Redefining the role of MNOs in the new mobile internet economy
Mobile network operators (MNO) are confronting some complex and multidimensional industry challenges centered on the shifting economics of today’s market landscape. As the demand for mobile data continues to accelerate — with consumption expected to exceed 15 exabytes per month by 2018 — there has been an industry-wide shift from voice towards mobile data services as the key driver of their next phase of growth.
However, despite the ever increasing demand for mobile data, revenue growth has continued to flatten out over the past decade with ARPU declining across the board as data revenues fail to keep up with the loss of voice revenues. According to a 2015 report by Ericsson, despite a Compound Annual Growth Rate (CAGR) of 34 per cent in mobile data revenues between 2010 and 2014, overall mobile service revenues grew at an average annual rate of 2.7 per cent over that same period. In 2014 revenue growth was a modest 1.7 per cent compared to the 10 per cent to 15 per cent growth of the past decade.
It is clear MNOs need to evolve with the new market landscape as the old dynamics of capturing demand through increased network capacity no longer apply, leading instead to a race to the bottom as players compete for market-share at lower and lower price points. What isn’t clear is how they should reinvent themselves and where else can they look to create and capture new value.
The widespread market adoption of OverThe-Top (OTT) services and the growth of free public Wi-Fi networks further complicate the question. With OTT apps such as Skype, Facebook Messenger and WhatsApp providing customers with free alternatives to legacy voice and messaging services using public WiFi, MNOs are hard-pressed to find a viable trajectory for evolution. Unable to compete with entrenched OTT services, MNOs are quickly becoming low value-added bit-pipes that merely act as subcontractors to OTTs, leasing undifferentiated transport capacity.
The crisis confronting MNOs now isn’t just a question of launching new value added services or products, but of fundamental business models. In order to drive their next phase of growth, MNOs need to radically transform themselves beyond serving as mere bit pipes and redefine their role in the market or risk complete displacement from it.
This entails reengineering how they create value with their unique assets and shifting the epicentre of their business to unexplored spaces to capture new sources of value.
New models for new market dynamics
Given the current trajectory of the industry, it is clear that insisting on the business model of traditional manufacturing is no longer sustainable. However, even when MNOs look to other industries for inspiration, they are still bound by the same product/service-focused orientation with a single-sided operator-toconsumer market model of the past. While some MNOs have experimented with offering network exclusive value-added services on top of data, history suggests they will fail to compete with current OTT offerings.
Their limited success goes beyond failing to produce a killer app or service competitive with other OTT players. The problem here is not that MNOs have been looking for inspiration in all the wrong places, but that they have been learning the wrong lessons. Rather than looking to OTT players such as Google and Facebook for new product or service strategies, they should be learning from their platform strategy.
Major OTT players operate in a two-sided market with buyers on both ends of their value chains: users and advertisers. They generate value by providing a platform that connects while serving both ends: delivering quality services to end-users while providing vital consumer data to advertisers.
This same model and strategy holds immense potential for MNOs. Digital advertising is a massive market with forecasts anticipating growth from $101 billion in 2016 to $196 billion in 2019 — a substantial and promising new market for MNOs that can participate at scale. By shifting their business paradigm from a subscriber-centric serviceoriented model to a platform-based bidirectional value chain that services both subscribers and advertisers, MNOs are able to fully leverage the value of their network investments and capture new revenue opportunities in previously untapped markets.
What specific value can MNOs bring to table which will allow them to compete in the digital advertising industry? In the same way that OTT players have disrupted the telecommunications industry, MNOs are uniquely positioned to likewise disrupt the mobile advertising space as they possess a key asset in top demand in the industry: Location-based consumer data.
From bit-pipe to big data player
Location-based data is a critical ingredient to building more complete and contextualised consumer models that accurately reflect their real life activities and movements, enabling advertisers to create more relevant and better targeted campaigns. This data serves a specific solution space as it closes the consumer intelligence loop by providing information on users once they step out of the bounds of a screen, enabling advertisers to draw correlations between their online interests and real-world behaviour. The demand for this category of data is so large that location-based ad spend is projected to rise to $18.2 billion by 2018 with a CAGR of 28.9 per cent.
MNOs are uniquely positioned to provide advertisers with high quality location-based consumer data at a level of precision beyond the capabilities of the industry’s current means. As consumers constantly connect to their networks via various access points through their mobile devices, MNO networks are able to continuously capture precise realtime location-based user data in ways that GPS, cookie-based methods, and mobile app usage data are simply unable to.
Leveraging their network reach and the data assets allows MNOs to bring unique value to mobile advertising, giving them a distinct competitive edge over other OTT players which typically dominate the space.
The industry has historically struggled with inaccurate location data due to the lack of established standards and the inadequacy of the current mechanisms for capturing it. Location data sourced from the networks of MNOs will potentially be the solution the industry has been waiting for. It would allow advertisers and agencies to drive more effectively targeted campaigns and focus the market on high value ads rather than cheap CPM. Consumers would similarly benefit as the quality and relevance of ads improve.
Location data sourced from the networks of MNOs could prove to be the next big disruptive force, not just in mobile advertising, but in the big data industry as a whole. However, this massive opportunity is only possible when MNOs are able to make a radical paradigm shift from exclusively serving as data transport providers to key big data players. This will have a significant impact on every aspect and level of their organisation — dramatically changing their culture, people, processes, and metrics for operational effectiveness — but enable them to unlock new revenue potential from critical data assets that have otherwise gone underleveraged.
By opening up their business model from a subscriber-centric product focus to a platform oriented one that connects consumers with advertisers, they are able to redefine their role in the growing mobile internet economy by offering unparalleled value unique to them.
“Location data sourced from the networks of MNOs could prove to be the next big disruptive force, not just in mobile advertising, but in the big data industry as a whole.”
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