I have argued before that mobile operators are not a good marketing/distribution channel for startups launching new mobile services. At best, startups should see the mobile operators as a technology platform. They should not expect the operators to do demand generation for their new services.
Selling new services requires niche marketing and mobile operators are institutionally incapable of doing this.
I think of mobile operators in terms of a lifecycle. When they are building up penetration, as in India and other emerging markets right now, they are just focused on mass marketing and distribution. When the penetration growth game ends, as it did for most European mobile operators in around 2002-3 timeframe, a cost-cutting frenzy starts. This is the time when the existing marketing and distribution infrastructure is pared back (and rightly so). Often there is nothing that’s put in its place. Thus an opportunity to create a niche marketing capability is lost. DoCoMo, to a large extent, escaped this trap. But it’s an exception. So, by and large, mobile operators make terrible go-to-market (GTM) partners for new service creators.
If mobile operators are not a good marketing/distribution partner, what’s a startup supposed to do? After all, demand generation for a new service is costly and expensive. Viral methods may work for some services but not for others. Getting a leverage of a big partner can be the difference between success and failure.
A new door is opening
Instead of focusing on the mobile operator, the startup needs to pay attention to handset vendors. The handset market is going through a metamorphosis where sub-brands based on usage patterns have emerged. Sony Walkman series, Nokia E and N series represent this trend. Around each of these sub-brands, specialized distribution channels are now coming up.
The handset vendors are keen to build-out a whole ecosystem around each of their use-based sub-brands. For instance, as this recent IHT article points out, Nokia is the first to “try to build an ecosystem of content like YouTube, Reuters and the location services”.
The basic point is that a startup should now look to handset vendors and not to mobile operators, for leverage in the GTM strategy. If you are in any doubt about the wisdom of this strategy, just read this post by Marek Pawlowski about the growing irrelevance of mobile operators.
This is a critical shift
If the handset vendors also fail in niche marketing then the mobile services ecosystem will become even more hostile to startups. It will then start resembling the fast moving consumer goods (FMCG) sector where the high launch costs eliminate startups. In that world, P&G, Unilever and other big players rule the roost. Hopefully, the mobile industry won’t end up the same way.
In a way this handset vendor based GTM strategy is not a new idea. Some years back there was a false dawn around this very concept. At that time Nokia, in particular, had tried to become a channel for new services. But that was seen as a threat by the dominant operators of that time (as they were pushing their own mobile portals) and Nokia’s initiative was stamped out. That is unlikely to happen again. Handset vendors are wiser, and operators are much weaker now. So there is reason for hope.
Operators own the network and the customer, the 2 most important things that a mobile startup need when planning a GTM.
The value prop of a mobile VAS is to increase data usage thereby increasing ARPU. Hence you need access to the network and cut a rev share deal. From a marketing standpoint, you are right that they are clueless on how to effectively market niche services - this is where you step in and control that part, but you still need to work with them as they own the relationship with the customer.
Google is trying to be the default search tool on the mobile and need to bypass the operators to do this - there is a heated fight going on as operators try to control access via the operator wall garden portals. Google can probably make headway on the mobile without the operators given their established brand. But can startups do the same?
OEM’s are good to work with if your VAS needs a downloadable app - pre packaging it in the phone is a great way to get some distribution, but you still cant run away from the operators.
thoughts?
I agree that you can’t run away from the operators. For many VAS applications, say Voice SMS, you need them as a platform. My suggestion is that you use them as a platform but not as a sales/marketing channel. Sales/marketing, particularly demand generation, needs to be handled independently from the operators. This is where handset vendors can help.
Agree, OEM’s can and should be used effectively. Often mobile startups focus completely on the operators and do not plan for sales/marketing strategies independently or with OEM’s, since they still own the customers and the billing relationship. We just can’t run away from them.
The article you referenced (the one on the MEX blog) portrays the operator as having very minimal value today and really drives home a point, that we ought to look at other channels. It’s time that the upper hand falls in the VAS provider’s court who should be able to negotiate better rev share deals, if nothing else!