By Tom Donnelly*, Co-Founder and COO, Sales & Global Services, Sandvine
Communications Service Providers (CSPs) face many challenges when trying to market broadband services to their customers. Music, movies, ringtones, and data plans have all become popular and profitable, value-added services for CSPs in recent years. But now that consumers can go to Spotify for their music, Hulu for their television, and Starbucks for their Internet access - how can CSPs convince subscribers to pay for their own on-deck services? The answer to this challenge lies in looking at some of the tactics with which these new, over-the-top entrants are having success, and adapting them to suit the needs of CSPs.
Go freemiumA freemium business model revolves around the concept of giving consumers limited free access to a product or service, and then charging for additional features. In the US, the video service Hulu has seen success in implementing the freemium model and, in doing so, has become one of the market leaders in streaming television.
Hulu’s free option offers users a wide range of recently aired and back-catalogued network television shows. The limitations of the free service however, is that not every episode of a TV show is made available online. To fill this gap, for $7.99 a month, users can opt to sign up for Hulu Plus, a premium plan that gives users a much deeper and more complete catalogue of TV shows, as well as an expanded ability to watch programs on tablets, game consoles, and connected TVs.
CSPs can similarly employ this freemium model to their own offerings, in order to increase the number of subscribers who pay for their value-added services. For example, providers that have subscription, or pay-per-use music, or video services, could provide a limited-time free offer of one hour of music, or provide 30 minutes of video standard with each plan. This free sample would not only give additional value to subscribers, and help differentiate the CSP in the marketplace, but it would also introduce the user to a service they may not have tried before. If happy with the service, subscribers would then be far more likely to sign up for an expanded feature set for a monthly fee, than if they had not been able to try out the service on a limited basis for free.
Form a partnershipFor a CSP, creating a value-added service from scratch can be an expensive undertaking. If a similar service with a strong brand already exists in the marketplace, the new service may face adoption hurdles, as subscribers may remain with the service with which they are familiar. Because of these challenges, it may be in the best interest for some CSPs to partner with an existing service vendor, rather than go at it alone.
A partnership like this was recently announced in the UK, whereby Spotify signed an agreement with Virgin Media to offer their music streaming service to Virgin’s broadband, mobile, and television subscribers at a discounted price. In a partnership like this, both parties stand to benefit. Spotify is poised to gain additional subscribers who may have been reluctant to subscribe at full price, while Virgin will benefit by offering a unique differentiator in the marketplace, and will potentially gain additional revenues by taking a cut of the monthly subscription fee their customers will pay to Spotify.
Additionally, Virgin may stand to benefit from selling additional data packages to subscribers wanting to use a bandwidth-intensive service like Spotify on their mobile phones, or Virgin may zero-rate the Spotify traffic in order to give subscribers who don’t have a data plan the added incentive to try out the service at no additional charge.
Charge in relatable terms
In the era of usage-based billing, a lot of focus can placed on total data consumed. For the average consumer, data amounts are a difficult concept to understand, so billing in more relatable terms, such as hours of video watched, can lead to greater adoption.
In Canada, Bell has seen a great deal of success in changing the way in which they bill their mobile video value-added service. Early in 2011, Bell transitioned away from billing by the byte and began to bill by hours of video watched. This new pricing model charges $5 a month for 10 hours of mobile video access and, since making the change, the service has exploded in popularity, with over 300,000 or 5% of post-paid customers subscribing to the service. This number is a marked increase over the 1,000 users who subscribed to the service in 2008.
Offer plan variety
Not everyone uses the Internet in the same way. Offering different plans will give consumers more choice and the freedom to opt-in to a plan that really reflects their usage, and not that of others.
As an example, the barrier preventing many from purchasing their first smartphone is the cost of a data plan. With many restaurants and businesses offering free Wi-Fi, some might not even see the need to pay for a monthly data plan. Instead of offering a high-price data plan that provides access to the entire Internet, offering a lower cost data plan, with restricted access, might be more enticing to price-conscious subscribers.
To target these price-conscious consumers, many mobile carriers have seen a great deal of success in offering social networking data plans that offer access only to social networking sites like Facebook and Twitter.
With plans like this, subscribers benefit from having access to their favourite sites at a fixed priced without having the hassle of searching for Wi-Fi, and also enjoy “cost certainty” when the next bill comes in. As for carriers, they benefit from getting increased data revenues, as well as the potential to convert subscribers on low cost data plans, to higher value plans when their contract is up for renewal.
Service providers are no longer competing solely against each other with their value-added services. Netflix, Hulu, Spotify, and Pandora are just a few of the major players that now have a significant impact, not only on the amount of data subscribers consume, but also on the amount subscribers are willing to pay for value-added services.
Going forward, CSPs will need to regularly re-examine how their value-added services are structured and billed in order to compete in the market. Consumers expect low cost and high convenience services, and providers will need to ensure that they meet these demands, as there will be no shortage of new companies looking to make their mark and encroach on the market share of existing service providers.
*Tom is co-founder and chief operating officer, responsible for worldwide sales, support, professional services and business development at Sandvine. An accomplished telecommunications entrepreneur, Tom was part of the executive team for PixStream - which was later sold to Cisco Systems for more than $500 million. Tom was responsible for sales and business development, winning prestigious customers such as Bell Canada, Eircom (formerly Telecom Ireland), Telenor, and SingTel, as well as building a successful partnership and channel program that included Newbridge Networks (Alcatel), Nortel Networks, Next Level Communications (Motorola) and Cisco Systems. Tom’s international experience includes executive-level positions managing marketing and business development operations in the Asia Pacific Region, Europe, Latin America and North America.Tom has been involved in the telecommunications sector since 1990 and is a popular speaker and recognized authority on broadband market issues. He has spoken at notable events such as Broadband World Forum, Supercomm and CommunicAsia. In 2007, Tom and his fellow co-founders were honoured with the Ernst and Young Entrepreneur of the Year award in the technology category for their success and dedication to their work at Sandvine.
Tom holds a Bachelor of Arts degree from McGill University and is a graduate of the Wharton executive development program at the University of Pennsylvania. He currently resides in Ottawa with his family.