What is Keeping CEOs Awake at Night? Monetizing 4G
Vanilla Plus (Expert Opinion)September 1, 2013
Recent discussions about 4G have shifted from focusing on technology to how to monetize that technology. CSPs now need to recover the billions of capex they have sunk into 4G, writes Jim DeMarco, CTO of Redknee.
If you build it, they will come - The whisper in Kevin Costner’s ear in “Field of Dreams” led his character to take a leap of faith, literally betting the farm on a baseball field for which no rational business case existed. Through the miracle of Hollywood magic, the investment paid off and the hero’s leap landed him in the soft grass.
As we discuss long-term business strategy with many of our customers, we are seeing a climbing sense of alarm about how they will make money on their massive 4G investments. Indeed, if you peel back the cover page of many operators’ 4G business cases today, you may yet see Mr. Costner’s Iowa cornfield pictured in the executive summary.
Recent discussions about 4G has shifted from technology to how to monetize the technology. We are seeing that the emerging business models range from bit pipe models to high value-add offerings, with wholesale and M2M thrown in for good measure. No one business model is emerging as dominant, so there is no single roadmap to 4G success.
Thus the mobility CEO’s late night hall pacer: after spending billions on a new network, how do we recover all that capex for our investors?
Carriers are taking a host of different approaches to 4G monetization. A survey by Leverage Media conducted at the launch of the earliest 4G networks asked operators what services they planned to offer across their 4G networks. Some anticipated offerings cut across most respondents, including video streaming (83%), audio streaming (61%), smart devices (63%) and family data sharing plans (65%). Some less common planned offerings that were key revenue drivers in the 2G/3G era, included loyalty/bonus plans (26%) and VAS offerings (22%). No one “silver bullet” service defines the 4G business model, which indicates that services themselves are not the differentiator; operators simply cannot rely solely on new services for 4G success.
4G services must be offered in a context that customers understand and will agree to pay for. There are known business models to which operators can utilize, including subscription video, audio download, real goods commerce, branded resale, and wholesale. A mix of these business models combined with acceptable service quality and user experience, will determine success or failure in 4G.
Looking across these sample models, there are some common themes and some clear best practices that separate the successful players from the failures. Adapting operations to these best practices is likely to be as important to 4G success as is the mix of offerings itself. Following are the most important best practices principles:
1. Simplicity: making the purchase of initial service easy, including try-and-buy, but then continuing the buying pattern by making renewal purchases easy to execute and understand. Extensive contracts tied up in minutia, while common in traditional postpaid telephony, are the antithesis of this simplicity. An easily understood price for a defined value is all that’s required. Once service is established, it must be easy for the customer to know where they stand, in real time, without substantial human intervention.
2. Fairness: pricing must be fair from the customer’s perspective. Fair usage is also welcome, however experience in the broadband market shows that customers are willing to pay a premium for higher bandwidth, so long as they are given a good reason. Likewise, customers are forgiving of real-time network demands, and willing to manage their services according to constraint, so long as they know why the constraint exists and feel they are getting a fair deal from the operator. Privacy rules must also be fair.
Together, simplicity and fairness have serious implications on the 4G operations model. Flat rate offerings are simple, but they aren’t profitable or fair to both the operator and the customer unless tiered and coupled with varying levels of service. Yet, according to Leverage Media, nearly half of all operators will launch 4G using flat rate, unthrottled service offerings, largely because they have no way to execute a multi-tiered service. At the same time, 74% of operators intend to offer flat-rates with throttling as soon as is feasible (meaning that more than half the operators who cannot get their pricing and policy engines working together intend to do so soon). Pricing and policy are now converged elements of the marketing mix.
1. Agility: since no one knows which services will dominate, the ability to offer any data service (including over-the-top) has to be considered vital to success. As soon as a service goes viral, the operator must be ready to launch something that fits their own customers’ demands for this service. Rapidly rolling out services, rapidly migrating off old services and rapidly responding to market demands are sine qua non for 4G success. Not forgetting the first two principles noted above, being fast without adding to customer complexity is the real differentiator.
2. Partnerships: it is already clear that the services which will drive 4G usage will not be network specific, and that content defines value far more than delivery. Partnerships with OTT providers will allow for differentiated pricing/services (e.g., unlimited free Facebook) and sponsored usage (e.g., free ooVoo viewing Tuesday night, sponsored by Sony Pictures). These partner relationships need to be simple, free-flowing and content-specific, and must find their way easily into the customer offer set.
3. Self-service: the buying experience must be clean and understandable, nearly touch free and mostly self-service. On the other hand, when things go wrong, then customers want a customer experience that is based more on advocacy rather than sales. CRM and customer business operations must shift from sales to advocacy.
How does the CEO get some sleep at night after all that 4G capex spend? The services mix will certainly have some impact, but it is also clear that the mix of customer buying and using experiences are just as important. In some cases, operators are simply not equipped to handle the speed, clarity, fairness and simplicity that their customers will demand in 4G. Historical business complexity, coupled with heavy duty operations models that are focused on the call center and on the bill, put some of the wealthiest operators at the biggest disadvantage. In those cases, launching new brands or focused 4G-only operations might be a way to sever the complexity/legacy cord. Those who can drive a 4G experience that tracks to the key principles noted above will have a leg up on the market, regardless of what mix of services ends up dominating.
If you build it, will they come? Not necessarily. But if you make it worth coming, they will. To my CEO friends who just bet their farms on 4G, I suggest that you focus on delivering a crisp, clean, understandable user experience, not too complicated but totally fair; and then get some sleep.
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