Partnering 2.0 – How TeliaSonera Makes Beautiful Music with Spotify

Introduction

An agile approach to building and managing complex partnerships is one of the key elements of becoming a Telco 2.0 organisation. As discussed in our previous report on Digital Partnering Strategies, we see two new trends in telco approaches to digital services partnerships:

  1. The focus on partnering as a core competency of the telco organisation;, and
  2. The increasing complexity of telco partnership ecosystems, as digital services, enabling technologies, and service delivery value chains continue to evolve.

The increasing complexity of digital services partnerships, and the related trend for larger partnership ecosystems with many partners participating from different levels of the value chain, require telcos to take a different and more flexible approach. To be effective, this approach needs to take into account, and support, the particular characteristics of digital businesses:

  • Need for scale: A potential digital services partner will usually want to build global scale and so is likely to have several telco partners.
  • Need for speed: Digital services partners will in many cases move at very different speeds from telcos in terms of decision-making and processes,
  • Need for flexibility: particularly for channels and business models. Digital services partners (especially those with consumer propositions) are likely to use a variety of distribution channels, some of which will bypass, or compete with, the telco partner (particularly for OTT B2C content services such as Spotify). For both B2B and B2C partnerships, business models and revenue sharing arrangements are likely to be fluid and to involve multiple parties.

Based on our observations from TeliaSonera’s long-term relationship with Spotify, and from our earlier analysis of AT&T’s successful Drive connected car ecosystem, we have identified a set of key success factors, and major barriers, for effective digital services partnerships between operators and third parties.

In this report, we evaluate the TeliaSonera-Spotify partnership against this framework, as well as looking at the drivers for the partnership, the quality of execution, and the evidence of its success.

 

  • Executive Summary
  • Introduction
  • TeliaSonera’s partnership with Spotify: Overview
  • A B2C single-focus partnership
  • TeliaSonera’s rationale for the deal: Part of being a ‘New Generation Telco’
  • Evidence of the partnership’s success
  • Drivers and key success factors for the TeliaSonera-Spotify partnership
  • Drivers and objectives for TeliaSonera
  • Benefits of the TeliaSonera partnership for Spotify
  • Key success factors for TeliaSonera’s partnership with Spotify
  • External/Market-Driven (demand-side) factors
  • Internal / organisation (supply-side) factors
  • Organisation structure and the approach to managing joint activities have been important
  • Challenges to successful digital services partnering – lessons from other music partnerships
  • Barriers to successful partnering: framework
  • Spotify vs Deezer: the tale of tape

 

  • Figure 1: Characteristics of single-focus digital services partnership models
  • Figure 2: Spotify Key Metrics, 2014-2016
  • Figure 3: TeliaSonera-Spotify 7-year partnership timeline
  • Figure 4: Spotify Global Monthly Active Users and Premium (Paid) Subscribers, 2009-2015
  • Figure 5: Telia Denmark Mobile and Multiplay Packages With Spotify Premium Options, February 2016
  • Figure 6: Spotify Business (Soundtrack Your Brand) promotion, Feb. 2016
  • Figure 7: Drivers and key objectives for TeliaSonera-Spotify Partnership
  • Figure 8: Key success factors and barriers for TeliaSonera-Spotify Partnership

Digital Partnering: Success Factors and AT&T Drive Case Study

Introduction

As communications services providers continue their push to develop and monetise digital services, partnering is proving a critical element of strategy, and a key enabler for telco agility. While some telco-digital player partnerships have been successful in achieving their objectives, many have languished, and failed to deliver value to one or both parties within the partnership.

In this report, we examine the different types of digital services partnerships that operators are engaged in; discuss the key success factors for the various partnering approaches and strategies; and look more deeply at a successful partnership strategy: AT&T’s Drive connected car initiative, which is an example of a broad vertical-focused partnership ecosystem. Our follow-on report will provide a case study of TeliaSonera’s successful digital music partnership with Spotify, an example of a single-focus collaboration for digital services.

