STL Partners

Telco 2.0 Growth & Innovation

Digital Asia 2012 Event Analysis Report: Is your business moving fast enough?

Summary: At the Digital Asia Executive Brainstorm in Singapore, December 2012, we saw that all economies in SE Asia are now innovating rapidly in digital commerce, entertainment and public sector services, and in mobile in particular. There are both unique opportunities and transferable lessons, and a key theme is that companies need to transform even faster to take advantage of the opportunities and prosper. (December 2012)

Digital Asia report header slide

Below is a preview of the Executive Summary of the detailed report from Digital Asia 2012. The full report is available to download below in PDF format to event participants and members of the Telco 2.0 Executive Briefing service. Non-members can subscribe here. To find out more and for all other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003. We'll also be discussing our findings at future brainstorms.

Introduction: Digital Asia 2012

Digital Asia took place on 3-5 December, 2012, at the Capella Resort Hotel, Singapore.

DOWNLOAD REPORT

Part of the New Digital Economics Executive Brainstorm & Innovation Series, it built on output from recent events in San Francisco, Singapore, London, New York and new market research and analysis, and focused on new business models and growth opportunities in digital commerce, content and the cloud in South East Asia.

Produced and facilitated by business innovation firm STL Partners, the event brought together 80 specially-invited senior executives from across the communications, media, retail, banking and technology sectors, including: (ART+DATA) Institute; AEIS; Aircel Ltd; Amdocs; American Express; Brightcove; CEA; Comviva; Crystal Interactive; CSG International; DBS; Ericsson; Experian; Eyelevel Interactive; Frog Asia; Global Voice | TM Global; Globe Telecom; Google; Infocomm Development Authority; Ithos Digital; Jana; MasterCard; McCann Group; Minutrade; Ogilvy; Openet; Peppers & Rogers Group; PLDT Group; Singapore-MIT Alliance; SingTel; Sony Music; Standard Chartered Bank; StarHub Ltd; STL Partners/Telco 2.0; Telcentris; Telenor Group; Telkom Indonesia: True Corporation; Turner; Unilever Asia; Universal Music Group; Verifone; XL Axiata.

The Brainstorm used STL’s unique ‘Mindshare’ interactive format, including cutting-edge new research, case studies, use cases and a showcase of innovators, structured small group discussion on round-tables, panel debates and instant voting using on-site collaborative technology.

This note summarises the key themes emerging from the Brainstorm.

For further information, please contact Andrew Collinson, COO & Research Director, STL Partners, andrew.collinson@stlpartners.com.

We’d like to thank our sponsors:
Digital Asia 2012 Sponsors

Executive Summary

At the Digital Asia Executive Brainstorm in Singapore, December 2012, we saw that all economies in SE Asia are now innovating rapidly in digital commerce, entertainment and public sector services, and in mobile in particular. There are both unique opportunities and transferable lessons, and a key theme is that companies need to transform even faster to take advantage of the opportunities and prosper.

This summary (and the document in full) follows the structure of the brainstorm, covering:

  • Digital Economy: The Market 2.0 & The Consumer 2.0
  • Digital Infrastructure 2.0: 4G, Cloud & CDN
  • Big Data: Exploiting the 'New Oil' of the New Economy
  • Digital Commerce 2.0: #1) Payments and Money; #2) Advertising and Marketing
  • Digital Content 2.0
  • Digital Platforms 2.0

Market 2.0: SE Asian 'Digital Supernovas' are booming

The Brainstorm focused on the SE Asian economies of Indonesia, Thailand, Malaysia and The Philippines, which we characterise as 'SE Asian Digital Supernovas' - fast developing with massive and broadly youthful populations (242m, 69m, 28m and 95m respectively, totalling 434m).

The Brainstorm also explored innovative examples and case studies from India, China and Singapore, and lessons from Europe and other parts of the world.

As overall regional context, Google's MD SE Asia, Julian Persaud said 'The Mobile Internet is going to Asia'. For example, 3 of the top 4 countries for global app downloads on Google Play (after the US) are Asian: Japan, Korea, and India.

Overall internet access has grown massively in the region as shown in Google's charts below, and the past two years have seen significant further mobile uptake.

