Intermittent Signal

Mobile Musings

It seems the best way to bury bad news is not to release it on a Friday evening; it’s to release it through an official company blog. Just ask Telefonica – a couple of weeks ago they used their BlueVia developer blog to announce that they’re closing their app stores in Germany, Spain, and Argentina. And the tactic seems to have worked: only a few outlets picked up on the news. One of those outlets was Mobile Entertainment, whose editor, Tim Green, sub-headed his piece with the question, ‘Is this the final death throe of the operator portal?’ and summarised the announcement in the following wise: “we’re handing you [i.e. consumers] over to Google and Apple. And maybe Amazon.”

Telefonica in choppy waters

Telefonica’s retreat is the latest action in the ongoing battle for the ownership of mobile content and a share of the profits that come with selling that content to consumers. It is also part of a gradual retrenchment by the mobile network operators, who spent most of the last decade repeating the mantra, “We will be more than just a bit-pipe”, and vowing to recoup their investment in 3G licenses acquired at the turn of the Millennium (in extortionate and counter-productive government auctions) or die trying. Unfortunately, there are more examples of the latter than the former.

Faced with declining voice revenues and chronic failure in the mobile content space, operators have been forced to accept and embrace their bit-pipe status and rally around increasing data revenues. Doing so has even allowed them to continue making a decent living, thanks to two factors: firstly, they’ve reduced their costs by consolidating their operations, and secondly, they’ve secured high data revenues through ‘regulation by negotiation’ (i.e. they’ve set the price of data ridiculously high, then waited for the regulator to roll it back to a slightly less ridiculous position). It’s worth noting that this second strategy isn’t going to be effective for much longer: the regulators continue to roll back the boundaries of what the operators can ask for data, especially where their highest-margin-generating international roaming victims are concerned.

Getting caught up in the operator red tape?

With operators so focused on selling expensive data packages to their subscribers, it’s no surprise that they’ve basically stopped caring about their mobile content initiatives. It’s even less of a surprise given how difficult those initiatives are to set-up, run, and make money from. Apple cracked it, of course, and as a result, some of the larger companies who feel threatened by Apple – e.g. Google, Amazon, Microsoft, and now Facebook – are having to learn to negotiate the space quickly. Early indications are that they’re already making a better go of it than the operators, but success is never guaranteed (a couple of years ago, a Mobile Enterprise editorial might have included Nokia’s Ovi in the list of new and exotic destinations for mobile consumers – and we all know how that turned out).

Why is this? Well, let’s start with their strategy. Or to be more specific, their lack of strategy. The core issue is that operators have not really known what to do with the content. Is it a customer acquisition strategy (3, having observed BSkyB’s success, garnered exclusive rights to distribute clips of Premiership football matches via the mobile channel but only opened their network a year before the exclusive option was due to expire)? Is it a revenue opportunity? Is it a basic service for all subscribers? Is it a marketing launch with not a great deal behind it – consider the “silver surfer” campaign run by BT Cellnet (the forerunner of Telefonica O2 in the UK) in 2000, or the Vodafone Live! launch which had consumers going into Carphone Warehouse saying “I want the David Beckham phone”, but not using the services ostensibly launched in the campaign.

If, at some point in the last couple of years, you’d asked the operators why they’d decided to close their mobile content portals, most would’ve simply shrugged and said, “They aren’t generating enough money”. Clearly, plenty of people out there were measuring the success of their mobile content portals based on the amount of cash they made – as opposed to looking at their contribution to the business of acquiring and retaining subscribers. Given that most of the mobile markets in the developed world are now saturated (in terms of mobile penetration), it’s probably the latter benefit that the operator’s CEO was expecting, and which he or she thought they were funding. So there’s a disconnect somewhere in the large bureaucracies which inevitably typify these organisations.

On this theme, it’s clear that operators’ mobile content ambitions have been hampered by the bureaucratic nature of their organisational structures and processes. These structures often mean marketing and technology departments work against one another while counter-productive political agendas triumph. I’ve seen this first-hand, and it’s probably as frustrating as trying to get at a pair of scissors encased in heat-sealed plastic. In one procurement exercise, early in the last decade, an operator tried to decide between four objectively scored approaches to building the latest version of their corporate consumer portal. Two of the approaches were being advocated by large, internal, IT groups; the other two were being pushed by ‘operating companies’. Operating companies are the local/regional organisations operators use to deliver their services from country to country; weirdly enough, they are treated as part of the operator parent company and as customers in their own right. Anyway, the approach finally selected was not the one that received the highest objective score, nor was it the cheapest. In fact, the two cheapest and highest scoring approaches weren’t even shortlisted. When the solutions were whittled down from four to two, the remaining choices were the ones being pushed by internal IT (which had scored, respectively, third and fourth), and obviously one of those was subsequently selected. Why? Well, one factor was that the “winning” internal organisation wanted to keep its expensive downtown office open (and avoid having to move to the parent company’s out-of-town HQ), and needed to win the brief to do so. The technology selection, at best, avoided having to take a wider set of difficult decisions.

The selected approach was generally deemed unsuccessful in the market. Ironically, if you spoke to the company officers they were quite sanguine about the whole process – ‘central IT’ made a massive ‘profit’ on ‘selling’ the mandatory offering to the group’s operating companies for an inter-company charge. So if measured in terms of meaningless intra-company funds transfers, it was a massive success. Job done, boys (and I’m not aware of any women involved in that particular decision) – high fives all round!

But why did operators continue acting in such a dysfunctional manner throughout the Noughties, a decade in which their anxieties about being reduced to mere ‘bit-pipes’ seemed to be at their height? The answer is that, until Apple, Google, and Amazon came through the middle, all of the operators acted in the same way; there was no externally disruptive player whose success would throw a light on their own mutual failure.

Without this light/these players, a situation which will be familiar to anyone who’s ever watched an episode of The Apprentice evolved. In case you haven’t seen it, allow me to explain: a job is given to a bunch of people with no experience or knowledge of how to do it, and with at least a 50% chance of failure. Success or failure is measured on who is least bad, rather than against any objective criteria, and the whole point of the exercise is to see how blame is assigned afterwards. A principle of social Darwinism comes into play; over a series of generations, you end up with a population where membership is defined through a process of survival through blame management, rather than by success in the market. You end up with a winner, but you sure as hell don’t want him or her running your mobile content shop.

Can operators do well out of business mobility services provision? My colleague Jeff Yee thinks so; you can read his post here.