Telcos are increasingly recognising the importance of partnerships for achieving their potential as true digital services companies. Partnering between telcos and third parties to deliver new services or target new markets is, of course, not a new phenomenon. Two things are new, however: the focus on partnering as a core competency of the telco organisation, and the increasing complexity of telco partnership ecosystems, as digital services, enabling technologies and service delivery value chains continue to evolve. An agile approach to building and managing complex partnerships is one of the key elements of becoming a Telco 2.0 organisation.

Figure 1: The Telco 2.0 Agility Framework

Source: STL Partners

Partnering is being defined as a telco ‘core competence’

A number of operators have now enshrined the objective of successful partnering in their corporate strategy. Deutsche Telekom, for example, has made partnering one of its ‘four pillars’. The clearly-stated objective in DTAG’s case is to attract (and learn from) companies that have adopted the agile, rapid-response, high-energy approach found in Silicon Valley and other global tech hubs such as Israel. DTAG hopes to offer these partners, access to its customers and channels across the twelve DTAG European markets, as well as the ability to leverage DTAG’s network and corporate resources:

“The list of companies we have been working with for many years is long. But how we cooperate, that has changed. We are more open and faster. We focus on our core competence – our best net – and add specific offers of the partners. Take for example the eReader tolino: We not only provide the eReader, but also the technical platform on which Bertelsmann, Hugendubel, Thalia and Libri are able to distribute their eBooks. Together with the German book trade, we established the tolino as a model of success in the eReader market.

In the area Smart Home, we work together with Miele, Samsung, EON and EnBw, amongst others. We have started the system platform QIVICON, which our product DT Smart Home is based on. Together with our partners, we develop the vision of a connected house.”

Thomas Kiesling, Former Chief Product and Innovation Officer, Deutsche Telekom AG1

Partnering and partnerships are becoming more complex

The DTAG example highlights our second point about new aspects of partnering. The increasing complexity of digital services partnerships, and the growing trend for larger partnership ecosystems with many partners participating from different levels of the value chain, requires telcos to take a different and more flexible approach.

A potential digital services partner will usually want to build global scale and so is likely to have several telco partners. Digital services partners will in many cases move at very different speeds from telcos in terms of decision-making and processes, and are likely to use a variety of distribution channels, some of which will bypass, or compete with, the telco partner (particularly for OTT B2C content services such as Spotify). For both B2B and B2C partnerships, business models and revenue sharing arrangements are likely to be fluid and to involve multiple parties.

B2B (and B2B2C) services are increasingly being supported by more extensive and complex partnership ecosystems, rather than single partnerships. Telcos may lead the development of such ecosystems – as AT&T does in the case of Drive – or simply participate. The growth of wider ecosystem partnering relationships has been especially prevalent in the development of M2M/IoT propositions. These may require a variety of platforms, applications, devices and integration elements, as well as a high level of openness in terms of open-source and accessible platforms, APIs, analytics etc.

These trends present challenges for traditional telco approaches to partnering, which have favoured exclusive relationships and ‘what’s-in-it-for-me’ approaches to building joint revenue streams. Many telcos have set up digital or innovation arms with the goal of developing new digital propositions together with third parties in a more flexible manner. However, for such propositions to succeed, they need clear buy-in from one or more of the main divisions of the telco. In the case of AT&T, the successful partnering effort we profile here was ultimately rolled back into a main division of the operator, rather than continuing to sit within an innovation division.

Based on our observations from AT&T’s success and the partnership case study we cover in our follow-up report (TeliaSonera’s long-term relationship with Spotify), we have identified a set of key success factors, and major barriers, for effective digital services partnerships between operators and third parties (see Figure 2).

Figure 2: Key success factors and barriers for successful digital services partnering

Source: STL Partners

While it isn’t the case that all of the key success factors above must be present in successful operator partnering initiatives, our analysis suggests that several external and internal ones should be present in any digital services partnership.

In the next section, we discuss drivers for digital services partnering, approaches operators have used in partnering, key success factors and barriers; and evaluate the approach that AT&T has taken to partnering with the connected car.

