A handbook to reform boring Telco (II)

Part 2: Marketplace as an alternative to ecosystem

In my last piece of “The Boring Telco”, I examined several possible new types of Digital Operator business models, enabled by focus:

  1. Ecosystem
  2. Marketplace
  3. NetCo

I’ve covered the “Ecosystem” model before and here will focus on Marketplace.

What is a marketplace model?

Unlike “ecosystem” there is no invented meaning behind the term. A marketplace is a place to trade (or market) goods with others.

a typical marketplace selling all the necessities

Not much has changed for the last thousands of years. Like thousand years ago we roam from store to store looking for goods.

Alibaba’s marketplace

Online marketplaces reduced only the footwork, but not the time spent. We scroll, click, compare and finally buy or cancel. This is for physical goods.

In a modern marketplace, we can buy services, that are not physical. Below the AWS Marketplace

AWS marketplace

Only that it is not a real marketplace, but rather a supermarket selling its own products. This is the essential difference to ecosystems. As I wrote in the previous part — the ecosystem player brands all the products. A marketplace does not have to do so.

Why? Because the ecosystem wants to control the value chain up until the end-user. On contrary, a marketplace is, well, a gathering place. A place where everyone can sell his own products to end customers.

It is the only real difference, but an essential one

Eliminating the middle-man

Most expensive in business is getting customer leads. For smaller companies increasing reaching out to individual clients is impossible. Many, will look for an Aggerator, wholesaling their products. In turn, this Aggregator would sell to his customer base for a markup. This is known as the wholesale model.

Imagine a socks producer. Selling to individual clients is not an option. Instead, it will bulk-sell to large distributors and shops, who in turn sell to end-customers at a higher price.

Marketplace allows eliminating the middleman. Our sock producer can place his wares on a “vitrine” and sell them to customers. This is how Amazon Marketplace is working (but not how AWS Marketplace operates)

The marketplace operator is not interested in producing the goods. Instead, he offers a “vitrine” and leverages a large customer base who see the socks of our producer. He gets his revenues through commission for “vitrine”. Hence not conflicting with the producer.

The benefit for socks producers is higher profit margin and sales volume. The benefit for the Marketplace operator is that he does not have to run his own production and marketing. He monetizes on transaction volumes with his customer base. The more products the marketplace hosts — the more transactions happen. As a byproduct, users get bound to the marketplace.

Thus, it is also a share of wallet games, like ecosystem strategy. The naming convention calls this model also B2B2x.

B2B vs B2B2C

Sock producer has the option to sell through a wholesaler. Or, he can leverage the wholesaler’s infrastructure to engage with end customers. This also includes claim handling (another benefit for marketplace operators who offload this costly activity)

Telco marketplace

Clear about the socks producer, but what about Telco? As it comes a Telco model fits the role of a marketplace:

  • Lack of resources for R&D or M&A
  • Access (ownership) of end-customers

Telcos are not going to sell socks to their customers. Yet the product universe of ICT services is so large, that no carrier can ever cover it with its resources.

Examine the portfolio stack below

https://www.incognito.com/blog/b2b2x-services-how-operators-are-becoming-enterprise-enablers

There is no way a telco can offer own-produced services to become an Enterprise enabler. While it’s all a make-or-buy decision, “buy” usually is the most economic option.

This is the reason we see countless Telco-Hyperscaler partnerships emerging. Most as reseller model. This is different, but, from the marketplace model. What Telcos do with partners is offer fixed bundled offers. Customers cannot choose a la carte — they eat what they are served!

Telekom Italia’s bundle with MS 360

I see such partnering as a major drawback in the strategy because it lacks Focus. (which, as I wrote in the “Boring Telco” series is the reason for failing in the value chain).

In fact, it is a poor approach to printed to play ecosystem game.

I guess it's partly due to the fact that Telcos themselves are not clear what the marketplace is the first place. Most see their products being sold in a marketplace — only 40% see themselves as marketplace owners. Even those see bundling as the guiding strategy.

TM Forum survey

Why marketplace is better than bundling?

Bundling was always an instrument to stabilize price erosion. “More for less” is the narrative. The problem with it is that its bundles have to cover as many customers as possible. Hence, they are quite generic and do not cover specific needs. This is different in B2B Telco, where bundles are more flexible. But even there, marketers pre-bundle components a customer cannot take out. (technically he can, but the price will not change, this is how sales reps are “upselling” in reality).

Here is what happens. Telco offers customers MS360 along with a set of connectivity services. But the customer would rather have Google Cloud since he already uses some other services from Google.

See where I am getting at? A bundling strategy will be mismatching needs and wants. Ultimately, telco and client settle, with Telco giving a “discount”. Value erosion here!

Wouldn’t it be better instead to offer flexible options from different cloud providers?

Going further.

Needs are getting more specialized. 5G is promising to revolutionize many industries. But each of them has specific needs. Bundles cannot cover them. Telcos lack the expertise to match products to requirements. (think of airport or gold mine operator).

Who should play this model?

A marketplace is the best option to provide several options for similar needs! It would allow a more successful acquisition too. The beauty is that it does not require R&D or M&A capital upfront. The activity shifts to closing partnerships and marketing to their own customers.

Another benefit is that operating the marketplace does not require expertise in the offered products! Neither is it required to support the product lifecycle. That includes the painful support and claims processing too.

The drawback is of course the low revenues. There is no revenue sharing, only transaction fees.

Sounds ideal. But caveat emptor!

The main risk here is missing the right focus. Unless you are Alibaba or Amazon you cannot offer everything. Marketplace models are best when covering a specific range, .e.g. a stronger focus on Health or Games or Finance.

Also, Telco needs to tame the temptation to replicate an ecosystem competitor. Latter have higher margins and stronger control over customers.

Marketplace is an ideal model for cash-strapped operating unable to execute ecosystem strategy. In fact, the marketplace is so different from the ecosystem, that it naturally provides USP. Bundling cannot offer the same benefit.

There is more. The marketplace is an alternative model when there is already a successful Telco ecosystem player in the market. Running a different model would avoid dog-eat-dog direct competition to a certain degree. Context matters in strategy!

Wait, but where are the case studies?

I found none so far. Some come close (e.g. https://www.1und1.de/) but the branding is what makes it less fitting. One could argue that device sales by Telcos come close, but it's not. Telcos are reselling devices, they do not allow vendors (and neither do those want) to sell directly.

Still, I believe that this is a strong model in absence of cash to create a USP and not deteriorate to a niche player.

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I write on #Technology #Economy and #Business Models

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Evgeny Shibanov

Evgeny Shibanov

I write on #Technology #Economy and #Business Models

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