Identifying ecosystem business frameworks
  • Telco experience with ecosystem frameworks
    • AT&T Community
    • Deutsche Telekom Qivicon
    • Telecom Infra Project (TIP)
    • GSMA Mobile Connect
    • Android
    • Lessons from telco experience
  • Criteria for successful ecosystem businesses
    • “Destination” status
    • Strong assets and capabilities to share
    • Dynamic strategy
    • Deep end-user knowledge
    • Participant stakeholder experience excellence
    • Continuous innovation
    • Conclusions
  • Next steps
    • Index

Can Netflix and Spotify make the leap to the top tier?

Introduction

This is the first of two reports analysing the market position and strategies of four global technology companies – Netflix, Spotify, Tesla and Uber – that might be able to make the leap to become a top tier consumer digital player, akin to Amazon, Apple, Facebook or Google. The two reports explore how improvements in digital technologies and consumer electronics are changing the entertainment and automotive markets, allowing the four companies to cause significant disruption in their sectors.

The first part of this report considers Netflix and Spotify, which are both trying to disrupt the entertainment market. For more on the increasing domination of online entertainment by the big Internet platforms, read the STL Partners report Amazon, Apple, Facebook, Google, Netflix: Whose digital content is king?

This report considers how well Netflix and Spotify are prepared for the likely technological changes in their markets. It also provides a high-level overview of the opportunities for telcos, including partnership strategies, and the implications for telcos if one of the companies were able to make the jump to become a tier one platform.

STL Partners is analysing the prospects of Netflix, Spotify, Tesla and Uber because all four have proven to be highly disruptive players in their relevant industries.

The four are defined by three key factors, which set them aside from their fellow challengers:

  • Rapid rise: They have become major mainstream players in a short space of time, building world-leading brands that rival those of much older and more established companies.
  • New thinking: Each of the four has challenged the conventions of the industries in which they operate, leading to major disruption and forcing incumbents to completely re-evaluate their business models.
  • Potential to challenge the dominance of Amazon, Apple, Facebook or Google: This rapid success has allowed the companies to gain dominant positions in their relative sectors, which they have used as a springboard to diversify their business models into parallel verticals. By pursuing these economies of scope, they are treading the path taken by the big four Internet companies (see Figure 1). Google, Apple, Facebook and Amazon have come from very diverse roots (ranging from an Internet search engine to a mobile device manufacturer), but are now directly competing with each other in a number of areas (communications, content, commerce and hardware).

Figure 1: How the leading Internet companies have diversified

Source: STL Partners

The evolution of online entertainment

As broadband networks proliferate and households are served by fatter pipes, telecoms networks are carrying more and more entertainment content. While there are major players in every country and region, there are essentially only six online entertainment platforms meeting this demand on a global scale – Amazon, Apple, Facebook, Google, Netflix and Spotify. These six companies are delivering increasingly sophisticated real-time entertainment services that are generating a growing proportion of Internet traffic, at the expense of traditional web browsing, file sharing, download services and physical retail entertainment.

The six are building global economies of scale that can’t be matched by national/regional media companies and telcos. Global distribution is becoming increasingly important in the media industry, given the prohibitive costs of sourcing content and then packaging it and distributing it across multiple different devices and networks.

Scale is also important for another reason. As the volume of digital content proliferates, consumers increasingly rely on recommendations. The platform capturing the most behavioural data (people who watched this, also watched this) should be able to offer the best recommendations.

Although the platforms with scale have a competitive advantage, they are still vulnerable to disruption because the online entertainment market is evolving rapidly with providers, including rights owners, experimenting with new formats and concepts.

As outlined in the STL Partners report Amazon, Apple, Facebook, Google, Netflix: Whose digital content is king?, most of this experimentation relates to the following six key trends, which are likely to shape the online entertainment market over the next decade.

