Shaking Up The Value Chain

Business Model Innovation, the most bare form of innovation by totally changing the business model of a company. Several Telco’s have changed their business model radically, some just recently, but why? Because the traditional telecom business models are facing some unprecedented challenges due to the globalisation and rapid development of the internet. Telco’s are not guaranteed of incoming revenues solely by setting up a network anymore. The need for radical changes in their business models has increased dramatically. Please get inspired with five really interesting business model innovations* in the telecom industry.

1. Customer relationship - Outsourcing the unexpected: Bharti Airtel Business Model Innovation

Bharti Airtel, India’s leading mobile telecom service provider, managed to increase their subscription base from 8.2 million in 2004 to 27 million in 2006. In 2007, Bharti announced that they have even crossed the 50 million customer mark within 143 months of start of operation. They recognised the need for a better customer relationship, growing revenue stream and, at the same time, decreasing operational cost. In order to do so, they did the unexpected and outsourced the IT and networking services while staying purely focused on marketing, sales and distribution.

In 2007, Bharti crossed the 50 million customer mark within 143 months of start of operation

Number 1 in this list of inspiring business models because of Bharti’s strong vision on reaching customers by effective marketing and sales methods rather then by a technology push from the IT and networking services.

2. Revenue streams - Standing on the shoulders of the advertisers: Blyk’s Business Model Innovation

Blyk is a Finnish MVNO (mobile virtual network operator) operating in the UK and offers free mobile telephony to the youth till the age of 24. Blyk offers their customers (or maybe I have to call them just joiners ;)) 217 texts and 43 minutes for free each month. The minutes are paid by advertisers and are aligned with the extensive personal profiles completed by the subscribers in advance. This increases advertisers rate of convergence enormously and saves some boring ads on the mobile phones for the customers. It is a business model driven by advertisers (watch this video of Blyk).

Number 2 in this list of inspiring business model innovations because of the braveness of Blyk to offer real free communications for a strong niche market.

3. Customer segments - Cultivating emerging markets: Tencent’s Business Model Innovation

Telco’s in emerging market are known to deliver the best shareholders’ value by their high performance and low operating costs. However, contradictory to what many people think it is rather uneasy to deploy new innovative business models in emerging markets. First reason is the greenfield situation where all competitors have exactly the same entry levels, the need for innovative value differentiator are even higher to earn that unique customer segment. Secondly, Telco’s in emerging markets have an even higher urge to deploy a business model which runs on very small operational costs, again due to the highly competitive greenfield situation.

Tencent’s numbers are outstanding with 580 million registered users whereof 280 million active on a very frequent basis. In the feastdays of Tencent their service was used by 29 million users per day.

The 3rd award in inspiring business model innovations in the telecom goes to a unique business model which has been set up by Tencent (China) in the emerging markets. Tencent deploys a unique business model combining both telecom services and gaming. They offer their own communication, instant messaging (IM) service named ‘QQ‘ which is based on the popular IM-service of the mid ninetees ICQ. QQ holds room for popular chatrooms, personal avatars, games, internet storage, and internet dating services. Most of the services are free and therefore very popular among the youth. By the way, next to the popular QQ IM service, Tencent also offers a tailored office (TM) and enterprise edition (RTX) or their instant messaging service.

Number 3 in this list of inspiring business model innovations because of very successful mix of gaming and telecom service meeting the needs of the youth in emerging markets.

4. Core capabilities - Leveraging the knowledge of the crowd: Iliad’s Open Source Freebox Business Model Innovation

In France, Iliad with their subsidary French ISP ‘Free‘ had shaken up the telecom business by bringing free internet television to the end consumer. They developed their own ‘freebox’ - an internet television set-top box for households - which is based on the open source Linux software. It is believed that Free was the first ISP that rolled out a triply play strategy and the company is therefore recognised as one of the most important innovation drivers in France. Besides the unique open source based core capabilities, the company gets credits for their strong pricing strategy. It is still maintaining their initial price of 29.99 euros per month for the set-top box. Free has continously added new services and features to their box without making compromised on their consumer price.

Number 4 in this list of inspiring business model innovations due to Free’s power to utilise free available open source software in order to shake up the estabilished telecom industry unprecendedtly till today.

5. Partner network - Creating a community of ‘Foneros’: Fon’s Business Model Innovation

The spanish ISP Fon encourage wireless internet users to share their bandwidth for the community. Consumers who share their wifi get access to all other wifi access points in the community all over the world. The wifi-sharing community, named ‘Foneros’ shares in the revenues stream which is gained by the non-foneros who pay a small fee for accessing the network. The Fon start-up was a great success and the founder Martín Varsavsky raised 18 million in the first finance equity round in 2006. Major companies invested including Google, Skype and several equity investment firms. The innovative and largely used business model was upgraded in 2007 when BT and FON announced that they integrated BT’s UK wireless network with Fon, enabling an even greater wireless coverage for the Foneros.

The wifi-sharing community gets paid by users that pay a small fee for accessing the network.

Number 5 in this list of inspiring business model innovations due to the shown power of Martin Varsavsky’s business model along with a community initiative all over the world.

Five Inspiring Business Model Innovation in the Telecom

….when have you planned to innovate your business model?

* In fact, business model innovation focus on the transformation of business to reposition the business or to grow in new markets. The five inspiring examples describes not the full business model innovations. I focussed solely on the business building blocks that changed the most as you can see in the image. Moreover, succesfull business model innovations are mostly companied with a maximum of two changed building blocks; bringing focus in your business model innovation makes success.