Motivations for partnering in digital services

There are several compelling reasons for telcos to partner when exploring and growing digital services opportunities. The most important of these drivers are shown below in Figure 3. Each driver supports a set of higher-level objectives for telcos, comprising revenue growth, revenue retention, branding and positioning, and organisation transformation and/or agility.

Figure 3: Major drivers for telco digital services partnering initiatives

Source: STL Partners

Drivers linked to the objectives of revenue growth and retention may appear to be most compelling to telcos, given their obvious short-term impact; but those linked to transformation/agility and branding/positioning have been at the forefront of the AT&T partnership initiative we profile here as well as the TeliaSonera-Spotify partnership we profile in our follow-on report. The most successful partnerships support several telco objectives: part of their success is thus attributable to the support they engender from across the telco organisation.

As discussed in the following sections, beyond clearly defining the objectives of the partnership, and the assets that both parties bring to the table, there are a number of other soft elements that contribute to (or hinder) the success of telco digital services partnerships. The existence of clear market demand for the partnership’s products and services is also a key, though sometimes overlooked, element of success.

 

  • Executive Summary
  • Introduction
  • Partnering is being defined as a telco ‘core competence’
  • Partnering and partnerships are becoming more complex
  • Motivations for partnering in digital services
  • 4 digital services partnership approaches
  • Single-focus collaboration is easiest to manage and has best track record but impact is likely to be limited
  • Broader vertical focus requires greater commitment and has a greater market and implementation risk but can yield big benefits
  • General strategic partnerships appear to have had limited success
  • Key success factors for digital services partnerships
  • External/Market-Driven (demand-side) factors
  • Internal / organisation (supply-side) factors
  • Challenges to successful digital services partnering
  • External (demand side) challenges
  • Internal (supply-side) challenges
  • AT&T’s Drive Connected Car Ecosystem – A B2B2C Vertical Area Partnership
  • Background and context for the partnership
  • AT&T’s Drive Ecosystem
  • Key objectives and fit with the operator’s digital services strategy
  • Partnership approach and evolution
  • Organisation structure and framework for the partnership
  • Evidence of success
  • Key success factors and challenges
  • Barriers to successful partnering: challenges for Sprint and Verizon’s connected car initiatives

 

  • Figure 1: The Telco 2.0 Agility Framework
  • Figure 2: Key success factors and barriers for successful digital services partnering
  • Figure 3: Major drivers for telco digital services partnering initiatives
  • Figure 4: Telco Digital Services Partnership Models
  • Figure 5: US Connected Car Shipments, 2014-2020
  • Figure 6: AT&T Drive: Key End User Applications
  • Figure 7: AT&T Drive Studio, 2015
  • Figure 8: Drivers and objectives for AT&T’s connected car partnerships
  • Figure 9: AT&T Drive Platform Core Functionality and Applications
  • Figure 10: Opel OnStar Service Features, 2016
  • Figure 11: AT&T Drive Partnerships, Dec. 2015
  • Figure 12: AT&T connected car net adds are accelerating
  • Figure 13: Key Success Factors for AT&T Drive Partnerships (GM)

Telco 2.0: how to accelerate the implementation of new business models

Summary: Opportunities exist for operators to support third-party businesses in Customer Profiling, Marketing offers, ID & Authentication, Network QoS, and Billing, Payments & Collection. However, our in-depth research among senior execs in ‘upstream’ industries (e.g. retail, media, IT, etc.) and telcos shows that poor communication of the telecoms value proposition and slow implementation by operators is frustrating upstream customers and operators alike. Our new analysis identifies strategic customer segments for telcos building new ‘Telco 2.0’ business models, key obstacles to overcome, six real-world implementation strategy scenarios, and strategic recommendations for telcos. (March 2012, Executive Briefing Service, Transformation Stream.) Google's Advertising Revenues Cascade

 

