Facebook, Google, Amazon, and Yahoo! are continuously offering new services for customers to experience, then refining those services within weeks/months based upon customer feedback.  The typical operator product development process is usually: an opportunity is identified, market research is performed, a project is created once budget can be found, the new product development process runs its course, and then a service is launched typically 12-18 months after the initial market research.  In today’s market such a long cycle time means the service generally misses its market window, customers have moved on.  This is a critical change in the telecom market’s dynamics – customers’ behavior.

Customer behavior, not technology, is driving operators to adopt open innovation, as discussed in previous articles on open innovation and application developer needs and operator adoption of Web 2.0 principles.  Operators must innovate at the speed of the customer to remain relevant to customers as service providers not just network providers.  Operators are now extending their developer initiatives to support open innovation; outsourcing innovation, risk and some operational costs to the millions of developers on the internet in return for a share of service revenues.  This enables new services and new service delivery methods to address the long-tail of services an operator can not generate internally.

Telenor’s Content Provider Access (CPA) is just one of many examples that proves open innovation makes money for operators today.  CPA is a platform that enables content providers to deliver content to Telenor’s subscribers and bill the subscriber for that content.  They generate within Norway roughly $100M per year in revenue as explained in this Telco 2.0 article, that is 6% of Telenor’s total subscription revenues.

A previous weblog article describes just a few of the many thousands of services and features enabled through service exposure, many of which have not yet been conceived; that is the power of open innovation.  From work with operators in building the business case for open innovation typical results include:

• A converged operator in a mature market with a strong existing messaging business showed an ROI within 3 months.
• A mobile operator in a developing market showed an ROI within one year.  In the summary of SDP Asia 2008, this figure was surpassed by Globe from the Philippines that implements over 700 content related VAS annually, with 830M transactions per month, that is anticipated to grow to 1B per year by end of this year.  ROI for the project was 2 months!

For most application developers an operator’s product development process is too long and too capricious, they either go bust or give up in the wait to be launched.  It has reached a point where developers are frustrated and cynical about operators’ intentions given previous failures.  Operators are missing out on the majority of service innovations, giving them away to service providers on the internet that have open innovation models.  However, operators provide the ideal channel to market for many applications, with control over their network and devices, a billing relationship with the customer, a nationally recognized and trusted brand, high-street store presence, and a strong position in the industry’s ecosystem.

A sample of some findings from application developer surveys collated over a couple of years includes about 130 developer’s detailed feedback, from a maintained list of 1000+ web/voice/telco 2.0 application developers. The surveys included detailed questionnaires (40+ open-ended questions), face-to-face meetings (1-2 hours, structured), and phone interviews (30min – 1 hour, structured).  Below shows the mix of developer across the surveys.

From the surveys some of the issues developers have with current operator initiatives are:

1. No live testing environment for end-to-end testing
2. No developer sandbox
3. Very limited access to key capabilities for providing interesting applications and services
4. Often have a web of stakeholders within the operator which slows/halts the decision-making and/or approval process
5. Typically no single point of contact
6. Inadequate operational support, e.g. VPN (Virtual Private Network) set-up, switch configuration, etc.
7. Little or no support for billing system integration
8. Lack of support for remote monitoring
9. Lack of flexibility / willingness to try new business models
10. Rigid rules & guidelines for contributing an application
11. No/limited device independent platform
12. No/limited embrace of browser based services

1. A live testing environment / access to test lab
2. Single point of contact for technical issues
3. Consistent operational support, e.g. network connectivity, SMSC, security
4. Willingness to experiment in business models
5. Clear path of decision-making up the chain of command
6. Real project with full organizational commitment from operators – not a ‘fashion accessory.’
7. VPN access to on-site systems for remote monitoring
8. Delegate testing and approval to third party testing houses.
9. ‘Approved developer’ certification for the ability to fast-track approvals, operational requests, etc.

James Parton, head of O2 Litmus, put it best when he stated at a recent conference, “We just want to get out of the way and let application developers and our customers make stuff happen.”

As operators deliver greater capacity to customers on their networks through technologies such as LTE (Long Term Evolution) and FTTH (Fiber To The Home), they are empowering the customer to choose who provides their services.  How can an operator remain relevant to its customers as a service provider in this situation as customers’ behavior changes?  The answer is open innovation.