As
there’s a change in leadership occurring at Vodafone, it’s a good time
to reflect on the direction of the large convoy of opcos and
investments being led by the good ship Newbury. Arun Sarin
has stepped out of his asbestos business suit, albeit scorched by the
flames of investors and board members, safe in the knowledge that his
mission to vanquish more timid enemies is won. Although they don’t say
it aloud, The Economist notes
that the core of this success was clinging on to markets where vertical
integration is turning a profit (USA, emerging markets), and exiting
those where is isn’t doing so well (Japan), whilst cost-cutting
elsewhere the inevitable detritus of a decade of hyper-growth.
However, as the more acerbic tongues at The Register point out,
rather choppy waters lie ahead. The business is rapidly maturing, cost
cutting reaches its limits, and new revenue streams (entertainment
content, advertising, data) are either slow to ramp up or come with
significant supplier costs that dilute margins.
According to their corporate history website,
the name Vodafone is derived from ‘voice and data phone’. True or not,
the conundrum of whether ‘voice is just data’ persists to this day. So
as Vittorio Colao becomes fleet admiral, our burning question is: what
to do about the stagnating core product? Along with its peers, Vodafone
has conspicuously failed to significantly enhance its voice telephony
offer, beyond offering better coverage. We don’t think that’s going to
be a long-term winning position as access becomes hyper-abundant, and
people’s time does not. Rather than ask how data services can replace
lost voice revenue, ask how data can be used to rejuvenate that voice
business. And as the biggest player in the international scene,
Vodafone is very well placed to do something about it.
Telephony is built on false assumptions
The chart below (from our recently published Consumer Voice & Messaging 2.0 Report) compares the cost of telephony and labour. We show the per minute cost in the USA of
using a telephone (fixed or mobile), along with hiring someone (high
school or college graduate). What it tells us is that the ‘scarcity’
used to be in the telephone network, and now it is in our time and
attention.
Only a decade ago, it was worth paying a graduate for an hour if it
would have saved you from making an hour’s worth of mobile phone call.
Today, we barely factor in the cost of calling into our lives. Yet
we are buried in voice messages, missed calls, emails and texts.
Delivering ever more data to the user is not the same as creating ever
more value. The value comes from brokering the right relationships,
helping interactions occur at the right time and medium, eliminating
unwanted intrusions, automating flows of information, and making users
productive.
Not a new problem
Mobile telephony is built off the same product template as fixed
telephony, with the same assumptions and problems baked in from the
19th century. From the very beginning, problems have been evident. When
Bell called Watson in that first call, the result wasn’t “oh, ****,
he’s gone out for an afternoon in the pub”. No, Bell had pre-arranged
for Watson’s to be there ready at the other end. It was a bit of a
fraud, to hide the absence of presence, availability or scheduling
features.
We see these problems still today. You call me, but I just fail to
answer in time, so you go to my voicemail. I see a missed call, and
call you, not knowing your talking to my voicemail. As you’re already
in a call, speaking to my voicemail, I get your voicemail. Why on earth
doesn’t the phone network just connect us together?
This particular instance is an example of a failed rendezvous, and we examined the context and unfilled user needs in more depth in this previous post.
Many of today’s short phone calls are manual transfers of presence,
location and availability data that should ideally be eliminated. Why
can’t I request a call from you, rather than only interrupt you? Why
can’t I tell you’re calling me back about the message I left a week
ago? Sadly, operators are too well rewarded for terminating calls of
zero or negative value.
Voice: one product, many business models
As with all telcos, there are three inter-linked business models
that Vodafone needs to support. These require very different features.
The first is its retail offer. This takes hardware from the network
equipment providers, plus software from various innovators, and
packages it up as the core bundle offer or as an add-on value-added
service. This supply chain is slow, costly and inflexible today, and
their Betavine effort is only a small step towards what’s really needed.
There’s still plenty of mileage though in selling conveniently
packaged communications. We’re not yet at the point where “if it’s
software, it must be given away for free”. The users see the benefit to
themselves, and are willing to pay for it. A good example at the moment
is SpinVox, who offer a voicemail to text transcription service. Note how their own marketing copy says: “SpinVox has saved me at least two hours a week
[our emphasis] of listening to often irrelevant voicemail.” (And
contrast this with the primary purpose of most mobile media content
products, which is to fill dead time.) We’ll dive into the challenges
and opportunities for retail products a little more below.
Next up are the wholesale products of the operator. We feel there is
a massive hole here in most operators’ strategic approach, with a few
honourable exceptions. Voice is already becoming just one facet of many
applications and products, and operators aren’t making it easy to embed
it in. Wholesale products need to be broader in scope (e.g. to include
voicemail, push to talk, and 3rd party network integration), as well as
deeper in integration (e.g. simple 3rd party trouble ticketing,
provisioning of offers sold through non-operator channels).
Finally, there are the two-sided markets, which we’ve written about here.
The telephone remains a wonderful way of consumers and enterprises
interacting — think of it as ‘v-commerce’ — but there is a huge amount
of friction and inefficiency involved. Whilst so much effort is being
expended on entering mobile advertising, hardly any is being lavished
on building new revenues on top of freephone numbers, call centres and
interactive messaging.