  • Below is an extract from this 29 page report, kindly commissioned and sponsored by Openet and independently produced by Telco 2.0. Openet developed the initial research concept and scope. The research, analysis and the writing of the report itself was carried out independently by STL Partners.
  • Members of the Telco 2.0 Executive Briefing service can download this report in full in PDF format here.
  • Alternatively, to download this report for free, join our Foundation 2.0 service (details here) by using the promotional code FOUNDATION2 in the box at the bottom of the sign-up page here. Once registered, you will be able to download the report here.
  • We’ll also be discussing our findings at the EMEA Executive Brainstorm in London (12-13 June, 2012).
  • To access reports from the full Telco 2.0 Executive Briefing service, to submit whitepapers for review for inclusion in this service, or to find out more about our services please email contact@telco2.net or call +44 (0) 207 247 5003.

Preface

This research has been designed to explore how valuable new telecoms solutions could be for third-party companies (a key part of Telco 2.0), as well as to evaluate the barriers to effective implementation. Third-parties (upstream customers) and operators were interviewed to explore their thoughts in this key strategic area for the telecommunications industry.

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Executive Summary

Headline Conclusions

  • Opportunities exist for operators to support third-party businesses in Customer Profiling, Marketing offers, ID & Authentication, Network QoS, and Billing, Payments & Collection.
  • Poor communication of the telecoms value proposition and slow implementation by operators is frustrating upstream customers and managers within operators themselves.
  • There are four upstream customer segments. Two of these are particularly important for the operators to address when developing go-to-market approaches:
  • Enthusiasts who need full-service Telco 2.0 solutions now;
  • Non-believers who need to be educated on the value of telecoms enabling services and convinced of operators’ ability to implement.
  • There are few material barriers to developing solutions except operators’ inability to implement effectively:
  • Although lack of cross-operator solutions and regulatory impediments are considered significant in Europe and the US.
  • There are four key reasons for the slow implementation by operators:
  • Reason 1: Insufficient investment by operators in services and service enabler platforms.
  • Reason 2: Financial metrics which do not encourage investment in new business models.
  • Reason 3: Inability to pin down the optimal timing for investment in new business models.
  • Reason 4: A prisoners’ dilemma over whether to collaborate or compete with other operators and with upstream customers when implementing solutions.

For the complete recommendations, detailed conclusions and full analysis, please download the report by following the instructions at the top of this page.

 

Introduction, Objectives and Methodology

The research consisted of interviews with 26 major corporations that use telecoms networks to deliver services to consumers including players from advertising, media, financial services and retail (upstream customers or ‘third-party’ companies). Interviewees where senior managers who were responsible for the provision of services via digital channels and thus were familiar with the challenges and opportunities they faced in this developing market segment. Additionally, STL Partners interviewed senior managers from 16 major mobile and converged communications service providers (see Figure 1 below for more details on participants).

The objectives of the research were to determine:

  • What Telco 2.0 (enabling) services would upstream customers like to see from communications service providers?
  • What are the most common use cases and attractive commercial models for such services?
  • What are the current barriers to realising the Telco 2.0 opportunity and what needs to be done to overcome these barriers?

Figure 1: Interviews conducted with players from telecoms and adjacent industries

Companies interviewed for this report

Source: STL Partners

Interviews were 30-60 minutes in length and largely qualitative in nature. Some quantitative questions were asked so that the relative attractiveness of Telco 2.0 solution areas and the size of implementation barriers could be evaluated. The interviews were also designed to uncover differences in perspective between:

  • Operators and upstream customers;
  • Upstream customers from different industry groups – Advertising, Media, Financial services and IT;
  • Operators from different geographic regions – Europe, North America, Middle East and North Africa (MENA) and Asia Pacific (APAC).

Interviews were conducted with senior decision-makers and influencers and, to ensure discussions were full and frank, the content of interviews has not been attributed to individual companies.

