Over-the-Top Players are Learning That One Size Doesn't Fit All

A new, second generation of over-the-top players have entered the fray in an increasingly complex and region-dependent market

A few weeks ago, you may have seen news of the withdrawal of operator owned over-the-top (OTT) services by Telefonica Digital. Its picture sharing and messaging service ToMe was canned, although its “single number” service ToGo remains. This sparked a flurry of comical stories from the sharpened pencils of journalists, who had a field day with headlines such as “ToMe is to go for being too ‘me too’ but ToGo is not to go.” Predictable? Maybe – but highly amusing nevertheless.

To me (pun intended), it seems that pure OTT players are just better positioned than operators at making services for consumers that work well. This is ironic when one considers that consumers are not actually the target market for OTT companies. Their target is advertisers. On the other hand, most mobile operators for whom consumers are the target market don’t seem to be able to deliver the right service at the right time in the right way.

To date, operators have responded to this OTT challenge in different ways. From early attempts to block OTT services from operating on their networks to “neutralizing” them by offering competitive bundles of data and voice minutes at attractive prices in order to compete with VoIP and IM. Some operators have gone as far as to partner with OTT service providers, a strategy that has proved successful where the OTT service complements their own such as Telenor’s partnership with Spotify for music streaming. And then of course a few operators have attempted to emulate OTTs as in the Telefonica example. However, OTT services such as WhatsApp and Facebook have reached critical mass in terms of global adoption, and even when carriers price data and voice packages relatively cheap, many consumers continue to use OTT solutions because of the richer user experience.

The problems of operators are historical, increasing, and not always under their own control. Consider these, for example:

Interoperability vs. Innovation

Earlier this year, Talmon Marco, founder and CEO of OTT messaging player Viber, which now claims 200 million mobile users, gave a ruthless address during which he slated incumbent telcos for their inability to innovate. He noted that, after several years, telco ventures such as Joyn (RCS-E) have only been adopted by a handful of operators worldwide because operators have entirely the wrong outlook. They are focused on interoperability – on ensuring that their services work on every handset for every user and at every location. Inevitably, this factors down to the lowest common denominator – if a feature doesn’t work on one handset, it is removed from all handsets. True OTT players, on the other hand, don’t care about interoperability. They just want a service that is innovative from the beginning, smooth in operation, and delivers a superior user experience; and crucially, it only needs to work on one device. After that, the viral effect of user adoption will drive its development on other devices.

His point was very real and recognizable, especially if you, like me, have ever been to those industry standard meetings where the big players sometimes only seem to be there to “slow things down.”

One-Sided regulation

Unfortunately for incumbent telcos, the same laws that reduce barriers for new entrants make it difficult to charge those entrants a fair price for usage. Regulation is almost always angled against the incumbent on the basis that newcomers need assistance to maintain competition.

Differentiators no longer any different

Telcos used to have the advantage of the end-user billing relationship and end-user knowledge. However, the advent of the iTunes and PayPal models, and the fact that most operators have not fully engaged in their exploitation of mobile data analytics, means this is not really true.

Perhaps telcos have just had it too easy for too long. In a recent article, Rethink Wireless stated that incumbent telcos are simply too absorbed in protecting their existing revenue streams and the way they want to do business. “We need to be prepared to eat our own children” they say “to think the unthinkable.” They make the suggestion to telcos to pursue completely new revenue streams at any cost. This is easy to agree with of course, but not easy to implement if you are the incumbent telco. If you are sitting on your very own money-making machine, the hardest thing in the world is to walk away from it on the basis that there is a new machine you need to go and invent to even stay in the game.

Chink in the armor of OTTs

But interestingly, there is a new trend which may ultimately displace some of the largest, best known OTT players.

Consider the new OTT entrants which, unlike for example Facebook, were originally conceived and 100 percent designed for the mobile world. They include KaKao Talk, a chat application big in Asia and closely tied to a hugely popular South Korean boy band called Big Bang (perhaps you have to take my word on that!). Another example is Line from Japan. Users are flocking to use it because it enables cute “stickers” (emojis and emoticons) of teddy bears and curious cartoon characters popular in Asian cultures. WeChat from China is another example of a chat service with strong cultural localization, local celebrity support, and staunch following that outweighs any global OTT application in that geography.

Closer to home, an example of an OTT app for mobile is Snapchat, which allows users to send a photograph which self-destructs within a few seconds of viewing. Its popularity is soaring and has exceeded Facebooks’ Instagram in the amount of photo uploads to-date. Snapchat is an example of an OTT app “made for mobile.”

These applications are demonstrative of a new trend in OTT that one size doesn’t fit all. Applications that can ride on the coat-tails of local culture especially celebrities, TV and music; and niche applications designed specifically for mobile, now represent the greatest threat to global “first generation OTT players.”

Maybe these new applications just go to show that life in mobile will always be short-lived.

But what about the incumbent telcos? What are they supposed to do? Well, operators do have the advantage of longevity and stability. That in itself is not enough, however, and operators need to decide if they will take the block, neutralize, emulate or partner routes. Crucially, operators at the end of the day still “own the road.” The jazzy shopping mall packed with apps and OTT services is great but you still need the operator’s “pipe” to get there. There is monetization to be done here in the form of sign-posting users to specific parts of the mall, promotions, and ads. We made the mistake in the past of referring to them as “dumb pipes.” Operator pipes in fact are increasingly sophisticated and hold huge value. And anyway, even if you say they are just pipes, I don’t know about you, but where I live, plumbers spend a lot of time preserving pipes, they are good at what they do… and they make a LOT of money.

About the Author:
Chris Goswami has worked in the telecoms industry for over 25 years. At Openwave Mobility, Chris heads up Product Marketing by providing tactical support and business cases for areas of strategic interest. In his previous role in Openwave’s Global Solutions Team, he was responsible for coordinating solutions for complex customer problems in the mobile-data space.

About Openwave Mobility:
Openwave Mobility empowers mobile operators to manage and monetize the growth in mobile video and web traffic. By analyzing the data network and individual subscriber habits, it reduces congestion exactly where it appears while creating new revenues through personalized data plans. The company operates within the policy control and charging space, with solutions including Mobile Video Optimization, Mobile Data Charging, Subscriber Data Management and Mobile Analytics.