Smartphones raise the importance of business analytics

There was a time, not all that long ago, when telecom executives could understand all the major technology trends expected to impact the business over the next few years. For example, if you wanted to know why packet switching was more efficient for data traffic than circuit switching, you talked with the guys in your R&D lab and spent some time with vendors. It was not too hard to get a pretty good grasp of the pipeline months or perhaps even years before customers started asking for the new technology - but that just isn’t possible anymore. No one can fully grasp all the important trends, much less direct a very large organization to deal with them. The pace of innovation is too fast. Thousands of programmers are creating applications that no asked for. Most will fail to gain traction. A lucky few will quickly become indispensable to a subset of users – but which ones?

In 2008, The Economist Intelligence Unit published a research paper titled “Opening Up – How R&D is Changing the Telecommunications Sector Today.” The key finding of this research is that telecoms increasingly are embracing open innovation and “perhaps most important of all will be the expansion of the role played by customers in open innovation.” Innovations that happen outside the telecom industry can become important very quickly, perhaps even essential to satisfying the customer. Telecoms must recognize outside innovations and leverage them to improve the customer experience.

Recently, telecoms began running ads that talk about using a smartphone to update a Facebook page and post a Tweet. I didn’t first hear about either Facebook or Twitter by attending telecom conferences or talking with my friends that work in R&D labs. I learned about them from my teenage son and his friends. I bet that’s how lots of telecom executives found out about Facebook and Twitter too. Telecom executives may not understand all the new applications before customers begin using them, but that does not mean they are powerless to profit from them. Business Analytics can provide the insight necessary to understand these trends and avoid losing customers to operators that do a better job of engaging their customers.

Over the last several years, most wireless operators significantly lowered their churn rates. Data mining and predictive analytics enabled operators: to understand the factors causing churn, predict which customers are at the highest risk, and then identify the most effective retention offer. Business analytics helped leading operators reduce monthly churn rates among their postpaid customers from around three percent per month to about half that level. Many operators also adopted customer profitability models that identify unprofitable customers. Those bad customers can be ignored, or even encouraged to leave, freeing up resources for customers with a higher potential value.

Operators must be on the lookout for activities that can help or hurt their brand - even if the application came from outside the operator’s control. Smartphone applications certainly support the drive toward innovation, giving operators a way to differentiate themselves. Other industries such as retail, financial services, healthcare and entertainment also have their eyes on smartphones as a customer engagement platform. These industries are busy building smartphone applications for interactive campaigns that are location and context aware – applications that can provide real-time feedback on campaign effectiveness. Marketers in those industries may see the wireless operator as providing only an undifferentiated transport pipe. In fact, many operators pay little or no attention to how customers use these applications.  When a customer is on a flat-rate data plan, it is particularly tempting to view smartphone applications as just data passing over the network.

That’s a mistake. Let me explain why. Third-party applications introduce new levels of complexity to the customer management process. As the customer places more value on the applications and less value on basic features such as calls and text, the operator needs to understand not just the propensity of individuals to churn, but also to accurately assess the latent churn propensities that are building-up within the customer base.The churn management process at most operators is based on traditional models and is ill-equipped to accurately assess factors such as the level of influence defecting customers have over other customers.A small number of customer defections may be just that, or they could be leaders that will bring along a large number of other customers before the operator has a chance to react.

Over time, there will no doubt be many outside innovations that will become a competitive differentiator. The ability to spot those innovations early, and leverage them in your customer engagements will play an important role in your customer acquisition and retention strategy.It will be more important than ever to constantly analyze individual preferences and update analytical models. Today’s environments are not flexible enough to serve the needs of operators in the smartphone era. As Smartphones proliferate, executives must change their organization to deliver what Yankee Group analyst Arindam Banergee has labeled “The Anywhere Software Experience.”

In the future, telecom executives will succeed less on how well they understand network technologies than on their ability to build and manage an agile customer-centric software environment.I plan to keep checking in the teenagers to stay on top of innovations and to look for cool new applications, but I’m not about to kid myself into believing that I can predict all the trends. That is where Business Analytics comes in, giving you THE POWER TO KNOW®.

tags: apps, smartphones, telco, telecom, telecommunication, telecommunications

One Comment

  1. John
    Posted October 19, 2010 at 7:43 am | Permalink

    Interesting blog - I have never understood why operators do not (more) factor in handset features and their associated ecosystem of services into their customer profitability models. I.e. App. store and Apple vs. Vodafone 360 vs Ovi Store vs WAC etc. Each of the options provides different revenue potential as well as associated OPEX and CAPEX. If you have no or little customer profitability insight - then pushing smart phones to all and everyone might seem like the obvious strategic play. However, I do wonder if they know where the average iPhone users are on their profitability scale.

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