3G: more of the same, but faster? Or a chance to create a real innovation platform.

Simon de Haast, Ideafarm

www.ideafarm.co.za/blog

The things we fear most in organizations -- fluctuations, disturbances, and imbalances -- are the primary sources of creativity.
~ Margaret J. Wheatley ~

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Hello everybody.

3G… If you’re getting a feeling that you’ve heard this all before, you may be right.

Some call this feeling deja moo - the feeling that you’ve experienced this BS before. This acronym took over as the leader from the WAP and MMS hype gang some years back and there has been much evangelising about the promise of this technology. Then the spectrum auction bubbles popped and everyone went back to pickup the pieces. [Humpty Dumpty] Except that quietly in the background, engineers and technicians were busy rolling out the necessary infrastructure, and next thing – Bam! – 3G networks are a reality.

But before we get too excited, let’s first examine some alternative viewpoints regarding 3G.

I hope that in this afternoon I can offer up some new thinking frameworks and tools to help you re-perceive the telecoms industry and the opportunities, within and around that fast shifting space. And in so doing, help inspire you to develop great products or services.

Wireless broadband. Always on. Networked everything. Deregulation. Lot’s of juicy disruptive influences. This is the territory of the innovator. And in this ocean of change, the business-as-usual incumbents and start-ups competing within the framework of yesterday are bait-ball frenzy-fodder for the convention-busting sharks circling the opportunities.

Ok so I’m being a bit melodramatic here, but I had to use this great slide somewhere. But I’m not that far off. What do you think shareholders do, when a company mis-steps. Just ask Carly. But it’s exceedingly difficult to make sense of what path to follow when technological change surges. As Alan Kay’s framing quote for the conference says, "The best way to predict the future is to invent it”. But how?

Let me try offer some viewpoints on this.

I love metaphors. They are such useful things to view life with.

Last year, I was driving in Cape Town below Devil’s Peak and the Cape Doctor was really howling. The next thing I noticed was that the canopy of my bakkie was moving from side-to-side! Suddenly I had visions of my canopy flying off onto the road, colliding with another car, or even worse, tumbling down into Woodstock and flattening some poor drug dealer.

These increased levels of anxiety continued for the next couple of minutes until I realised, in a flash of blindingly obvious hindsight, that it wasn’t my bakkie canopy moving at all.

Instead, it was my rear-view mirror, thanks to a loose fitting. What I was seeing, was the product of a faulty lens (the mirror), and the extreme discomfort I felt, was all an invention of my mind.

How often in business do we suddenly see things in a new way? Another name for this, is innovation, a term not only related to the latest technologies being developed in a lab somewhere.

Marshall McLuhan was the guy that gave us the “the medium is the message” and “the Global Village” phrases. He was a keen observer of the media in the sixties and seventies, and his theories on how to consume and make sense of media are directly applicable as a lens to make sense of the future.

He hit the nail right on the head when he made this comment:
"When faced with a totally new situation we tend to attach ourselves to the objects of the most recent past. We look at the present through a rear view mirror. We march backwards into the future."

As we come across new technologies, social trends or geopolitical events, we rely on our familiarity of similar experiences in the past to help make sense of these new events.

Computers use keyboards based on typewriters. The Internet borrowed content structure and style from traditional newspapers. The design of online-shopping websites was at first modelled after malls.

It took the movie industry a decade or so after the first silent movies before it realised that a completely different cinematic effect could be achieved by simply liberating the camera from the tripod. This also liberated the movie industry from the thinking traps imposed by seeing it through a stage play lens.

However useful these prior experiences are in designing the present, we usually get caught up with the conventions used before, and they trap our thinking.

The template for the accidental success of SMS and ringtones was appplied to the development of MMS services, with the expectation that it would be even more successful – hell it was a no brainer. SMS, only better. Except consumers haven’t thought so.

The underlying riff in my talk today is about challenging the way we see how 3G services can be consumed, and urging you not to fall into default thinking traps based on past successes.

Operators are hamstrung by the embedded worldview they have because they started off being a mobile TELEPHONE network. With the transition from mobile voice to untethered data, new thinking is needed to truly ride this wave.

The prevailing wisdom is that 3G is centered around the handset, and the handset is itself is a much smarter and faster version of previous versions. Even the name “3rd Generation” assumes a linear path in development, yielding significant improvements over the last generation. Ja right. In the same way Henry Ford introduced a 4th Generation ox-wagon.

My argument, is that the mobile industry is especially focused on the device, a voice one at that, and this is creating the box of thinking, that traps truly innovative models to emerge. The device is where the money starts flowing, so it’s only natural to expect this. Where do you think this irritating fascination with video-calling comes from.

