The Next Generation Business Strategy for Wireless Carriers

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The Next Generation Business Strategy for Wireless Carriers

3G User Interface Resource Centre (www.3GUI.com) 1

This paper was published by

3G User Interface resourcecentre

( www.3GUI.com )

Published: September 2003

Authors:

Steve Jones,Founder,

The 3G Portal UK

Email:[email protected]

www.the3Gportal.com

Jae Choe,Marketing Director,

Design UNIT South Korea


www.designunit.co.kr


The power of the User Interface to re-energise the industry

Summary

With carriers revenue expectations not being met…

Today, wireless carriers are struggling to deliver the kind business performance

that was expected just a couple of years back. In brief, debt is high, confidence is

low, market growth has stalled and wireless services are becoming a commodity.

The early growth phases for the industry, when they found a way to sell wireless

cheap and promote the cult of handset personalisation, have now ended

…the mobile phone user interface is poised to become the new growth catalyst…

Fortunately, a new growth phase is about to start, where the handset user interface

(UI) will be king. This phenomena is already evident; Motorola is now uniquely

tailoring the software that drives the UI of its handsets for the largest carriers in the

world, a number of middleware companies are marketing their own platforms that

sit on top of the resident operating systems of handsets, while the best of the

Graphical User Interface (GUI) elements from the PC (especially the Mac) world,

are being transplanted into the user interface of a mobile phone device.

…and usher in a new business model for the industry

The paper presents the case that this development is not simply a temporary fad, a

dressing up of the handset in some new clothes until more important matters like a

3G launch can be justified. Instead the paper lays out a new business model that

demonstrates how if mobile operators embrace a new business strategy; that of

developing easier-to-use interfaces for their subscriber's phones, then this can

drive up individual ARPU and loyalty. And even more importantly, lead to the

creation of a new class of person-to-person applications that will kick start

penetration growth and deliver a long-term uplift in revenue.





Carriers $ expectations not

being met

Debt is high

Confidence is low

Market growth has stalled

Wireless services arebecoming a commodity

The early growth phaseshave now ended

A new growth phase isabout to start, where the

handset user interface (UI)will be king

Introduction

Today, wireless carriers are struggling to deliver the kind business performancethat was expected just a couple of years back. The promise of 3G revenues andhigher margin data services may well be delivered eventually – but they need a biguplift in revenue growth now!

Carriers in Europe are saddled with $100 billion in debt from 3G licenses. Carriersin both Europe and North America face expensive infrastructure improvements for 2.5 and 3G, with estimates at $200 billion in Europe, and $300 billion in the U.S.

These are not trivial investments but sadly there has been a loss of confidenceamongst the carriers about the strategy that might make these investmentscommercially rewarding. These nervous jitters have been infectious in that thosebest placed to provide the wherewithal for future infrastructure spending have heldback.

The capital markets and investors now seek to sell their money to carriers at apremium to cover the higher risks, while carrier stock prices remain depressed,making it harder for them to obtain low cost funding. Alongside these pressures:

1) wireless voice revenues are flattening,2) data revenues are far behind the expectations set some 18 months ago,3) subscriber penetration has stalled in Europe (80% in some countries) andapproaching saturation (defined as 60-70%) in North America and some partsof Asia (62% in South Korea).

Digitwireless.com in their assessment of the wireless carrier position said,

“…wireless phone service is becoming a commodity market where themajor focus of competition is price. Market share seesaws back and forthamong the incumbent competitors as subscribers churn through themost attractive pricing plans for the month. ARPU (average revenue per user) growth is nearly flat, CPGA (cost per gross subscriber add) is onthe rise, and churn is hard to control in an increasingly commoditizedmarket”.

The earlier quest for growth had two phases, first was finding a way to makewireless services affordable – pre-pay helped with that. The second was to makehandsets a highly desirable possession, not just for its functionality (phone calls onthe move) but through its appearance – such as changeable covers, personallyselected ring tones and screen logos. These phases have effectively ended.

Fortunately, a third wave of growth is about to start – and it is based on making theexperience of using the handset a delight. The delight will come from a new breedof user interface – incorporating a fresh take on handset sounds, graphics,navigation logic, menu structure and more, that in turn makes the wireless dataapplications behind the interface work faster, easier and more effectively.





