Tagbusiness model

Growth through Asymmetric Business Models

G

The other day I sat down with Andreas Constantinou, founder of analytics company VisionMobile and adjunct professor at Lund University. He researches business models, particularly around developer ecosystems.

Andreas showed me this model about asymmetric business models (ABM), that is: a business model that crosses industries, by forcing profits to migrate from one industry into another:

VisionMobile: Assymetric Business Models Source: VisionMobile 2014, used with permission

(more…)

Why The Telcos Are Doomed

W

My apologies for the dramatic title. Please let me explain what I mean, and why (drama aside) I think it’s true if the telecommunication companies (telcos) keep operating the way they do.

Since this post is somewhat lengthy, here’s the summary upfront:

  • Telcos don’t act in their customers’ interest
  • Customers don’t trust their service providers (from bad experiences)
  • Lock-in will backfire on a massive scale and drive customers away
  • As soon as a new provider comes along and offers decent plans, fair & transparent conditions, and no lock-in, they’ll easily win the market

Epic Fail by Flickr user Ape Lad

Now that you roughly know what I’m going to say and are still reading, I’ll go ahead and assume you’re interested. So let’s dig in there, and please share your thoughts in the comments.

Nobody Likes Telcos It’s sad to say it like that, but let’s face it: There’s hardly a customer of a phone carrier with an emotional tie to their provider, at least not a positive one. Why is that? Telcos have a (seemingly global) history of ripping off their customers, maximizing their profits, and slowing down innovation. It doesn’t even matter which one we’re talking about: Deutsche Telekom, Arcor, O2, Vodafon, E-Plus, all of them have a track record of very unhappy customers. Just ask any person you know – anybody, really – and they’ll have a horror story to share about their phone carrier over-charging, about incredibly bad customer service, about not getting out of their contracts despite trying hard.

The Problems: Bad Service, Over-Charging, Lock-In If you’ve encountered an ad for one of the major telcos, you might have noticed how strongly emotionalized and moody these ads are. They probably have to be, after all most customers aren’t interested in the products on offer here, or maybe the products offered just aren’t really targeted well at the customers.

We, the customers, have all reason not to be happy with our providers.

Bad Service: The hotline staff is chronically under-trained and over-worked, and briefed to stuff marketing crap down our throats. (I had a series of conversations with the support staff for my E-Plus/Base contract where I got completely different and mutually exclusive, opposing answers depending on the person I talked to. Also, some of them were seriously trying to help, but it was clear in the context that they’d be violating some kind of internal set of rules.) You can’t get a simple, clear & open answer to your questions in any telco hotline I know about. That’s just the way the system is set up. (“We’d like to offer you this Easter Special that gives you 5 extra SMS this month for just $3, plus another 2-year contract, isn’t that great?” Sounds familar? There you go.)

Over-Charging: Phone companies charge too much for what they offer. I’m not even talking about roaming fees. (Which are ridiculous in digital networks anyway.) I’m talking about the prices for very clearly defined, and simple enough, services: 1 text message, 1 minute call time, 1 MB data transfer. All of these are set in a way not to cover the companies expenses (and of course some profit), but based on what the market used to be willing to pay. Remember the days when long-distance calls were so much more expensive than calling within your area code? That’s the model still underlying today’s pricing system. Not even flatrates go uncapped these days. A simple, transparent pricing system without the fine print is the way to go.

Lock-In: Bad idea. It is tempting for a company to go for total customer lock-in: If customers commit to a 2-year-contract it’s easier to calculate, and hey, once we have them we can milk them, right? Wrong. That’s yesterday’s thinking. Openness rules, like everywhere, in the communications arena. If I sign a two year contract with my phone carrier (which I’ve done, again, about 6 months ago), that’s not a sign that I vote for one company. It’s just a sign that there’s no competitor out there who’s significantly better.

If you’re a telco, you shouldn’t be happy about this race to the bottom. You think offering iPhones, the G1 or other mobile devices exclusively through your contracts will make people want to be your customers? Hell no. Maybe they’ll put up with you for their phone, but they sure would rather come and play with you if it was out of choice, not force. Design your contracts so that your customers can leave anytime they want, and you’ll see that if you offer better services they’ll want to stay with you.

Trust Issues Customers don’t trust their service providers. They just had too many bad experiences.

Just a little anecdote I heard the other day to illustrate my point: Vodafone called Michelle Thorne to offer her a new contract and a shiny new Blackberry Storm – she had been a Vodafone customer for 10 years. First, some inquiries brought out that she had an old contract that made her over-pay for her usage by far, so Vodafone offered a new contract, much cheaper. (Why didn’t they offer it without being prodded?) Then, some more oral inquiries about the nature of the data flatrate included in the new contract confirmed that it is indeed a flatrate. A few days later it turned out that the “flatrate” was indeed just “unlimited access” to Vodafone Live, some kind of AOL-style limited portal of Vodafone partner sites that are, frankly, very very useless. A joke, really. Another hotline call and the staffer did have the cojones to claim that yes, the flatrate also included “unlimited surfing” on the real web – “up to one megabyte”. Also, another contract was offered with a (seemingly) real data flatrate for a few bucks less then the original offer.

