Building platforms for growth in the new wireless era

Editor’s Note:This article is an excerpt from RCR Wireless News’ March Special Edition, “The Perfect Storm – A Focus on Mobile Messaging, Marketing, Content and Apps.” The 80-page special edition is available here.

As the smartphone wars heat up and the clarion call for all things “open” in the wireless sector comes to a crescendo, network carriers find themselves walking a fine line. Outwardly bullish, yet privately anxious, most find uncertainty mounting across their competitive landscapes. For many, the root cause of their sleepless nights is simple — the locus of innovation in wireless has shifted … all the way to the West Coast. It seems that Silicon Valley is once more at the forefront of discovery, although this time, it’s the giants of the digital economy that are setting their innovation sights squarely on the telecom establishment.
The momentum behind this shift has been steadily building over the last 18 months. Data revenues continue to soar, and as the iPhone has shown, the potential for a desktop-like Internet experience on the mobile Web has rapidly become a reality. Voracious consumer demand planted seeds of disruption that are grounded in growing calls for freedom of choice in networks, devices and software applications. And as domestic regulatory policy bends in their direction, those on the front lines have been quick to capitalize — with business models flexible enough to shift gears and capture value in a number of unique ways.
To students of strategic management, this could read like a re-run of the PC and Internet wars of the ’80s and ’90s, when platform leadership and astute use of open source technologies helped fuel growth across a particularly turbulent tech sector. Indeed, a glance in the rear view mirror at what transpired back then between the hardware manufacturers, software developers and early Internet providers could help paint a picture of what’s likely to occur in wireless. It’s hardly surprising then, that many wireless executives are fretting over how to deal with this impending shift in competition. In a recent Deloitte “open mobile” survey of the industry’s top executives, many predicted an end to the current wireless status quo, with 28% believing that “Internet companies,” rather than network carriers, would rule the roost by 2014. Moreover, 68% went further and stated that by 2012, the “closed gardens” business model would be dead, while 64% believed that open-access regulations would accelerate the commoditization of the network carriers. But perhaps the most worrying statistic of all, only 27% had a strategy in place to deal with the impending disruption.
But the threat of commoditization aside, how can companies that have successfully dominated the wireless landscape with proprietary, “closed” business models transition to the new era and move on from the “walled gardens” of the past? The main challenge will be to deal with an ever-quickening pace of innovation, which is beginning to outstrip the capabilities of any lone organization. Three strategies can keep companies out in front when open mobile hits home: platform leadership, ecosystem development, and capturing value from open technologies.
The power of platform leadership
One solution for wireless companies to ensure competitiveness amid the disruption is to become adept with the tactics of platform leadership. At its core, platform leadership is a business strategy that companies pursue to establish their products or services as a platform. In this approach, a company is part of a larger technological system and community; the platform represents a core component within a system that’s an essential part of an even larger entity.
Platform leaders drive innovation in their industry, motivating others to form ecosystems to supply innovation and support their core product platforms. Companies skilled at platform leadership wield tremendous influence and help shape the evolution of their industries. Those looking to become platform leaders should solve a business problem that affects a large number of companies in their industry. They should then facilitate a community of partner firms to supply the add-on products and create momentum around a platform. This coalition is not a supply chain in the sense that relationships between the various firms do not necessarily involve transactions. Instead, each provides a piece of a “jigsaw puzzle.” Careful consideration of what to make open and what to protect, in terms of core intellectual property, is a critical factor – and possibly one of the larger decisions to be made in a company’s strategic plan.
Observing leading platform companies such as Google and Apple reveals a number of tactics that can be employed across a wide segment of the wireless industry. Google, in particular, has been successful in making an impact via its much-hyped, open source, Android platform. At the heart of this platform is an operating system built on the foundations of Linux open source software code, and as such, Android is available to anyone to use, build, and develop without incurring license or royalty payments. As a result, the company believes the opportunity for rapid innovation in mobile Web applications — designed to run on Android — will be significantly higher than the proprietary, closed platforms that currently dominate the sector. A critical element supporting this strategy will be the successful formation of an ecosystem of developers, organized in loose networks, to support the growth of the platform. Validation of this approach was evident from the Deloitte survey, with a majority 43% of respondents predicting Android as the defacto standard operating system in the U.S. wireless sector by 2014.
Harness the strength of communities
In the wireless sector, communities of innovation providers have already emerged, and they’re having a significant impact on the competitive landscape. A leading example is the ecosystem in place to support Apple’s iPhone OS platform. The popularity of the iPhone attracts a growing number of leading third-party software developers that are eager to design new iPhone apps that can be sold through the company’s online apps store for a share in revenue. Although the platform remains proprietary and tightly controlled by Apple, the willingness of developers to support it is a testament to its superior developer interface — proof yet again of Apple’s leading capability in software design. With the number of mobile apps now in excess of 130,000 (and counting), the “apps economy” has become a significant strategic niche within the wireless sector, and a new platform battleground has emerged as a consequence.
Compared to Apple’s ecosystem, the Android developer community is drawing on traditional open-source development strategies: networks of lead programmers collaborate across the code’s core software interfaces. Like Apple, Google distributes free software developer kits and application programming interfaces (APIs) to facilitate community-based development. More users and program usage will spur more innovation and improve its ability to quickly and efficiently resolve quality issues. In return, greater exposure of the Android platform will likely arise and heighten its potential for becoming a de facto wireless standard.
Both of these companies are demonstrating the significant network effects of ecosystem development and the power of distributed innovation in sourcing new ideas and expertise outside traditional organizational boundaries.
Capture value from open technologies
Of our survey respondents, 68% viewed open source software in wireless as a “game-changing” technology
that could have a significa
nt impact in an open mobile world. Indeed, many wireless companies could benefit from technologies whose core information is open in the market. Cost reduction and increased potential for innovation are two immediate advantages. This eliminates the traditional route taken by manufacturers investing in proprietary technologies and generating returns in the usual way: by exploiting their intellectual property. Instead, companies must learn to adapt and find indirect pathways to generating profit from open-source projects. Careful analysis of the surrounding patent landscape must precede any decision to free-up technologies in the hope of stimulating innovation and weakening rivals’ competitive proprietary technologies. In parallel with this analysis, firms that are making the decision to open up their core technologies should do so only if they have strong capabilities in other business functions to command competitive advantage. Otherwise, their competitive positions will be irrevocably weakened.
Google is essentially using the Android platform to commoditize the mobile operating system and strip it of value as a source of proprietary competitive advantage. The strategic objective behind this is to ultimately drive more mobile Web surfers to its search engine (which remains a closed platform) to increase stagnant online advertising revenues. If adoption of Android then becomes ubiquitous in the process, competitors could be forced to compete on areas such as Web services, software applications and brand marketing, all of which are strong functional asset positions for Google. This may create a new competitive landscape for wireless firms that have relied on proprietary operating systems and services in the past to secure customers and generate significant profits. Their ability to compete in a newly weakened value capture regime may depend on their capacity to develop new capabilities in business functions such as manufacturing, sales, marketing and supply-chain operations. Failure to do so could leave them vulnerable to continued attacks from Silicon Valley and beyond.
Phil Asmundson is Vice Chairman and U.S. Technology, Media & Telecommunications Leader at Deloitte L.L.P.
Scott Wilson is the U.S. lead for Technology, Media and Telecommunications research within Deloitte Research.
For more on the survey results, see the Deloitte report, “The Democratization of Wireless: Assessing the Impact of Open Mobile” at www.deloitte.com/us/openmobile.