SERVICE MODELS - Detailed insight
Dante Iacovoni discusses how operators can benefit from the lessons of Web 2.0 
success
The phenomenal success of web 2.0 companies is there for all to see. They have, in a relatively small space of time, gone from a new and emerging technology to a worldwide phenomenon led by companies like MySpace, Facebook and Google. The uptake and popularity of these companies and services has been based almost universally on personal and free of charge content, subsidised by the very effective gathering of advertising revenues.
The primary key to this success is in the information that 2.0 companies have on their consumers and the way in which they use this information for their benefit. Each company has a detailed level of insight into the behaviour of the people using its service, making them desirable to advertisers. But what can the telco world learn from this?
Telco operators are, for the most part, used to basing their revenues on subscriptions and usage fees. As a result, telco portfolios are often very similar and it can be difficult for consumers to differentiate between them. In today's environment, consumers switch service providers simply according to which operator is offering the best price for what is likely to be a very similar service. To go beyond this fleeting loyalty and really build a relationship with the customer, operators will first and foremost need to offer distinct and compelling services beyond the triple or even quad-play bundles that are becoming the norm in some markets.
Although triple and quad play have initially succeeded in reducing churn, telcos will soon find that they need to provide more distinctive services to maintain their customers' loyalty.
Competition amongst telcos ultimately comes down to who "owns" the consumer. To stand the test of this competition, operators will need to learn to better understand their end user and to incentivise them and generate loyalty that goes beyond "call minutes". This will enable them to differentiate themselves amidst such fierce competition and to gain a deeper level of understanding of the users they're servicing. Once they know what services their users want, and to consider not only their subscribers but also each person in that house who uses the service, they will be able to identify the most effective ways to monetise them.
Distinct and compelling services will be the primary catalyst in acquiring and keeping customers. One of the strongest weapons in the fight to develop these services will be trust, which is essential for a user to provide the kind of information that is needed to create tailored and personalised services. Operators have a distinct advantage in that they already occupy a position of trust with their users, but they have yet to leverage the full potential of these existing relationships and convert them to advertising revenues. In the meantime savvy Internet companies have used their insight into consumer behaviour to leverage ad revenues and grow - in some cases exponentially - as a result. Their distinct and compelling services are the key to their success and offering them free of charge has helped them to create a sizeable user base. Operators as yet have not begun to leverage this kind of opportunity - despite the fact that they are in a position of trust with their users and could do so with relative ease.
For operators who learn not to categorise users by network access there can be even more advantages to be gained. They will be able to target advertising based on the consolidated user behaviour and then reach the user with messages based not only on their interest but also their location. The best advertising can also be that which users do not think of as advertising - take Google search as an example.
But the links between the two worlds can extend beyond simply learning from the 2.0 success stories. As an operator you are providing access not only to your own services but also to those existing in "the Internet cloud" - the likes of Joost, Facebook and so forth. Today these exist entirely independently of each other, but in the future there may be value in finding synergies between the two, and perhaps even striking agreements between an operator and the individual 2.0 companies. There are, for example, many opportunities for shared revenue; it is just a question of working out the right format.
The opportunities for telephony, triple- and quad-play will eventually be pushed to the limit. All consumers see is that they are getting essentially the same service they would anywhere, nothing revolutionary or overly exciting. And they have a point: many of today's IPTV services are a simple carbon copy of cable.
The key now is to upscale the value of the broadband network and leverage the opportunities it offers. To do this, operators will need to build intelligent service nodes into the home that service-connect the end users. New functionality will need to be added to both set-top boxes (STBs) and home gateways (HGWs) to meet this demand: customer premises equipment (CPE) needs to be fully upgradable, providing new functionality in line with new service offerings as well as advances in technology and standards.
To date operators have been very technology focused, concentrating on improving the way they do business rather than re-evaluating their business models. There is a need for them to focus less on technology and more on services than they have before, and by doing so, to acquire revenue from more sources than they do today: call minutes alone are no longer enough.
One viable opportunity lies in third party cooperation and in helping third parties to develop their own applications. Some operators like France Telecom and BT are already starting to push this and will eventually open up a broader portfolio of services as a result.
There is a real opportunity for operators to capitalise on the lessons of the digital boom, but to do so successfully they will need to broaden their view of who their customers are and to understand that they are individuals with individual wants. It is about moving from Average Revenue Per User (ARPU) to Gross Revenue Per User (GRPU). By making this effort they will be able not only to enhance their own service portfolios, but also to sell on to advertisers who are interested in gaining that knowledge, creating a strong and sustainable revenue stream and, vitally, gaining a long-term foothold in the "ownership" of the customer.
We are on the threshold of changing times. The future is about new services and applications as well as new business models. For operators, the possibilities to develop their business in new directions are huge, and if they can acquire revenues from advertisers, they will be able to offer new services at a lower price.
They have a chance to understand and build a relationship with the customer and through that to develop a power position; without this, they will have a clear risk of ending up as a bit pipe for 2.0 companies. Get to know your consumer and you can create compelling services that you know will appeal to them; and once you've achieved that goal, you can leverage your knowledge to create valid and sustainable revenue streams.
Dante Iacovoni is Marketing Director, Tilgin
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