The battleground for UI supremacy suggests a new

business model will soondrive carrier strategy

This phenomena is already evident; Motorola is now uniquely tailoring the softwarethat drives the UI of its handsets for the largest carriers in the world, a number of middleware companies are attracting the attention of analysts (positive, in their case) and phone makers (negative from their point of view) as they market their own platforms that sit on top of the resident operating systems of the handsets(whether they be Symbian, Pocket PC, Palm or Linux), while the best of theGraphical User Interface (GUI) elements from the PC (especially the Mac) world,and more recently the PDA arena, are being transplanted into the user interface of a mobile phone device.

This paper presents the case that this development is not simply a temporary fad,a dressing up of the handset in some new clothes until more important matters likea 3G launch can be justified. Instead the paper lays out a new business model thatdemonstrates how if mobile operators embrace a new business strategy; that of developing easier-to-use interfaces for their subscriber's phones, then this candrive up individual ARPU and loyalty. And even more importantly, lead to thecreation of a new class of person-to-person applications that will kick startpenetration growth and deliver a long-term uplift in revenue.





Next generation servicessuccess is driven by 2

functions – UI and applications

The 2 factors together must be ‘delightfully rewarding’

UI covers many points of company-user contact

Handset UI is the most critical

‘Social applications’ will become the new buzz word for the next gen of wireless

services

The next generation business strategy for wireless carriers

The two most important success factors for 3G

There are two factors that will have the most impact on the take up of nextgeneration wireless services.

They are:1- the device’s user interface (UI)2- the applications that this UI drives

Others might rate two of the following as the most important instead – the tariffs,customer service, service availability or battery life. But the bottom line is thissimple, if 3G phones are complicated to use and the applications suck, then lowprices, fantastic support, ubiquity and endurance will count for nothing.

The goal for those most able to influence the handset’s user interface and createappealing applications has to be, in brief – to offer the wireless subscriber “adelightful user interface” and a diverse array of “emotionally rewarding socialapplications”.

What is meant by “a delightful user interface”?

The widest definition of “user interface” (UI) in the context of a wireless serviceproposition covers all points of contact between the wireless subscriber and their service provider – where points of contact refer to something the service provider does or offers that has an impact on the opinion and behaviour of the actual andpotential subscriber to their wireless service.

So this idea of “UI” can include the customer service centre, retail staff, the in-storesignage and sales documentation, the operator’s web site and of course, thehandset itself – particularly it’s onscreen instructions, its audio and visual inputsand outputs; and the handset’s tools for navigating and viewing these facets.

The forthcoming analysis will focus on the latter elements of the UI – the visual,audio and navigational elements of the handset. This paper argues that it is theseUI elements that will be most critical to a carrier’s future success. It is these thingsthat make the experience of using the wireless device a delight, a nightmare or inconsequential from the users perspective. The goal is obviously to make theexperience a delight!

What is meant by “emotionally rewarding social applications”

A “social application” is a concept that, thankfully, is coming increasingly into thelanguage of those observing and working within the service creation side of the 3Gwireless industry (see the bibliography).





They can enable moreintense interactivity

between community members

The 1 st social app wasvoice services

Social applications, not network downloads, from

the network will bewireless’ saviour

A delightful UI and rewarding social

applications are inter-related

UI improvements candelight the individual…

It can refer to those kinds of services that can be delivered wirelessly that helpmobile phone users widen, deepen and increase their social networks. This genreof service facilitates greater diversity (and volume!) of exchange between membersof different social communities such as a group of school friends, the circle of immediate family members and say, the supporters club of a top football team, for example.

The first of these wireless “social apps” was, of course, voice based mobileservices, then more recently text-driven applications like SMS. Researchcommissioned by the UMTS Forum and i-Society continues to show that users of these kinds of social applications find them “emotionally rewarding” because of theway they facilitate and strengthen person-to-person communications.

In the future, the wireless industry will come to accept that the new applicationswith the most chance of success are those that deliver emotionally and sociallyrewarding benefits to the subscribers of their 2.5G and 3G network services. Thewireless industry is currently locked into the wrong mindset believing a server-to-many download model is the basis of its future success.

