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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 Graphical User Interface (GUI) elements from the PC (especially the Mac) world,
3G User Interface resource
centre are being transplanted into the user interface of a mobile phone device.
(www.3GUI.com)

…and usher in a new business model for the industry


Published: September
2003 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
Authors:
3G launch can be justified. Instead the paper lays out a new business model that
Steve Jones,
Founder, demonstrates how if mobile operators embrace a new business strategy; that of
The 3G Portal
developing easier-to-use interfaces for their subscriber's phones, then this can
UK
Email: drive up individual ARPU and loyalty. And even more importantly, lead to the
steve@the3Gportal.com
www.the3Gportal.com creation of a new class of person-to-person applications that will kick start
Jae Choe, penetration growth and deliver a long-term uplift in revenue.
Marketing Director,
Design UNIT
South Korea
Email:
Jae.Choe@designunit.co.kr
www.designunit.co.kr

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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
Carriers $ expectations not
being met
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
Debt is high 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
Confidence is low 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 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 phone service is becoming a commodity market where the


Wireless services are
becoming a commodity
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 early growth phases
have now ended 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.

A new growth phase is Fortunately, a third wave of growth is about to start – and it is based on making the
about to start, where the experience of using the handset a delight. The delight will come from a new breed
handset user interface (UI)
will be king 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.

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The Next Generation Business Strategy for Wireless Carriers

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
The battleground for UI a mobile phone device.
supremacy suggests a new
business model will soon
drive carrier strategy 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.

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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.

They are:
Next generation services
success is driven by 2 1- the device’s user interface (UI)
functions – UI and 2- the applications that this UI drives
applications
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
The 2 factors together must prices, fantastic support, ubiquity and endurance will count for nothing.
be ‘delightfully rewarding’
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”.

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
UI covers many points of
company-user contact 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,
Handset UI is the most audio and navigational elements of the handset. This paper argues that it is these
critical 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!

What is meant by “emotionally rewarding social applications”

A “social application” is a concept that, thankfully, is coming increasingly into the


‘Social applications’ will language of those observing and working within the service creation side of the 3G
become the new buzz word wireless industry (see the bibliography).
for the next gen of wireless
services

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The Next Generation Business Strategy for Wireless Carriers

It can refer to those kinds of services that can be delivered wirelessly that help
They can enable more
intense interactivity mobile phone users widen, deepen and increase their social networks. This genre
between community of service facilitates greater diversity (and volume!) of exchange between members
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
st
The 1 social app was
example.
voice services
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
Social applications, not
network downloads, from these kinds of social applications find them “emotionally rewarding” because of the
the network will be way they facilitate and strengthen person-to-person communications.
wireless’ saviour
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-to-
many download model is the basis of its future success.

How can both come together – and reinforce each other


A delightful UI and The twin goals of “a delightful user interface” and “emotionally rewarding social
rewarding social applications” can be shown visually below in Figure 1.
applications are inter-
related
The 2 factors impact the most on new service takeup
UI > Tangible Improvements
• Colour
Factor 2 • Icons
• Navigation logic

OUTCOME IMPACT
IMPACT OUTCOME Reduces Individual
Apparent Level
Community Enables
Complexity
Level development
Of more
Emotional &
Socially
Rewarding
apps 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

Figure 1 – the 2 factors that impact the most on new wireless service take up
UI improvements can Factor 1 = User Interface improvements and Factor 2 – introduction of Emotionally Rewarding
delight the individual… 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.

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The Next Generation Business Strategy for Wireless Carriers

The consequence of the tangible improvements to the UI are that other


…and lead to new kinds of
wireless apps 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
UI improvements opens forms of navigation, multi-media services, transmission options and other factors
doors to killer wireless apps 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 is the start point in a


Figure 2
new virtuous circle…
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).

…delighting individuals 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
…inspiring application
applications that the thought leaders of the wireless industry see as the future killer
developers
applications.

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The Next Generation Business Strategy for Wireless Carriers

This outcome, in contrast with that of user interface enhancements [1] is not at the
…promoting intense
person-to-person individual level [2] but the community level [4] as socially rewarding applications by
communications within definition are focused on facilitating more intense kinds of person-to-person
social communities 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
The importance of UI definition and commissioning the creation of social applications.
development to the carriers
is – future revenue In the course of this examination, it also becomes plausible that the wireless
growth… 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!
…and carriers must take
the lead role as they have The crux of what follows for the wireless operator is this - that through championing
the most to gain 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.