So, if you founded your business around the establishment of a portable telephone network industry, everything after that will be based on certain conventions and thinking models around voice services.

Linear thinking creates a breeding ground for industries that you won’t see coming.

So what if you were able to take a blank slate and define a business with all the ingredients being offered up now with wireless broadband? How differently would it look like?

I intend to take you a guided tour of some of the things that will influence compelling ideas around the wireless broadband space.

I’ll be discussing what impact the Long Tail has on business model design, and what relevance the concept of time-shifting (and time-killing) has for 3G. By deconstructing and recombining the parts that make up a mobile network service, I will also attempt to how this can be made into a platform for user-led innovation, my biggest crusade, as well as what it means for the rest of us that have no communication services at all.

But before I take you on a trip of what innovation possibilites could be dreamed up using another set of lenses, let me revisit what innovation is about.

What is Innovation
I know there’s a bunch of wordy definitions out there, but this is my take on the topic: innovation is a process or culture, of seeing new connections between old and new stuff. Innovation happens in areas of technology, as most people associate it with, but more importantly it also about challenging the status quo [Machiovelli quote], whether it is how consumers are understood, how staff are employed, or businesses are structured. Creativity is a related component: it is a raw material to the innovation process.

IDEO is a San Francisco design firm that has absolutely mastered this art form. They say that innovation begins with an eye, and rightly so; deep insight and understanding about a problem, customer behaviour, or the opportunities that a piece of technology can open up, are the starting points for creating value out of these insights.

A guide that can be used here is to remind oneself that a customer values the outcome of a product or service, not the thing itself. For example, a DIY customer ultimately wants a hole in a wall, not a drill.

Coming up with the ideas is only half the story. One commentator takes about innovation as being ideas in action.

So this innovation thing is primarily about seeing stuff differently.

We get so caught up in our immediate world that we forget to check whether the lenses we’re using are doing their job properly. Just remember my bakkie canopy story. So the trick is to keep asking “what aren’t I noticing about this situation, what aspects could be different this time.”

And looking outward at your competitors isn’t necessarily that useful either. If you’re all drinking from the same cup of best practice, nothing will seem new.

If you're defining your business in terms of your competition, you're living in what Seth Godin calls the “echo chamber”. Companies and organizations don't grow fast at the expense of existing competitors. They grow fast for reasons that have nothing whatever to do with whether your service is 5% better or your product is a little more convenient. At the same time, looking at your customers with the same tired focus groups won’t yield breakthrough insights because customers lack the ability to articulate their desired future.

As our friend Alan Kay puts it:

We don't get many new ideas … because if you ask most people what they want, they want just what they have now, just 10 percent faster, 10 percent cheaper, with 10 percent more features.

So back to creating your own future:

By reacting to competitor positioning, you have little control of your firm’s destiny.

Try this little exercise:
- Get a piece of paper and a pen.
- Write the word “REACTIVE” on this piece of paper.
This is the mode most businesses are in.
- To shift to a more PROACTIVE mode, all it takes is some letter jumbling.
- Take the letter “C” in the word you’ve just written and move it to the front.
- What do you get: “CREATIVE”.
So you see, it all depends on how you “see” things :)

Here are some quick techniques to see differently, to become aware of the environment of industry shifts?

You can do this by looking at your business with lenses borrowed from other industries, areas of knowledge or unrelated domains. Ask the question: how can I describe my business and what’s happening to it in terms of this other ‘world’ I’m borrowing from.

An example: someone in the distribution business could ask the question-“what other things ‘get’ distributed…hang on, DNA gets replicated and sent around genetic structures according to certain rules and instructions from RNA. I wonder how a genetic scientist could describe my business in these terms. And in so doing, help me make new connections on how I could do things differently in my business.”

The other benefit of getting a naïve expert, as it’s called, into your business, is that dumb questions will follow. Except these questions won’t be so dumb, as they will expose deeply rooted assumptions and conventions that you have long since forgotten existed and take for granted. In that sense then, these rooted assumptions are the boxes we place ourselves in, and to break out of this default thinking, we first have to become aware of them.

There’s a great twist on a common saying that really describes innovation well: vu ja de. This is the ability to see old things in new ways. The following anecdote describes this well:

A statistician, Abraham Wald, was asked to do some research on where to put extra armour on Allied warplanes during World War II. The British and US air forces were concerned because many planes were being shot down. To find out where extra armour could be best applied, Wald put a mark in every bullet hole in the airplanes that returned from battle. He found that two major sections of the fuselage - one between the wings, and the other between the tails - had far fewer bullet holes.

