The Next Generation Business Strategy for Wireless Carriers

The Next Generation Business Strategy for Wireless Carriers
The power of the User Interface to re-energise the industry Summary
With carriers revenue expectations not being met… Today, wireless carriers are struggling to deliver the kind business performance that was expected just a couple of years back. In brief, debt is high, confidence is low, market growth has stalled and wireless services are becoming a commodity. The early growth phases for the industry, when they found a way to sell wireless cheap and promote the cult of handset personalisation, have now ended …the mobile phone user interface is poised to become the new growth catalyst… Fortunately, a new growth phase is about to start, where the handset user interface (UI) will be king. This phenomena is already evident; Motorola is now uniquely tailoring the software that drives the UI of its handsets for the largest carriers in the world, a number of middleware companies are marketing their own platforms that sit on top of the resident operating systems of handsets, while the best of the
This paper was published by 3G User Interface resource centre (www.3GUI.com) Published: September 2003 Authors: Steve Jones, Founder, The 3G Portal UK Email: steve@the3Gportal.com www.the3Gportal.com Jae Choe, Marketing Director, Design UNIT South Korea Email: Jae.Choe@designunit.co.kr www.designunit.co.kr

Graphical User Interface (GUI) elements from the PC (especially the Mac) world, are being transplanted into the user interface of a mobile phone device. …and usher in a new business model for the industry The paper presents the case that this development is not simply a temporary fad, a dressing up of the handset in some new clothes until more important matters like a 3G launch can be justified. Instead the paper lays out a new business model that demonstrates how if mobile operators embrace a new business strategy; that of developing easier-to-use interfaces for their subscriber's phones, then this can drive up individual ARPU and loyalty. And even more importantly, lead to the creation of a new class of person-to-person applications that will kick start penetration growth and deliver a long-term uplift in revenue.

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

Introduction
Today, wireless carriers are struggling to deliver the kind business performance that was expected just a couple of years back. The promise of 3G revenues and higher margin data services may well be delivered eventually – but they need a big uplift in revenue growth now! Carriers in Europe are saddled with $100 billion in debt from 3G licenses. Carriers in both Europe and North America face expensive infrastructure improvements for 2.5 and 3G, with estimates at $200 billion in Europe, and $300 billion in the U.S. These are not trivial investments but sadly there has been a loss of confidence amongst the carriers about the strategy that might make these investments commercially rewarding. These nervous jitters have been infectious in that those best placed to provide the wherewithal for future infrastructure spending have held back. The capital markets and investors now seek to sell their money to carriers at a premium to cover the higher risks, while carrier stock prices remain depressed, making it harder for them to obtain low cost funding. Alongside these pressures:
Market growth has stalled

Carriers $ expectations not being met

Debt is high

Confidence is low

1) wireless voice revenues are flattening, 2) data revenues are far behind the expectations set some 18 months ago, 3) subscriber penetration has stalled in Europe (80% in some countries) and approaching saturation (defined as 60-70%) in North America and some parts of Asia (62% in South Korea). Digitwireless.com in their assessment of the wireless carrier position said,

Wireless services are becoming a commodity

“…wireless phone service is becoming a commodity market where the major focus of competition is price. Market share seesaws back and forth among the incumbent competitors as subscribers churn through the most attractive pricing plans for the month. ARPU (average revenue per user) growth is nearly flat, CPGA (cost per gross subscriber add) is on the rise, and churn is hard to control in an increasingly commoditized market”. The earlier quest for growth had two phases, first was finding a way to make wireless services affordable – pre-pay helped with that. The second was to make handsets a highly desirable possession, not just for its functionality (phone calls on the move) but through its appearance – such as changeable covers, personally selected ring tones and screen logos. These phases have effectively ended. Fortunately, a third wave of growth is about to start – and it is based on making the experience of using the handset a delight. The delight will come from a new breed of user interface – incorporating a fresh take on handset sounds, graphics, navigation logic, menu structure and more, that in turn makes the wireless data applications behind the interface work faster, easier and more effectively.

