A few weeks ago in association with Ericsson we published the Telco Innovation Toolbox paper. The paper introduces ten economics and strategy frameworks that help operators to accelerate their “digital” strategies, make the right innovation investments and avoid costly mistakes. Previous posts published on our blog explained the economics of telco disruption. Today’s and the following posts focus on how telcos need to respond to remain relevant and discover growth opportunities.
You can download the full PDF report here.
Keys to successful telco API strategies
It is common for telcos to see developers and content providers as a source of direct revenues, or even push for “redistribution of profits” from OTT companies to telcos. These strategies are destined to fail because of fundamental conflicts with developers’ business models.
For example, Internet business models usually assume free or almost-free distribution: the last-mile bandwidth is paid by the user, and is free to the service provider. Attempts to ask developers pay for the wireless data will not only be faced with natural resistance, but have the potential to render the business models of many mobile and Internet companies unsustainable. Faced with such challenges, developers will quickly find alternatives, as happened with location and authentication, which were once only provided by telcos at a mass scale.
To be successful in API initiatives, telcos need to consider developers as value-added resellers, and therefore design their API propositions for win-win outcomes. In other words, the business models of telco APIs need to be aligned with the business models of developers [Tweet this].
But what is a developer? The reality is that the developer ecosystem is a complex mosaic of large and small companies, communities and individuals. VisionMobile’s developer segmentation model classifies developers into eight categories that differ according to developer motivations and commercial drivers. Some developers are after direct monetisation (e.g. ZeptoLab, the author of popular Cut the Rope game), some are after user reach (e.g. Facebook), and yet others are looking to extend their non-mobile products and services (e.g. Nike, DropBox or FedEx).
There is no such thing as an “average developer”. Telco API business models therefore need to be designed to target one or more specific developer segments. A “one size fits all” approach to telco API business models can severely limit the available market.
Many entrepreneurs, development companies and individual developers operate according to the principles of discovery-driven planning described in Chapter 6. Meanwhile, high barriers to experimentation result from many telco API practices, like up-front payment, extensive legal arrangements, demanding certification requirements or long-term contracts. To reduce friction and help developers discover new user needs and opportunities, telco API business models need to subsidize experimentation and be designed for the ability to fail and retry cheaply. [Tweet this]
More specifically, if developers are charged based on telco API usage, the app’s business model must have a stable, usage-based income stream. This is rarely the case. By allowing free, small-scale usage of the API, telcos permit developers to experiment with multiple business models, including free, until a sustainable, workable business model can be found.
Developers should be offered assistance to scale and deepen their business, by using the correct “business model polarity”, as shown below. Instead of charging developers upfront and creating unnecessary friction to experimentation and API adoption, telcos need to align the business model of the API with those of developers. For example, Facebook and LinkedIn are both social networks. The two, however, are driven by rather different business models. The alignment of API business model with Facebook will mean helping Facebook drive user acquisition and user engagement. The alignment of API business model with LinkedIn will mean helping users make valuable business connections.
Most developers face fierce competition in the platform app stores, and are in dire need of differentiation and competitive advantage. Telcos can attract developers by affording them access to local audiences, through innovation realized by telco APIs in their three business layers: access, services and distribution.
Key questions telcos need to ask when evaluating innovation investments
- Which developer segments are you targeting with your API strategy?
- Are the business models of your telco APIs aligned with the target developer segments? I.e. how the target developer segments build a sustainable business.
- How are you exposing telco assets such as distribution, retailing and voice to help developers cater to new markets and niches?
Freeing voice from telephony
Telephony, as a model for human communications, is essentially based on 19th century technology and user needs. Freeing voice from telephony can be achieved by questioning the deeply ingrained assumptions of the telephony communications model, and experimenting to find use cases and business models that work.
Telephony is considered a declining business, despite globally increasing dependence on communications. There are two reasons for that. First, in many markets, telephony has become “good enough” for most users; i.e., users are not willing to pay significantly more for improvements to voice quality or reliability. This makes telephony a commodity service with little differentiation value beyond price. Second, telephony is a rigid, one-size-fits-all service that does not have the flexibility to cater to thousands of user needs. That makes it less and less competitive with new models of communications, which better suit the new basis of competition: choice and flexibility.
While telephony revenues are in stagnation or decline, people are not talking less. They just attribute less and less value to telephony. [Tweet this] Phones used to be the only way to remotely catch up with a friend, engage a sales prospect, get information about a product, or just flirt. Not any more. Today, many everyday communication needs are better served by innovative alternatives that don’t fall within the narrow definition of telephony.
Telephony, as a model for human communications, is essentially based on 19th century technology and user needs. Significant technological advances made telephony more efficient, accessible and inexpensive, but little was done to challenge the deeply rooted assumptions of this legacy communication model: Dedicated communication links, expensive centralized switching, synchronous communications, dial-talk-hangup cycle, intrusive etiquette (caller decides on the time of the call), and more.
Freeing voice from telephony can grow voice traffic by taking voice services into new communication modes and use cases, creating great value to users, telcos and developers alike. [Tweet this] Freeing voice from telephony can be achieved by questioning the deeply ingrained assumptions of the telephony communications model, and experimenting to find use cases and business models that work. Many successful OTT companies do just that — unlocking the value of voice by innovating around all the components of a voice session, as show in the next figure.
Notwithstanding the buzz around new OTT services, telcos are still considered the primary providers of voice services. That puts them in an excellent position to transform telephony into a thriving ecosystem of services designed for the new basis of competition: choice and flexibility. For example, using telephony APIs to lock enterprises into voice/data plans.
Replicating OTT solutions under the telco roof, or focusing on improving telephony using VoLTE or HD voice will not be enough. [Tweet this] Telcos need to create unique value to users by taking voice into diverse sets areas of new cases and contexts such as web telephony, anonymous calling, permission based calls, group calling, voice messaging, dynamic call routing, do-it-yourself IVRs, call referral tracking, and more. Creating healthy developer ecosystems around voice services that are anchored by telecom operators is the best way to achieve this.
WebRTC is a technology that promises to bring voice and video into the web browser. At the same time, it offers an excellent opportunity for telcos to innovate by extending telecom services into the open web and freeing voice from closed telecom networks. The focus of WebRTC innovation should be not on technology, but on building developer ecosystems for voice services, discovery of new use cases and experimentation with new business models, and not on technology. If telcos won’t do this, competitors will.
Key questions telcos need to ask when evaluating innovation investments
- What voice (not just telephony) use cases can help your enterprise customers to achieve their goals both internally and towards their clients? I.e., How can you offer voice APIs to drive enterprise sales of voice and data plans?
- How can telco APIs be leveraged to free voice from telephony by challenging telephony assumptions?
- How can you structure your voice APIs and services to enable developer ecosystems to uncover more use cases?
As usual, we are looking forward to your feedback! Please click here to leave us a comment or send us an email to strategy /at/ visionmobile dot com. Don’t forget to download the full Telco Innovation Toolbox report.