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The Telco 2.0 methodology — Business Model Innovation
In our previous post on Telco 2.0 methodology, we described the 15 key Telco 2.0 transformation issues and how the industry currently scores against them. ‘Appreciating’ these issues was Step 1 in our Telco 2.0 A-C-T process to create a sustainable growth strategy. Step 2 is ‘Clarifying’ how to approach business model innovation, a tricky subject for any industry that we discuss below. Step 3 is ‘Test’, and you can find a record of all the latest developments across these steps on our constantly updated Telco 2.0 research portal here. To start with we need a framework to guide our thinking. To help with this we’ve drawn inspiration from our friends at arvetica on an overall business model ‘framework’. (View their slide deck, it’s very good.) We find the diagram below extremely useful in getting our clients to understand what are the one or two things they do exceptionally well, and what other areas they need to make sure are considered in re-designing their business models:
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How do we use this framework? First we need to understand the components in more detail. On the left of the chart above you have the supply-side issues, and on the right the demand-side ones. Different companies perform to different levels in each of the essential component areas of a business model. You can typically only be world-class or strategically differentiated in one (or at most two) of these areas. Here are some examples to bring the diagram to life: In the middle is the value proposition. The core proposition of ‘mobile telephony’ has been highly successful to date and is the proposition we’re all looking to build on. Examples of other successful ‘value propositions’ from the telco world include Nextel’s walkie-talkie service, Direct Connect and Motorola’s TETRA public safety networks. For Media value props you could choose The Wall Street Journal (editorial independence and excellence of analysis) or The Economist (the perfect bundle of important news for important people). Intel has access to chip design and manufacturing technology that is only marginally differentiated from its competition. However, they have excelled at partnerships with PC manufacturers, Microsoft and retailers by embedding themselves into the value chain and in the consumer’s mind. Good examples in Telco are DoCoMo (with i-mode) and the UK retailer Carphone Warehouse (with its multi-operator product offering). In Media an
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This is because credit cards offering frequent flyer miles for purchases have been immensely successful. EasyMobile tried (but failed) as an MVNO with its web-only sales and support. examples of creating distribution strength include Swisscom hotspots (with their exclusive deals with leading hotels) and Verizon Wireless (perceived as the coverage leader . To bring some perspective. we’ll start with the airline industry and then look at telco. Google became the master of the revenue model. Many airlines used to build reservation systems. In telecoms.g. and have in-house maintenance. (Flying appears to be a not-for-profit activity compared to creating funny money!) Industry Brainstorms 2008 Industry Brainstorms 2009 News! Online Video Distribution Portals. In terms of finding new customer segments. example is the almost limitless merchandising by Lucasfilms around the Star Wars franchise. Nokia (with its mass-market handset efficiency). Apple’s design abilities are an example of capabilities that others find hard to replicate. an automated self-service DVD rental service.. You don’t get to keep the hanger when you buy a t-shirt from them.. Business Model change in the Airline Industry Some airlines in Europe attacked new customer bases and segments: Ryainair for the price-conscious. In media. Disney (with its branding and characters) sucks you/your children in in the same way. enter your email address: Get newsletter ARCHIVES December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 2 of 4 1/2/13 1:01 PM . In Media you could pick Pixar with its CGI animation skills.telco2. eshewing the normal equipment vendors. By moving to the Web. Many airlines. others busied themselves replicating spartan design or clever matrix algebra without understanding the increasing-returns-to-scale of Google’s advertising hub. Like a cargo cult. their trucks always drive with headlights on because they’ve worked out that the cost of fewer accidents outweights the extra fuel consumption. of course.net/blog/2007/05/the_telco_20_methodology. They recycle boxes and palettes while others are throwing them away. as it goes straight back to the rack. In Media. Wal-Mart is the master of the cost model. Now those capabilities are typically outsourced and they focus on narrower parts of the value chain: capacity planning. In telco. and using open source software and developing in-house). you can look at News Corp (with content delivery via satellite) or the newspaper companies who provide free papers for commuters. operate catering. For example. especially in the US. Virgin has a brand with strong cross-industry appeal. and Yahoo! in Media (acting as the aggregator and integrator) demonstrate strong ‘supply chain configuration’ skills. and today Qualcomm’s CDMA patent portfolio shows off strong ‘capabilities’.we’ll explain why this is ‘distribution’ at the end of this post). Airlines have also innovated in their revenue model. In telecoms. we can look at Blyk (a new ad-funded mobile service) and 3 UK (with its revenue-sharing model for termination fees and user content). Amp’d (the premium MVNO in USA focused on content and entertainment with $100 ARPU). In telecoms Sprint PCS (with its multi-level affiliate network build-out model).0 SEARCH Search this blog: Search TELCO 2. http://www. own travel agencies and retail stores. let’s see how they are applied across an industry. oil price hedging). In telecoms AT&T/Bell Labs (pre de-merger) were the leader in all things electronic and optical. Having looked at the components in the business model framework. To subscribe. Gillette manages to maintain a customer relationship through the razor handle/blade system (you’re reaching for the Gillette brand every morning). In telco. Easyjet was the great pioneer of low-cost short-haul flights in Europe. Maxjet for the aspiring intercontinental business traveller.0™ EMAIL NEWSLETTER The free Telco 2. They have also increased their distribution channels by partnering with credit card companies — offering flyer miles for purchases to extend their “reservation” model . Telenor (buying exclusive football rights). Partners and Platforms Product & Proposition Innovation Regulation Standards Technology Disruptions Use Cases Voice & Messaging 2. as is the BBC in the media sector (Multiple radio + TV channels covering all ABC1 sub-segments). Tracfone (the Latino-centric operator in USA) and O2 in the UK (with its SMS bundles attractive to teens) are good examples. Dell achieved a distribution model that outpaced rivals. have been kept afloat by the credit card companies in hard times. (Most of the Network Equipment Providers are very strong here. Easyjet for the frequent shorthaul business traveller. which they then extend into adjacent markets like shaving cream and deodorant to achieve premium margins.Telco 2.0: The Telco 2.0™ newsletter is published every second week. marketing and financial risk management (e. while Vodafone reaps the benefits of scale in procurement and is driving family and workgroup plans through lower on-net call costs..0 methodology — Business Model Innov. Cisco is the daddy of supply-chain configuration. By bringing together searchers and advertisers in a unique way. They have then partnered with other airlines to offer through-ticketing and shared frequent flyer programs to enhance their network effects and customer loyalty.. As a by-product of build-to-order their supply chain was leaner and more agile. Iliad in France offers a superb example of creative thinking in telco. Their challenge is to create skills to support their clients in the other component areas of new business model framework if they wish to truly add value and differentiated). it’s worth looking at companies like Moviebank . in terms of building out its network at low cost (buying up distressed assets. You can only salivate at the margins on those replacement blades! Tesco Mobile has been successful by combining its MVNO service with in-store Clubcard loyalty programme. requiring less inventory and working capital.
