Would you pay $500 a year to use your apps?

With Silicon Valley facing a barrage of fire and fury over data practices, some might question whether it would be more beneficial to ban hyper-targeted advertising models and move back to a fee-based economy.

One of the most notable and disruption trends driven by the rapid growth and adoption of the internet is data-driven insights and the hyper-targeted advertising business model. The idea of how to make money was revolutionised, with companies like Facebook and Google offering ‘free’ services to the consumer in exchange for the right to analyse personal information and table contextually relevant ads, promotions, entertainment and content.

The idea of ‘free’ quickly caught on. Numerous companies started springing up all over society, offering services for no-charge, but monetizing personal information in some way or form. But the tides of public opinion might be shifting slightly. Thanks to numerous data scandals over the last 18-24 months, the Cambridge Analytica saga being the most significant, some are questioning whether this is a sensible and/or sustainable way to do business.

Over in the US, marketing agency McGuffin Creative Group has been asking some interesting questions to consumers; assuming the free option was removed from the app economy, how much would you pay for your favourite apps?

App How many would pay? How much on average?
YouTube 72% $4.20
Google Maps 78% $3.84
Google Drive 79% $3.31
Facebook 64% $2.92
LinkedIn 79% $2.84
FaceTime 79% $2.78
Reddit 77% $2.74
Venmo 66% $2.73
Instagram 70% $2.56
Facebook Messenger 66% $2.52
WhatsApp 89% $2.38
Twitter 72% $2.35
Google Translate 78% $2.29
Pinterest 74% $2.11
Snapchat 77% $1.89
Yelp 73% $1.87

The survey results above are interesting, though should be taken with a pinch of salt. Theoretical questions are all well and good, though we suspect the number of people who would pay when asked to actually put their hand in their wallet would be considerably less.

What the numbers do demonstrate is there is an opportunity for these services to make money through a subscription-based model, though it would only work if the entire app economy embraces such a vision. If an alternative app offers a free service, the proposition would be undermined and fall down on itself.

Of course, what is worth noting is that there are companies who are trying to swim against the tide and make the subscription model work. Gaming companies have stuck to the fee-based model, while Google is reportedly trialling a $5 a month service for its app service, Play.

What is also bearing in mind is that without the ‘free’ model employed by the app economy, it is unlikely growth would have materialised in such dramatic fashion.

Firstly, lets have a look at the astronomical growth which has been experienced in this segment. Facebook was founded in 2004, Google 1998, Pinterest in 2009, Twitter in 2006 and Reddit in 2005. This is just a small selection of embryonic businesses which have grown to form a collective which is perhaps the most powerful and influential alliance in today’s global society. These companies are discussed everyday in the news, used by billions around the world, cultivating opinion and prejudices, yet most are still effectively teenagers.

However, without the concept of ‘free’ being implanted in the mind of the consumer, it is unlikely such broad and universal scale could have been achieved. If the consumer was forced to pay for these apps and services, choices would have had to have been made. Consumers sign-up for everything and anything today because they can, and it does not cost them anything from a monetary perspective. Ask people to pay for something and they may become a lot more selective.

This is the issue with shifting back towards a fee-based economy; it will limit potential.

Just looking at the list above, your correspondent would have to pay $28.85 a month, or $346.2 a year. However, this does not include other apps and services which are also installed. For example, your correspondent also has the MeetUp, Google Podcasts, Play Store, Gmail, Spotify, Clash of Clans and ESPNcricinfo apps. Presumably, if the apps above were to start charging, these would also have to. All of sudden, the annual bill for app subscriptions could be north of $500.

This is where it becomes unrealistic. Your correspondent wouldn’t be prepared to pay that much and would begin to cull some services. We suspect numerous other users would be making some hard choices also. This is where the scale of the app economy could become under threat; the everyone and anyone attitude of the app economy would soon dwindle, and growth would diminish.

Another interesting impact might be in areas few associate with the ‘free’ movement. This is the ‘law of unintended consequences’ and it could be quite far ranging. Let’s take media as an example.

If you were to ban the internet giants from monetizing data for profits, surely the same ban would have to be passed onto the media industry. How pleased would the consumer be paying for news was reintroduced? What about price comparison websites, credit rating services, online gaming, dating, fitness trackers and financial planning services. All of these areas make use of data to generate profits, should they be allowed to do so?

Of course, what is worth bearing in mind is that Silicon Valley probably already knows this. There will have been people much smarter than you or I balancing equations, adjusting risk and estimating monetary potential of all different business models. The fact the internet economy persists with this approach to making money demonstrates it is the most viable and potentially lucrative of options.

Criticism against the internet giants and app economy has largely been directed towards an inability to manage user data (security and privacy) and well as a lack of engagement to educate the user on what the concept of ‘free’ actually means. These companies have been monetizing data for more than a decade, yet it is only in the last 12-18 months the consumer has become aware of how the ‘free’ concept actually works.

