While it’s difficult nowadays to write about telecoms or the mobile sector without drifting off into other areas of the TMT industry, Zeitgeist spent an evening last month as a guest of Accenture in Cambridge, discussing the successes and failures of the recent Mobile World Congress in Barcelona. It came in the middle of a year so far that has already some significant shifts from mobile companies, in terms of branding, operations and revenue streams.
2013 has seen some interesting news in mobile. The week before last marked, incredibly, the 40th anniversary of the first phone call made from a mobile phone. This year also saw Research in Motion renaming itself to BlackBerry, with shares sliding 8% by the end of the product launch announcement for its eponymous 10 device. It saw Sky acquire Telefonica’s broadband operations, while responding to major complaints about the speed of its own broadband service. It has seen Huawei, which in Q4 of 2012 sold more smartphones than either Nokia, HTC or BlackBerry, come under scrutiny particularly in the US for its lack of transparency. Moreover, after much editorial ink spilled on Facebook’s lack of initiative and innovation in mobile, the release of the ‘super-app’ Chat Heads has piqued interest as it looks to compete with Whatsapp, Viber, iMessage et al., which Ovum reckons cost MNOs $23bn in lost revenue every year. This news mostly pertained to developed markets; JWT Intelligence’s interview with Jana CEO Nathan Eagle features some interesting insights on mobile trends in emerging markets.
Interestingly, 2013 thus far has also been witness to the beginning of more flexible contracts and payments. At the end of March, T-Mobile USA announced it would offer the iPhone to customers for cheaper than its rivals, and customers would not have to sign a contract. It effectively ends handset subsidies – something which Vodafone pledged to do last year and was punished by the stock market when it failed to do so – spreading the full cost of the phone over two years “as a separate line item on the monthly bill”, which may strike many as still quite a commitment. Customers must pay the bill for the phone in full in order to be able to end their tenure with the network. The New York Times elaborates, “Despite T-Mobile’s promise to be more straightforward than other carriers, some consumers might still find it confusing that they have to pay an extra device fee after paying $100 up front for an iPhone.” In the UK, O2 is going a similar route. At the end of last week the company announced similar plans to T-Mobile. While still keeping contracts as an option, the FT explained the company was looking to a plan, dubbed O2 Refresh, “that decoupled the cost of the phone from the cost of calls, texts and data. Customers will be able to buy a phone outright, or pay in instalments over time, and then sign up to a separate service contract that can be cancelled or changed at any time.” Although O2 said in the article that they expected customers to pay the same as they would on a standard contract, the new plans by both network providers will surely add to customer churn. Brands will have to work harder to develop true loyalty rather than relying on the lock-in feeling that adds to switching costs for many customers. Conversely, this added flexibility may make the providers feel less like utilities, creating more choice and differentiation.
At the aforementioned conference Zeitgeist attended last month, Accenture hosted an evening they dubbed “MWC: Fiesta or Siesta?”. It soon became apparent that many of the speakers invited were less than enthused with the conference this year. This was partly because there were no extraordinary leaps in technology or hardware on offer. It was also because of, as one speaker lamented, “the proliferation of suits”. Another speaker complained it was like listening to The Archers: long storylines “that ended up having no conclusion”. The very essence of the conference though is not about trendsetting, or cool new consumer devices. Mobile operators are utilities, the excitement around such an event is not going to be as visceral as that of SXSW or Embedded World. It led some to wonder whether the “real innovation was being developed in such ‘niche’ events, away from the “glitz”. Moreover, perhaps Samsung’s decision not to launch their new S4 handset at the Congress alluded to this lack of excitement, or at least a wish not to be drowned out by other announcements.
