The IoT craze engulfing the telecoms and technology industries promises to deliver untold fortunes for many but for the telcos, owning the smart home market is critical to avoid extinction.
According to Francesco Venturini, Managing Director for Global Industry Media and Communications at Accenture, speaking at MWC 2017, the smart home segment is prime for telcos to demonstrate their worth and recoup lost fortunes. That said, a sluggish start could see repeat disruptors Google and Amazon take ownership of the living room, enforcing a period of digital Darwinism. Is it time for telcos to accept their fate in the utility bracket?
“Telcos are in a fantastic position to capitalize on the fortunes of the smart phone, but they better move quickly,” said Venturini. “If you think about the number of devices which is in the home currently the building blocks are already there to move into the segment and create new revenues.”
“That said, the telcos need to be quick as Amazon and Google are already making strong gestures in that direction, and the business model has to change. They have to move away from ARPUs and selling products, and develop a focus which is about owning the customer experience.”
For Venturini the current business model is dated and unsustainable. Traditionally the telcos have focused on generating revenues through products such as Voice or SMS, however these profits are eroding at an increasingly alarming rate. The products are also proprietary, taking a hostile approach to competitor offerings.
In the digital world, the real success will be drawn from those who own the customer experience. Venturini told us that telcos should be giving away devices for free and focusing on developing the ecosystem. It’s a move which would see the telcos cease to be product companies, and evolve to ones which monetize a platform, through providing access to the customer. In a similar way Facebook has created the social media walled garden, there is an opportunity for the telcos to do the same thing in the living room.
Sky is an expert at owning the customer space according to Venturini. Monthly subscriptions mean very little to Sky in terms of long-term business viability; if you complain they will reduce your monthly bill almost without question because they realise the value of you is not the immediate payment. Keeping you as a customer allows them to own the gateway into your life and subsequently the revenues which can be derived.
In the content game, there also needs to be a dramatic change. Think of BT’s deal with the Premier League. It’s a huge amount of money and very attractive for numerous customers, but it has a shelf life. BT does not own the content it simply leases the rights. Once the rights move elsewhere, the risk is so will the customer.
“We’ve lost the creativity in the telco industry,” said Venturini. “Certain telcos, such as Televisa in Mexico, are great at creating original content which they own. Once you own this hook to the customer you own that customer’s gateway and there is no shelf life. For telcos to be successful in the content arena, there needs to be investment in creating in-house capabilities like Amazon or Netflix have.”
In these examples, the content owner is not necessarily making marketing the content as a product, but more of a value add to create the experience. The new world in not an ARPU game, according to Venturini, businesses cannot be dictated by customer profitability; there needs to be a longer game plan in play. Scale and mass are critical here.
Ultimately the telcos have to be prepared to sacrifice some profitability in the short-term to ensure they are creating a more sustainable business. Venturini described it as a means to manage the decline, but with the ambitions of creating a much more viable business model which is built around the customer experience, and the control of access to it.
It sounds like a simple idea, but in an age where numerous CEOs are governed by quarterly results, it will be a tricky one to implement. While there will be inventive telcos who are capable to managing the transition, there will also be a significant number who fall by the wayside.