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Telenor is currently releasing their platform for 3rd party application developers. This is similar to the business strategy we proposed to NTT DoCoMo (largest mobile operator in Japan with close to 100 million users) in my class “competing in technology markets” at MIT Sloan. But why would any company give up the very tip of the value chain to other companies? Welcome to Internet Business Strategy 2.0.

Race to the bottom in the Telecom industry: There are two types of mobile telecom companies in Norway: those who owns an infrastructure and services, and those who simply offers telecom services. The latter type is dependent on infrastructure companies to lease the net. Nevertheless, all these companies compete for the same customers. As we’re reaching the maximum amount of customers, the companies compete on price alone. This is a typical race to the bottom situation, where customers simply choose the cheapest operator. In order to change this, infrastructure companies bring forth their new strategy service-only companies cannot compete with: open platform strategy.
Collaborate horizontally instead of integrating vertically: Traditional business strategy has been to secure as much of the value chain as possible, which simply means that the process from creating the product, through delivering the product onto servicing the product is kept close within the business, either completely owned or through strategic alliances with trustworthy companies. However, the Internet Business challenge this view. There are simply too many possibilities for a single company to follow. So instead of keeping tight control on the value chain, the Internet Business calls for an open strategy: your company opens your assets and the value is created in cooperation with others through mash-ups.
Creating value from your core assets: When opening up a platform, it’s important to consider what are the platforms assets? In our DoCoMo case the importants assets were the member base and information, geographic positioning and a payment system (secondary support functions were numerous but these assets were the most important ones). By allowing any 3rd party to access this information, DoCoMo (or Telenor) would simply let go of the innovative control and rather have others come up with the ideas for themselves!

Capturing value from your core assets: But even in the Internet Economy you’re not giving up your assets for free. There are several models to capitalize on these assets: a one-time fee for using the API, an transaction-based cost model or simply enforced advertisement when using the API. As long as 3rd parties keep coming up with great ideas to utilize the assets, DoCoMo or Telenor can automatically make money on it without lifting a finger (it’s all automated).

Sustaining value from your core assets: The open strategy only works as long as their assets are still valuable. There are three ways of doing this: 1) expanding member base providing more customers and hence more value to member information, the greatest asset, 2) Expand their assets into new areas or more information. For instance, if the mobile phone infrastructure is improved with new capabilities, this should be accessible through the open platform, hence improving the value of the platform, or 3) Incorporate more functionality into the platform. The establishment barrier for 3rd parties becomes less complex if it’s easier for 3rd parties to integrate and make use of existing functionality.

Competition: What happens when competition opens up and follow the same strategy? The biggest player has the advantage because of a greater quantity of assets but the smaller player can win through better innovative possibilities. The bigger player may face the innovators dilemma in securing their assets and market position, while the smaller player will attack the market through a niche strategy by specialising their platform to a certain, specific, need. Needless to say, it will be interesting to see Netcoms response to Telenors open platform strategy.

The results from this open platform strategy will not be seen for some time. One thing is to technically open up the platform , another is to call for collaboration and the dependance on 3rd party companies to make the open platform a success.