Report Contents

 
  • Introduction
  • Real potential value in Telco assets but implementation proving difficult
  • Defining the opportunity areas
  • Strong overall alignment across all eight areas between operators and upstream customers
  • Averages hide variations in upstream customer responses
  • Operators consistent about opportunities apart from Identity & Authentication solutions
  • Telco ability to implement is seen by all as the key barrier…
  • …although operators in Europe and US also see lack of cross-operator solutions and regulation as key barriers
  • Four upstream customer segments require different solutions from operators
  • Operator segment mix looks very different to upstream
  • Why are operators finding implementing Telco 2.0 so hard?
  • Reason1: Insufficient investment by operators in services and service enabler platforms
  • Reason 2: Financial metrics which do not encourage investment in new business models
  • Reason 3: Inability to pin down the optimal timing for investment in new business models
  • Reason 4: A prisoners’ dilemma over whether to collaborate or compete with other operators and with upstream customers when implementing solutions
  • Conclusions and recommendations

Report Figures

 
  • Figure 1: Interviews conducted with players from telecoms and adjacent industries
  • Figure 2: Broad alignment on opportunity areas from operators & upstream customers
  • Figure 3: Upstream customers – variation even within industry sectors for specific Telco 2.0 solution areas
  • Figure 4: Perceived lack of telco interest in developing new solutions for upstream customers
  • Figure 5: Regional differences in operator opportunity sizing for Identity & Authentication solutions
  • Figure 6: Telco operational and organisation limitations seen as the biggest barrier to success
  • Figure 7: Regional differences in perception of key barriers to Telco 2.0 implementation
  • Figure 8: Upstream customer segments
  • Figure 9: Telco go-to-market approaches for upstream customer segments
  • Figure 10: Telco segments – Telco 2.0 could be valuable but can it be realised?
  • Figure 11: An historical lack of investment in services by operators threatens voice, messaging and newer Telco 2.0 solutions
  • Figure 12: Current operator metrics discourage investment in new business models
  • Figure 13: New business model investment timing dilemma
  • Figure 14: The prisoners’ dilemma
  • Figure 15: Six Telco 2.0 implementation strategies
  • Figure 16: Value-creating and value-destroying approaches
  • Figure 17: Geography determines the most important Telco 2.0 implementation strategies

To access this report:

  • The 29 page Telco 2.0 Report can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service here.
  • Additionally, to give an introduction to the principles of Telco 2.0 and digital business model innovation, we now offer for download a small selection of free Telco 2.0 Briefing reports (including this one) and a growing collection of what we think are the best 3rd party ‘white papers’. To access these reports you will need to become a Foundation 2.0 member. To do this, use the promotional code FOUNDATION2 in the box provided on the sign-up page here. Your Foundation 2.0 member details will allow you to access the reports shown here only, and once registered, you will be able to download the report here.
  • We’ll also be discussing our findings at the EMEA Executive Brainstorm in London (12-13 June, 2012).
  • To access reports from the full Telco 2.0 Executive Briefing service, or to submit whitepapers for review for inclusion in this service, please email contact@telco2.net or call +44 (0) 207 247 5003.

About Openet

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Openet is a leading provider of Service Optimization Software (SOS) tailored to meet the evolving needs of communications service providers, or CSPs, including wireless, wireline and cable network operators. Openet’s integrated, high-performance software solutions provide real-time policy management, rating, charging and subscriber data management solutions to enable real-time, contextual network resource allocation and monetization decisions based on information about the end user and the service being used. CSPs use Openet’s SOS solutions to enhance quality of service, create a more personalized end user experience, develop new business models and dynamically control network resources. Openet’s SOS solutions are used by more than 80 customers in 28 countries. For more information, please visit www.openet.com.

Organisations interviewed for the report: Televisa, BBC, Intuit, Google, Tesco, MTV, Intel, TiVo, Sling, Ogilvy, Fox, Omnicom, Microsoft, Visa, Barclaycard, Ultraviolet,  PRS, American Express, MasterCard, CitiGroup, On Live, Warner Bros, MEF, Gap, Salesforce, AT&T, Verizon, Sprint,  Deutsche Telekom, Du, Teliasonera, Orange, Everything Everywhere, Turkcell, Qtel, Etisalat, Singtel, Axiata, Telekom Indonesia, TIM, Tele2.