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From Walled Gardens to the Digital Selfridges: Effectively Leveraging External Service Innovation

To many, innovation in the operator domain seems almost an oxymoron. Indeed, it’s been received wisdom in some quarters for a long period. But, that’s a somewhat unfair view that doesn’t really do justice to what’s going on in the operator domain today.

It’s true that operators are not creating new services that attract mass market audiences. We have to recognise that most of the innovation for these comes from alternative providers of media, content, games, chat, and so on. But consumers still need to be able to access such goodies and, if you look closely enough, you’ll realise that operators are actually innovating at quite a rate.

In our work, we’ve identified three primary areas in which operators are innovating. Services, networks and processes. We’re going to look at each of these in turn in a series of articles, starting with services. To reiterate, most service innovation takes place elsewhere, which tends to mask the innovations that operators do make. First, we have to characterise these and define two key approaches that are being followed and adopted today. Second, we must also differentiate between service innovation in consumer markets and for B2B and M2M applications.

Let’s start with service innovation in consumer focused network providers and operators. As most observers have noted, much of recent service innovation for consumers has not been directed towards specific services per se but rather towards enabling access to better service offers. Content remains King – but whose content and at what price? This is of huge importance. Exclusivity is clearly desirable but not always achievable. It comes at a significant cost.

Indeed, despite local partnerships and arrangements, it’s entirely conceivable that, in the future, providers of premium content that is distributed via broadcast partners and associated networks could be detached from this. In the coming years, what’s to stop UEFA selling individual subscriptions to the Champions’ League directly to the end user, rather than via the current myriad of operator and broadcast partners? However, such partnerships are clearly where the action is today.

In this regard, the attractiveness of one service provider instead of another to consumers is largely a function of the partnerships it can forge and deliver to its subscribers. The alternative to such partnerships and relationships is, by and large, a least cost approach. Since being the cheapest is pretty much a race to the bottom, most providers want to avoid this or else use it as a means to be acquired (thus enriching the founders but not the customers). Both models can easily be found across markets, but, the former model of creating and curating a rich suite of preferred service and content providers is preferred by established players with a long history of delivering connectivity and services, as we saw clearly illustrated by Telenor Denmark and Rogers Wireless, among others, at the recent Service Delivery and Innovation Summit in London.

In essence, this approach can be characterised as an attempt to create the best shop in the high street. Consumers are enticed to enter by the attractive brands and goodies that are available but, crucially, consumers are free to leave the shop and go elsewhere; they are not forced to adopt the services on offer but the hope is that they should be sufficiently interesting and attractive to ensure that consumers remain as customers. Ideally, this should more resemble Selfridges than Pound Land (not that there is anything wrong with the latter; it’s just different), as the operator concerned seeks to differentiate on the quality of the bundled options.

It’s interesting that this, in many ways, resembles the old walled garden approach – the difference being that consumers are free to enter and leave the shop as they see fit – but the hope is that they will choose the provider that has the most attractive retail and content bundle. We think this model is the most interesting for the majority of providers. As new players enter the market, then the most appealing external content and offers can be added to service bundles.

The trick for the service provider is to understand and anticipate which new offers should be included and to try to steal a march on their competitors by delivering them to customers first. This means deriving a much better understanding of consumer needs and market evolution. In essence, service innovation should be directed not towards creating new services but identifying which services will be demanded by consumers and being the first to enable better access to them through a process of continuous bundle innovation. In this fight, data analytics has a huge part to play, although it is still an emerging discipline. We’ll turn to this in a further article, as it’s going to play an increasingly important role.

On the other hand, there will always be players that are focused entirely on the cheapest option. There is nothing wrong with that per se, but it will be even more challenging. For this kind of service provider, innovation must be directed towards network efficiency so that the offer can be delivered as cost effectively as possible.

These two models seem to be emerging as the primary approaches we encounter and we can’t see much variation between these two models in consumer markets. Either you have premium content and invest in finding more attractive and appealing services and content from partners, or you focus on being as lean and cheap as possible. However, there is an alternative that, in our opinion provides considerable opportunity and promise. Of course, this is the domain of B2B and M2M services, of which more next time.

Thus, service innovation for consumers is today largely orientated around the curation of rich content and the creation of bundles which enable consumers to discover it with the least effort. In the future, it will require three things. First, detailed analysis of emerging external services. Second, clear understanding of what consumers want. Third and finally, the ability to anticipate what they might need in the future. By effectively combining all three, operators can more effectively leverage external innovation and deliver relevant solutions to their subscribers. Instead of analysing the failure of operators to deliver new services and undertaking a superficial comparison with numbers of users of services, such as, for example, Netflix, Amazon Prime and Facebook, to note just three commonly cited examples, we think it will be much more valuable to focus on how operators can identify, collect and curate the best offers in the simplest way to their customers. In this model, the Digital Selfridges approaches represents an ideal to which they should aspire.