ATM top-ups.” “Your customers will never lead you to a new business model. and their significance will be different.telco2. The former was about coverage — a form of service distribution. To share this article easily. HSDPA or WiMAX? * Supply Chain: Open-source IT tools or NEP-centric telco solutions? * Partners: Open Platform or Controlled ecosystem? * Cost Model: Optimise costs (eg. Clayton Christensen. Since telecoms is fundamentally a distribution business . A broadband pipe is likewise just a sequence of options to communicate that you may or may not choose to exercise. as this is where the big fundamental changes in the industry are occurring.the winning approach tends to consider the Distribution area first. none of which are black or white: * Capabilities: A key question revolves around network technology. Harvard Professor and author of ‘the Innovators Dilemma’ recently warned us against this: “The creation of new business models is substantially different from the innovation of new products or services. but the ones that will value a new business model will be very different. In the next post we’ll describe the Transport aspect of this in more detail. advertisers) or downstream (consumers/business)? * Distribution Channels: Centralised or distributed? So. http://www. please click: January 2010 December 2009 November 2009 October 2009 September 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 2006 Telco 2. pre-pay).0: The Telco 2. physical media).0 research portal here or call us on +44 (0) 247 5003.. and where are the gaps between the two. online top-up. Later in this blog series we’ll look at some sample new business models and how they relate to the framework above. They sell tickets. By slicing and dicing the pipe into smaller chunks and bundling them differently with applications and devices you can gain higher margins (more on this in forthcoming posts…).0 methodology — Business Model Innov..” So.0™ is produced by: 51 3 of 4 1/2/13 1:01 PM . broadcast. the corporation will reject process or resource allocations that don’t fit its business model. street vendors) Transport (cellular. Here are examples of the questions.Telco 2.) the markets we might wish tackle and b. A powerful reason why companies aren’t good at business-model innovation is because the kind of products that are required to be the seed of a new model can’t get through the resource allocation process. convenience store top-ups. the critical thing to recognise is that in telecoms ‘Distribution Channels’ should be sub-categorised into 4 distinct but interrelated elements: Retailing (store and web) Provisioning Payment (Payphones. more efficient call centres) or Eliminate costs (web service only)? * Value Proposition: Traditional comms or Original/Differentiated (see our ‘Blue Ocean’ example here) * Customer Relationships: Personal (eg. but airlines don’t just sell “A to B transport”. In the meantime.” “A better approach [than asking customers what they want] is to understand what ‘job’ they are already doing. or any flight. or even multiple flights on different airlines with interline or partnership agreements. let’s end with a quote from Mr Christiansen again: “Skate to where the money will be. not where it is now” And if you’d like to know where the money will be next. which are options to fly — i. SK Telecom asking customers to submit new feature ideas) or Impersonal (eg. check out the latest developments at our constantly updated Telco 2. Most new products and technologies can be sold through the existing business models.it distributes bits and bytes from A to B . * Customer Segments: Should we going macro or micro? Broad market appeal or Niche? * Revenues: Upstream (eg.e. In fact. and a phone call or text message is a very expensive way of buying sub-divided bits of connectivity. Customers always are important. eg. this suggests starting somewhere else. Airline miles are just micro-divisions of those options sold at a huge mark-up.. broadband. You might have thought that an aircraft seat is hard to split up. Applying this Framework to Telecoms business models For each of the 9 component parts of the business model framework we need to consider a set of telecoms-specific questions to help form a view of a.net/blog/2007/05/the_telco_20_methodology. The trick is to sub-divide a product and re-sell it at a higher mark-up. what products they currently ‘hire’ to do those jobs.) the way we might tackle them.. seat reservations which can be redeemed against specific flights. The latter was about a value proposition around smart features. which of these 9 component areas is the best place to start and/or the most important? The temptation is to start with Customer Segments. and conduct large customer research studies. Now. Verizon Wireless’s ‘Can You Hear Me Now?’ campaign was far more effective than Sprint’s PCS Vision campaign.
net/blog/2007/05/the_telco_20_methodology.0 methodology — Business Model Innov.. http://www.telco2.) Name: Email Address: URL: Remember personal info? Comments: (you may use HTML tags for style) Preview Post 4 of 4 1/2/13 1:01 PM .. Posted at 4:52 PM | Link to this article COMMENTS Great. Thanks for waiting... all comments need to be approved by the Telco 2.Telco 2.0 team before appearing. 2009 11:01 AM POST A COMMENT (To prevent spam.0: The Telco 2.I am also fan of Telco technologies.. Posted by: Ram Gunjal | October 3..
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