The early growth phases have now ended

A new growth phase is about to start, where the handset user interface (UI) will be king

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

The battleground for UI supremacy suggests a new business model will soon drive carrier strategy

This phenomena is already evident; Motorola is now uniquely tailoring the software that drives the UI of its handsets for the largest carriers in the world, a number of middleware companies are attracting the attention of analysts (positive, in their case) and phone makers (negative from their point of view) as they market their own platforms that sit on top of the resident operating systems of the handsets (whether they be Symbian, Pocket PC, Palm or Linux), while the best of the Graphical User Interface (GUI) elements from the PC (especially the Mac) world, and more recently the PDA arena, are being transplanted into the user interface of a mobile phone device. This paper presents the case that this development is not simply a temporary fad, a dressing up of the handset in some new clothes until more important matters like a 3G launch can be justified. Instead the paper lays out a new business model that demonstrates how if mobile operators embrace a new business strategy; that of developing easier-to-use interfaces for their subscriber's phones, then this can drive up individual ARPU and loyalty. And even more importantly, lead to the creation of a new class of person-to-person applications that will kick start penetration growth and deliver a long-term uplift in revenue.

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

The next generation business strategy for wireless carriers
The two most important success factors for 3G
There are two factors that will have the most impact on the take up of next generation wireless services.
Next generation services success is driven by 2 functions – UI and applications

They are: 1- the device’s user interface (UI) 2- the applications that this UI drives Others might rate two of the following as the most important instead – the tariffs, customer service, service availability or battery life. But the bottom line is this simple, if 3G phones are complicated to use and the applications suck, then low prices, fantastic support, ubiquity and endurance will count for nothing. The goal for those most able to influence the handset’s user interface and create appealing applications has to be, in brief – to offer the wireless subscriber “a delightful user interface” and a diverse array of “emotionally rewarding social applications”.

The 2 factors together must be ‘delightfully rewarding’

What is meant by “a delightful user interface”?
The widest definition of “user interface” (UI) in the context of a wireless service proposition covers all points of contact between the wireless subscriber and their service provider – where points of contact refer to something the service provider does or offers that has an impact on the opinion and behaviour of the actual and potential subscriber to their wireless service. So this idea of “UI” can include the customer service centre, retail staff, the in-store signage and sales documentation, the operator’s web site and of course, the handset itself – particularly it’s onscreen instructions, its audio and visual inputs and outputs; and the handset’s tools for navigating and viewing these facets. The forthcoming analysis will focus on the latter elements of the UI – the visual, audio and navigational elements of the handset. This paper argues that it is these UI elements that will be most critical to a carrier’s future success. It is these things that make the experience of using the wireless device a delight, a nightmare or inconsequential from the users perspective. The goal is obviously to make the experience a delight!

UI covers many points of company-user contact

Handset UI is the most critical

What is meant by “emotionally rewarding social applications”
‘Social applications’ will become the new buzz word for the next gen of wireless services

A “social application” is a concept that, thankfully, is coming increasingly into the language of those observing and working within the service creation side of the 3G wireless industry (see the bibliography).

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

They can enable more intense interactivity between community members The 1 social app was voice services
st

It can refer to those kinds of services that can be delivered wirelessly that help mobile phone users widen, deepen and increase their social networks. This genre of service facilitates greater diversity (and volume!) of exchange between members of different social communities such as a group of school friends, the circle of immediate family members and say, the supporters club of a top football team, for example. The first of these wireless “social apps” was, of course, voice based mobile services, then more recently text-driven applications like SMS. Research commissioned by the UMTS Forum and i-Society continues to show that users of these kinds of social applications find them “emotionally rewarding” because of the way they facilitate and strengthen person-to-person communications. In the future, the wireless industry will come to accept that the new applications with the most chance of success are those that deliver emotionally and socially rewarding benefits to the subscribers of their 2.5G and 3G network services. The wireless industry is currently locked into the wrong mindset believing a server-tomany download model is the basis of its future success.

Social applications, not network downloads, from the network will be wireless’ saviour

How can both come together – and reinforce each other
A delightful UI and rewarding social applications are interrelated

The twin goals of “a delightful user interface” and “emotionally rewarding social applications” can be shown visually below in Figure 1.

