In the Elevator with Operators: How to Pitch New Service Ideas to Mobile Companies

Posted by sharakarasic on Nov 19, 2008

On day two of the MobileActive ’08 conference in Johannesburg, I attended a session entitled "In the Elevator With Operators: How to Pitch New Service Ideas to Mobile Companies” that focused on how to pitch mobile development projects that present both a social and a business opportunity. It was moderated by Jesse Moore of the GSMA Development Fund, and panelists were Pieter Verkade, the CMO of MTN South Africa, and Vuyani Jurana, executive director at Vodacom SA.

At some point, people with new mobile ideas in the development field need to get mobile operators involved so services can scale from small pilot projects to sustainable efforts that service many more people. As Moore said: “If you’re losing money, scale is your enemy. If you’re making money, scale is your friend.”

Moore started with a quick primer on the financials of the mobile industry. He explained ARPU, average revenue per user, which is the amount of money a mobile company gets from each individual subscriber. In the UK it’s about $50, in South Africa $15-17, and $5-6 in some African countries. Churn refers to the number of subscribers who will switch to other networks. Churn right now is lower in developed countries, but in developing countries with prepaid accounts churn is quite high. Acquisition cost is the amount spent to get a new customer, and value-added services (VAS) include mobile banking, ringtones, and anything else with which you can make money.

The conversation then turned to the commercial drivers for value-added mobile services. Verkade noted that volume is the biggest driver given that mobile providers have significant fixed costs. He said, "We need to get that money back. We will always look at volume issues. Fixed costs include shops, call centers, network equipment, and the cost of bay stations."

Jurana noted that other commercial drivers include extending peak use of the network and creating products and services that people actually want to buy -- beyond the social good they provide. He stressed that mobile companies can more easily integrate products and services that make use of existing infrastructure.

Moore reiterated that mobile companies must receive a return on their investment, or at a minimum get strategy value and brand positioning. Verkade distinguished between the capital expenditures a mobile operator needs to make to put an infrastructure in place, and the operating expenses required to provide a given service. He noted that every capital expenditure subsequently incurred operating expenses, so those pitching services must take operating expenses into account. Value-added services are a key way to increase average revenue per user, though only a few value-added services make it to scale.

Verkade noted that when an operator decides on adding any services, they ask the following questions:

1. Does this potential service idea enhance revenue? Does it provide brand and differentiating strategy? Does it enhance customer loyalty even if it doesn’t increase revenue?

2. Can this service or product interface with the operator's current standard? What is the ease and cost of implementation, and what is the ease and cost of maintenance? What is the distribution cost and what is the ease of subscribing multiple users?

Jurana noted that customer loyalty and brand differentiation are very important. He said, "We have to play in this space because customers want it – for example, with 3G we knew we wouldn’t make money with it in the short term, but we need to have it because customers want it."

Moore stressed that mobile companies are not always expecting revenue in the short-term – they have a long-term strategy.

Verkade said that when you’re thinking of creating value-added services (VAS), you first of all must build something that customers want. Then, your service must be easy to implement. And it’s crucial that it’s a service that you can sell easily at the point of sale. He said, “Value-added services need to be dreadfully simple.”

Moore agreed and stressed the value of distribution networks including agents and airtime dealers.

Verkade added: “We believe the more small businesses there are the more we will grow. Grameen Bank in Bangladesh offers a microloan to buy a handset for a woman to rent out, but then that helps drive business because of access to communications.”

At this point in the session, Moore invited the audience to pitch their own ideas, stressing the need to get the pitch (and product or service) down to basics. Jurana agreed, saying that the simplicity of a product enables user adoption, and Verkade added that a product or service must be easy to do, to sell, and to communicate to customers.

The audience then broke up into two groups to pitch their ideas.

My group was led by Jurana and included many working on international development projects. Jurana stressed the need for us to think about social mobile solutions from a strategic business perspective. He said: “Vodacom will look at the cost of providing the service, and if there is customer demand. They prefer to work with the infrastructure they already have. Any investment in new technology is much more difficult.”

As an example of how to think from a strategic business perspective, Jurana advised Jacob Kornblum of Souktel, a service that links young people with jobs via SMS:

“Don’t just stress the number of transactions you have – look at the possibility for advertising. Pitch it more as a platform that could be used in a variety of ways, rather than talking about the number of transactions.”

Some in the audience from NGO’s said they had insufficient data to present to mobile providers, but Jurana’s answer to them was that mobile companies need data. He suggested that NGO’s need to develop a common assessment framework – one data portal, not separate ones for housing or water. Jurana added, “If you do that, that goes beyond a corporate social initiative – you can commercialize it.”

Jurana hinted that one way to get around being judged strictly on business criteria was to be considered part of a corporate social initiative, which makes decisions using different metrics than pure business considerations. Mobile providers do recognize that driving social entrepreneurship drives sustainability in the long term. In terms of getting recognized through corporate social programs, Jurana suggested offering services that address issues that the mobile provider focuses on as a corporation – for example, in Vodacom’s case, health and social aspects of community. If a project addresses what they are focusing on and leverages their existing outreach, there’s a better chance the provider will be interested.

Jurana said, “We consider if your NGO is revered, and we can be seen as part of the public good – for example for HIV/AIDS, Vodacom gives a percentage. We support CellLife through our CSR mandate. Basic coverage for social good – that would be covered by our foundation. If you want to make a profit, it’s looked at as a mainstream product.”

At the end of session, the entire group met again to share examples of successful NGO pitches to mobile operators. Verkade was not able to cite one example of a successful NGO pitch to MTN South Africa, but Jurana mentioned Vodacom’s partnership with CellLife.

Moore then summed up key learnings from the session about how commercial decisions are made. He reiterated that scale on the order of millions is key. To get to scale, an offering needs to be simple, leverage existing technology, and be easy to maintain on the network.

Moore then asked Verkade and Jurana about the future - what area of new services focused on low-income users did they foresee in five years?

Jurana stressed that the health space will develop in the same way as financial services have, and that confidentiality would be an important component.

Verkade added that we will see more SMS-based information about health, jobs, and education; small businesses will resell advanced mobile services such as music; and there will be an increase in social entrepreneurship.

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