Web or Chains

Vertical integration is not the only traditional concept that has been challenged in the current business environment where firm and industry boundaries have blurred, speed of technological change is increasing, and the focus of business has shifted from products to services. The whole concept of value creation is being reevaluated: in the past, value was created sequentially as a product’s value increased as it moved through a chain of activities — a value chain — from raw material to end products. However, today the value is being created constantly and in parallel. The main source of value is no longer in physical goods and products, but increasingly in services, skills, and knowledge. This development has forced researchers and businesspeople to look for new ways of modeling the concept of value creation. In this chapter, we will review some of the models and frameworks that have challenged the old value chain concept. The goal is to find useful frameworks that would help us to understand what is actually happening in the mobile industry today and in the future.

Dynamic Boundaries and Vertical Integration

In this chapter we will review existing theories and models of the boundaries of firms and industries. The goal is to gain a better understanding of the forces behind the current development in the mobile services industry. It is argued here that at the end of the day, there are very few elements that are totally new even in the most advanced high-tech industries, when the focus is on the evolution of an industry.

Towards a Networked Economy

This book is about mobile services in a networked economy. For some readers, the term “networked economy” may well be self-evident, but for others the meaning may be somewhat unclear. Therefore, in this chapter I will clarify what the term “network economy” means in the context of mobile services, and particularly in this book.

Mobile Markets vs. Mobile Ecosystems

Now as we have gone through the characteristics of the three case markets, it is time to figure out what our analysis has revealed. In other words, what can we tell about the differences between the Japanese and the European mobile services markets — or more specifically, the Finnish and the UK market? It is time to merge the theoretical discussions of Chapters IV to VI, and the case analyses of Chapters VII to X in order to gain a better understanding of the current structure and the future trends of the mobile data services industry. Let us start by comparing the three markets by using the Double Helix model.

Mobile Services in the UK

On New Year’s Day 1985, Ernie Wise made Britain’s first cellphone call. Now, less than two decades later, most people in this country have a mobile and every sixth person in the world owns one. They have launched revolutions, saved lives, destroyed relationships and, of course, spawned a whole new genre of utterly pointless communication. (The Guardian, November 11, 2002) The UK mobile market is one of the most advanced — if not the most advanced — mobile market in Europe. This is understandable when keeping in mind the long tradition of wireless communications in the country already in the analog era of mobile telephony. The UK was also among the first countries in Europe to open up the competition for mobile services, and to implement mobile number portability, which was introduced in early 1999 (Oftel, 2001). Mobile telephony services are also widely adopted in the UK. According to official statistics, more than 70 percent of the population used mobile phones in 2002. However, according to more recent estimates, mobile phone penetration is almost 100 percent in the UK (M-Commerce Chasm, Sept 27, 2004, p. 1). The competition in the UK is extremely intense as the five mobile operators (Vodafone, Orange, T-Mobile, mmO2, and the 3G-only operator Hutchison Whampoa) are trying to attract both new customers and to entice customers away from their current operators (Olla and Patel, 2002). Even Oftel, the regulatory authority in the UK, decided to remove the last remaining mobile telecom sector specific regulation in fall 2003, as there was no longer a need for regulation to promote competition in the mobile market: Consumers (due to the intensifying competition) got increasingly better deals and none of the five mobile network operators had significant market power in the UK market. Therefore, Octel removed the restrictions that were imposed on Vodafone and O2 to provide interconnection services (http://www.cellular.co.za, October 15, 2003).

Mobile Services in a Networked Economy

The mobile telephony business used to be reasonably simple in the past: mobile services were provided by national monopolies, so nobody really cared about building fancy brand images or creating funny names like Orange, O2, or 3. The service itself was well defined as it was all about being able to have a telephone conversation while being on the move. The services were targeted predominantly to an audience that consisted of “55-year-old male using mobile phone in his work” (Williamson, 2003, p. 20). But then came along deregulation which opened up the mobile market for new players that were forced to differentiate their services and image. The increasing competition lowered the prices of handsets and mobile phone calls to such an extent that even ordinary people (i.e., consumers paying for their own mobile phones and telephone bills) could afford their own cellphones. Roughly at the same time, somebody got the idea that you could send short text messages with your mobile phone — now as the digital mobile networks allowed for new kinds of value-added services. All of a sudden, the mobile business was not only about making phone calls; it was increasingly about communicating with friends, relatives, colleagues, and customers — either by voice or data messaging. It did not take long before the Japanese started to develop something totally new. NTT DoCoMo decided to create a new kind of mobile service that would focus on nonvoice services to consumers: the target audience was not the busy businessmen but their wives and children (Matsunaga, 2003). The new service called i-mode became extremely popular in a very short time, and soon, two other Japanese operators followed the example of NTT DoCoMo and created their own mobile Internet services. The European operators tried to replicate the success of the Japanese mobile operators in Europe, but they failed miserably. Despite the high hopes, WAP was a disaster for everybody involved: the users hated it, the operators could not make profitable business out of it, and the venture capitalists lost their investments as thousands of start-ups went bust. The European operators, and the industry in general, missed what is important in creating successful consumer services: mobile services business is not about technology — it is about building networks and ecosystems in order to be able to offer business customers and consumers total concepts that are both easy to use and also make their lives easier.

