Oct 12, 2012

Mobile operator business models are going 'Digital'

Business model innovation is all about implementing the right delivery model to address a new business opportunity or to counter a competitive threat.

In this context, the 'right' delivery model involves a mix of elements as described in an earlier post. This multi-element approach is especially important when considering new areas of opportunity. The reason for this is that while marginal changes in the pricing element or re-packaging of an existing offering may provide temporary market respite they are unlikely to be competitive in the long run. Enduring innovation requires several inter-dependent elements of the business model to be reconfigured.

Over the last couple of years, connected devices have opened up many new application and service opportunities in non-mobile markets; think of eReaders, smart meters, connected health devices and digital photo frames. As a result, mobile operators and organizations in markets adjacent to mobile are altering their business strategies to address these opportunities.

A case in point is Google. In 2010, Eric Schmitt its then CEO repositioned the organization as a mobile company when he stated that "It's our goal to make mobile be the answer to pretty much everything". Auto manufacturers, banks and even  Facebook have since latched on to this mantra.

If non-mobile companies are adapting to these opportunities, what has been the reaction of businesses in the mobile industry? My own analysis of events in this sector show a higher degree of innovation and flexibility to traditional mobile approaches. There will be more on this in another post at a later date.

What is also interesting is how several mobile operators have established 'Digital' entities to address the emerging needs from connected devices and a more ICT literate customer base. Notable examples, across different geographies are shown below.

The question arises whether these 'Digital' business units are predicated on a strategic market vision i.e. a rounded suite of services addressing the digital lifestyle of end-users. Or, are they are a convenient means of grouping together and managing disparate new-business initiatives?

The transition to a Digital Services business is not straightforward and operator moves in this direction have met with a degree of skepticism amongst industry watchers. My view is that mobile operators have to adapt their business models to address this dynamic. This is inevitable because of the rising level of ICT literacy amongst coming generations of customers. It is also inevitable in light of the new service innovations that their enterprise customers will develop as they integrate mobility into their corporate strategies.

So is such a transition feasible? It is instructive to consider the performance of a company that anticipated and has proactively managed the transition to digital. Pearson, an education services company and owner of the Financial Times, has had an explicit strategic goal "to add services to its content, usually enabled by technology, to make the content more valuable". Pearson also reports that "these digital products and services businesses give us access to new, bigger and faster-growing markets". In its 2011 annual financial report, Pearson recorded digital revenues of  £2bn or 33% of its total sales. These are outcomes that many operators will seek to emulate in years to come.

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