  1. Greater investment in exclusive content: The major online platforms are increasingly looking to either source or develop their own exclusive content, both as a competitive differentiator and in response to the rising cost of licensing third parties’ content. Exclusive content may be anything from live sports programming to original drama series and even blockbuster movies. This is an area in which both Netflix and Amazon Video have heavily invested, making the two direct competitors for talent in this space.
  2. Growing support for live programming: People like to watch major sports events and dramatic breaking news live. Some of the online platforms are responding to this demand by creating live channels and giving celebrities and consumers the tools they need to peercast – broadcast their own live video streams.
  3. The changing face of user-generated content: Although YouTube, Facebook and other social networks have always relied on user-generated content, advances in digital technologies are making this content more compelling. If they are in the right place, at the right time, even an amateur equipped with a smartphone or a drone can produce engaging video pictures.
  4. Increasingly immersive games and interactive videos: As bandwidth, latency, graphics processing and rendering technology all improve, online games are becoming more photorealistic making them increasingly akin to an interactive movie. Furthermore, virtual reality will enable people to adopt different viewpoints within a 360-degree video stream, enabling them to choose the perspective from which to watch a movie or a live sports event. For more info, please see the STL Partners’ report: AR/VR: Won’t move the 5G needle.
  5. Rising use of ad blockers and mounting privacy concerns: Many consumers are looking for ways to avoid video advertising, which is more intrusive than a static banner ad and uses more bandwidth. At the same time, many national and regional regulators are becoming increasingly alarmed by the privacy implications of the data mining of consumer services and products, leading to clashes between the major online advertising platforms and regulators.
  6. Ongoing net neutrality uncertainty: In many jurisdictions, net neutrality regulation is either still under development or is vaguely worded as regulators struggle to balance the legitimate need to prioritise some online services with the equally important need to ensure that small content and app developers aren’t discriminated against.

To read on about Netflix and Spotify’s strategies and implications for telcos, please login and download the report, or contact us to subscribe.

Contents:

  • Executive Summary
  • Netflix: much loved, but too narrow
  • Spotify: leading a formidable pack
  • Lessons for telcos
  • Conclusions for telcos
  • Introduction
  • The evolution of online entertainment
  • Netflix: Keeping it original
  • Right time, right proposition
  • Competitive clouds gathering
  • Economies of scale, but not scope
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Spotify: The power of the playlist
  • Smaller than Netflix, but more rounded
  • Strengths
  • Weaknesses
  • Opportunities
  • Threats
  • Takeaways for telcos
  • Lessons for telcos
  • Next steps for telcos

Figures:

  • Figure 1: How the leading Internet companies have diversified
  • Figure 2: Netflix revenue and paid subscriber growth, 2015-2017
  • Figure 3: Netflix has grown much faster than its rivals in the US
  • Figure 5: Netflix from a monolithic website to a flexible microservices architecture
  • Figure 6: Netflix: SWOT analysis
  • Figure 7: Tailoring movie artwork to the individual viewer
  • Figure 8: Netflix’s addressable market is growing steadily
  • Figure 9: The number of mobile broadband connections is rising rapidly
  • Figure 10: How studio films aim to make money using release windows
  • Figure 11: Hulu’s broad proposition is a challenge to Netflix
  • Figure 12: Growth in digital music is now offsetting declining sales of physical formats
  • Figure 13: Spotify’s rapid revenue and paid subscriber growth
  • Figure 14: Spotify’s fast-growing premium service is the profit engine
  • Figure 15: A SWOT analysis for Spotify
  • Figure 16: Spotify has significantly lower ARPU and costs than Netflix
  • Figure 17: Spotify’s losses continue to grow despite rapid revenue rises
  • Figure 18: Spotify’s costs are rising rapidly
  • Figure 19: YouTube is a major destination for music lovers

Making big beautiful: Multinational operators need the telco cloud

Telcos’ (economies of) scale in perspective

As a result of their wide regional or global footprints, multi-country operators typically generate tens of billions of USD in revenues. By this measure, telcos’ scale (as defined by their revenues) is indeed comparable with the likes of Google and Facebook (see Figure 2). However, we can consider scale through a different lens as well: defined by the number of users, it becomes evident that telcos are dwarfed relative to the large internet companies. When considering the number of users, the telecoms industry is more fragmented than the internet sector – resulting in the unfavourable comparison, since no one telco can achieve a similar customer-base.