Figure 1 - Growth in Internet Users 2000-2010
Growth in Internet Users 2000 - 2010

There is business optimism in SE Asia compared to European telecoms markets in both current business outlook and the field of new business opportunities. For example:

  • SE Asia participants predicted at least 2% growth in core telco services revenues until 2017, whereas EMEA participants generally agreed with STL Partner's forecast of an ongoing steady decline amounting to a 24% loss.
  • The following chart shows relative SE Asian optimism on telcos' ability to retain control of key points in the Digital Economy - although neither have much time.

Figure 2 - SE Asian Delegates were more optimistic on new business areas than EMEA on time left in years for 'telcos to create or retain key control points in the Digital Economy'
time left in years for ‘telcos to create or retain key control points

(Notes. 1. The question was How many years do telcos have left to create or retain key control points in the digital economy? 2. The option ‘5 years or more’ was weighted at 5 years only for simplicity to calculate these averages, so a ‘true’ average is likely to be somewhat higher for ‘transportation of bits and bytes’ in particular.)

Consumer 2.0: necessity drives ‘value for money’ innovations in SE Asia

Minimum cost, maximum appeal

In these large highly price-sensitive markets, despite the lower penetration of smartphones, services that provide additional benefits to users for no direct cost or small incremental costs can grow rapidly. Hence WiFi, OTT communications services (where practical and allowed), and social networks like Facebook are extremely popular.

High churn to better value packages, multi-SIM usage and SIM boxing (a means of re-routing calls to avoid termination rates that delivers cheaper calls to customers but defrauds operators and government tax collectors) also play to this appeal.

Added value, thinly sliced

In terms of core services, this means that innovations that provide ‘thinly sliced’ services which give limited access for minimal additional spend (e.g. ‘Facebook only data packages’) are highly attractive to many customers. Relative consumer openness to sharing their data also creates opportunities for innovative brand or merchant-funded propositions.

Different economies, different problems to solve, different opportunities

There can be a temptation for service providers to import the latest great idea to a new market from somewhere else they’ve seen it work.

While it is smart to learn from other markets, it is not necessarily the case that a solution that works in one market will work in another. In commerce, for example, the problem in SE Asia is not an incumbent banking system that could be improved but the relative lack of efficient and trusted cashless finance solutions in the wider economy. In economies like Indonesia, where mobile penetration is substantially higher than banking, mobile commerce has a serious opportunity to create useful ‘leapfrog’ solutions and innovations.

Whereas many operators in Europe and North America are facing significant ARPU declines, the relatively low ARPUs that exist in most SE Asian markets may paradoxically represent an opportunity. Where ARPUs are low (and customer volumes high), it takes only a small increase in ARPUs to “move the needle”. This could potentially see operators in the region taking far greater interest (and senior management attention) in business opportunities overlooked by their peers in Europe, North Asia and North America.

In terms of digital content, there are opportunities for monetisation in SE Asia, but a successful approach is therefore likely to be different than in Europe and North America.

And overall, global goliaths like Google and Apple are less prevalent in SE Asia, creating a little more space for local and regional players - for the time being at least.

Regional and local opportunities need action now

These many factors mean that there are regional and local opportunities to create new services employing new business models. But the windows to take these opportunities are always temporary, time is passing, and players in the region need to avoid the mistakes of the West and move swiftly to new business models.

Change: easy to offer, hard to deliver

Singtel’s new digital unit is undoubtedly a step in the right direction for the regional giant, but it is clear there is much to do to release the creativity and dynamism of an innovative new business while getting what is needed from the existing telecoms business.

As one participant said, ‘we need to act like we aren’t a telco, but we have a very good friend that is’.

Digital Infrastructure 2.0: packaging is key to increasing mobile data adoption

Figure 3 - What are the key barriers to the adoption of mobile data?
What are the key barriers to the adoption of mobile data?

