Mobile World Congress 2017 - Time to Wake Up, Smell Coffee?

summit Jan 21, 2017

A few years ago, the GSMA, the mobile operator trade body, announced its 'Vision 2020'programme for the industry, summarized in the chart below.

As the industry races towards 2020, and prepares for the jamboree that is Mobile World Congress (MWC) in February in Barcelona, it's worth checking on progress and considering if it's finally time for operators to wake up and smell the coffee that their business model is in terminal decline.

In spite of the fact that they continue to create huge value for the world, mobile operators are no longer able to capture commensurate value for themselves.

This analysis sums it up:

So, Vision 2020 - underpinning the trajectory of the industry - doesn't seem quite so attractive. Even if you add on fixed line, TV, enterprise services and other revenue sources, total global Telco revenues (including mobile) are forecast to 'grow' by just 0.9% per annum over the next 5 years.

Of the 4 pillars of the GSMA's Vision 2020, I think most people would agree that only the last one ('Network 2020') is on track. That's perhaps no surprise, since telcos are, at heart, network-centric engineering organisations and their business model is based around managing oligopoly infrastructural services.

When the then CEO of Deutsche Telekom said in his keynote at MWC 2008's Leadership Summit, 'This is the year of business model innovation', his peers (and his colleagues) politely nodded and ignored his exhortation. Nothing changed, because back then times were good, even if many could see the top of the industry's S-curve fast approaching. Now the industry is rolling fast down the hill.

So, it's a good time perhaps for a re-set.

I'm delighted to be running a workshop at MWC for the new cadre of C-level execs running the industry on how they can re-juvenate their business models, specifically by applying a new discipline called 'Digital Ecosystem Management' (DEM).

The workshop is with BearingPoint, leading exponents of this 'new way to grow' and the TMForum, the trade body developing industry standards for the digital economy. I'm delighted to be stimulating the workshop alongside Prof Geoff Parker, research fellow at MIT's Initiative on the Digital Economy and a world leader in platform-based business models.

DEM is described in detail in my other posts on LinkedIn, but below is an important contextual chart that perhaps sums up the opportunity, and threat.

Since the chart was made Facebook has overtaken ExxonMobil, meaning that today the Top 5 most valuable public companies in the world are all what we might call 'platform-powered ecosystem managers'.

Along with 170 other $1bn+ digital native organisations, they all operate this same business model. It is ideally suited for a hyper-connected digital world, and will become even more so as the Internet of Things expands.

The problem is that very few execs at incumbent organisations, in telecoms or other sectors, really understand how these companies have become so powerful; how their business models really work; and what they can really learn from them.

So, the workshop at Mobile World Congress is designed to help those now running Telco organisations to navigate these issues, to work out how they can in practice upgrade their business models by applying some of the principles, methods and tools that the digital natives use to such great effect.

In developing the workshop, some execs asked us to share in advance some of the lessons we've learnt so far from helping our Telco clients (and clients in other sectors) implement 'DEM'.

Here's a summary:

  1. Executive understanding of the economics of DEM business models and the metrics required to drive them is low: executives in incumbent organisations understand their existing business model very well. Their metrics and KPIs are focused on optimizing it. Evolving to a platform-based DEM business model is new and requires a deeper understanding of a different mix of value drivers and thus a new set of metrics.
  2. Ninja IT is key: Most large organisations have complex IT environments that have built up in silos over many years. This can prevent commercial functions from responding quickly and effectively to changing market needs. However, rather than wait for large IT transformation programmes to deliver more agile business systems, our experience is that new ‘Ninja IT’ approaches (using new types of ‘overlay’ software) can enable incumbents - especially telcos - to move quickly to DEM business models.
  3. Quick Wins/Commercial Pilots demonstrate value: Telco organisations have plenty of opportunities to pilot DEM business models, particularly in new market sectors such as IoT, enterprise cloud and smart home services. Our experience is that it’s best to test a vision for DEM by applying its principles to small number of market opportunities first and then scale up once operational lessons have been learnt. The problem is that, to get projects accepted by CFOs, telcos in particular still use traditional metrics to guide their investments. This means that new types of services based on new types of business models they are doomed to early closure when they don’t deliver on (inappropriate) expectations.
  4. Organisational Culture & Skills need tackling: Employees have been hired and trained to implement the existing business model. Becoming a software-centric digital business requires a major transformation of culture and skills. Re-training of all functions is ultimately essential to avoid becoming a utility business. Full understanding of the economics and characteristics of platform businesses is key. Currently there is little widespread understanding, especially in the finance departments who sign off investments.

We've modelled the upside potential for telcos from fully embracing DEM and platform business models. It is considerable, and would fill the 'hunger gap' in the chart at the top. But the change effort is also significant and it will take some strong, visionary leaders to execute it...with some strong coffee to keep them going.

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