Benefit 1: The operator that enhances an individual’s delight increases


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

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The Next Generation Business Strategy for Wireless Carriers

In short, an appealing UI that makes it a delight to use the ‘social’ applications that
st
1 , a UI that pleases an are run by it, can also help sustain the loyalty of the individual to that wireless
individual can generate service provider (especially if that UI is exclusive to the wireless operator). Apple
intense loyalty… 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 delivering to the So Factor 1 – a “Delightful User Interface” - in simple financial terms, will lengthen
carrier revenues for longer 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 IMPACT $ BENEFIT

Reduces Individual Increases


Apparent Level Loyalty
Complexity
Increases
Lifetime
$ Value of
$ Revenue Individual
Subscribers

Lengthens the
Time-axis

Figure 3

Benefit 2: The operator that provides social network enhancing apps


nd
2 , apps that emerge from will drive upwards the absolute volume of total spend on wireless
UI innovation can services
encourage more intense
wireless communication by
more and more The proposition we will now go on to illustrate is that – a community’s enjoyment of
communities… 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).

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The Next Generation Business Strategy for Wireless Carriers

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
…so delivering to the increasing the total volume of revenues that can be earned from the community of
carrier, higher levels of wireless subscribers – see below:
revenue

$ BENEFIT IMPACT OUTCOME

Community Enables
People will
Level development
Pay - whatever
Of more
Emotional &
Socially
Increases
Rewarding
$ Spend between
apps
Communities of
Subscribers
$ 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
In summary, socially operator. This is shown below:
rewarding apps raises the
height of the revenue-axis
$ Revenue
‘socially rewarding ‘delightful UI’
While delightful UI’s apps’
lengthens the time-axis
over which revenues are
earned
Raises the height of Lengthens the
Revenue-axis 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
The benefits extend for driving the revenues of a wireless operator – not only can you now see (Figure
beyond a simple ‘more 6, above) the rewarding two-fold impact on the revenue model within the context of
revenues for longer’ the original graphic that showed how appropriate UI development could drive
scenario…
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
…there is a ‘double further improvements in UI, driving new and improved social apps – and around
whirlwind’ effect
again you go!
st
1 effect is that great Because of the way this feeds the wireless carrier’s revenue model in a positive
individual user experiences way, then the two-fold beneficial revenue impact is greatly enhanced – the double
attract more individuals to
the carrier
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].

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The Next Generation Business Strategy for Wireless Carriers

nd
2 effect is that great In short, the more delightful the UI makes the apps, the more enjoyable the social
social apps create more
types of wireless and emotional lot of the wireless subscriber becomes. This harmonious outcome
communities using the cannot fail to draw in, even faster, more types of individuals in to adopting the
carriers services 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 IMPACT $ BENEFIT


$ BENEFIT IMPACT OUTCOME Reduces Increases
Individual
Apparent Level Loyalty
People will Community Enables
Complexity
Pay - whatever Level development
Of more
Emotional &
Socially
Rewarding
apps Increases
Lifetime
Increases
$ Value of
$ Spend between
Individual
Communities of
Subscribers
Subscribers Intangible Improvements < UI
• Easier to communicate the more complex
• Enables simple combination of diverse outputs As using the new apps becomes
As more complex social and • Supports the creative process less complex, more types of
emotional needs are catered for, - less costly/more imaginative apps
‘individuals’ are pulled into the
the more types of community
subscriber base
interaction are supported by the
1st Early Adopters
mobile devices, i.e.
2nd Early Majority
Personal Social Networks
$ Revenue 3rd Late Majority
Affinity Groups
4th Laggards
Geographic Clusters
The bottom line is that the Graph to show commercial
carrier’s revenue engine Benefits to the operator

experiences perpetual Raises the height of Lengthens the


Revenue-axis Time-axis
motion
Time

Figure 7

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The Next Generation Business Strategy for Wireless Carriers

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
Carriers can re-energise business a model that would drive 3G subscriber uptake and the emergence of an
the wireless industry by appealing genre of 3G killer apps – around and around again – threatened only if
leading a UI revolution…
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
…and so re-start growth in by taking a brand new leadership role in driving the user interface (– i.e. the visual,
ARPU, penetration and
revenue growth 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, Jae Choe,


Founder, Marketing Director,
The 3G Portal Design UNIT
UK South Korea
Email: Email:
steve@the3Gportal.com Jae.Choe@designunit.co.kr
www.the3Gportal.com www.designunit.co.kr

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 “Social Shaping of UMTS – Preparing the 3G Customer” – UMTS Forum, January 2003
ß “Mobile Phones and Everyday Life” – i-Society, March 2003
ß “The History of communications and its implications for the Internet” – Andrew Odlyzko,
2000
ß “Social Software and the Politics of Groups” – Clay Shirky, March 2003
ß “3G Launch Strategies – Steve Jones, The 3G Portal/Tarifica, July 2002
ß “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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