Noticed the mad rush of all the traditional telcos to bundle wireless, local, long distance and broadband? If not, you need to get in more and waste more time online and watching TV adverts. It's a big deal.
The theory of bundling is well known. Aggregate a bunch of things together where different people tend to place widely different values on them. Setting a price for the component parts results in under-charging some people while others walk away from the deal. Price them together and you smooth this out. It helps you get the best overall revenue stream. As a bonus, those bundled customers tend to have much lower churn.
The bundling approach of current telcos only being done because the strategic options are so limited.
A product differentiation strategy is tough because you're hung by your own petard of the PSTN: meaningful service innovation for the core voice product is nearly impossible. Wireless coverage is at the "good enough" stage for most network operators. (Many of the differences are perceived, not real. Discount your own anecdotes.)
Low price is painful as it's hard to build in low cost. You pay more-or-less the same as everyone else for truck rolls, spectrum and switch gear. There's only so much you can pare back on marketing. There doesn't seem to be a cost innovation in the offing equivalent to Wal-Mart's cross-docking, or Dell's direct sales and supply chain integration model.
And customer intimacy only goes so far. As long as you bill accurately and the service doesn't go titsup too often, nobody really cares that much. (On the other hand, screw it up and you'll be joining AT&T Wireless as a case study in business schools everywhere.)
Even worse, the research it is based on is misleading. Ask your customers if they would like to eliminate the hassle of multiple bills, passwords, websites and support numbers, and of course they say a big Yes. But they're never shown the real choices they will face in future. Would you dump local and long distance service entirely if you could get all the voice you needed for $15 from Vonage? $10? $5? Would you say the same thing if someone offered a cellphone which integrated beautifully with your Playstation? Your Mac? Your Yahoo! service? Would you switch from DSL to wireless broadband if it became available in your area? To your shiny new municipal fiber system?
A nasty part of the one-bill approach is that the back office is so hard. To get the cost benefit you need to be able to unify your marketing, reporting, collections, activations, retail, channel partners, fraud management, network capacity planning, CRM, care, e-commerce, sales -- the list goes on and on. Apparently trivial stuff like matching customer records and verifying those matches turns out to be hard work. To make it work you need to update huge numbers of business processes and systems. Each implemented differently by each division, subsidiary or partner. It's like changing the wheels on a moving car.
Bundling also helps setup internal strategic conflict. Why would the marketing VP encourage people to cut the cord when your bonus payment depends on selling bundled service? This helps explain why companies like Vodafone are 100% focused on wireless. They believe that service innovation will outpace efforts to lock customers in via wireline service.
The revenue upside is also hard to execute on. As more and more "data" products are externally sourced and operated, you're dependent on being at the cutting edge of federated identity to make the user experience acceptable. Wireless operators may have a modern enough infrastructure to do this. Wireline networks generally don't -- and without them your bundle falls apart.
Microsoft and Yahoo! must be licking their lips at the opportunity to make their services "home base" on top of any and every dumb pipe.
So once everyone has the "one bill" approach we'll be back to square one. The price floor is set externally by the government and equipment vendors. Competition from fixed wireless broadband access will squeeze you hard. The political fence you built as protection becomes a prison as high quasi-regulatory charges incentivize switching. Customer service and intimacy runs out of steam pretty quick. And the demand for service innovation just piles up and up behind the PSTN dam. Eventually the pressure will be too great.
People want secure voice calls, presence, and IM integration. They want seamless interoperation with their other IP-based devices like PCs and Playstations. Elimination of barriers between their AOL address book and their voice communications services. They don't always know they want it. But once they experience it, there will be no going back.
The result of decades without any innovation for the PSTN could be a dam burst. A switchover to IP-based service could be shockingly quick, like the rise of dial-up access ten years ago, or fax ten years before that. And if all you've got is a defensive bundling strategy, you'll be left holding a bundle of nothing.
UPDATE: Tired of playing defense? Here's the offense strategy.
Posted by Martin Geddes at 11:00 PMTrackBack URL for this entry:
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