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Mobile operators and Internet companies are amassing valuable insights into their customers. Who will best mine the data for profit?
If the customer is king, then the customer's data are the crown jewels.
Over the past two decades, mobile operators have been privy to increasingly detailed information about their users. Aside from people who buy prepaid service with cash, mobile operators have always known the identity and location of customers. Now, thanks to big advances in the capabilities of mobile devices and the sophistication of applications and services, mobile users are leaving ever more wireless footprints all over the place.
Credit the arrival of the true mobile Internet. With capabilities such as location-based services, wireless social networking, and pay-by-mobile for travel, ticketing, and myriad other transactions, mobile operators today have the means to establish a fairly complete profile of their subscribers.
Yet to date, operators haven't exploited this treasure trove of user data—and now they're facing new rivals as Internet companies start to build direct relationships of their own with mobile users. Online service providers, or OSPs, are muscling into the act: Skype serves more than 400 million users and carried more than 8% of the world's international calls last year. Apple (AAPL) has sold over 40 million iPhones and iPod Touch devices, with more than 2 billion apps already downloaded from the iTunes Store. Facebook has more than 300 million active users, with 120 million logging on to the social networking service at least once a day. Some 65 million actively access the service every month via mobile devices, and 4 million-plus do so on a daily basis.
Instant Global Players
Each one of these "new kids on the mobile block" is, of course, building its own user data banks. As such, they're challenging the operators' claim to mobile customers. With no networks to maintain and no geographical constraints, Internet companies can deliver services to a huge number of users at low cost, while increasingly targeting mobile customers with new services. Thanks to the Internet, they automatically become de facto global players, regardless of their actual size or value. There are already hundreds of thousands of such service providers fighting for the attention of Internet users—and increasingly, of mobile users. Aside from the firms mentioned above, other early winners include Google (GOOG) and its YouTube unit, Twitter, and streaming music service Spotify.
Mobile manufacturers are also getting in on the act of building direct relationships with customers. The iPhone already accounts for around 33% of worldwide mobile Web traffic. Nokia (NOK) has built Skype support into some handsets and has invested heavily in its Ovi wireless portal, which offers services ranging from app downloads to photo sharing. Hutchison's INQ launched as the "social-networking mobile."
Given the rapidly expanding firmament of OSPs that collect and exploit user data, mobile operators need to evaluate their own user data management strategies rapidly. Do they want to contest or complement global Internet companies, who have already become major players when it comes to the delivery of communication and media services to consumers?
Can the operators compete when they are subject to regulatory rules and stricter privacy laws? Do they have their customer data in a format that makes mining and manipulation viable? After all, operator databases have been built almost purely as authentication mechanisms.
Or maybe the operators don't want to compete. Based on user behaviors, operators may risk losing the trust of their customers if they attempt to exploit personal data. People seem quite happy to put increasingly detailed personal and photographic information about themselves and their family, friends, interests, travel plans, etc. onto sites such as Facebook—as well as posting work-related information on business networking services such as LinkedIn. Yet in Britain, consumers revolted over the mere idea of a mobile directory assistance service, called 118 800. The debacle demonstrated how protective users are of their mobile identities—not even willing to list their phone numbers—even as they disclose far more personal details on Web sites.
Mobile companies have only just started to market their services to their own customers. Until now, they were so lax about doing it that loyal, longtime customers often learned of new services or tariffs by reading about them in the media, rather than getting a simple text message from the operator. Beyond that, operators still aren't making much of an effort to tailor and target services for small to medium-size companies—surely a potentially rewarding market opportunity.
If operators decide to contest the challenge posed by Internet firms, they still face the problem of organizing and using their available customer data. The years spent deploying often-proprietary legacy systems have led to very fragmented data storage compared with that of Internet peers. Changes in data architectures will require investments backed up by solid strategies if operators are to modify their business models and develop new revenue streams.
Yet the rewards could be massive. Operators hold the key to maximizing the potential of the mobile-services market. But by competing with the OSPs, they risk diluting the impact of the mobile Internet. And they face almost certain failure if they try to build their own alternatives to already-popular online services such as Facebook. A far better path will be to develop value-add relationships with Internet companies, based on preferences. That will keep operators in the mix and give them a clear and essential future role beyond that of a "dumb pipe" utility.