DATA REVENUES - Intelligent business
The growth in demand for data services is great news for the industry in general, but it
does change the dynamics of the market. Doug Dorrat outlines the implications for mobile operators in an environment dominated by the need for unique customer profiling
It's been talked about in markets around the world for a long time - the conversion from voice-focus to a data-focused telecommunications market, - but there's only about 18 months left before traditionalist telcos hit a critical point.
Why? Because across the world voice revenues are predicted to drop so steeply that conventional voice services can no longer be the ‘bread and butter' revenue source that all operators have enjoyed.
And, there are clever CEOs of content-focused virtual operators such as Finland's Blyk that are changing the rules of the way both data and voice services are marketed and provided.
Blyk, for instance, is offering free airtime to the vital 16-24 year old market segment who are prepared to be advertised to - Blyk is making revenue from the advertisers. The advertisers are reaching a highly targeted audience, and the kids are phoning, sms-ing and connecting to the Internet from their mobile devices free of charge.
Everyone's happy - and the message to telcos could not be clearer: understand that your old market is disappearing and get to grips with your new market in fine detail.
The old market is gone because there is no longer a mass market to which you can supply bulk access and charge for the time customers use on your network. As the Blyk example shows, the generation leaving school now expects to connect free of charge. And, because of push technologies, the mass market is turning into millions of individuals, each of whom wants access to connectivity in a unique way that has massive revenue-bearing potential for telcos.
But, to tap into that potential you need business intelligence (BI) - and you need it at the right level.
By the right level, I mean the kind of industrial strength BI solution that not only enables you to link appropriately to your audience individually, but also enables data service and content providers to link to you and your audience.
To achieve that you need to be able to collect, analyse, report on, and share terabytes of data - because you need to track the behaviour of each of your millions of customers in extreme detail. When do they use your services, what are their work demands on your network, what are their lifestyle preferences, what kind of advertisers are going to want to reach which of your customers? And so on.
Take the example of someone flying into, say, Heathrow airport and wanting a taxi to take him to his meeting in town. Location-based services will automatically advertise taxi services to him and the operator provides an accessible easy to use application to order the taxi, send his selected company his destination details, get a quote and book and pay for the trip on the device. In-built GPS enabled to guide the taxi directly to the customer.
The operator wins through advertising revenue, a share of the transaction and the fee charged to the taxi firms for hosting the application. With this model the operator makes significantly more than a voice call ordering a taxi. How about that for boosting arpu? And if your organisation can't provide him with that capability, then he'll go to one that can.
Which brings us to the question of churn and customer loyalty - both of which are dependent entirely on your ability to differentiate yourself in the market. Right now, using the old bulk network approach, there's no way you can differentiate yourself. The telecoms market is very nearly saturated.
Most of the people who want telecoms access have it in some form or another. Also, the tariffs for individual telco services are confusing for the average consumer, so you can't build loyalty by offering the cheapest service (if that is what the customer is looking for). Besides, you already know that you're running a very expensive infrastructure for a largely unprofitable group of users. Or do you?
Conventional telco wisdom has it that a tiny pocket of users is profitable. In theory, they're the ones who use your network a lot to make lengthy calls. Conventional wisdom also says that on average each new user you take on takes a year to 18 months to become profitable when you consider all the elements of cost the customer incurs individually. So, in effect, you're funding your customers.
This problem has prompted operators to put Customer Value and Profitability at the very top of their strategic agendas as a means to maintaining competitiveness, maintaining loyalty and finding new ways of growing their businesses. In fact Bain & Co recently found out that an increase of one per cent in customer loyalty can improve profitability by 25 per cent!
That's not only a difficult way to make money; it's also a risky model considering the new competitive threats.
BI is now proving that the customers you used to think were unprofitable are actually the ones you need most. As in a housewife who makes very few calls from her mobile device but receives a large number from her friends and family. In other words, she costs you very little, but brings in a significant revenue from other networks. She's one of the thousands like her that you should be marketing to - in terms of content offerings.
But unless you have BI, you can't know which of your customers are profitable and in which ways. Without effective customer-level BI, you're essentially running your business on a hunch.
Certainly, you're not going to be able to compete in what is an entirely new market that has absolutely nothing to do with paying for calls. Your shareholders should be very anxious - the market is not going to be tolerant of outdated services for more than about another 18 months.
The process of implementing the right kind of BI, however, is going to take you at least that long - if you start planning now. Remember, it's not just a question of installing the solution. You have to adjust your business to use the information it gives you. Information not just about your customers but about the cost of servicing and marketing to those customers. You're going to need to build a profitability model based on how you choose to differentiate yourself.
It takes time, but it's not particularly difficult. British Telecom, for instance, saw the writing on the wall in the late nineties and, this year, will make more money out of providing services other than traditional telephony services to consumers.
Doug Dorrat is Microstrategy Director Industry Services - Telecoms and Media, Europe, Middle East and Africa
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