Is there a sure fire way to be able to see the wood for the trees in terms of what’s going to be the “next big thing” in telecoms?
I don’t believe so, and reading something like (“James Surowiecki’s”) Wisdom of the Crowds, helped show me that those who believe they can pick tomorrow’s winners are nothing but plain old fashioned snake oil vendors. But, for 2010 I do believe there are two major “fault lines” which will force decisions and underline strategies. The good thing about fault-lines is that you can’t ignore them, not making a decision simply isn’t an option without coming out worst of all. So therefore Telecom Operators around the world are making decisions for 2010 based around the following two fault lines:
1) Mobile Devices
2) Off-shoring versus Outsourcing
While the choices around Mobile devices are pretty straight forward to explain. The iPhone was a great hit across the globe and in Europe it was a major source of inbound churn for those operators like O2 that had exclusivity deals. I ran a few LinkedIn questions and discussions lately on this topic to test my theory and I’m satisfied by the reaction that this will be a seriously hot topic for 2010. I am no nearer knowing whether the iPhone will reign supreme in 2010 or whether the arrival of many of the Droid’s offspring will relegate the iPhone to the “fad” pages of history. But what I do know is that there is a genuine belief that we have made a step change in terms of what the market expects. In many respects today’s collective “Apps” are fulfilling many of the original prophecies of the “3G” killer App, i.e. the ability to browse and download Apps is driving a completely new behaviour not seen since the arrival of SMS. So with the iPhone exclusivity deals expiring in many markets and the arrival of the Droids, Operators will have to place their bets.
Off-shoring versus Outsourcing: This other fault-line is less obvious. But is potentially the more important of the two. This decision will have a long shelf life and will constrain or enable Operators to compete in the “foggy future” of the App driven business model. Nobody in the developed world believes that all development should be done in-house, there is a clear consensus that this is best left to those who specialise in that particular niche or area. But the fault-line comes in the decision to “off-shore” the back-office and localisation or not.
Clearly up to last year off-shoring had the major attraction of a low unit cost per hour/day. Finance directors and procurement bean counters had a field day beating up local suppliers. Many of these suppliers were pushed out of the market by the large Tier-1 outsourcing deals that were predicated upon a high degree of off-shore development delivering a high-margin local customisation service. This has certainly driven the base cost of Product development down dramatically, but just like the “soft-landing” that was predicted for the normalisation of the property market, the number of “off-shoring” arrangements appearing to be dramatically crashing seems to be on the increase. With the maturing of Cloud based systems, the real competitive advantage moves away from the low cost of development of the bulky backend to the ability to modify the front end systems to meet market niches. Hence the competition has moved back locally again, which does not favour the off-shore model. With localised services, undocumentable knowledge of the market, organisation culture, etc. make all the difference. Imagine trying to write and offshore the requirements to deliver the aspect of “funkiness” that was to define the iPhone as a game changer?. These adaptations tend to be relatively small and require continuity of teams, think scrum or agile. There will never be lengthy signed off requirements in these situations. The power and comfort for the operator comes from the close co-operation with the supplier together pushing the bounds of technology in a true esprit de corp.
So that leaves operators on a fault line. Do they continue to look at pure bottom line off shoring with all the promises (but very little delivery) of flexibility? In my experience off shoring is a pure bottom line exercise. It certainly does deliver far better “day rates” but more often than not it ends up in a very adversarial and conflict laden environment. The basic issue is that the off shoring partner is constantly squeezed in trying to make their margin and the operator feels that the offshore partner is deliberately cutting corners and cherry-picking the easy and profitable projects rather than focusing on what they really need to compete, than last 5% of creativity and motivation.
On the other hand by risking drawing a line and deciding on doing a specific level of localised development, operators run the risk of incurring additional costs for services that the customer were not prepared to pay for.
To finish, I think a key balancing act will be needed between the inter-dependencies of both fault lines, if you go for the “everything” offshore model, it pretty much limits you to looking to pick something like the right exclusivity deal with the next iPhone. Whereas going down the “niche” market segment road will favour small and agile local development. I certainly don’t claim to have a crystal ball, but these are the decisions that will create the winners and loosers of 2011 and 2012, the real problem will be the length of time before it becomes obvious where the fine balance lies between quality and cost.