How can both come together – and reinforce each other

The twin goals of “a delightful user interface” and “emotionally rewarding socialapplications” can be shown visually below in Figure 1.

Figure 1 – the 2 factors that impact the most on new wireless service take upFactor 1 = User Interface improvements and Factor 2 – introduction of Emotionally Rewardingapplications

By making tangible improvements to the UI – particularly the visual, audio andnavigational elements of the handset – the impact is a delightful, positiveexperience for the individual .

UI > Tangible Improvements

OUTCOME

ReducesApparent

Complexity

IMPACT

IndividualLevel

IMPACT OUTCOME

CommunityLevel

Enablesdevelopment

Of moreEmotional &

SociallyRewarding

apps

• Colour• Icons• Navigation logic

The 2 factors impact the most on new service takeup

Intangible Improvements < UI• Easier to communicate the more complex• Enables simple combination of diverse outputs• Supports the creative process - less costly/more imaginative apps

Factor 1

Factor 2





…and lead to new kinds of wireless apps

UI improvements opensdoors to killer wireless apps

UI is the start point in anew virtuous circle…

…delighting individuals

…inspiring applicationdevelopers

The consequence of the tangible improvements to the UI are that other opportunities arise, such as the capability to more easily manage (via the UI) a newrange of wireless services; services that are more complex than just voice and textcalling.

A user interface that has the potential to control and manipulate more complexforms of navigation, multi-media services, transmission options and other factorsthat are subject to the limitations of today’s user interface, dramatically becomesthe Holy Grail for wireless application developers.

This now opens the door to the development of the long sought after genre of killer applications for 2.5G and 3G – increasingly certain, in our eyes and others(including the UMTS Forum and i-Society) to be those based upon delivering anew generation of emotionally and socially satisfying person-to-person (P2P)experiences – wirelessly.

Figure 2

The graphic above (Figure 1 with additional annotations) shows a virtuous circle,where the starting point [ 1] delivers tangible improvements to the user interface, soreducing apparent complexity (but in reality making it easier for more complextasks to be undertaken on the wireless device).

This event impacts at the individual level [ 2] providing the user with a moredelightful experience.

The improvement in the user interface that has the most consequences for thewireless industry, is not just delighted users, but the opportunities it providesdevelopers to [ 3] imagine, communicate and create the socially rewardingapplications that the thought leaders of the wireless industry see as the future killer applications.





…promoting intense person-to-person

communications withinsocial communities

The importance of UI development to the carriers

is – future revenuegrowth…

…and carriers must takethe lead role as they have

the most to gain

The commercial rewards of this leadership position are

two-fold

This outcome, in contrast with that of user interface enhancements [ 1] is not at theindividual level [ 2] but the community level [ 4] as socially rewarding applications bydefinition are focused on facilitating more intense kinds of person-to-personcommunication amongst those who belong to distinct communities.

Having gone full circle, it is easy to see that taking the new emotionally rewardingapps and subjecting them to further improvements in their user interface elements,delivers even more user delight and opens up the options for developers to createnew genre’s of social applications. And so on around the circle.

Why is “a delightful user interface” combined with “emotionallyrewarding social applications” so important to the wireless operator?

Earlier we proposed that there were two factors that will have the most impact onthe take up of 3G services, i.e.

- the device’s user interface- the applications that this UI drives

Besides the logic we used at the start about other factors being redundant if thedevice was not enjoyable to use and didn’t have the a great range of applicationswith high levels of person-to-person interchange, there is one overriding reasonwhy these two factors will have the most impact on the wireless industry – futurerevenue growth.

There now follows an exposition of why the wireless operator has the most to gaincommercially from taking the leadership role when it comes to user interfacedefinition and commissioning the creation of social applications.

In the course of this examination, it also becomes plausible that the wirelessoperator who commissions a family of social applications should also direct thecreation of a complementary user interface that accesses and runs those sameapps. Harmony is everything!

The crux of what follows for the wireless operator is this - that through championing complexity-reducing UI developments that make the emergence of appealing

person-to-person apps so much easier, they will drive a two-fold beneficial impact on their future revenues.

Benefit 1 : The operator that enhances an individual’s delight increasesthe monetary lifetime value of the subscriber

The proposition we will now go on to illustrate is that – the enhancement of anindividual’s satisfaction with the operator-defined UI for accessing their wirelessservices drives the monetary lifetime value of the individual subscriber upwards.