Silicon Valley is currently facing a major threat. It has not shown itself to be mature or willing enough to operate in a semi-self-regulatory environment, therefore changes are on the horizon. New regulations such as GDPR have tightened controls around data management and permissions, while there have been investigations launched to decide whether these giants should be broken-up for the greater good.

We agree there need to be changes to drive more accountability in the internet economy, and regulatory upheaval should be an objective, however it needs to be managed very carefully.

Some might suggest a transition back to a fee-based economy would be a sensible path to take, though we cannot imagine this ever being a realistic option. Firstly, opposition to such a move would be incredibly aggressive, though this is not necessarily a reason not to do it. Secondly, the disruption would be too great to manage. Finally, such a move would cripple growth prospects in a segment which is one of the biggest contributors to economic success in many nations around the world.

The companies which operate in the field of data analysis and monetization are the ones who are hiring. They are providing direct economic benefit to employees and societies, as well as indirect by stimulating economic growth in adjacent segments. A heavy-handed approach could be incredibly detrimental.

Some might want to take data analysis off the table when it comes to making money, but when you look at the bigger picture, you have to wonder whether it is a sensible idea. Change is needed, but we think this would be a short-sighted route.

Unlocking value in B2B at MWC

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Anders Lindblad, Communications & Media Industry Lead for Europe at Accenture, looks at unlocking value in B2B connectivity.

Growth in the communications industry has stalled and competition continues to intensify. CSPs know they must act and rethink their business models, but for too long there has been a lot of debate and very little action. We expect the buzz will continue on this topic at MWC. While some have put some form of change programs in place before, most of those have failed because they have been trying to patch up specific problems rather than taking a much bolder move to reinvent the way the whole business works.

Right now, CSPs are trapped, stuck in current operating models and the same old ways of doing things which make it hard to monetize investments and drive new growth. They are not ready yet to get rid of their legacy network and services since they still generate most of the (declining) revenue. This is preventing them to leverage their biggest asset: the capillarity and proximity to the customer. But the roll out of fibre and 5G could be the catalyst that encourages them to make drastic changes in the way they function and the products and services they provide.

The route to new growth is most likely to be in the B2B space, so expect to hear more about connected B2B possibilities and the importance of collaboration across vertical industries and value chains than ever before at the show. Discussions will be about the most efficient way to move from their legacy network and infrastructure and transition to a hybrid (cloud and on premise) software defined services portfolio, how to push the network intelligence at the edge, while embedding the OTT platform at the edge instead of being “embedded” by OTT, reinventing the device ecosystem leveraging the ‘decade of device divergence’ we are facing. Connected cars, connected health, augmented and virtual reality, is the prize of the game – the entire organisation will need to become much more agile and flexible to allow for front and back office supporting processes and technology to keep up with the possibilities.

The biggest B2B opportunity for CSPs could be in the SME segment. To succeed, they must adopt a bundling approach to services towards the customer, paired with intelligent pricing of their core services and drive simplicity through a digital-first approach and self-service capabilities. CSPs may have tried this approach in the past without success, but this time they can take a digital, platform-based approach to allow them to successfully simplify and standardize their offering portfolio, enable their own and third-party sales and services to effectively go to market and significantly bring down the cost to serve these customers. CSPs must have the courage to act now and renew their service portfolio quickly if they are going to retain and win market share.

Transforming the operating model toward customer centricity and agility, pushing the intelligence at the edge of the Network and injecting automation (Robotic Process Automation, AI) into the core culture, will provide a future-proofed foundation for communications companies to scale the value of their service portfolio for the B2B market and re-gain a central orchestration role in the device ecosystem that they currently don’t have.

The CSPs that understand the huge potential that B2B brings and move fast on new agile ways of working to adapt to these new capabilities will take the biggest share. If the opportunity is not captured NOW, using the newest and most innovative technologies available, and before the 5G ecosystem power game is settled, the market will find different winners, mostly coming for each vertical industry from over the top players.

 

Lindblad_300dpiAnders Lindblad is Accenture’s Communications & Media industry lead for Europe, responsible for business development and operations in the region and for helping clients form and deliver large-scale transformation programs.

Virgin Media joins the Netflix bonanza

Virgin Media is the latest telco to cash in on the aggregator trend, building on a partnership with Netflix to allow customers to pay for the streaming service through their Virgin Media bill.

Starting in October, builds on a partnership dating back to 2013, with Virgin Media claiming more than 700 million hours of programming have been watched through the Netflix app on Virgin TV’s platform. The team might be stating it was the first to lure the Netflix goldmine onto its platform, but it has turned into a fast-follower when it comes to integrating bills, after similar announcements from BT and Telefonica in recent weeks.

“Virgin TV has always been about giving our customers the TV they love all in one place,” said Jeff Dodds, MD of Consumer and Mobile at Virgin Media. “We were the first to embrace this open philosophy by embedding Netflix into our platform back in 2013 and it’s clearly something that our customers absolutely love. By expanding our relationship further we’re forming an even deeper relationship with our friends at Netflix and giving our customers a simpler way to pay for the service.”

