Rebuilding value & control via a 2-sided business modelChris Barraclough, MD, STL Partners/Telco 2.0

Agenda

• What is a business model?

• Problems with Telco 1.0 business model

• New opportunity: Telco 2.0

A business model is the COMMERCIAL architecture of a business: how it makes (or loses) money

Source: Faber et al; Designing business models for mobile ICT services, 2001; adapted and developed by STL PartnersNote: Each domain breaks down into several inter-related components that make up the overall business model.

Service Offering

Finance

Value NetworkTechnology

The marketplace

A 5-domain model

The success of a company’s (or collection of companies’) business model is ultimately a function of two factors

Value Control+

• Low/no growth in end user revenues

• More companies sharing revenues and generating costs

• More substitute products

• Unable to match free

Telco 1.0 business model is now under pressure in several domains

Source: Ballon 2007; STL Partners analysis

• More modular technology

• Decentralised network intelligence

• More punitive regulation

Value Network Technology

Control Drivers

Service OfferingFinance

Value Drivers

The Marketplace

Control & Value Drivers

• Less vertical integration

• Weaker customer relationships

Sexy new services paid for by end user will NOT yield continued revenue and profit growth

Short term revenue growth only +

Medium term capacity & cost issues =

Falling margins, lower profits…

Pre-2005• Retailer of books and games

Now• Retailer + platform (Amazon Marketplace)

Amazon – retailer-cum-platform provider

Pre-2005• Retailer of books and games

• 52,000 SKUs

Now• Retailer + platform (Amazon Marketplace)

• 100,000s of SKUs

Amazon – retailer-cum-platform provider

Pre-2005• Retailer of books and games

• 52,000 SKUs

• Revenue from end user sales

Now• Retailer + platform (Amazon Marketplace)

• 100,000s of SKUs

• New revenue from enabling services to traders

Amazon – retailer-cum-platform provider

Pre-2005• Retailer of books and games

• 52,000 SKUs

• Revenue from end user sales

• Profitable but margin squeeze

Now• Retailer + platform (Amazon Marketplace)

• 100,000s of SKUs

• New revenue from enabling services to traders

• Profit underpinned by platform

Amazon – retailer-cum-platform provider

Pre-2005• Retailer of books and games

• 52,000 SKUs

• Revenue from end user sales

• Profitable

• Best-in-class logistics

Now• Retailer + platform (Amazon Marketplace)

• 100,000s of SKUs

• New revenue from enabling services to traders

• Profit underpinned by platform

• Improved, lower cost logistics (more scale)

Amazon – retailer-cum-platform provider

Pre-2005• Retailer of books and games

• 52,000 SKUs

• Revenue from end user sales

• Profitable

• Best-in-class logistics

• Big consumer base, strong relationships:• E.g. peer reviews

Now• Retailer + platform (Amazon Marketplace)

• 100,000s of SKUs

• New revenue from enabling services to traders

• Profit underpinned by platform

• Improved, lower cost logistics (more scale)

• More customers, stronger relationships:• E.g. Premium logistics – Amazon Prime

Amazon – retailer-cum-platform provider

A new telecoms business model

$ $

Source: STL Partners Analysis

• New revenue source from upstream customers

• Services more complementary

• End-users add value to platform

• More customer intimacy

A successful Telco 2.0 business model restores elements of value and control to the Telco industry

• Single platform for multiple industries

• Operator remains gateway to end users

• Centralised intelligence – resides in platform

• Unclear – potentially a move into less regulated markets

?

Source: Ballon 2007; STL Partners analysis

Value Network Technology

Control Drivers

Service OfferingFinance

Value Drivers

The Marketplace

Control & Value Drivers

Three things required to bring Telco 2.0 to fruition

Leadership

Skills

CollaborationMY CONTEXT

Location Presence

On/OffRoaming

MY CREDIT

Bad debt Demographics

Average balance

MY PERSONAL DATA

MY CONTENTMY IDENTIFIERS

MY INTERACTIONS

MY RELATIONSHIPS

MY DEVICES

Name

Address Gender

ProfilePreferences

SIM SoftSIM

Serial NumberDevice details

Number SIP Number

IP Address

Pictures Videos

CalendarAddress Book

Bank School

FriendsWorkplace

Browsing History

.mobi domains QR Codes

Source: STL Partners analysis

$375 billion opportunity (not guaranteed!)

2007 2017

VAS Platform

Distribution Platform

Telco Retail Platform (& existing Wholesale)

$1,230bn

$689bn

EU-27 and North American Telecoms

Source: STL Partners, Telecoms Two-Sided Business Model Opportunity and Future Broadband Business Models, both published in 2008

Thank You

More at www.telco2.net