Getting the proposition right

Summarising the brainstorm output, the key areas for improving mobile data take-up were:

  • Value proposition design:
    • Pricing - making it transparent ('education', entry packages, self-monitoring, time-based day/hour plans, real-time promotions)
    • Packaging - sell the benefits, not the features (simplifying, branded and app based deals e.g. Spotify, WhatsApp, Facebook, bundling streaming services, package 'Facebook (only) per day', segment targeted deals e.g. to women via schools).
    • Tune-in to consumers (expectations, segmentation, simple 'Facebook Packages', promote discovery)
    • Content - create synergies (global releases, use of QR codes, help illegal distributors become legal)
    • Data as a currency (free data access in return for customer data)
  • Coverage - creative ways to improve it (sharing, optimisation, pricing, WiFi)
  • Distribution - reaching new communities (e.g. 'mom and pop shops')
  • General Comments (government easing, handsets, WiFi offload, net neutrality)

Evolving the business model

The focus of this section of the brainstorm was to generate ways to accelerate the take-up of mobile data, and the bulk of the input received was how to make the ‘Telco 1.0’ propositions more attractive.

The exchange of personal data for data, and brand-funded packages were ideas that went beyond enhanced pricing packages, and it would be interesting to examine these ideas in further depth, and useful to examine whether business model innovation is possible around others of the concepts.

Big Data: pivotal to digital commerce in Asia

Figure 4 - Big Data: for a telco you know well…. Which of these offer the most opportunity?
Big Data: for a telco you know well…. Which of these offer the most opportunity?

Not if, but how

There appeared to be little doubt of the realities of the opportunities based on 'big data':

  • Real-time commerce enablement appeared to be a strategic priority for more than 80% of the participants;
  • Personal Cloud and Raw Big Data also secured a majority vote in favour, with Personal Cloud being a closer prospect and Raw Big Data a longer term opportunity.

'When?' more than 'Whether?' to pursue personal data opportunities

There were still a relatively high number of votes that saw personal data as a long-term opportunity rather than immediately. Perhaps this is unsurprising given the relatively optimistic current view of the health of the current telco business model in SE Asia.

Digital Commerce #1: making digital commerce big will take collaboration and determination

Figure 5 - When will m-wallets go main-stream in SE Asia (50% of consumers using them regularly)?
When will m-wallets go main-stream in SE Asia?

It’s a big, long game

Success in Digital Commerce (which includes payments, loyalty, direct marketing, and customer research – see Figure 33) requires large scale and reach, and it is a complicated and multi-faceted area. In most cases, this is not achievable by one player. In the end, a few ‘ecosystems’, each involving several parties, will dominate. Market wide changes typically take around 10 years to come to maturity, so it is a long game requiring deep pockets and determination.

One size does not fit all

Although the commerce is a ubiquitous need, consumers in different digital commerce markets need very different things. This means that propositions from one market are usually quite hard to import to another, and that propositions that are likely to achieve traction solve specific, unmet customer needs.

There are many business benefits for telcos in digital commerce

While the idea of telcos making super-profits from digital commerce has thankfully been abandoned, there is now a realistic sense that telcos can benefit from participating in digital commerce. Some of those benefits are indirect but substantial, like reducing churn. For others, when sufficient scale can be achieved through suitable platforms, new revenues at least become a realistic possibility, and given time and skill, may be realised.

Customer experience is the biggest barrier, but not the only one

Many digital commerce propositions are in the earliest stages of formation, and many lessons are no doubt yet to be learned. It is clear that as well as having scale and a proposition of sufficient distinguishing value, a good customer experience is vital. What makes this ‘good’ depends of course on the market – but most things need to be better (more effective, safe, useful or enjoyable), quicker or cheaper, to win over an existing working choice.

Digital Commerce #2: The Jana mobile marketing platform and the Chinese market are inspirational

Jana: an extraordinary mobile marketing platform

Jana aggregates anonymous data from 3.48 billion mobile consumers, including their mobile numbers, and provides high performance research, acquisition and loyalty services to third parties including Unilever, Gillette and Microsoft in emerging markets. Its early results are impressive. The questions are whether telcos in other markets should join or can learn from this approach, and whether Jana will effectively remove the opportunity of telcos to do this for themselves or on regional and local platforms.

China: so different, so interesting

The Chinese market is huge and in many ways different from most others in the globe. Concepts of ownership, relationships between brands, retailers and consumers, and the economies of labour are very different, and combine to create opportunities for very innovative services. The extremity of some of the concepts this breeds is stimulating, and it is possible that some of these ideas can also stimulate new ideas in other markets, as economic conditions and digital proliferation dissolve further traditional boundaries.