The 2 factors impact the most on new service takeup
UI >
Factor 2
Tangible Improvements
• Colour • Icons • Navigation logic

OUTCOME IMPACT OUTCOME

IMPACT

Community Level

Enables development Of more Emotional & Socially Rewarding apps

Reduces Apparent Complexity

Individual Level

Factor 1

Intangible Improvements

< UI

• Easier to communicate the more complex • Enables simple combination of diverse outputs • Supports the creative process - less costly/more imaginative apps

UI improvements can delight the individual…

Figure 1 – the 2 factors that impact the most on new wireless service take up
Factor 1 = User Interface improvements and Factor 2 – introduction of Emotionally Rewarding applications

By making tangible improvements to the UI – particularly the visual, audio and navigational elements of the handset – the impact is a delightful, positive experience for the individual.

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

…and lead to new kinds of wireless apps

The consequence of the tangible improvements to the UI are that other opportunities arise, such as the capability to more easily manage (via the UI) a new range of wireless services; services that are more complex than just voice and text calling. A user interface that has the potential to control and manipulate more complex forms of navigation, multi-media services, transmission options and other factors that are subject to the limitations of today’s user interface, dramatically becomes the Holy Grail for wireless application developers. This now opens the door to the development of the long sought after genre of killer applications for 2.5G and 3G – increasingly certain, in our eyes and others (including the UMTS Forum and i-Society) to be those based upon delivering a new generation of emotionally and socially satisfying person-to-person (P2P) experiences – wirelessly.

UI improvements opens doors to killer wireless apps

UI is the start point in a new virtuous circle…

Figure 2 The graphic above (Figure 1 with additional annotations) shows a virtuous circle, where the starting point [1] delivers tangible improvements to the user interface, so reducing apparent complexity (but in reality making it easier for more complex tasks to be undertaken on the wireless device). This event impacts at the individual level [2] providing the user with a more delightful experience. The improvement in the user interface that has the most consequences for the wireless industry, is not just delighted users, but the opportunities it provides developers to [3] imagine, communicate and create the socially rewarding applications that the thought leaders of the wireless industry see as the future killer applications.

…delighting individuals

…inspiring application developers

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

…promoting intense person-to-person communications within social communities

This outcome, in contrast with that of user interface enhancements [1] is not at the individual level [2] but the community level [4] as socially rewarding applications by definition are focused on facilitating more intense kinds of person-to-person communication amongst those who belong to distinct communities. Having gone full circle, it is easy to see that taking the new emotionally rewarding apps and subjecting them to further improvements in their user interface elements, delivers even more user delight and opens up the options for developers to create new genre’s of social applications. And so on around the circle.

Why is “a delightful user interface” combined with “emotionally rewarding social applications” so important to the wireless operator?
Earlier we proposed that there were two factors that will have the most impact on the take up of 3G services, i.e. - the device’s user interface - the applications that this UI drives Besides the logic we used at the start about other factors being redundant if the device was not enjoyable to use and didn’t have the a great range of applications with high levels of person-to-person interchange, there is one overriding reason why these two factors will have the most impact on the wireless industry – future revenue growth. There now follows an exposition of why the wireless operator has the most to gain commercially from taking the leadership role when it comes to user interface definition and commissioning the creation of social applications. In the course of this examination, it also becomes plausible that the wireless operator who commissions a family of social applications should also direct the creation of a complementary user interface that accesses and runs those same apps. Harmony is everything! The crux of what follows for the wireless operator is this - that through championing complexity-reducing UI developments that make the emergence of appealing person-to-person apps so much easier, they will drive a two-fold beneficial impact on their future revenues.

The importance of UI development to the carriers is – future revenue growth…

…and carriers must take the lead role as they have the most to gain

Benefit 1: The operator that enhances an individual’s delight increases the monetary lifetime value of the subscriber
The commercial rewards of this leadership position are two-fold

The proposition we will now go on to illustrate is that – the enhancement of an individual’s satisfaction with the operator-defined UI for accessing their wireless services drives the monetary lifetime value of the individual subscriber upwards.