1st , a UI that pleases anindividual can generate

intense loyalty…

…so delivering to thecarrier revenues for longer

2 nd , apps that emerge fromUI innovation can

encourage more intensewireless communication by

more and morecommunities…

In short, an appealing UI that makes it a delight to use the ‘social’ applications thatare run by it, can also help sustain the loyalty of the individual to that wirelessservice provider (especially if that UI is exclusive to the wireless operator). AppleComputers and others have demonstrated the commercial benefits of this‘delighting the user’ UI strategy – long term loyalty and long term revenueexpenditure with that service provider.

So Factor 1 – a “Delightful User Interface” - in simple financial terms, will lengthenthe time-axis of the classic wireless revenue model, so extending the period over which revenues will be earned from the individual wireless subscriber - see below:

Figure 3

Benefit 2 : The operator that provides social network enhancing appswill drive upwards the absolute volume of total spend on wirelessservices

The proposition we will now go on to illustrate is that – a community’s enjoyment of the new range of emotionally satisfying and social network enhancing apps,(facilitated by this improved UI), will also drive upwards the absolute volume of thetotal spend of the subscriber base on wireless services.

If well executed, this is the genre of apps that people “will be willing to pay for” –(said UMTS Forum paper – “Social Shaping of UMTS” 2003). The irresistibleappeal of ‘social’ apps to wireless subscribers has been attested for by a number of reports appearing in 2003 (see this paper’s bibliography).

OUTCOME IMPACT $ BENEFIT

IndividualLevel

IncreasesLoyalty

IncreasesLifetime

$ Value of Individual

Subscribers

Lengthens theTime-axis

$ Revenue

ReducesApparent

Complexity





…so delivering to thecarrier, higher levels of

revenue

In summary, socially rewarding apps raises theheight of the revenue-axis

While delightful UI’slengthens the time-axis

over which revenues areearned

So Factor 2 - “Emotionally and Rewarding Social Applications” - in simple financialterms, will extend the height of the revenue-axis of the classic revenue model, soincreasing the total volume of revenues that can be earned from the community of wireless subscribers – see below:

Figure 4

How an emotionally delightful user experience drives the wirelessoperator’s ‘revenue engine’

So it is now clear how the dynamics of ‘delightful’ UI development that make theemergence of emotionally satisfying person-to-person apps so much easier, canlead to a two-fold beneficial impact on the future revenues of the wirelessoperator. This is shown below:

Figure 5

$ BENEFIT IMPACT OUTCOME

Time

$ Revenue

Increases$ Spend betweenCommunities of

Subscribers

Raises the height of Revenue-axis

People willPay - whatever

CommunityLevel

Enablesdevelopment

Of moreEmotional &

SociallyRewarding

apps


Time

$ Revenue


‘delightful UI’ ‘socially rewardingapps’





The benefits extend beyond a simple ‘more

revenues for longer’ scenario…

…there is a ‘doublewhirlwind’ effect

1st effect is that great individual user experiences

attract more individuals tothe carrier

The fit of this “revenue engine” to the development process can now be clearly seen within the model presented earlier (Figure 1 above). This is shown below:

Figure 6

To make matters even more exciting, especially if you are the person responsiblefor driving the revenues of a wireless operator – not only can you now see (Figure6, above) the rewarding two-fold impact on the revenue model within the context of the original graphic that showed how appropriate UI development could driveappropriate application development…it gets better!

The one drives the other – in the sense that the development process will beiterative, in that new ‘social’ applications will through their regular use, encouragefurther improvements in UI, driving new and improved social apps – and aroundagain you go!

Because of the way this feeds the wireless carrier’s revenue model in a positiveway, then the two-fold beneficial revenue impact is greatly enhanced – the doublewhirlwind effect – as we call it – in both the horizontal and the vertical axis (i.e. timeand revenue axis) – [see red boxed graphic above in Figure 6].





