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Reinvent value by embracing new business models

The bottom line is just the beginning

6-minute read

The as-a-service revolution has turned value creation inside out, shifting the focus from companies to customers and from products to services. The implications are far-reaching and already being felt by communications service providers (CSPs) seeking new business models to carry them into the future.

CSPs are at a crucial juncture according to the April 2021 McKinsey article, A blueprint for telecom’s critical reinvention: “They can either tinker around the edges to achieve incremental gains or make a bold choice to reinvent their value-creation formula and bravely, firmly commit to that choice.”

Those who make the “bold choice” face the practical question of how to reinvent their business models. German researchers Oliver Gassmann and Karolin Frankenberger cracked that code in their 2014 bestseller, The Business Model Navigator. Studying more than 300 business model innovators, they found that the overwhelming majority—roughly 90%—recombined “previously existing concepts, ideas, or business models” to innovate successfully. Gassmann and Frankenberger determined that every business model has four parts: target customer, offering, value proposition and means of revenue generation. The secret of business model innovation, they said, is to change any two.

Digitally disruptive companies such as Netflix, Uber, Airbnb and Salesforce.com have demonstrated that “change any two” formula by rolling out new as-a-service offerings with the novel value proposition of delivering a desired outcome with minimal friction. The customer clicks and gets what they want: a movie, a ride, a place to stay.

Every business model has four parts. The secret of business model innovation is to change any two.
According to research by Drs. Oliver Gassmann and Karolin Frankenberger

 
This everything-as-a-service (XaaS) approach marks a shift from product-centric business logic to service-centric business logic—from one-off or periodic transactions to continuous engagement with customers. And the appetite for subscription-based, on-demand, data-driven offerings is on the rise: Deloitte projects the global XaaS market will reach US$340 billion by 2024.

What are real world business models?

 
CSPs and other digital service providers around the globe seem to recognize the XaaS opportunity and the need for business model innovation. Israel’s Cellcom has mapped out a plan to offer sensor data management using its radio infrastructure, providing real-time environmental data to businesses, transport companies, healthcare organizations, city governments and utilities on a subscription basis. The data will support everything from air quality advisories and real-time allergy alerts to long-term urban planning initiatives.

“If you look at what they’re doing in terms of the Gassmann-Frankenberger framework,” says Carlijn Williams, Head of Portfolio Marketing Cloud and Cognitive Services at Nokia, “they’re actually changing more than two dimensions of the business model. They have a new offering (sensor data), a new value proposition (supporting the public good) and new customer segments (enterprises and governments).”

Targeting the enterprise market demands new business model thinking from CSPs because enterprises have different needs and expectations than traditional consumer subscribers. Analysts expect XaaS demand will be driven largely by enterprises seeking consumption-based solutions to reduce risk and cost, gain scalability and take advantage of technologies such as 5G, the internet of things (IoT), artificial intelligence and machine learning (AI/ML).

Marlin Supply Chain Connections is a digital solutions company with a data-driven enterprise offering designed to break down information silos among maritime shipping supply chain partners—port authorities, terminal operators, ship operators and cargo owners—and provide a real-time, end-to-end view of operations.

While the various players in the supply chain ecosystem need to maintain security of their business infrastructures, the capability to share certain data securely with others or through federated AI and analytics creates value for the others in the chain. That’s being done through open APIs that publish data directly from an individual company’s systems into a data marketplace with permissioned access. This enables data monetization as a service to inform decisions about cargo volumes, port capacity, timing and more, enabling efficiency gains, cost reductions and a smaller overall carbon footprint. Again, the “change any two” formula applies: new offering (data), new source of revenue (monetization of that data).

Marlin itself benefits from the use of the supply chain data—just as Cellcom plans to use its sensor data for its own purposes, monitoring and optimizing the performance of its tower sites. That mutual benefit—solutions that are good for the customer and the provider—is a hallmark of the “shared value” ethos at the heart of many new digital business models.

Sustainability drives shared value business models

 
A number of CSPs have shown interest in one particular form of shared value especially: infrastructure sharing. It’s an approach Belgium’s Proximus is taking to achieve some ambitious energy-saving targets. On the wireline side, Proximus is eliminating legacy technologies from its network and replacing copper with fiber, which could cut energy consumption by 75%. On the mobile side, its strategy is to share infrastructure — achieving business benefits through better resource utilization and hitting sustainability targets at the same time.

“We have taken a lot of actions to improve energy efficiency in our networks,” says Geet Standaert, CTO at Proximus. “On the mobile network, we've signed a sharing agreement together with another operator here in Belgium which brings us a benefit of an additional 20% of reduction in energy.”

Given the impacts of climate change are being experienced today, energy conservation and environmental sustainability are increasingly top-of-mind for CSPs especially if they intend to support the growth in data traffic. The GSMA estimates about a third of the mobile industry has “credibly committed” to achieving net zero emissions by 2050 or earlier.

Corporate shareholders increasingly expect corporations to set— and live up to—those kinds of targets. “As more and more investors choose to tilt their investments towards sustainability-focused companies,” wrote Larry Fink, CEO of the investment management firm Blackrock, in his 2021 Letter to CEOs, “the tectonic shift we are seeing will accelerate further. And because this will have such a dramatic impact on how capital is allocated, every management team and board will need to consider how this will impact their company’s stock.”

KDDI, a mobile CSP in Japan, has a detailed set of sustainability commitments including support for an “energy-efficient, circular economy”. The circular economy focuses on reuse and resource replenishment instead of consumption that ends in waste. As part of its commitments, the CSP is trialing two sustainability-focused innovations: an AI-driven solution that can shut down passive and active equipment dynamically based on network demand, and liquid cooling, which can reduce related energy consumption by nearly 70%.

As more and more investors choose to tilt their investments towards sustainability-focused companies, the tectonic shift we are seeing will accelerate further.
Larry Fink
CEO, Blackrock

 
“What you see in a lot of these cases is that CSPs are broadening the definition of ‘value’ with these new offerings,” says Williams. “They’re looking beyond just financial returns at ways to deliver social and environmental benefits.” Increasingly, vendors of solutions such as these are considering outcomes-based pricing, says Williams. Vendors are supporting CSPs’ shifts by adapting their own business models and charging customers based on the results they achieve rather than a flat CAPEX fee.

Cellcom, Marlin Supply Chain Connections, Proximus and KDDI have all used advanced digital technologies and data to create new sources of value—spurring business model innovation as the way to reap and realize that value.

“A strong business model is the bedrock to business success,” write Gassmann and Frankenberger on their Business Model Navigator website. “But all too often we fail to adapt, clinging to outdated models that are no longer delivering the results we need.”

While it used to be that adopting a new business model was a long-term—and therefore high-risk—proposition, Williams says that’s no longer the case for CSPs: “Digital technologies give CSPs tools to adopt and evolve innovative business models at market speed, making it easy to prototype and test them quickly, and to adjust with agility based on the results. Whatever new sources of value emerge, when it comes to business model innovation, the key is to get in the ring and start experimenting today.”