Among exciting trends on display at MWC, M2M – something Zeitgeist has written about before – was front and centre at the conference, particularly with regard to cars. Phablets continued to make their foray into the consumer’s view, with bigger screens meaning more data transfer. Zeitgeist wondered whether such a transition would put even more pressure on networks already struggling with large data handling. And although Firefox’s new OS gave some – including those at GigaOm – hope that it could provide more innovation through diversified competition in the marketplace, others, including Tony Milbourn, Executive Chairman of Intelligent Wireless, speaking at the event, thought it “underwhelming” after “lots of hype”. Bendable screens were also to be found at MWC, but those speaking at the Accenture conference like Richard Windsor of Radio Free Mobile said it was early days and much was still to be seen from this new type of phone. Its potential though, he readily conceded, was formidable. Wearable technology was a huge issue at the conference and one that Zeitgeist is particularly interested to see develop, especially as companies like Apple, Sony and Google enter the fray.
It seemed then that the Mobile World Congress failed to reflect what is turning out to be a tumultuous year in telecoms. Not only is there an increasing desire to address consumer needs – in the case of more flexible contracts and more consumer-facing company names – but as economies sputter their way toward ostensible recovery we are also starting to see M&A activity return to the sector. Time will tell whether new technologies, such as M2M or bendable screens can breathe new life into the sector.
The videogame industry, like many of the protagonists in the games it creates, is under attack. The competition is fierce. Not only is there healthy competition amongst legacy companies – including Nintendo, Sony and Microsoft – but new devices are increasingly distracting consumers, and digital disruption elsewhere is changing the way these companies do business.
Part of the problem is cyclical; the market has gone longer than usual without a major new console launch from either Sony or Microsoft, which in turn makes game manufacturers hesitate from making new product. But the industry needs to be wary that their audience has changed, in multiple ways. Sony are now starting to talk about their PS4 (due to be released in around six months’ time), beginning with a dire two hour presentation recently that failed to reveal price, release date, or an image of the console. And the word over at TechCrunch? “A tired strategy… [O]verall the message was clear: Sony’s PS4 is an evolution, not an about-face, or a realization that being a game console might not mean what it used to mean.”
We’ve written before on creative destruction in other industries, and talked before about shifting parameters for companies like Nintendo. The inventor of NES and Game Boy is currently struggling with poor sales of its new console, while at the same the chief executive of Nintendo America recently stated that digital downloads of videogames were becoming a “notable contributor” to their bottom line. Companies like Apple are surrounded by perpetual rumours of developing their own videogame platform. New companies in their own right, such as the Kickstarter-funded company producing the $99 Ouya, is among several players shaking up the industry. The upshot of such turmoil – a “burning platform” as the Electronic Arts CEO described the situation in 2007, referring to the dilemma of holding onto the burning oil rig and drowning in the process, or risk jumping off into who-knows-what – is a loss of market share. Accenture in January published a report predicting the demise of single-use devices such as cameras and music players whose revenues would be eaten into as more and more consumers flocked to tablet and other multi-purpose gadgets. Videogame console purchase intent was not researched, but it is not hard to make the analogy.
It was enlightening and reassuring then to read McKinsey Quarterly’s interview recently with Bryan Neider, COO of Electronic Arts. Some interesting take-outs follow. First, in 2007, the company recognised there was a problem: “game-quality scores were down and our costs were rising”. The company wanted to shift from having a relationship with retailers to having one with gamers. This meant having a focus on digital delivery. This fiscal year, digital is forecast to represent 40% of the overall business. Neider recognises this closeness to the consumer makes them even more susceptible to their whims and preferences, so they’re relying far more on data-backed analysis than they have before, including a system with profiles of over 200m customers. This data is used for everything from QA to predicting game usage. Neider elaborates,
“Key metrics answer the following questions: where in the game are consumers dropping out? What is the network effect of getting new players into the game? How many people finish a game? Did we make it too difficult or too long? Did we overdevelop a product or underdevelop it? Did people finish too fast? Those sorts of things are going to be critical… However, the challenge is that parts of the gaming audience are pretty vocal—they either really like a game or they really don’t like it. The trick is to find ways to get feedback from the lion’s share of the audience that is generally silent and make sure we’re giving these people what they want.”