2 nd effect is that great social apps create more

types of wirelesscommunities using the

carriers services

The bottom line is that thecarrier’s revenue engine

experiences perpetual motion

In short, the more delightful the UI makes the apps, the more enjoyable the social and emotional lot of the wireless subscriber becomes. This harmonious outcomecannot fail to draw in, even faster, more types of individuals in to adopting theservices of this operator, with all the concomitant commercial benefits of extended loyalty (mentioned earlier). This is the first whirlwind effect! [see the grey boxed graphic – right hand side below in Figure 7]

This effect of a growing and diverse subscriber base leads to the second whirlwind effect – this time on the left hand side of the model, i.e. where there is an impetusto create even more imaginative social apps.

Why? Because of the increasingly easier challenge to the developer (and lucrativecommercial rewards to the operator) of creating UI-led, social apps to bring more

people together within more extended communities to which they belong. Theseextended social groups could include – the neighbourhood watch group, thefootball club people support, and their public library membership, whatever. Thenew classes of social applications will enable people to wirelessly engage withmembers of the more diverse communities that they belong to - more easily and more frequently than they do at present. [see the grey boxed graphic – left hand side below in Figure 7]. The graphic below brings all these ideas together:

Figure 7

UI > Tangible Improvements

OUTCOME

ReducesApparent

Complexity

IMPACT $ BENEFIT

Intangible Improvements < UI

IndividualLevel

IncreasesLoyalty

$ BENEFIT IMPACT OUTCOME

IncreasesLifetime

$ Value of Individual

Subscribers


Time

$ Revenue

Increases$ Spend betweenCommunities of

Subscribers


People willPay - whatever CommunityLevel

EnablesdevelopmentOf more

Emotional & Socially

Rewardingapps

Graph to show commercialBenefits to the operator

The most important outcome of repeated iterations

As using the new apps becomesless complex, more types of

‘individuals’ are pulled into thesubscriber base

1st Early Adopters2nd Early Majority3rd Late Majority

4th Laggards

As more complex social andemotional needs are catered for,

the more types of communityinteraction are supported by the

mobile devices, i.e.Personal Social Networks

Affinity GroupsGeographic Clusters

• Colour• Icons• Navigation logic

• Easier to communicate the more complex• Enables simple combination of diverse outputs• Supports the creative process

- less costly/more imaginative apps





Carriers can re-energisethe wireless industry by

leading a UI revolution…

…and so re-start growth in ARPU, penetration and

revenue growth

We dub the above - the “Emotional Delight - 2 Factor business model”. This cannow be seen to be a wireless operator’s commercial nirvana – the virtuous circlethat so far has eluded the commercial rationale behind 3G investment. It is abusiness a model that would drive 3G subscriber uptake and the emergence of anappealing genre of 3G killer apps – around and around again – threatened only if members of society lost their will to communicate with other people!

Conclusion

In conclusion, wireless operators have the opportunity to re-energise the revenuemodel of their industry. It requires a new self-confidence. One where they see thatby taking a brand new leadership role in driving the user interface (– i.e. the visual,audio and navigational elements of the handset), they can set off events that leadto the creation of a fresh next generation of person-to-person communications.

These social applications will both increase the loyalty of the individual subscriber and at the same time grow the diversity of communities that use wireless devicesintensively in order to thrive and deepen the relationships of its members. Theoutcome of both of these events will be increased ARPU, penetration and asubstantial growth in total expenditure on wireless services respectively.

Written by

Steve Jones,Founder,

The 3G Portal UK


www.the3Gportal.com

Jae Choe,Marketing Director,

Design UNIT South Korea


www.designunit.co.kr

September 2003

More Information:

Further writings on wireless device User Interface (UI) issues and a free regular newsletter coveringall aspects of a wireless device’s UI can be found at www.3GUI.com

Bibliography:

ß

“Social Shaping of UMTS – Preparing the 3G Customer” – UMTS Forum, January 2003ß “Mobile Phones and Everyday Life” – i-Society, March 2003ß “The History of communications and its implications for the Internet” – Andrew Odlyzko,

2000ß “Social Software and the Politics of Groups” – Clay Shirky, March 2003ß “3G Launch Strategies – Steve Jones, The 3G Portal/Tarifica, July 2002ß “The next wave of 3G services” – Steve Jones. The 3G Portal, *late 2003

* Sign up for latest information on publication date – send email to [email protected]

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The Next Generation Business Strategy for Wireless Carriers