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

1 , a UI that pleases an individual can generate intense loyalty…

st

In short, an appealing UI that makes it a delight to use the ‘social’ applications that are run by it, can also help sustain the loyalty of the individual to that wireless service provider (especially if that UI is exclusive to the wireless operator). Apple Computers and others have demonstrated the commercial benefits of this ‘delighting the user’ UI strategy – long term loyalty and long term revenue expenditure with that service provider. So Factor 1 – a “Delightful User Interface” - in simple financial terms, will lengthen the time-axis of the classic wireless revenue model, so extending the period over which revenues will be earned from the individual wireless subscriber - see below:
OUTCOME

…so delivering to the carrier revenues for longer

IMPACT

$ BENEFIT

Reduces Apparent Complexity

Individual Level

Increases Loyalty Increases Lifetime $ Value of Individual Subscribers

$ Revenue

Lengthens the Time-axis

Figure 3

2 , apps that emerge from UI innovation can encourage more intense wireless communication by more and more communities…

nd

Benefit 2: The operator that provides social network enhancing apps will drive upwards the absolute volume of total spend on wireless services
The proposition we will now go on to illustrate is that – a community’s enjoyment of the new range of emotionally satisfying and social network enhancing apps, (facilitated by this improved UI), will also drive upwards the absolute volume of the total spend of the subscriber base on wireless services. If well executed, this is the genre of apps that people “will be willing to pay for” – (said UMTS Forum paper – “Social Shaping of UMTS” 2003). The irresistible appeal of ‘social’ apps to wireless subscribers has been attested for by a number of reports appearing in 2003 (see this paper’s bibliography).

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

…so delivering to the carrier, higher levels of revenue

So Factor 2 - “Emotionally and Rewarding Social Applications” - in simple financial terms, will extend the height of the revenue-axis of the classic revenue model, so increasing the total volume of revenues that can be earned from the community of wireless subscribers – see below:

$ BENEFIT

IMPACT

OUTCOME

Community People will Level Pay - whatever Increases $ Spend between Communities of Subscribers

Enables development Of more Emotional & Socially Rewarding apps

$ Revenue

Raises the height of Revenue-axis

Time
Figure 4

How an emotionally delightful user experience drives the wireless operator’s ‘revenue engine’
So it is now clear how the dynamics of ‘delightful’ UI development that make the emergence of emotionally satisfying person-to-person apps so much easier, can lead to a two-fold beneficial impact on the future revenues of the wireless operator. This is shown below:

In summary, socially rewarding apps raises the height of the revenue-axis

$ Revenue
‘socially rewarding apps’ Raises the height of Revenue-axis ‘delightful UI’

While delightful UI’s lengthens the time-axis over which revenues are earned

Lengthens the Time-axis

Time
Figure 5

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The Next Generation Business Strategy for Wireless Carriers

The fit of this “revenue engine” to the development process can now be clearly seen within the model presented earlier (Figure 1 above). This is shown below:

Figure 6 To make matters even more exciting, especially if you are the person responsible for driving the revenues of a wireless operator – not only can you now see (Figure 6, above) the rewarding two-fold impact on the revenue model within the context of the original graphic that showed how appropriate UI development could drive appropriate application development…it gets better! The one drives the other – in the sense that the development process will be iterative, in that new ‘social’ applications will through their regular use, encourage further improvements in UI, driving new and improved social apps – and around again you go! Because of the way this feeds the wireless carrier’s revenue model in a positive way, then the two-fold beneficial revenue impact is greatly enhanced – the double whirlwind effect – as we call it – in both the horizontal and the vertical axis (i.e. time and revenue axis) – [see red boxed graphic above in Figure 6].