Voice as a platform, not a product
We promised to come back to that retail proposition. Ten years ago,
mobile phone penetration was in the low single digits. Today, more than
half of humanity has one. A decade hence, the experience will also be
transformed again. For example, your address book or contact list will
be dynamic: ordered by who you ought to be talking to, giving real-time
presence and availability data, and probably infused with messages from
companies with whom you have ongoing commercial relationships. Mobile
will be the ‘to go’ portion of the PC experience, not some separate
world.
However, there is unlikely to be a one-size-fits-all evolution of
the public telephone service. Instead, we move from an era of mass
production to one of mass customisation. There are too many innovative
applications, too many niches and customer needs, for any one company
to address them all. Instead, operators need to take a leaf out of the
Telco 2.0 book and focus on two things: providing distribution for
these services (and integration with the core offer), as well as
enabling a bunch of high-margin value-added services that the upstream partners pay for, not the downstream end users. If someone is a Facebook fanatic, help that partner get their experience into the user’s hands.
This requires synchronising a lot of moving parts of the puzzle:
handsets, network, operational support, etc. The need for putting
together a complete experience, rather than just piece parts, is
becoming received wisdom, with the Apple iPod, iTunes PC client and
music store trio being the canonical example. It’s hard to do, and it’s
still early days. Apple have barely moved the needle with the iPhone —
the only concession to the voice service is visual voicemail. (And
they’ve made a mess of the SMS client.) It
does nothing to address the underlying issues of why people are sending
those messages, and how to either eliminate them, or make them more
effective. Nokia’s Ovi is resolutely focused on the content side of the business, not communications.
As the biggest player, Vodafone has more leverage over handset
suppliers and software platform vendors. Pick up the phone to Qualcomm.
Whatever magic they’ve done for 3, ask for a bit to be sprinkled over
the Vodafone handset range. We’d also expect an operator like Vodafone
to produce handset and service offerings much more tightly coupled with
the online services that users increasingly route their conversations
through. On the corporate side, IBM, Microsoft and Avaya are obvious targets for closer integration.
One good sign is Vodafone’s acquisition of Danish social media start-up Zyb.
This is completely the right direction, and we’d like to see the gas
pedal pressed hard to roll this kind of “address book 2.0” capability
burned into as many handsets as possible.
This is also the time to make the most out of close relations with
Verizon Wireless. Platforms need scale, new voice service features need
scale, so why not become the de facto leader? Don’t wait for the
standards bodies, make it a fait accompli.
Immediate action required: group communication
Whilst these long-term changes unfold, there a re short-term
problems with the voice and messaging products, most notably in the
pricing of services that compete against Internet offerings. Vodafone
UK have cleverly priced ‘informational’ chatter differently from
‘social’ chatter with the ‘stop the clock’ promotion. After 3 minutes,
you don’t rack up any more charges. This aligns value with pricing, and
we like it.
The problem is that the online tools encourage users to communicate
in groups, and to form conversations and communities. Voice and SMS pricing don’t align well with this. Why should a three-way call cost more? The users don’t see it that way. Why does sending an SMS to
five people cost five times a much? Why does replying to a message cost
the same an initiating the conversation? Why can’t I send Twitter
status updates (with no termination charges) for free, to encourage
more texts and calls?
There are many ways in which the traditional pricing assumptions of
telephony and messaging don’t fit into our current communications
landscape. Because Vodafone has shied away from being the price leader,
it has more slack to play with here. You can afford to lose some money
on termination fees to other operators if those charges have become
illogical in the users’ minds. Or take a leaf from GupShup and use adverts to make group communications have no extra charges.
Be proud to be the phone company
Sometimes it feels like being a phone company is like an
embarrassing medical condition nobody wants to admit to having. Voice
communication will remain central to the human condition for as long as
we’re around. Satisfying the need for people to collaborate, chatter,
and communicate should be central to every operator strategy. Sadly, it
too often ends up being delegated to the network equipment providers or
handsets vendors, who tend to lack the skills or incentives to build
complete services. If we had a shiny new R&D group, we’d be making the personal, social, human communications experience the top priority.
There are some carriers already making tentative moves towards a better telephony future. We like products like the H3G
SkypePhone, but feel that there ought to be a lot more such examples.
Embarq is making some useful moves with its eGo landline phone service.
Verizon has made a good effort with iobi, but is utterly closed to
outside innovation. Telekom Austria has some interesting softphone
experiments on the go. Qwest has Q.Home on the launchpad. BT remains a bit of a dark horse here too.
Our own research found nearly 70 start-ups working on new voice and messaging services. (These are all documented in the report.)
We’re sure there are more. None are really integrated with the telco
platform. The opportunity to exceed the users’ expectations is there,
and the business model — retail, wholesale and 2-sided platform — will
bring in the cash to anyone who cares to execute on it.
This Blog is republished from
www.Telco2.net/blog.
The Telco 2.0 Initiative is a new industry program focused on helping
with this thorny question: "How do we (telcos, handset manufacturers,
Media companies, IT players, NEPs, etc) make money in an IP-based
world?"