The fragmented nature of the global telecommunications industry means that telcos tend to struggle to create so-called demand-side economies of scale. These economies of scale rely on network effects stemming from the value generated by having a large number of users. In such a case, there is both inherent value in the use of the service and value derived from other people’s use of the service.

The big success of the internet giants can, in part, be attributed to significant network effects. Telcos, on the other hand, are in a tougher position. Partly this is due to the nature of the services they traditionally provide. Unlike the internet giants who can reach anyone around the world with an internet connection, telcos are have largely been limited to serving users in the countries in which they operate networks.
Despite this, large operators should – in theory – be well-equipped to create so-called supply-side economies of scale due to the sheer size of their business. With telecoms being a high fixed-costs business, the cost of providing telco services per customer falls as the number of customers increases.

Figure 2: Some telcos are big – but they are unable to create the same network effects as the internet giants

So, have these large multinational telcos managed to create scale effects? Unfortunately, we find rather sobering evidence to the contrary. Figure 3 shows that multi-country operators tend to underperform the industry average. Large European multi-country operators – such as Orange, Telefonica, Vodafone and Deutsche Telekom – all underperform the telco global average operating margin of 17%. On the other hand, large single-market operators, namely AT&T and Verizon, achieve margins above the global average.

Figure 3: European giants struggle to create economies of scale

Contents:

  • Executive Summary
  • Multinational telcos have struggled to create economies of scale
  • A Telco Cloud strategy can deliver scale economies for multinational operators
  • Introduction – Economies of scale in telecoms
  • International expansion has delivered a global footprint for some telcos
  • Telcos’ (economies of) scale in perspective
  • Multinational telcos need to revisit their approach to creating economies of scale
  • The dilemma of multinational telcos – can Telco Cloud help overcome it?
  • Telco Cloud: a brave new world?
  • The cost problem: multinational telcos need to create synergies across markets
  • The revenue problem: multinationals need to calibrate the right innovation model across markets
  • The traditional Opco-driven innovation has inherent problems
  • Centralisation of innovation isn’t the answer either
  • What is the right model for telcos?
  • Conclusions

Full Article: Apps & Appstores: Litmus Vs Apple Appstore

Summary: As O2 UK’s Litmus developer proramme matures into a global corporate project for Telefonia, we analyse the business model challenges it faces in becoming a vibrant community for developers and a value driver ofr the company.

Back in March, we said that O2’s Litmus developer site was “better than the Apple App Store”. Quite a claim, as it turned out. We based it on the deep integration of Litmus with the range of social and business enablers it provided in addition to the O2 network APIs. As well as a generous revenue share and quick payment, Litmus offered access to O2’s billing system to help cash collection, crowdsourced testing from Mob4Hire, Web-hosting services, and the tantalising prospect of access to an internal Telefonica venture capital group.

How is Litmus doing now?

In terms of product quality, Litmus’s recently added some highly interesting APIs. For example: the ability to query the current status and capabilities of a device, whether the user has sufficient credit to make a payment, if they have an inclusive data plan, whether they are in a WLAN hotspot, and whether or not they are currently roaming.

The importance of this kind of contextual data – call it Level 1 context – for delivering an excellent user experience with mobile applications and content is hard to overestimate, and it avoids most of the political issues that dog some other forms of context, like user behaviour and social graph data (call them Level 2 context). Overall then, the potential quality of application looks encouraging.

But how about quantity? At the moment, there are 36 pages of apps on sale at Litmus, plus three more for testing; at 10 apps to the page, that’s 390 apps. Many of them are versions of the same application for different devices or localisations, so the count of active projects is rather less than that. It’s also true that a lot of people submit their applications to every app store going, sensibly enough, so there is quite a bit of duplication.

So far, this is a respectable try, but it’s nowhere near Apple’s app count. However, as we’ll see later on, stacking up apps in an app store isn’t the only strategy available.

A further indicator on the quantity of development activity is that the forums at o2litmus.co.uk look worryingly quiet. Another traditional measure of activity at an open-source project is the traffic on the mailing list; there doesn’t seem to be that much going on. This is something Litmus has in common with the other mobile dev platforms – the Symbian and Forum Nokia ones are patchy at best. Perhaps this point from The Information Architecture of Social Experience Design‘s list of anti-patterns for Web sites applies:

“a Potemkin Village is an overly elaborated set of empty community discussion areas or other collaborative spaces, created in anticipation of a thriving population rather than grown organically in response to their needs”.