Notice the pattern here? At every single point of contact the provider tried to rip her off. Not a single time did they act in her interest, but only their own. Maybe that’s not the best way to treat your customers? That attitude, combined with the 2-year contract lock-in makes for a nasty combination.

The very moment a new provider pops up and offers a transparent pricing scheme, decent service (think MediaTemple as opposed to 1&1) and the chance to leave the contract anytime I want, I’ll switch. And yes, that’s even if their network coverage isn’t as good or they don’t subsidize my phone. Not just because they’re new player. But because if you can leave anytime, the company isn’t as likely to try and screw me as a customer.

Change? At Cebit, Johannes Kleske, Steffen Büffel and I had a brief conversation about telcos, where we were discussing most of the above. Johannes pointed out something that should be obvious, but can’t be overstated: Tiny, incremental changes from the status quo won’t help either side here. (“We now offer SMS for 18c instead of 19c! Customers will love us!” That’s not going to fly.)

Telcos, you need to get out of your own shoes and once and for all offer what your customers want, not what you think you can push at customers that they might sign up for if the marketing is done right.

So what is it that we want? Some fairly basic things, really:

  • 100% transparent contract and pricing (forget extra fees hidden in the small print).
  • No lock-in through contract or platform. Allow us (and our data) to leave if we’re unhappy, and we probably won’t. (Because you won’t disappoint us, right?)
  • Excellent service. I’m not talking about funky hotline music, but well-trained, well-paid staff who know what they’re talking about.
  • Act in our interest, not yours. (In fact, our interest should be your primary interest, since we’ll happily spend a lot of money on you if you don’t try to screw with us.)

All of this seems pretty obvious, is it really so hard?

All this is written with my experiences limited to the German market, the U.S. and Australia. Maybe in other countries there are better carriers, or independent ones? If you know any examples, please share in the comments. Thanks!

Full disclosure: I’m not involved in any way with any telco or similar service provider. I’ve worked with subsidiaries of Deutsche Telekom before (see my client list), but on completely different stuff. I’m a customer of E-Plus/Base for my cell phone and data services, and Hansenet/Alice for my DSL at home. I’m not overly happy with either of them, but I’ll live.

Image: Laugh-Out-Loud Cats #539 by Ape Lad, licensed under Creative Commons.

There’s money in Web 2.0…

T

Corporate, CC-licensed, Image by Flickr User Halans…says Forrester‘s Josh Bernoff, author of Groundswell. It’s just that quite often, the most successful Web 2.0 companies aren’t widely recognized because they cater to a relatively unsexy target audience: Corporate. Here goes Bernoff in Harvard Business Publishing:

…there are a class of startup companies making good money right now from Web 2.0. They’re not flashy and they don’t grow like mushrooms. But they’ve got all the business they can handle and they are growing. I am talking about companies that serve corporate social application needs. This isn’t the typical Web 2.0 business paradigm, since serving corporate customers means lots of client service, which is people-intensive — it doesn’t lift off miraculously like a pure technology startup. In fact, in many of these companies, the technology itself is positively mundane. But the startups grow because they deliver value for which they can charge a premium and get customer loyalty. The customers of these companies don’t defect when something shiny and new comes along, because they like the service they’re getting.

It’s the part about the technology being mundane and still charging at a premium that I’d like to point out here: Do focus on getting your tech right, but more importantly, don’t forget that money could be in places you weren’t looking. Bernoff lists a whole lot of successful examples. Think corporate clients! Maybe, just maybe that way you can keep your service free for your clients and still earn your share, making it a win/win.

Sure, this doesn’t hold for all services. After all, Web 2.0 isn’t primarily corporate-driven. Quite the contrary, it’s the social factor that brought the Social Web to where it is today. But maybe there’s something in your service that corporations wouldn’t mind to pay for, and this would allow you to keep offering your services for free for consumers?

Think about your service or app for a second – is there anything you could offer corporations? Or is there a case where selling to corporate would ruin your Web 2.0 service? Please share!

Note: I’ll cross-post this to a new blog my friend and former colleague Burkhardt just launched: Hintergrundrauschen – Web 2.0 für die Verlagswelt. As you might have guessed, it’s in German. Also, I hadn’t planned on cross-posting, but since I had written the post in English already, I thought I might as well post it here, too.

Image: Corporate by Flickr user Halans, CC-licensed