He decided to put the armour in these places, where he saw fewer, not more bullet holes.

Why? Since the planes were hit randomly, and the ones he analysed had not been shot down, it stood to reason that it was the holes he wasn't seeing - in the planes that _weren't_ returning - that needed extra protection.

So what do armour plating, DNA, and fishy stories have to do with opportunities in the 3G space?

Well they help set the scene for understanding the thinking blocks we have because of our vantage points.

Back onto the 3G wagon.

Ok, so now you’re equipped for creative challenge ahead of you, making sense of the world of 3G.

Let us now examine why the hype machine for 3G is back again. We’ll do this by heading back a century, to discuss the evolution of the DC-3 airplane. This comes from Peter Senge’s seminal book on organisational learning, The Fifth Discipline.

In Dec 1903, Wright brothers proved that powered flight was possible when they invented aeroplane. However it took more than thirty years before commercial aviation could serve the general public.

Engineers say that a new idea has been invented when it is proven to work in a lab.

The idea becomes an innovation only when it can be replicated reliably on a meaningful scale at practical costs. If the idea is sufficiently important, such as the telephone, the digital computer or commercial aircraft it is called a basic innovation and it creates a new industry or transforms an existing industry.

When an idea moves from an invention to an innovation, diverse ‘component’ technologies come together. Emerging from isolated developments in separate fields of research, these components gradually form an ‘ensemble of technologies that are critical to each others’ success. Until this ensemble forms, the idea, though possible in the lab, does not achieve its potential in practice.

Back to the Wright brothers: thay proved that powered flight was possible, but the McDonnell Douglas DC-3, introduced in 1935, ushered in the era of commercial air travel.

The DC-3 was the first plane that supported itself economically as well as aerodynamically. During those intervening thirty years (a typical time period for incubating basic innovations) a myriad experiements with commercial flight had failed. The early planes were not reliable and cost effective on an appropriate scale.

The DC-3 for the first time, brought together five critical component technologies that formed a successful ensemble. They were: the variable pitch propeller, retractable landing gear, a type of light-weight molded body construction called ‘monocque’, radial air-cooled engine, and wing flaps.

To succeed, the DC-3 needed all five; four were not enough. One year earlier, the Boing 247 was introduced with all of them except wing flaps. Lacking wing flaps, Boing’s engineers found that the airplane was unstable on take off and landing and had to downsize the engine.

However, although the DC-3 revolutionised commercial air-travel, the airline industry didn’t become a major industry until widespread use of two additional technologies more than 10 years later - the jet engine and radar (the latter being a by-product of the war effort, not ‘aircraft’ research.)

Jet engines and radar fostered a burgening infrastructure of airports, pilots and mechanics, aircraft manufacture, and commercial airlines. This was the foundation upon which the modern airline industry was built.

The key issue here is the ability to see integration possibilities of the ensemble technologies; all the DC-3 technologies were invented by 1925. The following 10 years were spent making incremental changes and figuring out how or what to integrate.

This example underscores the power of making new connections between stuff that’s already there, but sometimes quite far out of your industry’s field of view. It’s also very difficult to see opportunities when you’re immersed in an industry.

McLuhan said it best: “I’m not sure who discovered water, but I’m pretty sure it wasn’t a fish.”

So, while 3G wireless broadband was hyped up some years ago, the appropriate mix of component technologies and business models were and are still being formed. Certainly the mobile space has created massive disruptions outside the industry. Who would have thought the Nokia, Sony-Ericsson and Samsungs of the world would become the biggest sellers of digital cameras?

Here’s some ideas I have on what to look out for that could have a significant impact of how the 3G space plays out.

First up is the concept of the Long Tail.

The Long Tail as related to this discussion, is a term coined by Wired editor Chris Anderson in highlighting business models of Amazon and Netflix, the DVD rental business. In it he observed that products in low demand or have low sales volume can collectively make up a market share that rivals or exceeds the relatively few bestsellers and blockbusters, if the store or distribution channel is large enough.

The long tail of course has it’s roots in statistics, where it shows few population items making up a significant chunk of the data count, with a long stream of items having very little impact.

This graph from Nokia depicts it well from a mobile operator perspective [Intelligent Edge graph].