Interestingly, the company’s structure was changed to reflect individual fiefdoms according to franchise – be it FIFA or Need for Speed – the needs for which are managed in that line of business. Each vertical competes with the others to deliver the highest rates of return, while also being able to draw on central resources (marketing, for example). Electronic Arts, as a developer of software for other manufacturers, will to some extent always be at the mercy of which devices are in vogue and the cycle of obsolescence. It is impressive though to see that the company has recognised the need to change the way it does business. The operational and technological sides of business don’t seem to have distracted Neider from the key insight in the industry, “Ultimately, we’re in the people business“.
Nike’s new spot for Tiger Woods, ahead of his return back to the greens and fairways later today, is an interesting one. It features a monochrome vision of Tiger as he looks into the camera, while in a voiceover his late father questions what the future will bring for him, now the skeletons are out of the proverbial closet. Zeitgeist reported on Tiger’s indiscretions before, and while brands like Accenture have sought to distance themselves, Nike have stood firm. Brand Republic has more. At what point do we distinguish between the athlete or performer, and their personal life? What do you think of the new ad?
From the Winter 2009 Zeitgeist…
Brand ambassadors are nothing new. Napoleon (seen above in a casual pose) has long been such an ambassador for the watchmaker Breguet, having worn one during his short (for he was short) life. But what happens when the real world conflicts with the manufactured artifice? Are all of Andre Agassiʼs triumphs now overshadowed by drug addiction? What of recent rumours that Tony the Tiger is diabetic?
Tiger Woodsʼ indiscretions have highlighted such concerns; what happens when an athlete who is not only a champion in his chosen field, but also seemingly the epitome of a gentleman in his private life, turns out to be less than perfect? Tigerʼs presence – a young man of mixed ethnicity in a sport dominated by old, rotund white guys obsessed with the faux exclusivity of country clubs – was a huge statement in of itself. It was for all these reasons though that some major blue-chip brands chose to invest in his good name. Who can forget the fantastic Nike spot of yesteryear?
While his namesake currently graces the Spirit Airlines website, Tiger can unfortunately no longer be found on the Accenture homepage. For a company to so abruptly end such a sponsorship is an enormous blow to both parties and both brands. Industry Standard wrote, “Tiger has literally become the sole face, the strategic embodiment, the business essence of Accenture, the $22 billion global IT, outsourcing and business consultancy proclaim[ing]: ʻWe know what it takes to be a Tiger.ʼ Everything about that slogan has now become a PR debacle, comedian’s punch line and perplexing psychological examination…”.
Tiger is now on an “indefinite” leave from golf and the brands that rely on the sportsman solely for his golfing prowess are sure to be affected. Electronics Arts will have a hard time selling the umpteenth version of the Tiger Woods PGA Tour franchise if the eponymous player does not compete. TV ratings for golf tournaments will similarly suffer, according to the FT and New York Times. Nike, PepsiCo and AT&T are all of a ʻwait and seeʼ mindset. Gillette will “remove its Woods-related advertising for now” in order to respect his much sought-after privacy. Gilletteʼs triumvirate has suffered of late. Thierry Henry is also mired in scandal after denying Ireland a place in the World Cup by somewhat guiding a ball with his hand at a crucial point in the game. Gillette has denied the act will affect his contract. Roger Federer seems to be the only one currently untainted, though not wishing to jinx him, Zeitgeist will move swiftly on…
Ultimately, such crises can be fleeting. Michael Phelps, pictured with a bong and promptly dropped by Kelloggʼs, will not be forgotten for winning a Fort Knox-worth of gold medals in Beijing. NFL player Michael Vick organised brutal dogfights in his free time, but returned to the game to cheers from the fickle crowd. There may be lasting impact this time, however. As the Zeitgeist team have said before, if caught, the best practice is to immediately admit culpability, express sincere contriteness and take ownership of the situation, as Accenture have done.