Networks, Ecosystems and Clusters

“Vertically integrated manufacturing firms are morphing into internal and external networks.” (Achrol & Kotler, 1999, p. 161) In the previous two chapters, we have reviewed various types of coordination mechanisms and discussed issues related to the boundaries of a firm. Different kinds of collaborative and network relationships have been presented as a means to increase cooperation between different players in an industry. Now is a good time to go a little bit deeper into the philosophy of networks. We will also familiarize ourselves with two interesting concepts of intercompany networking: business ecosystems and clusters.

Anatomy of the Mobile Services Industry

“After 20 years of talking, this so-called convergence of computing and communications is happening.” Craig R. Barrett, CEO of Intel (BusinessWeek Online, March 8, 2004) The reasons for writing this book are twofold: first, the importance of the mobile industry for the future success of the whole ICT industry cannot be overemphasized. Second, the mobile industry itself is an ideal target for analyzing the impact of technological innovations, deregulation, and global competition on industry structure and different ways of collaboration between companies in the industry. Within the context of this “high clockspeed” industry, mobile services represent even more interesting research topic due to the additional complexity, which results from the shift from traditional voice services to mobile multimedia services. The increase in the amount of complexity in the mobile industry is one of the key themes of this book: it is argued here that business gets more complex as the industry moves from voice-centric services to mobile multimedia services, which contain voice, text, graphics, and video. When thinking about the concept of complexity of an industry, it is important to keep in mind that there are various aspects of complexity that affect the way in which business is done in a given industry or market. Within the context of mobile services, the two important dimensions of complexity are technical complexity and commercial complexity, as described in Figure 1. What we can see in the diagram is that as mobile telephony moved from analog technology to digital technology, the technical complexity of the networks and handsets increased dramatically.

Mobile Services in Japan

In the second section of this book, we will focus on the mobile industry in Japan and Europe, specifically in Finland and the United Kingdom. The goal is to use the various theories, models, and frameworks described in Section I to understand why the mobile industry looks like it does today and where the industry is going. Let us start with a brief overview of the mobile industry in Japan. The emphasizes is on the word “brief” because the intention is not to go very deep into the special characteristics of the Japanese way of doing business; neither does this book offer an in-depth description of mobile business in Japan — there are far better books and research reports for that. However, this chapter tries to pinpoint the features that are the most important for comparison of the business models in Japan and in the two selected European markets.

Mobile Services in Finland

“It is therefore dangerous to assume that there would ever be any major opportunities in the field of chargeable end-user services targeted for private customers.” Pursiainen & Leppävuori (2002, p. 53) Finland is one of the leading countries in the world in the use of mobile telephones. This is the traditional way of presenting this small country in the northern part of Europe with a little over five million people. Finland has an excellent track record in developing and commercializing mobile telephone service: the analog NMT network was launched commercially in 1982, the first commercial GSM network was opened in 1991 by Finnish operator Radiolinja, and in 2001, the number of mobile subscriptions exceeded the number of fixed telephone lines. Finland was also one of the first countries were SMS-based text messaging became a huge success. Probably the most interesting thing about Finland, when it comes to mobile business, is, of course, the fact that the world’s largest mobile phone maker Nokia comes from Finland. Thanks to Nokia, the Finnish telecom cluster has grown and prospered for years. However, recently more and more mobile phone manufacturing-related business has moved to Asia, where production costs are lower and end-user markets are closer. The current trend has raised much concern regarding the future of the Finnish telecom cluster if Nokia decides to transfer manufacturing and R&D away from Finland. During the past few years, the Finnish mobile industry has been facing major challenges. As Michael Porter has pointed out in his analysis of the evolution of business clusters (see Chapter VI for a more detailed discussion about clusters), nothing lasts forever: a cluster that was booming may become obsolete as technologies or customer needs change — or when the relative competitive advantage of different countries shifts. But let’s take a few moments to learn more about one possible way of analyzing the mobile industry of Finland.