The explosion of the Internet era and the shift towards IP-based traffic has had the most profound impact on communications service providers (CSPs) operations. The rise of digital economy services has disrupted the business models of CSPs as they seek to adapt to the ‘always-on’ digitally enhanced lifestyles of advanced consumers. CSPs, faced with unacceptably low growth rates and decreasing margins, are engaged in a great ‘data monetisation’ transition from depending on voice services, where margins were traditionally large and competition was low, to depending on data services, where the competition from OTT players is fierce and margins are lower. To maintain their market share, and even grow, CSPs of today need to transform into digital service providers (DSPs), which requires new partnerships, business models and technology.
The retailer analogy
The online retail landscape offers an analogy to how partnerships can add value to the overall offerings. Online retailers such as Amazon, Alibaba and eBay (to name a few) have built very successful businesses by opening up their platforms and engaging with a number of partners. By bringing on-board a number of partners, these companies were able to scale their business by offering variety, value and convenience. While the retailers own the customer experience, the partners add value to the ecosystem by bringing in their offerings on to the retailer platform. If they had attempted to do the same on their own without partners, it would have been time consuming, expensive and ultimately poor value to consumers.
This analogy provides CSPs a close parallel to what value partners can bring to their overall offerings. CSPs for the most part have trailed retailers in prioritizing digital engagements and monetizing digital services. However CSPs do have some inherent advantages such as existing customer engagements, established billing relationships and access to large swathes of customer data. Blending CSP understanding of the customer with unique partner offerings can create compelling offerings for subscribers.
The partner play
The proliferation of the internet economy and rapid growth of online services has made digital experiences well established in consumer mindset that it has significantly shifted customer behavior. Customers want more for less and they want it now. This has had significant impact on customer expectations from CSPs offerings. To ensure continued customer experience and to live up to lofty expectations, CSPs need to advance beyond offering simple connectivity to digital value added services.
Data is the primary currency in the digital economy landscape and partnerships will play a crucial in better monetizing data services. Partnering with third party players can add significant value to the CSPs digital economy service offerings. Each partnership is unique and typical use cases tend to vary significantly across regions. The key value propositions that third party service providers offer CSPs through partnerships are captured below.
1. Increasing data revenue
For subscribers with low data usage, such as those on prepaid contracts who are reluctant to make heavy usage of data services, CSPs can stimulate data revenue by offering services through partnering with third party content and service providers. Examples of such initiatives include offering subscribers discounted access to premium services such as streaming music and video on demand or giving subscribers ‘free’ access to stripped down version of some services such as Facebook or Wikipedia. Such offers are usually valid for a limited period with the ultimate aim of persuading users to pay for data.
2. Improving loyalty
Partners can also play a crucial role in lowering churn and improving loyalty. By providing compelling bundled offerings of OTT services, CSPs can compete on services rather than simply voice, text and data. For the subscriber, the perceived value of such bundles is higher and therefore the propensity to churn is significantly lower.
3. Creating new revenue streams
CSPs can also leverage partnerships to add value to their offerings by opening up new revenue streams. The nature of such services would vary by type across regions. For example, other than simply providing connectivity services to their end users, CSPs can potentially package with other 'smart' services, such as device management and platform services to make a compelling package. A CSP could also offer direct carrier billing (e.g. for Google Play), and thus enable billing for hundreds of services through one partnership. Other examples include offering financial services on CSP platforms, selling digital goods such as music and books, and other services such as train tickets and parking fees.
Digital economy services are gaining traction increasingly as CSPs seek to develop alternate revenue streams to make up for declining growth in traditional services. Besides, the significant capex outlay for network and system upgrades have forced CSPs to consider the opportunities in digital economy services. Partnerships will play a crucial role in enhancing the value of CSP offerings in the digital economy landscape. It can increase data revenues, improve loyalty and open up new revenue streams. The service capability and value proposition of CSP offerings improves considerably as it leverages partner services and capability. CSPs cannot afford to go it alone in digital economy services; partnerships are crucial and can be the difference between success and failure.