As long ago as Napolean and perhaps most famously in our lifetimes during the Gulf War some armies have employed the tactic of systematically destroying infrastructure that could otherwise be used by the opposition. Often this included destroying roads, crops, water supplies and electricity. In the latter example, it entailed the burning of oil fields.
Over the Top (OTT) players such as Google have been accused of similar scorched earth thinking whereupon they deliberately and systematically drain the value from every element in the ecosystem, the aim being to reduce everything to commodity status until nothing remains save the end user and the advertisement. Operating System – commoditised, Search – commoditised, maps & navigation – commoditised, office applications – commoditised, Email – commoditised, and even some attempt at the handset - commoditised. Basically “if it gets in the way of the advertisement, burn it”. Recent reports suggest the long awaited take off of advertising in mobile – which admittedly has always been “next year’s big thing” – will hold huge value - Google say mobile ads will eventually outpace PC ads.
Whether by design or by accident Apple have also engaged in scorched earth practices (eg iMessage and the associated decline in SMS revenues), although to be fair Apple have mainly focused on masterful exploitation of the cult status of their hardware. Both Apple and Google have of course fostered their own ecosystems to the point where former revenue streams have been stripped away from mobile operators.
However, before we become too comfortable in our disapproval, we do well to remember that in the eyes of many consumers, it is the OTT players who effectively invented the Mobile Internet. Technically of course they didn’t, it was the telco industry, but fact remains that nobody out there knew there was a mobile internet until Apple turned up with a phone.
In addition we should note that although OTT gets all the press, there are other threats which may in the longer term result in more damaging and insidious erosion of industry revenues. In 2011 Dean Bubley coined the phrase “Under the Floor” (UTF) players to describe the apparent creep of large SIs such as Ericsson and NSN into mobile networks as they take over complete management of operator core networks, effectively displacing operators from their own core assets as they lose key expertise and domain knowledge in their effort to remain profitable. And remaining profitable is hard! Eg see recent European Telco revenues set to decline. (UTF players are discussed further in this Telco 2.0 exec briefing).
There are perhaps three areas to consider here (well three always seems a good number):
We have to accept that OTT Business models generally succeed. At least it seems that way.
Outside of telecoms Amazon have done an astonishing job of taking themselves from niche book supplier to the first point of call for all manner of goods and ... well the bookstore in my town closed down some time ago. Similarly Netflix. LoveFilm and co must take most of the credit/blame for the distinct lack of Blockbuster Stores.
Inside telecoms the flurry of OTT players with their paradoxical zero revenue business models is rife. They don’t all stick, but some do.
We have to accept a kind of evolution is taking place.
We need to know with certainty what our response to the OTT play is.
A considerable amount of writing has taken place here that summarises the main responses to OTT ie Block, Partner, or Compete - see eg Telco-OTT Strategies.
Telcos need to rethink what exactly are their core assets in the consumer space?
In the eyes of the consumer, telcos no longer own the handset, nor the branding; they do not own the content, they do not own the services and they do not own the Apps. But that doesn’t mean the inevitable result has to be the famously hyped dumb bit pipe. Operator pipes are at the same time expensive, super smart and incredibly valuable. It is these pipes, not only radio-pipes and cables but also the chains of retail outlets, that still give operators an enviable lead in customer intimacy.
- Customer intimacy in mobile telecoms means acting as the user’s mobile concierge of choice, utilising simple behavioural analytics (demographics and behaviour) and contextual data (location, time etc) to offer users specific content and services they are most likely to value from the long tail of available services. One example of this way of thinking is the 1-800 data plans in discussion by the likes of AT&T.
- Michael Rodgers recently likened this situation to a shopping mall. In the Mall all the flashy stores are owned by OTT players and are packed with colourful, highly desirable (not to mention sometimes confusing) goods. But the route to the Mall, the highway - and specifically the billboards and signs that lead users to different parts of the Mall - this is the property of the Mobile Operator. This is the enabler for customer intimacy.
In conclusion, the value in this ecosystem will always be transitory and shifting. Even OTT players have to move continuously since any “safe space” they recently occupied in fact is never secure. See for example reports this month from the Financial Times that daily downloads of the top 200 Apps in Apple’s AppStore have fallen up to 30% month on month.
As an industry we can chase moving targets and set up our own OS’s, App Stores and Services (we already tried all that); or we can focus hard on becoming the end user’s faithful guide.