In my recent blog about "Rethinking Innovation," I wrote about the apparent misconception that Communications Service Providers (CSP) have about innovation for survival. To me, innovation is not merely about offering state-of-the-art products and features to a customer; it's about delivering value, independent from how advanced the underlying technology may be.
In my view, CSPs in developed markets need to rethink innovation for survival.
"Most people in the West equate it with technological breakthroughs, embodied in revolutionary new products that are taken up by the elites and eventually trickle down to the masses. But many of the most important innovations consist of incremental improvements to products and processes aimed at the middle or the bottom of the income pyramid" ("The World Turned Upside Down," The Economist, April 15, 2010). It's not that emerging markets are behind the innovation curve. In fact, they have already leapfrogged ahead of the developed world in areas such as mobile banking and online games.
Emerging markets do innovate, but they approach innovation with a different mentality. It's called "frugal innovation": "The new ideas that emerge when trying to reduce the cost of something in order to make it affordable to consumers in places like China, India and Brazil. The resulting products often turn out to have huge appeal in the rich world too, especially in an era of belt-tightening" ("In Praise of Techno-austerity," The Economist, June 10, 2010).
But what's important is that whatever we are witnessing in our industry right now is short term. Things will continue to change structurally, and the current winners and losers may not be the same winners and loser 2-5 years from now. The increasing power of emerging markets is reshaping the technology sector. Companies in emerging markets are slowly but surely moving up the value chain, becoming more and more sophisticated and at a lower cost. When these companies reach the top of the pyramid, then how will the Apples, AT&Ts, BTs and Vodafones of the world continue to compete? How far are we technologically speaking, from being able to use communications services or watch TV over the Internet contracted in other countries, other than the place we live? (Perhaps regulations will delay it, but we are discussing technology here).
That is why it's so important to have an urgent shift in mentality concerning innovation. But why do CPSs think the way they do? Our industry has been lead for decades by technology people, folks with a network mentality. But survival would require something else: Think more in terms of "frugal innovations" and more like marketing, not technology folks. Why? Because what's important is not just where technology is heading, but also where markets are going - and internal markets are globalizing.
Technology Is Crossing Borders, But Markets Too
Let's take the example of a child born between the mid-1990s and the late 2000s in the U.S. (Generation Z or Generation Internet). "There is a segmentation of haves and have-nots that is very global. If you are in Mississippi or Bangalore, if you don't have Internet, your experience is quite parallel," says Colin Gounden, global head of research for Integreon, whose subsidiary Grail Research has compiled a report on Gen Z.
The other element is the multicultural component of developed markets. For example, the minority population makes up 35 percent of the United States. Soon enough, this trend could make minorities the new majority by mid-century. Four states (Hawaii, New Mexico, California and Texas, as well as the District of Columbia) have minority populations that surpass 50 percent. The likelihood to attract a Latino living in the U.S. with product offerings similar to a consumer living in Latin America is quite high.
Then there's what DeAnne Aguirre and Karim Sabbagh from Booz & Company call the "third billion": Women. "This group's impact on the global economy will be at least as significant as that of China and India's billion-plus populations. As they move into knowledge work, in domains ranging from manufacturing to medicine to education to information technology, their sheer numbers will hasten the integration of the regions where they live into the larger economy." This shift will change technology consumption patterns too because women influence women.
We could go on and on about trends, but the main point is that "the world is in the midst of an epochal demographic shift that will reshape societies, economies" ("Facing Up to the Demographic Dilemma," Strategy+Business, February 23, 2010).
Don't Let a Million Define a Market of Billions
Over 600,000 iPhone 4s were sold on the first day they were available for preorder, and many analysts fully expect Apple to sell 1 million units on its first day of launch. In the meantime, the number of mobile subscribers will surpass 5 billion in 2010, representing over 70 percent of the world's population. More than 5 billion people live in emerging markets, which represents more than half of the world's GDP (on a purchasing power parity basis). This means a world of possibilities for CSPs at home and globally.
So why focus an entire business strategy on 1 million people willing to purchase an iPhone 4? Because most CSPs continue to design their business objectives with a set of beliefs that are outdated. But once "technology without borders," international business forces and global demographic trends reach a tipping point, which companies are going to do best in this new environment that sooner, rather than later, will take over?
Only companies that switch from a technology mindset to a marketing way of thinking will prevail. In the not-too-distant future, all brands (domestic and international) will be niche brands, but most CSP brands aren't developed as niche brands. It's probably time to think less about the next revolutionary gadget and "one-size-fits-all" strategies and think more about where markets are going and how to design a business strategy that better understands the hearts, the minds and the wallets of a consumer base that is there, but nobody is quite tackling fully. That's almost everyone in the world, except for just 1 million consumers willing to go crazy about a new iPhone 4 release. The opportunity for CSPs is much bigger than that, not just tomorrow, but now. It's time for a different type of change.
By Monica Zlotogorski, Editor of TM Forum's Inside Latin America and Vice Chair of TM Forum's Latin America Advisory Board