|Europe I 2007
|Coming out on top – rethinking the wireless business model
Andrew Zimmerman is Managing Partner – communication industry segment and leads the strategy practice for Accenture’s Communications, High Technology sector, Americas East. Prior to joining Accenture, Mr Zimmerman served as the CEO of Predictive Systems, as the COO of idealab!, as Global Leader of PricewaterhouseCoopers’ E-Business Consulting Practice, a member of PwC Consulting’s executive committee, Global Industry Leader of PricewaterhouseCoopers’ Information and Communications practice, and the firm’s Leader for the Information, Communications and Entertainment consulting practices in the Americas. He held similar positions with Coopers & Lybrand prior to the firm’s 1998 merger with Price Waterhouse. Mr Zimmerman was a planning manager for RCA Home Entertainment, and a founder and CFO of a home video venture, which eventually became Sony Video. He co-founded Reach Networks, one of the earliest Internet companies. Mr Zimmerman co-authored the Electronic Access Study, and authored the New York New Media Industry Survey. Mr Zimmerman is a speaker at industry conferences, including the United States Telephone Association, Information Industry Association and Supercomm. He has been interviewed and quoted by CNN, CNBC, BBC, Fortune, Business Week, The Wall Street Journal and The New York Times on topics ranging from the Internet to complexity theory to disruptive technologies. Andrew Zimmerman received a B.A. in Literature from Haverford College in three years and was subsequently awarded a Thomas J. Watson post-graduate Fellowship during which he travelled and studied with circuses in Western Europe and the Soviet Union. He received an M.S. in Accounting from New York University under a work/study programme with Coopers and Lybrand, and is a certified public accountant.
The proprietary, end-to-end control, business model for wireless is losing ground. Carriers need a new model to build upon their existing position and not lose momentum in the market. New technologies and products are enhancing the user experience, but the billions of stand-alone networked devices, applications and services don’t talk to one another easily. A unified control interface is needed and wireless carriers, with their existing mobile handset, Web portal, and BSS/OSS assets are well positioned to provide it.
The wireless carriers have changed the world by building and operating their cell phone networks. However, the venture that started as a proprietary end-to-end voice service is poised to burst its seams. New wireless devices, new wireless networks and new wireless services and applications are rapidly coming to market – and some, if not many, of these innovations are bypassing the traditional carriers. Unless they do something different, the companies that pioneered the wireless industry will end up as the ‘carriers of last resort’. This is not a happy outlook. As consumers have been rapidly adopting new devices, ranging from mobile phones and PDAs, personal digital assistants, to GPSs, Global Positioning System, and DVRs, digital video recorders, it is a time for the carriers to take stock of their assets and the world around them and to reposition themselves for the next growth spurt in digital technology. One consequence of a massively networked world is that devices need no longer be self-contained. They can physically reside in one location, their associated data can reside in another, and their controls can reside in a third. We have termed this phenomenon trivergence. Convergence has rapidly evolved into trivergence – the coming together of devices, the network and the control panels that manage usage. But despite the rapid technology advances and some surprising new cross-industry ventures and mergers, convergence has still not become part of the user experience for the vast majority of consumers. This is mainly because the devices, the network, and the control panels continue to operate in separate silos from a technology standpoint. The Apple iPod, with its links to iTunes and its PC- or Mac-based controls – which we call a ‘smart panel’ – is one of the earliest examples of trivergence. Other examples are a new Kodak camera that automatically dumps its images to the user’s PC when passing a wireless hotspot; Medtronic’s latest pacemaker, which sends live heart data to a website; and, a Korean appliance maker that lets owners control their washing machine from the Internet. Smart panels, or web-based interfaces available via any on-screen display, can help consumers envision the next generation of devices and device management tools. Unfortunately, the wireless carriers have been slow to adopt trivergence. For example, the estimated 57 billion photos that are sitting on cell phones would be more useful if they were automatically transferred to a PC loaded with software that is better at managing digital photos. Yet these two capabilities are not linked. One way wireless carriers could deal with the complexity of their service is to replicate the cell phone’s controls on a web-based smart panel that lets users manage their contact lists, set features, manage stored messages and photographs, purchase content, etc. The larger and more capable browser interface would do much to clarify and to enhance the user experience. We know, because studies mocked up a smart panel of this type and almost everyone in the focus groups wanted one immediately – some even offering to pay for it! Smart panels can do more than solve issues of device usability – they can help users imagine the evolution of de-vices. Based on how users are grouping their devices, they are designing their own device management consoles and envisioning what