Such partnerships are likely to become much more common as the telcos search for the much-hyped convergence business model. Content is seemingly a critical factor of this business, though attempting to compete with the traditional players in the content market by owning rights and distribution deals is a treacherous path; just ask the BT consumer business. Instead, providing a channel to the consumer, a content aggregator, is becoming a more popular idea.

As one of the most, or arguably the most, popular content streaming business on the planet, integrating the service into the media platform is a very sensible idea. It answers a frustration of the consumer, the increasingly fragmented distribution of content across different platforms, while also adding to the Virgin Media content experience, which could be deemed average at best. The more partners telcos like Virgin Media add into the mix, the more engaging the content platform will become, which in turn should reduce customer churn year-on-year.

The key word here is scale, as quality is unlikely to be a differentiator over the coming years. We suspect all major telcos with a content platform will have similar partnerships with the likes of Netflix before too long, therefore the differentiating factor for customers when choosing a telco will be simplicity. The more partners mean more bills which can be streamlined into one place. Unfortunately providing adequate breadth for the content platform will need a considerable amount of leg-work; it will be a long slog, but the rewards of the convergence business model are already beginning to become apparent for companies like Orange and Sky.

Could the future be one without mobile and broadband bills?

Seeing money leave your bank account is not something anyone likes, but how about a future in which mobile and broadband bills are a thing of the past?

Now before the telcos take to the streets in protest, hear us out because we’re not suggesting the internet becomes free. The idea here is connectivity is purchased by device manufacturers at wholesale prices, ‘embedded’ into said devices and used by the consumer in exactly the same way. The telcos will still get paid for their efforts, but the money will come from elsewhere.

Let’s talk about the positives of such an idea starting with the consumer. Right now for the consumer connectivity is one of the most important aspects of everyday life. It runs our social lives, banking, entertainment and work lives, as well as pretty much everything else. But the consumer does not care where connectivity comes from, just that it works.

But, when there are connectivity problems for the consumer, the world is going end. And with the mass market penetration of social media networks such as Twitter, don’t they let you know about it. Social media has given the masses a voice, and it can be deafening at times. By moving to the wholesale model, telcos would no longer have to deal with the demanding consumer, but instead single points of contacts at companies, who are likely to be a bit more rational.

Trading millions of customers for hundreds, while still delivering the same levels of connectivity is surely a benefit. The expense of customer services could surely be decreased, and the PR team would spend less time fire-fighting the divas on social media. Doesn’t sound too bad.

The second positive would be predictability. The consumer is unpredictable when it comes to demand on the network. Companies are more predictable and better at forecasting trends than Joe Bloggs. In such a wholesale model, of course there would be dynamic purchasing of capacity, but surely there could be a model where ‘connectivity contracts’ could be drawn out, allowing both sides to have a better view on how much ‘connectivity’ will be bought and sold.

This sounds very simple, but by having these contracts in place and managed properly, telcos should be better able to predicts spikes on the networks, better understand the flows of demand, and in a better position to manage such strain on the network. Such a set up could improve visibility, allowing the telco to improve overall performance and ultimately experience.

A final point for consideration is the financial side of things. Delivering the internet to the masses is expensive, that is probably not going to change, and the profit margins in the consumer world are only going to get smaller. The continued race to the bottom is ensuring profits are going to continue to erode. That said, moving across to a wholesale type model could offer financial gains.

Firstly, signing a contract with a device manufacturer could certainly be done on a longer term basis than with the consumer. Secondly, it could be done in a more consultative approach, where the telco is in on product development discussions to more readily hone the delivery of connectivity. And finally, it would remove the monstrous expense of trying to buy the loyalty of the consumer.

The advertising budget of the telcos must be substantial. The brands have to be everywhere online, in print, on radio and on primetime TV. Sponsorship of sports teams is also common, and experiential marketing initiatives will not come cheap either. Fighting for the consumers attention and preference is an expensive game.

The amount of cash generated through a wholesale business model would certainly be less be MB than selling directly to the consumer, but some might argue that due to the number exploding number of connected devices, the increased consumption might compensate for the decline in price. When you also remove the expensive consumer advertising budgets as well, the business case becomes clearer. The telcos might even become more profitable.

This is obviously a massive change. Not only in the operating business models of the telcos, but also in the way devices are manufactured, sold and delivered. Whether the device manufacturers (we’re also including products like TVs here as well) are happy to absorb the cost of connectivity is also unknown, but it could also create a new service business model for the manufacturers; a basic sell to the consumer could offer 10GB of data per month, but a premium model for £5 a month could offer unlimited.

Some devices manufacturers will be reluctant here, but the ambitious ones who can see the opportunity of moving into a services model could make cash. It would extend the relationship with the consumer and open up the idea of recurring revenue.

It would also mean the telcos would have to redefine themselves as an organization. This new wholesale model would commoditize data, it would move the telcos to another area of the value chain. Some telcos might be reluctant to move towards a commoditized business model, but we’re not too sure what the issue is there; if run properly, you can make a significant amount of cash out, just ask the oil companies.

Of course there will also be casualties. How will Kevin earn his bacon after EE tears up his contract?