Telco 2.0™ Research

The Future Of Telecoms And How To Get There

Defining the Digital Generation: Young Today, Grey Tomorrow

Members of our executive Briefing Service, please see here for the full note.  Non-Members, please see here to join.

Overview

Service Providers need to engage with customers in a new way to reflect the changes in customer behaviour that have been enabled by the internet. Encouraging customers to actively participate with each other and with other service providers, via a Telco platform, builds value in the platform itself. In other words, the two-sided telecoms business model opportunity grows. In this Analyst Note, we briefly outline our thesis and why it is increasingly relevant to all customers. We explore this in full in our upcoming report, Serving the Digital Generation: Innovation for a new breed of customer.

Customers are Currently Revenue and Profit Pools

Average Revenue per User (ARPU) remains the most important metric at most operators. Customers are measured only in terms of the revenue that can be extracted from them. But digital-savvy customers are starting to ‘pay’ in other ways: with their time, preferences, product reviews, product enhancements. In short, they are giving information and R&D capabilities back to providers that engage with them in the right way. Management in most operators has been late to wake up to this phenomenon and it has been the ‘over the top’ internet players that have benefited most by engaging with customers in a more interactive manner.

Customer Participation: A new way for customers to Pay

Telco management tends to assume that these ‘Web 2.0 customer behaviours’ hold little value to their businesses. They also believe that customer behaviour change is a long-term trend and one that only becomes relevant over a number of years. But changes in user behaviour can happen rapidly. Consider the growth of the Internet and mobile telephony in the last ten years and the explosive growth in SMS at the turn of the century. The mobile internet is currently enjoying strong growth in many markets now which is allowing operators in Western Europe and North America to enjoy similar growth to that experienced by NTT DoCoMo of Japan in 1999 and 2000. The launch of i-Mode in 1999, for example, saw them gain 20 million customers in less than two years! This was a massive and rapid shift in user behaviour which shaped the evolution of the mobile industry globally.

In Serving the Digital Generation: Innovation for a new breed of customer, we analyse and explore the behaviour of the digital generation to show changes in how communication services are discovered, shared and consumed. Undoubtedly, some teenage and adolescent behaviour will alter as they move into adulthood. But while specific forms of behaviour will change, the centrality of participation and engagement in different forms of social interaction through digital media will, if anything, probably increase. Why? Because, the functionality and flexibility of digital communication media will continue to develop and so will further enable customers of all ages to interact more efficiently and more effectively than through non-digital media. Customers want to get involved, they want to contribute: with each other; with the evaluation of products and services; with the development and creation of new services. Gone are the days when customers passively wait to receive things from providers, the digital generation actively engage with providers. This process of interaction and engagement, we have termed the participation imperative.

Introducting the Customer Participation Framework

The report explains this behaviour and explores how the participation imperative represents a new opportunity for Telco value creation. To realise this opportunity, we have developed a new framework for future product development and services, The Customer Participation Framework( CPF). Developed initially as a template for validating new service or application ideas, the CPF is a tool that can be used to support different phases of the product or service innovation process:

  • At concept initiation, to validate ideas against customer needs;
  • During the development and trial phase, to ensure usability issues are properly addressed;
  • In the execution phase, as a means of feedback iteration and a measurement of success.

The CPF can help operators increase the value of Telco Value Added Services assets (the platform) and lead to entirely new ways of marketing Telco services (retail) to both upstream service providers/partners and end users.
We believe that The Customer Participation Framework represents an enormous opportunity for operators to increase the value of their platforms and retail strategies and thus help to realise the $375billion two-sided business opportunity discussed in previous STL Partners reports.

The myth of a youth-only digital world

Terms such as ‘Digital Kids’, ‘Digital Natives’ and ‘Digital Immigrants’ have been bandied around for the last few years in an attempt to distinguish people who are comfortable using the Internet, and adopting Web 2.0 solutions, from the rest of us who are generally considered sceptical grey-haired laggards. The former group are young and have been weaned on digital technologies; the latter are older and have discovered mobile telephony and the internet in their adult lives. Indeed, when STL Partners was planning our new report its working title was Digital Kids: Understanding the Customer of the Future.

So why did we switch title? Research by a non-profit think-tank, The Pew Internet Project, in the US suggests that associating digital culture with younger people is over-simplistic. Differences in internet usage and adoption of ‘Web 2.0 behaviour do not divide neatly between the younger and older generations. There are not only more and more ‘silver surfers’, but they are also displaying decidedly Web 2.0 tendencies.

Internet usage skewed towards young but oldies catching up

It is true that the younger adult generations (Generation X and Y, aged 33-44 and 18-32) are over-represented on the internet. However, Older Boomers (45-54), none of whom would have grown up with computers let alone the internet, are also over-represented. Indeed, dramatic under-use of the internet can only be found in the oldest segment (G.I. Generation, aged 73+) where, it is safe to say, age and infirmity will be preventing some people from using the internet.

digikids1.png

It is clear that there is a correlation between age and internet usage if we look at the proportion of each age segment that is online. Teens (excluded in the analysis above), lead the way, with 93% of all 12-17 year olds using the internet. They are closely followed by Gen Y (the next youngest group aged 18-32) with other segments following closely before a more substantial drop-off with those aged 64 and over.

digikids2.png

It is interesting to note the relatively small differences in internet usage between the ‘Digital Natives’ (Teens and Gen Y), who were born after the rise of the PC and Web, and the ‘Digital Immigrants’ (Gen X and Younger Boomers) who have become familiar with the digital world through their working lives. This begs the question whether internet usage is purely a function of life-stage with teens and workers using it to manage their lives and retirees finding it less useful. If this was the case, then it is likely that the older generations would be consistently under-represented over time and suggest that internet usage of today’s young will reduce as they get older.

However, this is not the case. As Chart 3 shows, internet usage has grown fastest in the least-penetrated older segments (the Silent and G.I Generations). In other words, they may be coming late to the internet party but they are coming. If we were to look at Chart 3 again in seven years time, STL Partners forecasts that there would be a gradual downward trend in internet use through the age groups and that the rapid fall-off that we currently see over age 60 would be pushed back to over 70.

digikids3.png

Different (Web 2.0) activities for different ages…

If all age groups or generations are moving online, albeit at varying speeds, they are doing so for different reasons and this is reflected in diverse behaviours. This is not to say that the ‘Web 2.0’ behaviours of participation and engagement (outlined in the last section) are the domain of the younger generation, only that each generation engages and participates in distinct ways. The Web 2.0 behaviour of the Gen Y segment is different to that of the Gen X and the Boomers, but both are Web 2.0 in that they involve active engagement from users.

The rest of this Analyst Note covers:

  • Similarities and differences in the digital activities of different age groups
  • Why some activities, such as Social Networking, only appeal to the young
  • How some activities, such as Product Reviewing and E-Auctions, will permeate across age groups
  • The eclectic tastes of the over 55 segment
  • Why we are all becoming part of the digital generation

Members of our executive Briefing Service, please see here for the full note.  Non-Members, please see here to join.