Monday 4 April 2011

O2 free Wireless - is it for keeps?


Back at the end of January it was reported that mobile network operator O2 is planning to launch free, premium wifi hotspots across the UK for all - not just for their own customers.

It occurred to me at the time that this was an interesting, if slightly crazy proposition. Sure, I can see the reasoning for this for existing O2 customers. It provides a great retention offering and also frees up capacity on their network for data traffic - something which is growing exponentially. However, opening it up to the general public seems a large cost with little gain.

It begged the question as to whether this was sustainable?

More and more is becoming "free". The content we consume - from BBC News to Spotify - it's all available for free. Now, with O2 providing the access itself for free, it raises the question of who ultimately wins. In the words of Jerry Maguire :-

"Show me the money!"

Even Google who constantly innovate by providing increasingly complex consumer services for free have to make money; and they do. Information is power and more importantly information is money. By controlling the source of this information - over 84% market share - Google are able to sell access to consumers through targetted advertising.

So there we go, problem solved. O2 will make money through advertising and will build volume be making it free. All nicely packaged up - and that was how this blog was going to flow until I read a really interesting blog by Bill Gurley entitled "Android may be the greatest legal destruction of wealth in history" - go read it, it's a fascinating viewpoint.

In this blog Bill argues that Google provides products like Android simply to protect its core product - it's search engine - and the revenues associated with this. Describing the core product as an "economic castle" he argues that products like Android are simply "un-breachable moats" which are created to take out any potential threats to it's "castle", which in this case is anything which gets between them and their consumer. Bill goes on to say:-

In essence, they are not just building a moat; Google is also scorching the earth for 250 miles around the outside of the castle to ensure no one can approach it. And best I can tell, they are doing a damn good job of it.

Companies entering adjacent businesses simply to put pressure on competitors who were looking to enter their core market is nothing new. While working at IBM many years ago I was told a (possibly apocryphal) story about how they only entered the photo-copier market at the time to put pressure on a competitor who was looking to enter their core mainframe market.

However, Google's strategy could easily eclipse that. Offer your product for free (or as good as) to build a market which essentially you control so that revenues continue to flow into your highly profitable core product offering.

Could O2 potentially be doing the same thing?

Is free wi-fi less about making revenues from advertising and instead more about creating an "un-breachable moat" to protect their core mobile offering.

Making sure they own the connection with their customer's handsets (both current and potential), however they connect means they are less likely to be displaced or intermediated. In addition it provides a great way to displace competitors with the potential offered by the data - allowing them to possibly see the devices used, locations visited, sites visited - all of which can be used to help target both online marketing as well as their own.

Although both free wi-fi across the UK and a new mobile phone platform are not small projects, the principle of creating ways of protecting the core business is nothing new - this is ultimately what many loyalty programmes are trying to achieve.

The loyalty programme is trying to protect the core revenue - the economic castle - by creating an un-breachable moat around it. The points currency does this in part by ensuring customers have a vested interest in making their next transaction with you rather than your competitor. However the real power, the bit that makes it potentially un-breachable is the "context" you develop with the customer based on their data.

If this information is utilised to reduce ongoing "friction" in the relationship by providing better service and more relevant product offerings then competitors will struggle to breach the walls to capture your customers. If on the other hand the data stays locked up and unused, then this is tout-amount to leaving the drawbridge down and the doors open.