Enlightened Myopia — Embracing New Revenue Models

By Grant F. Lenahan
Back in the 1950s, Dr. Theodore Levitt wrote a seminal article in the Harvard Business Review entitled. "Marketing Myopia". In this article, he argued that mature industries pigeon-holed themselves, and thus, "myopically" missed future opportunities.

Dr. Levitt's classic example was the railroads, run by "railroad men" who defined themselves, over time, as being in the railroad business. At first blush this seems reasonable. But it also was their downfall. They were really in the transportation business (and in the freight logistics business and in the hospitality business). By not thinking of themselves in the broader market of transportation, they allowed newer technologies – such as planes, automobiles, trucks and trains – to pass them by. Had they had a broader perspective from the beginning, these new technologies could have been used to make the railroads faster, cheaper and more effective at moving people and freight. But, they didn't.

The telephone business may be taking a cue from Dr. Levitt, having redefined itself as telecommunications. But have we learnt from the mistakes of the past? Not entirely. We're in the broader communications business, along with the web, radio, TV and newspapers, and need to define our future in this broad opportunity context.

This is not pedantic stuff. For too long, "telecom" companies have focused on transport and switching (or routing) infrastructure. Our addressable market is still largely defined by voice plus data services. Don't believe me? Look at most industry market analysis reports.

Yet the real opportunity is much larger. Outside telecoms, the dominant service has traditionally been content and the dominant revenue source, advertising. Content comes in many varieties – news, music, games, pictures, videos, blog posts, podcasts, etc. This content, whether it's a custom search performed by Google (News - Alert), a TV show on a major network, a news article in The New York Times or a weather report on the radio – is paid for by advertising.

Both content and advertising are huge businesses. The U.S. advertising business was $210B in 2007. Movie, TV, and music fees (although this is messier to calculate) exceeded $70B. The U.S. consumer telecom business (combined voice and data) is roughly $184 B (News - Alert). This demonstrates that not only can advertising and content grow our industry's revenues – they actually represent an opportunity that is ~$100B greater than our current revenues. Additionally, content and advertising – think TV – have long gone hand-in-hand.

Maybe the most interesting point is that telecom companies have the ability to be a far more effective advertising channel than any other. By virtue of the session (call) based model, given the right intelligence, telecom companies can target ads down to a market of one. Telcos (can I violate my own admonition and call them telcos?) can deliver targeted ads that are of specific interest to a consumer. They can deliver ads that are relevant based on time, location and based on a subscriber's recent activities. And telcos can deliver interactive ads – in which consumers can request information, make a reservation or do other useful things. In the end this is a win-win-win situation where consumers receive more useful (even desirable) advertising, advertisers develop a more effective channel, and telcos have a solid revenue stream based on high intrinsic value add to both of their constituencies.

There are a few keys to making all this magic work. Today's advertising delivery models don't achieve my lofty goals. They generally operate within a technology silo, such as directory, video, or messaging – and thus cannot take advantage of the best delivery method for the consumer. Today's implementations are also largely ignorant of a subscriber's context – that of the session (call); history; preferences; etc. Contextual information can and will play a huge part in helping ad engines select better, more relevant ads, and assist in delivering them as the consumer desires. Context can indicate where they are, who they are (or have been) calling, and myriad other useful information. Undoubtedly, many companies are looking into novel ways to leverage content. Telcordia (News - Alert), for instance, is already working with industry groups and advertising partners to define and implement a successful, technology-neutral and highly intelligent ecosystem in which context information, preferences and other factors improve the overall advertising process and the user experience.

Many have argued that "free" or ad-supported services will kill traditional paid-for telecoms services. I don't see that. In fact, "free” ad-supported broadcast TV has given way over time to paid-for cable TV. What appears clear is that there is a place for both fees and for ads, especially if the ads are perceived as relevant, useful and unobtrusive by subscribers. If they are not, technological workarounds will be created like the 30-skip functionality and ad-block browser plug-ins on DVRs.

As operators offer a variety of rate plans today, we envision a world in which consumers might have the choice of a variety of plans – each with a different mix of advertising and fees – suiting the budgets and ad-receptivity of various market segments (I suppose teens and executives will prefer different trade offs).

I'd like to leave you with a few thoughts about advertising and the sense of urgency that is rampant to fill the need before a competitors capitalize and profit from the possibilities that it presents.

1. ads will coexist with fees, in various blends

2. if you make ads useful, everyone wins

3. traditional stove-pipe implementations don't achieve this

4. and if we all do it right, there's more money available – not less!

That's a pretty nice way to start the new year, eh?

Grant F. Lenahan is Vice President and Strategist, IMS Service Delivery Solutions at Telcordia Technologies, Inc. (www.telcordia.com).

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