Digital Transformation – Substitute Products Displacing the Industry

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Digital Transformation – Substitute Products Displacing the Industry

If you apply Michael Porters five forces model to the telco industry, you would rightly arrive at the tipping point – which today the industry calls – the Digital Transformation. Digital transformation is applicable across different industries; however this paper focuses fundamentally from a communication service providers (CSP) perspective.

Just to give you a context, Google’s entry into the telco industry with the introduction of Android operating system has paved way for smart phones to enter the market with ease. With the kind of user experience and customer delight that today’s smartphones offer, the market has witnessed falls of some of the veterans in the industry. For instance, Nokia – who primarily ran its in-house Symbian OS was unsuccessful in catching up with the user experience and customer delight offered by smartphones that ran iOS and Android OS. In addition, with apps like WhatsApp, Snapchat, Viber, etc. now eating the revenue share of CSPs, telcos are forced to create new sources of revenue to sustain and boost growth. This essentially translates that telcos will now have to re-look at their value chain which could mean:

  • Partnering with niche players to be able to co-create, co-innovate and offer a differentiated value proposition to the new generation consumers, and,
  • Migrate from legacy stack to a newer stack which will support digital enablement

In order to make this transformation real, telcos will also need to carefully watch and meet the following:

  • Changing demand of the consumers
  • Changing technology
  • Changing competition

By applying Michael Porters five force model to the telco Industry, we may find a something similar to the one shown below. Figure 1.1

The substitute products in the market like WhatsApp, Viber etc. are eating into the revenue share by offering free calls over the internet. While, this puts tremendous profitability pressures on telcos, the only option left out for them would be to monetize the unused data which will remain in their logs. This will open up new stream of revenue for them.

figure1.1

As the trend shows that if telcos do not cope up and innovate, substitute products will transition into the industry sidelining the mainstream telco players. For instance, Google has already started investing in their own telco infrastructure. If Google enters the telco sector from a voice and data perspective; then it could really mean good news for the consumers as they would be able to enjoy cheaper service as compared to the current market conditions. And if this trend continues, Porters five force will then transform into a new diagram (Figure 1.2)

figure1.2

To keep up with competition, telcos have also been looking at acquiring key players from communication, media and technology space. To quote a few examples, ATTs acquisition of DirecTV; Bell Canada’s acquisition of Astral Media etc. are clear indicators on the transformation that’s taking place. In the era of digital transformation, it is essential to create a customer community as well as a value chain ecosystem which needs to remain loyal to the brand and thereby making it profitable. The underlying message clearly is to stay up to the trends. Losing to understand and coping with the trend could turn fatal for the current players in the Industry.

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