Vodafone’s aim is for Vodafone 360 to carve out a position in application services world, which Vodafone was in danger of losing altogether. Vodafone’s results over the last two years have made it clear that they have been very successful in driving uptake of data services, and just as unsuccessful as their industry peers at making any money from services beyond basic email and web access.
Vodafone didn’t expect it to turn out this way, and has had to resort to draconian cost reduction and even passive network sharing to balance the books. It is also notable that the majority of the existing services revenue income is attributable to business users, rather than consumers. Vodafone 360 is a significant step toward generating a new source of revenue from the consumer market, and should complement the revenues Vodafone can expect from a greater geographic roll-out of the iPhone service platform in mature markets like the UK.
What has changed? I was struck by a couple of big underlying themes, one overt, the other less well publicised.
In the ‘obvious’ category it is nice to see an operator put the customer at the centre of their proposition, which Vodafone 360 does through its address book and online services integration. The multi-channel approach of enabling the Vodafone 360 client to run on non-Vodafone devices, including PCs, will appeal to a lot of users who think in terms of the services they use, not how they access them. Bringing applications onto the handset undoubtedly helps with the overall quality of the customer experience, and the custom UI looks good, although maybe not quite up to the benchmark set by Apple. Unlike Apple’s ‘write once, publish all’ development platform, Vodafone 360 has a massive number of incompatible handsets and screen formats to support.
The Joint Innovation Lab (JIL) development platform, developed in conjunction with Verizon, Softbank and China Mobile, goes a long way to addressing the handset diversity and should deliver a consistent user experience. Again, the end result is burdened by compromise and won’t appear as slick as Apple platform applications do, but it will deliver what customers want to a pretty high standard. Applications and content should generate some solid revenues, even if on a 70:30 split in favour of the developer.
In the ‘not so obvious’ category Vodafone has moved away from a ‘we want to control the retail channel’ model to a ‘we are a retail enabler’ stance. By this I mean that behind the scenes Vodafone is changing the model from ‘fat pipes’ to ‘smart pipes’ that offer extra capabilities which the application developers can hook into and – of course – pay to use. This is nothing new in the high street retailing world; think of a department store and the brand boutiques that exist within it. Vodafone is shifting its focus from being a relatively unsuccessful retail store to becoming the mall owner. The ‘smart pipes’ can charge applications for accessing location, payments processing, customer profile data, white-space advertising inventory, anti-fraud measures, voicemail and text delivery services, localized marketing, local-language customer service, in-network storage, edge-of-network storage for high performance… all sorts of stuff, in fact. In the new model they charge customers for accessing the mall (a bit like paying for transport or parking), and the boutiques for using the mall’s services. And what works, in this scenario, is that customers want to interact with the content brands, not Vodafone’s brand. Both come out as winners.
The smart money is on the ‘smart pipes’ making up some of the much-needed revenue shortfall. Vodafone has the scale to make a content aggregation business work – most operators don’t – but it needs to be careful. Publishing platforms work on a scale economy, and margins end up pretty thin. They need to be constantly refreshed with new capabilities; if Vodafone chooses to re-invest most of the income generated by Vodafone 360 in next-generation network build-out it will kill it, as pure-play handset-related platforms such as those from LG, Nokia and Apple will continue to innovate and make it look very dated very quickly.