Digital Content: ad funded may not be the only way

We titled the conclusion of the section of our 2011 Digital Asia event report ‘Someone’s got to pay, somehow’, and while ad-funded is still the most favoured option for digital content in 2012, it was notable that for music in particular, ownership was seen as a viable option by some (see Figure 6).

Figure 6 - In your country, which revenue model offers the best chance of success for a new online music service?
which revenue model offers the best chance of success for a new online music service?

It was argued by some participants that this is true for music because repeat consumption is much more prevalent than it is for video. It was also argued by some that ‘lifestyle’ consumer brands such as Coke were more suited to deliver music than telcos, but this was not met with widespread agreement. The success of subscription / streaming models in other markets also prompted this as a potential option.

There was also a high degree of agreement that user engagement in the production and consumption of music was a major theme in Asia. The popularity of Karaoke and other types of participation may lead to interesting new modes and models in Asia, but it is still early days for this as a widespread digital phenomenon.

Finally, as for commerce, there are widely different needs and cultures in the different nations of SE Asia, and many different models will emerge, evolve and ultimately succeed. This is likely to happen at a faster rate than in the past, and the current situation is chaotic and makes firm predictions extremely difficult. What is clear though is that the region will see a great deal of innovation as artists, entertainment companies and brands seek new ways to satisfy people’s demand for music.

Digital platforms: making a profit is a ‘long game’

Figure 7 - Platforms: how much time (in years) do telcos in SE Asia have to retain or build a strong position in key digital economy ‘control points’?
Platforms: how much time (in years) do telcos in SE Asia have

Building digital platform businesses is complex, and presents significant strategic and cultural challenges to telecoms operators. Singtel, like Telefonica and Telenor in Europe, has created a standalone digital services unit, but there is still much work to do for it to succeed.

Digital platforms are also typically long term endeavours by nature. They take significant investment and time to reach scale in the markets they operate in. They may also require cross-market collaboration to achieve the reach needed, and this is another reason that profiting from platforms is a ‘long game’.

These examples, and others like the UK’s newly formed Weve M-Commerce platform (a collaborative venture between Telefonica O2, Vodafone and Everything Everywhere) show that telcos are starting to take the prospect of creating ‘Telco 2.0’ digital platforms seriously. It remains to be seen if the platforms businesses will get the time, independence, investment and support they will need to be successful, and there are bound to be many further developments in the future. At least Singtel, among others, has made a start.

Conclusion: you need to move fast to prosper in SE Asia

At the final session of the brainstorm, we asked participants to articulate key messages to take forward.

The key themes were:

  • Success in the digital economy will require swift and appropriate collaboration, both across industry sectors such as entertainment and commerce to deliver ecosystems that truly work for end-users, and across telcos to create addressable and viable markets for upstream customers. This will require high-level engagement and determination.
  • For telcos, the key messages were to look outside just communications and to start with simple solutions that leverage differentiating assets such as personal data. Critically, telcos need to refocus on new business areas and 'move to where the puck is going to be' faster (Commerce, Data, Telco 2.0, etc.).

STL Partners' next steps

  • We will: Increase our research and brainstorm focus on all aspects of the Asian market, including:.
    • Research further with SE Asian telcos the 'thinly sliced' / 'Facebook per day' /'Brand-funded' packages;
    • Research further strategies for WiFi and Cloud in SE Asia;
    • Continue to research pioneering case studies and best practice in 'Big Data' personal data;
    • Launch a major strategy report on Digital Commerce in 2013, and publish a series of shorter reports detailing key early learning and 'best practice';
    • Continue to research new models of consumption and delivery of digital content in SE Asia;
    • Continue to research and share best practice in business model innovation and transformation;
  • Continue to work with MIT, WEF, etc. to develop knowledge and global best practice in 'Big data' and personal data.
  • Facilitate effective collaboration between telcos, merchants and banks in Digital Commerce.
  • Plan the next Digital Asia Executive Brainstorm with the support and feedback from the 2012 participants, who we would like to thank again for their excellent contributions.