new capabilities they will have as a result. Work in trivergence has revealed an important insight: it is not so much about the devices, networks, applications and services themselves, as it is about managing the devices, networks, applications and services. The research found that consumers identified flexibility, choice and innovation as key drivers to success. In other words, consumers are looking for ways to bring their devices and individual services together without making usage more complex. This insight leads us to a new opportunity for wireless carriers – one that will put them at the centre of innovation instead of accelerating their retreat into their walled gardens. Step one is to build something akin to the smart panel we mocked up in our labs specific to the cell phone. Step two is to position the cell phone, in conjunction with the PC, as the universal smart panel. That is, a system that can be used to control any networked device and – ultimately – to orchestrate functionality across devices. For example, if your car has GPS and your home air conditioner is networked, your car should be able to adjust the temperature when you get close to home. Likewise, if you bought viewing rights to a movie, you should be able to view it anywhere and on any device. The strength of the cell phone/PC combo is that both devices are nearly ubiquitous. The cell phone provides instant access from almost anywhere, and the PC provides a sit-down setting for more complicated or more leisurely tasks. The technical underpinning of the universal smart panel is a services delivery platform, SDP. This network-resident system knows who its users are (authentication), knows their location (presence), and knows what devices, applications and services they own or have rights to (asset management). It is also a place where users can control who gets what information about them (identity management), make payments (billing system) and store their most sensitive data (secure network). Google provides an example of an SDP that – in its case – is designed to give users access to ‘all the world’s knowledge’. You put in a query and you get the information. You can then use this information to feed into some other service or application. For example, overlay Google’s maps onto a real-estate listing service. Google’s core asset is the algorithms it uses to make information accessible and meaningful. In contrast, the wireless carriers’ core asset is the OSS/BSS, operational and business support systems, which they have developed to operate their networks and serve their subscribers. Traditionally, these systems have been thought of as cost centres and necessary evils. However, they provide a foundation for the SDP that we see as the carriers’ future. Much of the functionality we described for the SDP already exists in nascent form within OSS/BSS systems. Now it is a matter of enhancing these services and exposing them to new applications through the use of Web services. Technically, the SDP that we are proposing is not that different from the SDPs that carriers now have on their drawing boards. However, there is a very important philosophical difference between where the carriers are headed and where we think they should be headed. Wireless carriers give every indication that they are still holding on to the idea of a closed end-to-end system. They see the SDP as an opportunity to lock in their subscribers and to control the user experience by running all third-party applications, services and content through their proprietary environment where they get a piece of the action. In other words, an extension of the ring-tone business model that gave the carriers a windfall during the early years of the wireless explosion. However, the market is larger and much more sophisticated now. To avoid being beholden to the carriers, innovators are devising strategies to bypass them on every front. The carriers have responded to this challenging situation by threatening to impose performance penalties on companies that do not play by their rules. In our judgment, actions of this type will only further marginalize the industry. The SDP we are proposing is an open environment that features a ‘carrot’ rather than a ‘stick’ at the core of its business model. It makes the carriers money by providing services that third parties would otherwise have to develop on their own – at higher cost. For example, the carrier might charge a nickel or a dime to use its authentication feature. The same goes for identity management, asset management, presence and other SDP components. This is a win,win,win situation. Users win because they get a secure control point where they can manage and orchestrate their devices, applications and services. The providers of these devices, applications and services win because they can take advantage of a robust ecosystem that already has many of the building blocks they need for their offerings. And the carriers win because they will be compensated for providing a feature-rich platform that welcomes all comers – thereby benefiting from the network effect where value increases with usage. To summarize: carriers are reaching the end of the road with their proprietary end-to-end wireless business. They must now move on by solving the new problems brought about by the success of their first-generation offerings. That is, enhance the user experience in an environment in which there are billions of stand-alone networked devices, applications and services that don’t talk to one another easily. Some sort of universal control device is needed and the wireless carriers are extremely well positioned to cobble together this universal smart panel from their existing mobile handset, Web portal and OSS/BSS assets.