So, why aren’t we seeing much more development activity at Litmus? It’s a big question, especially as Litmus is meant to be under active development. What are the warning signs of a community that might end up looking like this?

litshot.png

The critical challenge is getting to sufficient scale, which is vitally important to the success of platform business models like Litmus. O2 UK has 18 million subscribers; if 10% are conscious of apps, that is an addressable user base of c1.8 million.

Further, it’s probably true that iPhone owners tend to be power users, being a self-selected group of early adopters. (According to Ray da Silva of Vodafone, iPhone users exhibit 7 times greater usage than the closest rival group, BlackBerry users.) And O2 has the exclusive right to distribute iPhones in the UK, so the bulk of O2’s power users are probably concentrated in its population of iPhones. Those 1.5 million O2 iPhone users have the App Store to go to, which is integrated with the hardware and software and prominently placed on the device. If our estimates are close, that leaves about a fifth of that number, or 300 thousand or so who might use Litmus.

So, Telefonica / O2 faces a strategic dilemma. How should it balance investment in creating and serving the huge (but ultimately Apple’s) iPhone community and the nascent and home-grown Litmus eco-system?

And, as we’ve often pointed out, telcos consistently overestimate the degree to which their subscribers constitute a real community or want to have any affinity with their operator. Apple, at least, can claim to be the proud owner of a cult, an image it works extremely hard to maintain. Probably no other hardware vendor in mobile can claim that, and the OS vendors aren’t much better off although Symbian tries hard.

This is important, because active developer communities tend to be driven by a smallish core group of members. Recruiting new members of this group is critical for long term survival. On the other hand, the problems, ideas, feedback, and money coming into such a community usually originate in another community core group – the user elite. The line between the power users and the developer community is necessarily fuzzy, but it’s crucial that you have enough people in the user community who are passionately engaged with the product to support the developer core group.

Fragmentation is another challenge resulting from insufficient scale; it’s a serious problem if you have to keep refactoring your code to work on dozens of different devices and OS platforms. Equally, being fragmented between operators is no better; in terms of scale, developing for Symbian is going to beat developing for O2 UK.

Put together, these issues add up to a serious overall challenge to the viability of Litmus in its current form as anything other than a test of limited scale and ultimately limited value.

Litmus Responds…

So, clearly it was going to be interesting when James Parton and Jose Valles Nunez, from Litmus and Telefonica’s Open Innovation group respectively, dropped into the Telco 2.0 offices.

The first interesting point that arises is that the Litmus group within Telefonica is very keen not to be considered an appstore. You might think this is a brave decision; everyone in the industry is obsessed with them since Apple’s big hit, and a week doesn’t go by without someone launching one – whether an operator, a vendor, a third-party store like Handango or Symbian’s app warehouse, or a gaggle of hackers doing an unofficial one for iPhone apps that Apple don’t like.

The obvious corollary to that is “well, what is it then?” Parton argues that the real role of Litmus isn’t as a first-line product, but rather as a way of crowdsourcing decisions about which applications to promote to the mass market through O2 Active – a form of “co-creation” with the community of power users and developers. Rather than relying on the judgment of product managers in Slough, the idea is to serve up new ideas to a self-selected group of neophiles and to see what sticks. Litmus is hoping that this will both provide useful feedback and also reduce churn by binding their user elite into the company more closely.

So far, they report that the extra features like hosting and testing haven’t been much used, and were perhaps a case of “over-engineering” the product – most of the developers involved are primarily interested in Litmus as a route to market, whether as an app store or as a sort of X-Factor for applications that might make it to the official O2 deck. However, they are keenly concerned about recruiting more developers and about the perception of a lack of critical scale.

Scope for Business Model Innovation

So perhaps Telefonica, and the industry as a whole, should be looking for other organising principles for developer communities – whether to build scale in their own right or just to get to ‘critical mass’ in the communities? Rather than being operator- or vendor- specific, perhaps they should be application-specific or problem-specific?

