Jul 19, 2015

Co-opetition in Digital and IoT markets

Several news stories have circulated over the past few weeks in connection with the potential acquisition of Nokia’s mapping business, HERE. The most recent stories have a group of German auto-manufacturers winning out over Uber although there has been no formal announcement to this effect.

HERE is an important enabler for mobile value-added services. One element of its technology captures location content such as road networks, buildings and traffic patterns. Other businesses then purchase or license this mapping data along with navigation services from HERE. Smartphone Apps, to make use of mapping data, form a part of its technology portfolio.

The potential acquisition of HERE by three German car makers – BMW, Daimler and Audi – is relevant to the telecoms industry for several reasons.

  • It illustrates how the car manufacturing industry is changing because of external factors and the desire of incumbents to move up the value chain. The core business of making and selling cars is evolving to the delivery of enhanced, transport experiences (efficient journeys, active safety, in-vehicle information services etc.) based on different business and payment models.

  • The planned acquisition calls for increased cooperation amongst fierce competitors i.e. ‘co-opetition’. The participating companies have set their target on a platform capability because they recognize that this is something that will enhance each company’s own business prospects.

  • There is also a forward looking aspect to the acquisition which sees the HERE portfolio becoming an enabler for radically different service propositions connected with the sharing economy e.g. car-pooling, ride-sharing etc.

The HERE story parallels many of the competitive challenges in the mobile industry. Firstly, there are issues of platforms and multi-sided business model opportunities. Secondly, there is a business upside to looking outside the mobile industry for new growth markets by creating next-generation services in adjacent industry verticals.

In addressing new markets, within mobile or in adjacent industries, a single operator initiative simply does not have the leverage to tackle a large market opportunity.

Co-opetition, in contrast, does offer companies a means of creating scale. Co-opetition also has a second-order effect by opening up a new set of inter-operability service possibilities for companies to target.

Unfortunately, the track record of mobile operators cooperating to address new market opportunities makes for dismal reading. In 2010, for example, AT&T, T-Mobile and Verizon set up a payments platform initiative (most recently branded ‘Softcard’) to target mobile payments and wallet opportunities. In effect, this was an attempt to encroach into the retail financial services market.

Softcard obtained backing from major credit card providers and Smartphone vendors and later partnered with major, retail banking institutions. Although Softcard initially competed against Google Wallet, by 2015 it ceded the platform market, selling assets and intellectual property to Google in the process.

A second example, this time from the UK, involves the leading mobile network operators Vodafone, EE and O2. These three companies invested in a lengthy fight to secure antitrust approval from Brussels competition authorities to break into the lucrative mobile advertising market. Their joint-venture, named Weve, was set up in 2013. One of its functions was to collect data from more than 20m mobile customers and target advertising at specific groups and locations. Weve also launched mobile money services and loyalty schemes.

Earlier this year, Vodafone and EE withdrew from the venture and sold out to O2. Weve plans to continue the service using its O2 mobile customer base as well as 14m customers that signed up to use O2 Wi-Fi (i.e. the base includes mobile customers from other mobile networks).

These examples show that mobile operators do indeed have an appetite to break into non-traditional mobile service markets. These examples also demonstrate the challenges facing companies that seek to collaborate with their everyday competitors.

Clearly, all parties face a difficult balancing act to succeed in addressing new business opportunities.

The coming years will show whether BMW, Daimler and Audi have the wherewithal to succeed and fend off competition from the non-car makers who are using software and information-based platforms to target consumer transport needs.

In spite of past failures, however, the mobile industry has to persist with new business opportunities associated with ‘Digital’ and ‘IoT’ services. To put matters into perspective, consider the fact that the global communications industry accounts for $1.5-2 billion dollars’ worth of service revenues annually; this is growing at low single-digit percentage rate per year. A company like GE estimates that the Industrial Internet of Things (a subset of the IoT) might boost economic growth by as much as an extra $15 billion dollars over the next 15 years. This represents an average, annual increase that is almost as large as the total size of today’s communications market. The opportunity should be even bigger once non-industrial applications are considered, making the IoT very difficult to ignore.

However, in order to succeed in adjacent markets, mobile operators need to recalibrate their competitive outlook. There needs to be more than a transitory commitment to business opportunities beyond subscriptions and ever higher-speed data plans. Individual operators also have to recognise that many platform-based market opportunities will be critically dependent on co-opetition. As experience has shown, competition is not necessarily about a company’s immediate rivals. It often has a lot to do with a different set of competitors in adjacent markets.

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