When storage and distribution costs are insignificant, it becomes economically viable to sell relatively unpopular products. Coupled with tools to expose these ‘hidden’ products, like Amazon’s recommendation engine, the opportunity to sell into the Long Term en masse is significant. Anderson writes about how Touching the Void, an account of a harrowing mountain climbing experience, got good reviews, it was only a modest success and was soon forgotten. Then a decade later, another book about a mountain climbing tragedy, Into Thin Air, became a publishing success. Suddenly, the first book, Touching the Void, started selling again. A docudrama movie was released, and now it outsells Into Thin Air two to one.

What happened? Amazon’s recommendation system kicked in and noted patterns in buying behaviour and suggested that readers who liked Into Thin Air, would also like Touching the Void.

Bang goes the 80:20 rule, of bestseller and movie hits. The thinking trap that we’ve become accustomed to thinking is in terms of hits, not sales. In a non-digital, narrowband world, the structures of storage and Roland Coasian transaction costs support the 80:20 rule. If it’s not a hit, it doesn’t make money. But as we move into a bit dominated world, that’s another convention is about to be trashed.

The size of the Long Tail in books, movies, and music is astounding. When that tail wags, money can be made.

Here’s where I make the inevitable connection to the iPod. But with a twist. The cellphone over the years has evolved into a very personal device,, from being purely a voice-based communicator, to a digital hold-all, of contacts, photos, email. One way of underscoring this shift is to measure the reaction of unwanted mail: we’re irritated when we get junk mail stuffed into our mailbox at home, but we just end up chucking it in the bin. The next on the list is what I call tar-spam, is all that junk under your car’s windscreen wipers. Email spam starts getting really frustrating, but boy are we pissed off when some schmuck sends us SMS spam. That’s because it’s invading our real personal space.

So, ignoring my device centric rant earlier for a bit, the natural tendancy is for handset manufacturers to add digital music players to their range, much like what they did by adding cameras.

By combining wireless broadband connectivity, a DRM-based music subscription service that allows users to download as much music as they want at a flat monthly rate, and fat storage on the phone, (think iPod Shuffle meets cellphone) interesting things start happening.

The music that gets downloaded has a life of a month, then it is marked for deletion on the device, unless the user flags it for purchase to keep permanently. Based on initial user choices on music, the subscription service, somewhat like Amazon, recommends other music that they might like. Suddenly, with easy distribution and awareness tools, the Long Tail kicks in after a while – obscure stuff starts getting bought en masse.

Yes, those in the DRM space will know that there are some serious problems with various proposals floating around with transferring to other digital devices, but this could be solved by using a “lease” renewal system that renews the licence periodically if the other devices are in proximity to the core content device, using wifi or bluetooth.

The second concept is the idea of time-shifting. This was first introduced many years ago with the introduction of the VCR, allowing consumers to alter fixed broadcast scheduling to suit their lives, not the TV stations. Of course this was greeted by a lawsuit by the networks and content owners against Betamax, which thankfully didn’t go anywhere. Now we have Personal Video Recorders like Tivo overseas, which has created an unprecidented level of customer evangelism (who says user interface design has no strategic relevance).

With broadband becoming more widely available, the internet is now also being used as the virtual VCR, with services like RSS, BitTorrent and Google Video allowing access to all sorts of programmed content, on TV, radio and conferences like this.

Now, I’m not saying all of this is perfectly legal, in terms of content owners having their work freely available, but what I am arguing is that technology now allows us to record stuff all over the place (TV, radio etc) and the relevant licensing options need to be innovated. Not to be shut down just because the incumbents don’t have a clue how to deal with this disruption.

3G networks allow the user to use their hand held almost as a life remote control, time shifting their entertainment demands using their phone as an interface to me-tv. Think of it as Tivo-on-a-phone. And you’re not tied to a fixed location. Oh, and I’m not suggesting that one consumes all this content on the phone – I envisage a situation where it can be feed to a another screen or sound system, using the phone as a personal content server.

The same DRM licencing structures found in the music model would enable this.

Remember the key difference between the Internet and the mobile phone network is that on the internet, you’re effectively annonymous. On a mobile network, you’re a known entity.

But now it’s time to take the disruptive thinking further.

Discussions so far have related everything to a single device.

But according to surveys done by various consulting firms, user want less, not more features on their phones. In one study, 70% of consumers polled ranked advanced features very low in what they look for. This is in stark contrast to operators regarding advanced services as a key differentiator.

Operators want to increase their ARPU, and the one way to do this is to provision more and more services to the SIM card. Users aren’t buying this. So how does one reconcile this disconnect?

Well, think out the box for a start, or in this case, think outside the handset. Lets examine the components of a mobile phone service:
- Handset
- SIM card
- Wireless network
- Content and services provision
- Billing system
- Customer relationship.

