July 12, 2018
Telefónica hosted its Industry Analyst & Customer Days in Madrid recently. In our view, Telefónica is emerging as a leading global telco. Of course, digital natives like Alibaba, AWS, Google, and Tencent continue to capture the customer attention. Yet, the example of Telefónica indicates that traditional firms can effectively tackle digital transformation. Against these considerations, our main takeaways from the Industry Analyst & Customer Days are that Telefónica:
- Deploys its platform business model as the central building block. Telefónica is making very good progress toward implementing its platform strategy. Telefónica’s platform strategy covers physical assets, IT systems, products and services, and cognitive/data services. Its first platform provides “best connectivity” and supports network infrastructure and data center capabilities. Its second platform delivers “digital intelligence” thanks to smart operations and business support systems — and is open to Telefónica partners. Its third platform supports “better experiences” through delivering customer-centric digital services. Telefónica’s fourth platform provides “cognitive power” in the form of customer data management.
- Supports customer expectations and business outcomes. Telefónica designed several tools, such as Novum, to support customer experiences, including self-service provisioning, personalization, dynamic recommendations, and real-time price quotes. To track the benefits of these services, Telefónica defined a blend of operational and financial KPIs. The case study of the global duty-free provider Dufry highlighted that in some cases Telefónica is even shifting toward delivering business outcomes, such as social media participation, loyalty program sign-ups, immersive experience quality, and in-store experiences.
- Embraces the revenue opportunities for embedded connectivity. Telefónica rightly pushes for equal regulatory treatment of OTTs. However, Telefónica also explores the opportunity of being a “technology distribution partner” for OTTs, software vendors, and content providers. Telefónica’s platform approach offers these partners the benefits of Telefónica’s global ecosystems, accelerated time to market, global consistent end-to-end user experiences, easy onboarding of partner services, and access to Telefónica’s large customer base.
- Pursues a sophisticated data monetization model. In addition to Aura, an AI-powered digital assistant, Telefónica pursues Luca. Luca uses network-infrastructure data points in combination with third-party data to support its customers through data-driven decision making. Luca extracts, anonymizes, extrapolates, and aggregates network data, such as user movement. Luca comprises data consulting, data analytics, business insight generation, and infrastructure tool provisioning. Luca is far from the only such offering in the market. But Telefónica’s platform model adds additional potential for Luca to generate customer value.
- Tackles its digital transformation as a comprehensive and wholistic affair. Telefónica runs over 600 digital transformation initiatives, with about 30% focusing on sales empowerment, 30% on improved customer care, 18% in top-ups, and 10% on efficient field operations. None of these initiatives are standalone. All digital initiatives are concerted and aligned with the group digital strategy. Moreover, Telefónica’s platform approach is based on a “Lego block” approach for portfolio development and its go-to-market activities. Hence, Telefónica plans to ultimately link its four platforms into one macro-platform.
Despite Telefónica’s progress, we see several areas that Telefónica ought to focus on more to strengthen its long-term competitive position. In our opinion, Telefónica ought to:
- Exploit the opportunity as a trusted customer data protection broker. Telefónica began work on Aura with a vision to provide a data management portal that would empower its customers to take control over their data vis-à-vis over-the-top service providers. The vision was to give the customer the power to decide which data point she would be willing to exchange for what OTT service. This vision has given way to a much less daring chatbot offering. The Facebook scandal highlights the need for a trusted independent data broker. We feel that Telefónica is too cautious regarding the potential of Aura for customer data protection.
- Focus on customer benefits and business outcomes in its go-to-market messaging. Despite its progress, Telefónica is still too technology-centric in its go-to-market messaging. Telefónica’s platform strategy is coupled with the decision to shift all services to all-IP. In turn, this will empower Telefónica to develop a comprehensive “as a service” portfolio. The key to Telefónica’s future will be to translate how network infrastructure benefits can translate into business outcomes, making it all the more important for Telefónica to understand and sell “business benefits” rather than “network products.” This also means that Telefónica needs to boost its multi-stakeholder selling capabilities.
- Position itself as a matchmaker between startups and its business customers. An increasing number of businesses is looking to integrate startups that can boost their capacity for innovation and service differentiation. Thanks to its Wayra accelerator activities, Telefónica managed to gain significant insights into the startup environment. Telefónica should consider acting as a channel for traditional corporations to meet up with vetted startups based on a specific business requirement. This would allow Telefónica to build further trust between its enterprise customers and its startup community.
Many investors do not yet fully appreciate Telefónica’s longer-term transformation. And indeed: The return of Telefónica’s digital investments will only become fully evident in the years ahead. However, in our view, Industry Analyst & Customer Days underlined that Telefónica is gradually transforming into a digital services provider — and this is a sustainable long-term business opportunity.
- data & information protection
- platform-as-a-service (PaaS)
- predictive analytics
- software-defined storage (SDS)
- telecommunications services