Tuesday, October 23, 2007

Disrupting Markets for Fun and Profit

In a Wall Street Journal column on the US mobile phone industry, Walt Mossberg talks about the problems with the business models used by the big 4 carriers and why they're not good for either consumers or innovation. In doing so, he touches on some ideas that have crossed my mind in the past regarding that industry, and which can be applied to any market.

Mossberg's point, well-taken, is that mobile phone customers don't like what carriers offer them:
  • You have to buy your phone from the carrier. That means you're stuck with their choices, at their prices.
  • You are pushed toward a discounted phone with a service commitment. You might be able to pay a higher price for the phone without a commitment, but you'll be discouraged from doing so; information on those options is quite hard to find, and...
  • Handsets are not interoperable. Sprint and Verizon phones simply don't work with anybody else's service. T-Mobile and AT&T use GSM technology with SIM cards which makes it theoretically possible to swap carriers by swapping SIMs, but they put software locks on the phones to defeat that. They can be undone, but it takes effort.
Mossberg talks about the government's role in this, which is legitimate for the mobile market, because the entire business depends on being given use of something that belongs to the public: wireless spectrum.

Here's a thought exercise that requires ignoring that stumbling block: what if an upstart carrier launched with the following proposition?
  • You can use any unlocked GSM phone on our network. Bring your old one, shop around for one, or we will sell you one.
  • We'll charge you a reasonable upfront fee for the SIM and set up your account with no contract. You go month by month (or prepaid). Of course, if you will sign a contract, we'll give you a financial incentive (perhaps waiving the SIM fee), but you don't have to. And we won't extend the contract every time you drive within 300 yards of our store, like the other guys do.
  • Change your plan anytime. Change your phone by buying a new one anytime. Have more than one: your slim flip phone for a night on the town and your Blackberry for when you're in road warrior mode, whatever you want.
I think anybody offering that would do very well. They wouldn't even have to have the lowest prices - as Verizon shows, premium pricing is no barrier to market share. Lots of people would prefer the freedom.

Now, given that all of these companies have a business that depends on being granted access to a public resource, I personally think it would be appropriate for the government to say, "Fine, you can use that public resource, but you have to follow some rules that make you treat consumers properly." The political climate in the US and the tremendous lobbying resources of our telecom giants have prevented that, of course, but it would be a reasonable bargain to strike.

Mossberg points out that the iPhone, for all the complaints about lack of openness and its requirement that it be used with one specific carrier, is the first device to break some of these rules. You don't have to buy it from AT&T; in fact, you can buy a used iPhone from the Apple Store (when they're available) or on eBay and activate it like any other phone. Apple may have gotten into bed with AT&T on this product, but they certainly have kept AT&T on their own side of the bed - far from the product development.

Apple might, I think, have gotten away with more - perhaps getting hold of some spectrum and creating their own carrier, or worked out roaming deals with T-Mobile and AT&T. I don't blame them for not pushing that far - this is a new market for them.

But as I read about the expected Google phone and the idea of an ad-supported mobile phone, I wonder if Google's got it all wrong. Instead of pushing a new and untested model on people, would they be better off fixing what people hate about the current approach and creating something like the hypothetical service I described above?

And here's the more general lesson for marketers, particularly those who are upstarts in an established industry. We've seen lots of people try to do a basic resell of mobile services with service plans that copy the incumbent offerings - Virgin's mobile service comes to mind.

If you want to get toehold in a market where people are unhappy with what "everybody does, because everybody does it," do something different. Disrupt the status quo, and do so with the funds to stay in it long enough for people to see that there's another way.

It's not a guarantee of success - AT&T, for example, could shrug its corporate shoulders, give in, and start offering the very same thing in no time. In this particular market, though, incumbents are fond of welcoming their customers with gilded handcuffs, and there's an opportunity for someone who does something different to grab market share.

How about your market?


Maureen Rogers said...

The telecom guys must sit up nights figuring out how they can screw the consumer. (Must come from those old monopoly days: remember when you had to rent the phone from them? At least in those days, you didn't need to lock in to a "plan." You could cancel phone service at any time.)

Telecoms aside, as you say, it's a good idea in whatever industry you're in to ask yourself whether you're establishing pricing just because it's what everyone else does. Even small companies may be able to do a little market disrupting by providing customers with pricing that works for them, but which hasn't been available.

Mark Cahill said...

Now that just makes way too much sense...how would we ever feel good about ourselves knowing that we weren't in a long term telecom relationship with people that care enough to enslave us.