Innovation is all about creatively seeing novel combinations. So lets try recombine.

What if you took the SIM card, Billing System and the Wireless network components and put them inside another box of electronics. Suddenly you have a 3G Appliance that can plug into your existing home devices (TV, PC, Playstation, alarm system) in which you can consume the above mentioned Long Tail and Time-shifted services. Think DSTV decoder meets wireless broadband.

Because of the customer relationship, the network operator now has the chance to sell the user ANOTHER sim card, and leave the phone alone. Suddenly they are no longer only in the Mobile Voice network business, but also have created a completely new space to play in. Those business units heavily invested in the status quo ie. voice won’t feel that data is cannibalising their core business, because it becomes a separate business.

What I’ve tried to do with the concept of the 3G Appliance is not to say “This is the path to go”, but rather create tangible scenarios for creative recombinations to emerge.

If you’re in this space, as a product developer, as an organisation that needs to deliver information or services, or as a content owner, thinking beyond the handset suddenly opens up new possibilities.

This also has implications for the various players in the mobile ecosystem in that reflections on “what business am I really in” start to emerge.

So what of the rest of us that have no means of communication? Borrowing from the banking industry term, “the unbanked”, we are dealing with a massive section of the population that we could term the “undialled”.

With the shift to new generation handsets globally, already there are initiatives in place to recycle those 2G phones to those in the developing world.

What about creating a industry-wide initiative to bring low-cost no-frills telecommunication service to the poor, call it a Mnsanzi for telecoms? SIM cards can be provisioned specifically for this service thereby reducing fraud or abuse. Above and beyond the voice aspect of this service, government service delivery can be enhanced through the extension of notification services already in place for ID books, pension payments etc. Of course 3G networks in place can also provide low cost narrowband data services like flood and fire warning systems remotely connected in a mesh, in a so called Smart Dust network.

Ok so I’ve rambled on somewhat about developing new paradigms in which to view 3G networks, and so I think it’s nearly time to go have some tea.

Conclusion
My goal today has been to create some food for thought about the telecoms landscape.

We get so caught up in the immediacy and urgency of the what new technologies and regulatory shifts can bring, we forgot sometimes to take a step back and reframe what is really happening.

To reiterate this point, McLuhan is worth repeating again: "When faced with a totally new situation we tend to attach ourselves to the objects ... of the most recent past. We look at the present through a rear view mirror. We march backwards into the future."

So I hope I have been able to provide you with alternative ways of framing the 3G opportunity, helping you break out of default thinking . There is so much that this technology can offer in terms of radical new business models, compelling new services and, generally, a platform for innovation.

I’d like to end off with one more story that illustrates the hazards of having a limited perspective on ones’ business environment, a perspective that is conditioned by how we are ruled by our assumptions.

There was a man who, during wartime, would come to the country’s border with a wheelbarrow full of dirt. The border guard looked at the man’s papers and all was in order for him to cross. But the guard was certain the man was smuggling some sort of contraband in the wheelbarrow. So the guard took a shovel, poked around in the dirt, but found nothing. The man was allowed to cross.

The next week, the man once again comes to the border with a wheelbarrow full of dirt.

Again, the border guard found that the papers were in order and dug through the dirt, but still found nothing. And again, the man was allowed to cross.

Week after week, it was the same story: Man approaches the border with wheelbarrow full of dirt. Guard finds nothing of interest and the man crosses.

At the end of the war, the guard sees the man and asks him: “Look, I know you were smuggling something across the border, but I could never find a thing hidden in the dirt. What were you smuggling all those years?”

The man answered: “Wheelbarrows.”

Thank you.

[References]
I have to acknowledge the following references as providing some of the inspiration and stories in this talk:

Allan D., Kingdon M., Murrin K., Rudkin D., How to Start a Creative Revolution at Work, Capstone, London, 2000
Federman, M., How to Determine the Business You’re Really In & Other Tales of McLuhan Thinking, Innovation and Integral Awareness, McLuhan Program in Culture and Technology, University of Toronto
Kelly T., & Littman J., The Art of Innovation: Lessons in Creativity from IDEO, HarperCollins Business, London, 2001
Majaro, S., Creativity in the Search for Strategy (in Crainer 1999), Prentice Hall, 1999
Sutton R.I., Weird Ideas that Work, Penguin, London, 2002
Von Hippel E., The Sources of Innovation, Oxford University Press, New York, 1988
Walsch, N.D., Conversations with God Book 1, Hodder & Stroughton, London, 1997
Zander B., and R.S., The Art of Possibility, Penguin Books, London, 2000