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By
Dr. Ivan Chochlekov
In 2005, W. Chan Kim and Renée Mauborgne wrote an international bestseller called “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.” The business-strategy book details how tomorrow’s leading companies will succeed not by battling competitors, but by creating uncontested market space that is ripe for growth. The key to creating this uncontested space is the concept of “value innovation,” generating powerful leaps in value for a company and its buyers, and its partners.
The book cites numerous examples of value innovation in the computer industry, from the first IBM and DEC (Digital Equipment Corporation) personal computers to Apple’s entry into the market, offering an all-in-one design in a plastic casing—including a keyboard, power supply, and graphics—that was easy to use and revolutionized the value of home computing.
Of course, Apple continues to drive value innovation with its iPod, iPhone, and more recently iPad. Now, when one thinks of innovation, Apple comes immediately to mind; its brand is inextricably linked to the concept. Apple stores are filled with Apple products as well as others that were spawned from Apple’s value innovation. The Apple App Store and iTunes are further examples of how Apple created its own uncontested market space.
Communications service providers (CSPs) stand at a nexus in creating their own value innovation. Despite the worst economy in 70 years, smartphone sales continue to skyrocket. IDC predicts a 49 percent increase in smart phone sales in 2011, for a total of 450 million units. Consumers are also snapping up tablets at an explosive rate; Forrester Research predicts that tablet sales will total 195 million units by 2015, outselling netbooks and accounting for nearly a quarter of all PC sales.
For telcos, MSOs and wireless carriers, the proliferation of smartphones and tablets adds up to opportunities and problems. On the one hand, the trend toward all-IP networks will make it even easier for over-the-top (OTT) providers (e.g. Apple, Google, NetFlix, etc.) and other third parties to sell directly to customers. Service providers fear that trend because it marginalizes them, forcing them to subsist on monthly access fees rather than sharing in the revenue third-party OTT services generate. Owning the network and owning the customer do not always equate. Service providers can add value, however, for both third parties and their customers.
What’s Past is Future
It helps to go back 11 years to NTT
DoCoMo’s i-mode wireless data service
launch to envision a lucrative path
forward. At the time, the debate over
customer ownership was already
raging in wireless. NTT DoCoMo
sidestepped it by establishing a middle
ground. The operator knew that I-
mode would need a broad, deep
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Owning the network and owning the customer do not always equate. |
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selection of innovative services to be
successful. It knew that developing
those services wasn’t its core
competency. Rather than trying to
tightly control i mode to avoid
becoming a dumb pipe, NTT DoCoMo
instead made the service as friendly as
possible for developers and content
providers.
When third parties charged for their i-mode services, NTT DoCoMo added those fees to customers’ phone bills in exchange for a nine-percent royalty. This approach freed content providers from the cost and hassle of billing users directly. Plus, most charges were so small that credit card fees would have eaten up the third parties’ profit margins, making NTT DoCoMo’s billing-on-behalf-of model even more attractive.
“It’s very difficult for content providers to sell news on the Internet,” Keiichi Enoki, NTT DoCoMo senior vice president in charge of i-mode, said in an October 2000 Wireless Review interview. “We told them that they could charge ¥100 to ¥300 on i-mode, and they were interested in it. Each of these news agencies now has about 100,000 subscribers. DoCoMo, (with) its own fee-collection system, is very attractive to these content providers because they can depend on it.”
In its first 18 months, i-mode attracted nearly 20,000 third-party content providers. That selection attracted 10 million subscribers, which was roughly one-third of NTT DoCoMo’s customer base at the time. This strategy remains viable today because of innovations in OSS and BSS.
Adding Value through Innovation
In regards to adding value, self-service is not a minor benefit. Compare the world’s two largest service providers: AT&T and NTT. In 2009, AT&T had 282,720 employees and €85.8 billion in revenue, for total revenue per employee of €303,480.48. NTT had 195,000 employees and €80.5 billion in revenue, for €412,820.51 per employee. NTTs advantage, on similar revenue to AT&T, of more than €109,000.00 per employee is largely the result of operating with 87,000 fewer employees. This significant advantage in the company’s financial performance comes as a result, in part, of its OSS/BSS efficiency, including its ability to leverage a master catalog to deliver its own services and to create a friendly environment for third parties.
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