The benefits extend beyond a simple ‘more revenues for longer’ scenario…

…there is a ‘double whirlwind’ effect 1 effect is that great individual user experiences attract more individuals to the carrier
st

3G User Interface Resource Centre (www.3GUI.com)

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The Next Generation Business Strategy for Wireless Carriers

2 effect is that great social apps create more types of wireless communities using the carriers services

nd

In short, the more delightful the UI makes the apps, the more enjoyable the social and emotional lot of the wireless subscriber becomes. This harmonious outcome cannot fail to draw in, even faster, more types of individuals in to adopting the services of this operator, with all the concomitant commercial benefits of extended loyalty (mentioned earlier). This is the first whirlwind effect! [see the grey boxed graphic – right hand side below in Figure 7] This effect of a growing and diverse subscriber base leads to the second whirlwind effect – this time on the left hand side of the model, i.e. where there is an impetus to create even more imaginative social apps. Why? Because of the increasingly easier challenge to the developer (and lucrative commercial rewards to the operator) of creating UI-led, social apps to bring more people together within more extended communities to which they belong. These extended social groups could include – the neighbourhood watch group, the football club people support, and their public library membership, whatever. The new classes of social applications will enable people to wirelessly engage with members of the more diverse communities that they belong to - more easily and more frequently than they do at present. [see the grey boxed graphic – left hand side below in Figure 7]. The graphic below brings all these ideas together:

The most important outcome of repeated iterations
UI >
Tangible Improvements
• Colour • Icons • Navigation logic

OUTCOME $ BENEFIT IMPACT OUTCOME

IMPACT

$ BENEFIT

People will Community Pay - whatever Level

Enables development Of more Emotional & Socially Rewarding apps

Reduces Apparent Complexity

Individual Level

Increases Loyalty

Increases $ Spend between Communities of Subscribers

Intangible Improvements

< UI

Increases Lifetime $ Value of Individual Subscribers As using the new apps becomes less complex, more types of ‘individuals’ are pulled into the subscriber base 1st Early Adopters 2nd Early Majority 3rd Late Majority 4th Laggards

The bottom line is that the carrier’s revenue engine experiences perpetual motion

As more complex social and emotional needs are catered for, the more types of community interaction are supported by the mobile devices, i.e. Personal Social Networks Affinity Groups Geographic Clusters

• Easier to communicate the more complex • Enables simple combination of diverse outputs • Supports the creative process - less costly/more imaginative apps

$ Revenue
Graph to show commercial Benefits to the operator Raises the height of Revenue-axis

Lengthens the Time-axis

Time

Figure 7

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The Next Generation Business Strategy for Wireless Carriers

Carriers can re-energise the wireless industry by leading a UI revolution…

We dub the above - the “Emotional Delight - 2 Factor business model”. This can now be seen to be a wireless operator’s commercial nirvana – the virtuous circle that so far has eluded the commercial rationale behind 3G investment. It is a business a model that would drive 3G subscriber uptake and the emergence of an appealing genre of 3G killer apps – around and around again – threatened only if members of society lost their will to communicate with other people!

Conclusion
In conclusion, wireless operators have the opportunity to re-energise the revenue model of their industry. It requires a new self-confidence. One where they see that by taking a brand new leadership role in driving the user interface (– i.e. the visual, audio and navigational elements of the handset), they can set off events that lead to the creation of a fresh next generation of person-to-person communications. These social applications will both increase the loyalty of the individual subscriber and at the same time grow the diversity of communities that use wireless devices intensively in order to thrive and deepen the relationships of its members. The outcome of both of these events will be increased ARPU, penetration and a substantial growth in total expenditure on wireless services respectively. Written by
Steve Jones, Founder, The 3G Portal UK Email: steve@the3Gportal.com www.the3Gportal.com Jae Choe, Marketing Director, Design UNIT South Korea Email: Jae.Choe@designunit.co.kr www.designunit.co.kr

…and so re-start growth in ARPU, penetration and revenue growth

September 2003
More Information: Further writings on wireless device User Interface (UI) issues and a free regular newsletter covering all aspects of a wireless device’s UI can be found at www.3GUI.com Bibliography: ß ß ß ß ß ß “Social Shaping of UMTS – Preparing the 3G Customer” – UMTS Forum, January 2003 “Mobile Phones and Everyday Life” – i-Society, March 2003 “The History of communications and its implications for the Internet” – Andrew Odlyzko, 2000 “Social Software and the Politics of Groups” – Clay Shirky, March 2003 “3G Launch Strategies – Steve Jones, The 3G Portal/Tarifica, July 2002 “The next wave of 3G services” – Steve Jones. The 3G Portal, *late 2003

* Sign up for latest information on publication date – send email to steve@the3Gportal.com

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