In 14 minutes you can gain the essence of what’s covered in the New Rules in the Communications Economy edition, including highlights and perspectives from a selection of articles and key success factors from our featured customer case studies.
New Rules in the Communications Economy Executive Summary
(Full Summary Transcript)
Hello. My name is John Giere, Chief Marketing Officer at Alcatel Lucent, and Enriching Communications' Editor-in-Chief. Let me take this opportunity to welcome you to this audio executive summary of the “New Rules in the Communications Economy” edition of Enriching Communications Magazine.
The communications industry continues to undergo tremendous change, not only in terms of technology that redefines the user's experience, but also in terms of business models that change the economic, social and competitive global industry dynamic. A prominent Harvard University evolutionary biologist, Stephen Jay Gould, was once quoted as saying “The most erroneous stories are those we think we know best – and therefore never scrutinize or question.” We can all, at times, find ourselves continuing on our current path of success without recognizing that the environment in which we do business is changing. Market dynamics can creep up on us gradually, and stealthily. It may not be readily apparent that a major shift is about to unsettle our status quo.
If we only focus on today’s reality -- that voice and data subscription services generate 80% of current global telecom revenue -- it would be easy to miss that our communications economic value chain is in the midst of a major disruption.
During this program, I’ll bring you key perspectives from a selection of articles that highlight these changing market dynamics and offer thought-provoking insights into what might otherwise go too long unquestioned.
In our trends article, “Getting to a Segment of One,” we examine how these market dynamics are weakening network operators’ relationships with end users. New business models often enable free access to communications services, limiting the revenue potential of operators who stay with the traditional subscription-based way of doing business. The new trend is to leverage end user behavior insights to personalize offerings, and remain relevant in this fast-changing environment. This requires tapping into data mining and analytics to harvest key intangible assets that exist within a business. Many companies already use some of these tools and techniques to support traditional market segmentation strategies, but most would acknowledge that they are not yet leveraging them to their full potential. The trends and business models in this area can be truly game-changing as they can deliver revenue growth and mitigate service providers’ risk of losing market share to new media market entrants such as Google, Yahoo, and YouTube, to name a few.
As we further explore the New Rules in our article, “Business Transformation: Advanced Business Models for Converged Communications", we take a close look at eight business models that Alcatel-Lucent has identified as playing a major role in how revenue will be generated in the new communications economy. While service providers have traditionally generated revenue by extracting value from their networks – a tangible asset that offers connectivity capabilities to enterprises and consumers – key trends in today’s marketplace are changing the rules of the game. Today’s business models that extract value from intangible assets generally outperform models centered exclusively on tangible asset-based connectivity revenues. For example, user profiles – an intangible asset -- can be monetized through targeted advertising or mobile and e-commerce initiatives that generate commissions or service fees from transactions. As a result, service providers should carefully evaluate their Present Mode of Operation and business objectives to determine what additional business models could better suit a Future Mode of Operation – one that supports top-line revenue growth and reduces operational expenses, by leveraging a host of intangible assets within their business.
Targeted Advertising is one of the business models I cover in depth in this edition of the magazine. My article on “Breaking the Rules” examines how to extract new value from intangible assets – such as subscriber profiles -- to drive a new metric…what we refer to as Average Value per User or AVPU, rather than typical ARPU. The AVPU concept will take on increasing importance as service providers receive greater interest from brand managers and advertisers seeking ways to connect with their prospects and customers in a more relevant way. In fact, Alcatel-Lucent estimates that the shift of annual advertising and "sponsored" spending from traditional marketing venues to communications service providers adds up to over $48 billion US Dollars, or 31 billion Euro, as brand managers and enterprise marketers move to new online, mobile and other interactive mediums.
One company that has made great strides in integrating new business models into its current operations with very positive results is Little Rock Arkansas-based Alltel Wireless, a leading service provider in the United States that has achieved record customer growth. Scott Searls, Senior Vice President at Alltel, shares how the company added more than 1 million customers in a single quarter while reducing customer churn for the eighth consecutive quarter. The key, he reports, involves going beyond offering unlimited calling plans and subsidized phones to create differentiation. Alltel primary research highlighted a shift in their customers' attitudes. As a result, Alltel believes that rather than segmenting their customers by rate plan or device, they believe it is more important to look at how they actually use their phones and analyze the corresponding behavior. Alltel’s approach to customers reflects the new reality. Rather than trying to sell users services and applications they don’t need, Alltel is defining market services and applications that align with the way each segment behaves.
In our article “Connecting the Future,” we bring you another customer case study out of the UAE where more than 80% of its population is comprised of expatriates from more than 150 different countries – making for a very diverse marketplace. Market forces dictated that du, the local service provider, undergo a business transformation, rather than just a network transformation. Part of their new, user-centric business model includes plans to feature personalized advertising services. du plans to use its next-generation IPTV platform to tailor advertising to specific communities and groups, using the resultant revenues to supplement subscription income. As Mustafa Kaddoura, Vice President at du, shares, this will enable them to "compete effectively in the new world of services, where subscriptions and usage charges will gradually be eroded, and must be replaced by new revenue streams."
Our next case study also demonstrates successful business transformation – in this case with Telekom Austria applying the user generated content business model to IPTV. In “Leveraging Infrastructure to Stay in the Game,” Helmut Leopold, Head of Platform and Technology Management with Telekom Austria, explains how they needed an IPTV offering that new market entrants could not easily replicate. So, they offered an Austrian community the chance to participate in generating content for the service, turning them into content producers and aggregators, and making them part of an interactive TV channel. The program is driving a level of involvement and loyalty that rivals the success of free online video sharing services like YouTube. Helmut is convinced that communicating to micro-level audiences with highly personalized, emotionally and socially relevant content will play a crucial role for IPTV, and overall profitability, going forward. This will change the nature of advertising and will have a disruptive effect on the broadcasting industry as a whole.
These three case studies showcase how the adoption of new business models, and the deployment of advanced technologies can avoid the consequences of being trapped in a commodity business.
In our “Escaping the Commodity Trap” article, Emily Green, President & CEO at Yankee Group Research emphasized these imperatives as she says, “in the massive transformations underway in the communications sector, the revolution could crown new kings.” She points out that the main danger service providers face today, is the inability to anticipate the implications of rapid commoditization. As she puts it, “The collapse of dedicated, proprietary consumer online services…can work like termites chewing at a house’s foundation -- from the bottom up.”
As you engage with the full edition of the magazine, you’ll find a wealth of information from our experts on these critical issues facing our industry today -- all designed to help you gain a competitive edge. The information ranges from very innovative ways to fund transformation projects, leverage 2.0 applications, and the consumerization of IT, to technologies that will enable successful IP video delivery and targeted advertising as well as profitable eco-sustainability.
At Alcatel-Lucent, we question the status quo every day to help our customers innovate, stay relevant and achieve successful financial results. I hope you enjoyed this executive summary podcast of our “New Rules in the Communications Economy” edition, and I invite you to learn more by taking the time to engage with the full complement of articles online.
As always, we welcome your feedback, comments and insights as you explore this issue of Enriching Communications magazine at www.alcatel-lucent.com/enrich.