The main forces that create these communities are either technological opportunity – ‘we can do something new!’ – or else an urgent problem – ‘how can we fix this?’ Examples of opportunity-based communities include the vigorous groups that grew up around major programming languages, or the Linux kernel. These exist because the possibilities of the technology attracted people with all kinds of interesting problems and, quite frequently, just raw curiosity. This is also the case for the iPhone, which opened up all the possibilities of mobile development, whilst preserving the relevance of existing Apple developers’ skills and offering a simple path to market.

Shared problem communities start with a very specific need; I need to get data out of a Web hosting firm that is about to shut down, or visualise water management information for northern Senegal without needing to spend $10,000 a seat, or find an alternative to Microsoft Internet Explorer. The first of these led to Archiveteam, the second to Agepabase, and the third to Mozilla. Exasperation with the telecoms vendors’ products for enterprise voice was what inspired the creation of Asterisk.

Salesforce’s Force.com is a successful example of a problem-specific developer platform; you’re using Salesforce and you have a problem that involves CRM, so off you go to Force.com. You’re trying to solve your problem using voice? Perhaps you might want to try Ribbit, which is an opportunity-based developer platform.

And this makes sense; after all, solving the problem is where the economic value emerges, and it’s the application of broad general purpose commodity technologies to very specific business problems that we want all those developers to bring to the show to extend the value.

Litmus: Neither fish nor fowl…?

But there’s a disconnect here relating back to Litmus; communities that form around the possibilities of a particular technology tend to be generalist, global, and attached to the technology rather to any particular operator or even vendor. Communities that form around a problem are more particular. Neither of these fits Litmus, although you could perhaps say that it’s about the possibilities of telco APIs in general.

It’s all rather reminiscent of J. P. Rangaswami’s notion that the more general-purpose the technology, the more appropriate it is for open source because it can scale better; a technology-motivated community needs breadth and scale.

So, while there is often value in keeping a test tightly managed as a centre of innovation and learning as O2 UK appear to have done, perhaps Telefonica / O2 will eventually be better off looking at enterprise problems and being less centred on the O2 brand name, or else broadening the possible addressable market by rolling Litmus out to the whole of Telefonica, if possible, including the Latin American markets as well. Brazil has one of the world’s most vigorous hacker communities – they invented Commwarrior, the first mobile worm, after all. Surely there’s innovation to be had there? And it’s absolutely vital to the success of the whole project that it finds a sufficiently large user elite of its own to support the developer core group.

At the moment, though, at least going by the content of a recent call the Mobile Entertainment Forum held, O2 seems to be mostly interested in using the Litmus APIs for content, rather than applications. For example, the key use case for their roaming status API is that content providers can avoid serving content licenced in one territory into another. This is fair enough as content applications may be part of the solution for Litmus, but we’re slightly concerned that they may be stepping into the vortex of content obsession, like so many other people in the industry.

Our view is that, as much as we like many elements of Litmus, in its current form and scale Litmus may well show some useful test results but probably won’t develop into a successful platform business. Building a much bigger user base should therefore be Telefonica / O2’s top priority for Litmus – even if the developer community is the key target audience. No amount of good new apps can deliver this in its current form and broader success will take good implementation of the kind of radical business model innovation we’ve outlined here.

One option would be to look in the other direction. The existing version of Litmus is targeted on consumers; what about enterprises, or small businesses/power users? This would require a different approach to signing up both developers and customers – in fact, it would be rather more app-store or app-market-like than the current “X-Factor for developers” model, although perhaps there could be a version in which the customers’ problems competed for solutions from the developers. In fact, according to Jose Valles Nunez, Telefonica is indeed considering a “business class Litmus” in the foreseeable future.

A further question is one of credibility. Attracting developers to use a platform requires their confidence that it really will be promoted and that it will stick around – no-one wants to put effort into something that might disappear in a few months’ time. Several hosted Web application environments have already done this. At BT, spending money on Ribbit was intended to act as what biologists call a costly signal – a signal that is credible precisely because it requires a real investment. Perhaps the first few “picks” for the mainline O2 Active lineup, or the first Telefonica Ventures investment, out of Litmus will light the blue touchpaper?