Friday, January 29, 2010

Bringing the Long Tail to the Telco Applications

OK, let me start by defining the following terms for people to understand my post/s better.

Telco application – This is not the usual mobile application which is installed on the mobile phone. Instead what I refer to as a telco application is the program which resides somewhere in the operators network. One popular kind of the telco application is the voting application, which is the application that receives the text messages when you send an SMS to vote for your favorite star in the American Idol or its local variant like Super Star and summarizes the results and shows it to the relevant people.

Value Added Service (VAS) providers – They are the people who come up with the concept of the application and give it as a service to the subscriber base. For example in the case of American idol or its local variant the media house is the VAS provider.

Killer Application – In this context it’s the Killer Telco Application, which give a lot of $$$$ to the VAS provider and of course the operator.

Understanding long tail

The concept of Long tail[1] has revolutionized the way we think about business. In the good old days traditional sellers had a constraint in the form of shelf space\storage space. Further they had to incur a distribution cost with respect to each product they wanted to sell. Let’s take a simple example, just look at the book store around the corner, they have a constraint in the form of shelf space, hence when a book was to be placed on display they have to consider the opportunity cost of it. So they usually make the most rational decision of filling up the shelf space with the best sellers. This was and is considered the accept business wisdom when dealing with traditional stores.

With the introduction of the digital economy the market boundaries and constraints started to change, for players like Amazon who started with the concept of online web store, did not have the shelf space constraint, for them shelves were replaced by a database entries, hence shelf space had been reduced to a few kilobytes of storage in a machine lying at some corner of the world. So they no longer worry about finding out whether if a book will be a best seller or not. They just store up information about all books, which included books which were deemed to have been termed either “commercially failed” or books which had a geographically distributed small reader bases. The result of the digital economy has been staggering they are finding their revenue to be dominated by the non-best sellers! This prompted a publication “GoodBye Pareto Principle, Hello Long Tail!”[2].

Telco applications - current situation

Telco applications are currently pushed by the operator. Operators due to the incremental cost per new application [includes the development cost of the application, marketing cost of the application, testing, configurations and of course the maintenance cost] consider the introduction of each new application to be a business risk! So they need to do a feasibility analysis and justify the business case, develop the application and then bring it to the market. So as a consequence of this cost they are on the lookout for killer applications. Ideally they want to each new application to be a massive hit among the subscriber base.

As a side effect of this existing process we find that the telco applications of today are either provided by the operator, a corporate house or an IT vendor. Although it’s hard to digest for some people, to be honest the amount of people who are available to innovate and bring new application concepts within the current space are very much limited. Even if a new idea comes up justifying it as a business case might not be the easiest. So the chances are that we might be killing some of the hit applications while it’s just a concept.

Let me try to compare the telco application to the book store example, in a traditional market space the book shelf was a constraint, with respect to telco applications having an incremental cost per application is a constraint. In the same way book stores were earlier trying to guess which are the best sellers and offering those to customers. In the same way on the telco network currently telco’s as per their available market intelligence decides on picking telco application concepts which they expect to be the next killer application.

Do we see a similarity between the current telco application model and the non – long tail business model?

In the current market context if my old boys union/alumni association wants to create a SMS digest messaging application which sends a message with the weekly update of activities, we might not be allowed to create this application. In the current context it’s almost obvious that it would not be considered a killer application.

But isn’t the non introduction of this sort of an application a revenue opportunity denied for the telco?

Mobile Long Tail

So the bottom line is that if the long tail is to be brought to the mobile network, we need to have a business process coupled with the required technology to eliminate the incremental cost per application. When cost per new application is zero, you don’t have to do an analysis to see whether if it’s going to be a hit or not. Instead of trying to play a guessing game on deciding if an application will turn out to be a killer or not. It would provide the operator with an opportunity to just bring the application to the market and see how it performs. Further if the application has zero incremental cost, even if it generates a few messages per year it can still be considered to be profitable. So now even my little Old boys’ association application might be worth for the operator to try out.

This is the business model we are looking at in mChoice Soltura! But for some readers the big question might be “how can the operator achieve zero incremental cost per application?” Keep following us on soltura.hsenidmobile.com as we unveil how we achieve it!

References
[1] The Long Tail by Christian Anderson
[2] "Goodbye Pareto Principle, Hello Long Tail" by Erik Brynjolfsson, Yu (Jeffrey) Hu, and Duncan Simester
[3] http://en.wikipedia.org/wiki/Long_Tail

3 comments:

Preeti said...
This comment has been removed by the author.
Preeti said...

Hi!
Your article is extremely interesting. The comparison to Long Tail Concept is very apt and well thought of. I was wondering, isn't it a Catch 22 situation for the Telcos? They cannot estimate the cutomer perception of a product unless they launch it into the market. But launching into markets comes with the risk of "acceptibility"! Funniest of apps have become listed amongst the "Most Popular Apps" on the Apple App Store. Thankfully, they don't have any constraints on the shelf-size. So they are now handling 140,000 apps and making money out of almost all of them!
Like you said, many of us are now wondering about the "zero incremental cost per application". I am curious to know more about mChoice Soltura!
In case you are wondering who I am, I am new to your blog. I am in the New Products Development field, joined quite recently and fresh out of Engineering College. So I am taking in a lot of information for now! :)
Will keep coming back to your blog..
Cheers!

sayanthan said...

Hi Preeti,

Wow that was pretty fast, to get a comment so quick.
Its indeed an interesting development and the team at hSenid working on it are pretty much excited about the end to end solution in our hands.

you can find the mChoice Soltura aggregator at the following url

http://soltura.hsenidmobile.com/

Thanks for the visit and the comment!