Dual Transformation – Multi-Million Lessons from the Internet’s First Wave

Scott Antony describes dual transformation as “the process by which a company becomes the next version of itself”. This concept is described in the book Dual Transformation: How to Reposition Today’s Business While Creating the Future which was co-authored by Scott, Clark G. Gilbert and Mark W. Johnson.

This book has a fairly straight-forward premise – that two types of transformation are required in order that businesses do not suffer from disruption. The authors introduce their book in the following way:

Disruptive change opens a window of opportunity to create massive new markets. It is the moment when a market also-ran can become a market leader. It is the moment when business legacies are created.

That moment starts with the core dual transformation framework:

  • Transformation A: Repositioning today’s business to maximize its resilience, such as how Adobe boldly shifted from selling packaged software to providing software as a service.
  • Transformation B: Creating a new growth engine, such as how Amazon became the world’s largest provider of cloud computing services.
  • Capabilities link: Fighting unfairly by taking advantage of difficult-to-replicate assets without succumbing to the “sucking sound of the core.”

Anthony, Gilbert, and Johnson also address the characteristics leaders must embrace: courage, clarity, curiosity, and conviction. Without them, dual transformation efforts can founder. According to Scott, the idea is that you are “simultaneously repositioning today’s business while you are creating tomorrow’s business” (source).

I partly wanted to write this article since I have witnessed first hand a number of times people presenting both dual transformation and also disruption as being quite recent phenomena. In fact, many innovation consultants today fail to acknowledge just how many new practices were first developed in the 1990s, starting right from the very first introduction of Mosaic, the first commercially available web browser.

In a previous article I wrote about the process which my colleagues and I developed at BT Laboratories in the early 90s which we called Designing the Customer Experience. Of all my colleagues in the Human Factors department at BT Laboratories, I was probably the most evangelical in terms of really trying to promote the need to locate customer centred design within marketing departments.

In 1996 I initiated a secondment to Cellnet, the mobile network division of BT, and this enabled both their marketing and business development departments to understand the work of Human Factors. My first project was to develop a usability checklist for Cellnet, and from this came an invitation to join the business development team as the business development manager responsible for smart phones and smart cards.

An early project which I was involved in was the launch of the Cellent Barclaycard phone, an excellent example of Transformation A in the Dual Transformation framework.

The very first version of this phone launched in 1995 and it enabled customers to access the credit-card account information on-screen. The handset was the result of a four-way partnership between Cellnet, Barclaycard, Alcatel (the handset manufacturer) and Gemplus (the SIM card supplier). The second generation phone launched in 1997, which you can see below and in this version we were able to trial the VisaCash low-payment system.

Photo: Simon Robinson

In terms of the overall value proposition for customers, they now had a very simple way to access their banking information without the need for the frustrations of call centres and the time needed to speak to someone in person. The package came with 20% off the cost of regular calls, and the phone was sold exclusively directly from Barclaycard, marketed via the monthly credit card bills. 150,000 handsets were sold in first 2 years, which translated as 6.25% of the Cellnet customer base, an amazing result.

As the manager responsible for smart cards I worked with Gemplus on the customer requirement specification for Cellnet, not only the cards but the server solution as well. The app which had been created was downloaded to the new generation of SIM cards using SIM Over the Air programming, a new standard to create personalised menus, and this is what enabled us to be able to be so agile in launching the second generation handset in such a short time-frame (six months).

One interesting anecdote from this project was that Cellnet and Barclaycard originally approached Nokia as a potential supplier of the handsets. Nokia did not wish to participate as they did not believe that the volume sold would be high enough to justify their interest. Alcatel were still small compared to the main three incumbents (Nokia, Motorola and Ericsson) and they were keen to join the partnership. This project alone took them from being an insignificant competitor to one with a highly significant share of the Cellnet customer base, and this was the result of being a part of a value proposition which had en extremely easy to use customer experience, with handsets being modified to include a large blue B button to access the service.

The Cellnet Barclaycard phone enable Cellnet to expand away from retail and into new channels to market with innovative service design. In 1998 I moved away from hardware and into content, with an invitation to become one of the co-founders of Genie Internet, a startup created as a subsidiary of Cellnet. Genie was the world’s first mobile internet portal, and the only way in which we were able to grow Genie so rapidly was by breaking out of the restrictions of the Cellnet and BT innovation funnel. The only way forward was via Transformation B, Genie Internet being one of the very first and cutting edge dual transformation growth engines.

Credit: Channel 4

The original core team consisted of eight members from BT Cellnet, along with a small number of contractors who were responsible for the design and implementation of the platform, and the interconnection of the website with the cellular network. I was the head of music, games and entertainment. We launched Genie as a beta service and followed the Hotmail viral marketing model. Text messages were free, but there was a little advert telling recipients to sign up too.

Below you can see the first advert for WAP phones from BT Cellnet, which included Genie content. I had created a partnership with Dotmusic, one of the first music-based internet startups, and this features throughout the advert.

The idea rapidly took off, and Genie in the UK soon hit half a million registrations. At this time all internet start-ups were focussed on users, and Genie would soon reach a market capitalisation of £1 billion. There was nothing else like Genie in the market, and although we thought Vodafone and Orange would copy us, they didn’t, leaving Genie alone in this space.

An early decision was made to install the Genie team in serviced offices in Richmond-upon-Thames, some distance from the head office in Slough, in order to allow the team to move rapidly without interference from existing business processes and corporate politics. One decision which was not business-as-usual was to allow users from any UK network to subscribe to Genie, rather than making it exclusive to BT Cellnet customers.

The agility that was afforded to the team allowed Genie to launch as a beta around two years before similar offerings from its competitors, leading to the develop of an ecosystem consisting of a wide range of partnerships with content providers such as EMI, Virgin Records, Endemol, Channel 4 and MTV, systems providers such as Microsoft and UnwiredPlanet, and fixed internet service providers such as Freeserve.

In terms of the overall business case, BT Cellnet benefitted from offering services to customers on competing networks; a BT Cellnet Genie user on a monthly contract yielded 35% more ARPU (average revenue per user) than the average BT Cellnet base, with churn (the loss of customers to rival networks) on BT Cellnet overall reducing by 50%.

Simon Robinson with Jamilia

One of the first services I was responsible for designing and launching was G Music live, a services we created in partnership with EMI. This allowed bands and pop stars to send text messages to their fans, who could then click on a link in the message to hear a recording of a personal message from the artists. We launched this service at the top of the BT Tower, with Jamilia, Precious and  Atomic Kitten with a young Kerry Katona, just before they shot to fame with Whole Again.

Technology was advancing rapidly, and my work with the major handset manufacturers was showing me privately how much technology would soon converge, resulting in the obsolescence of the Sony Walkman, which were still popular in the year 2000 when I discussed this point on Sky News in the UK.

In the same year I was invited to appear on Channel 4’s My Brilliant Career, a series which had been created to help explain the burgeoning world of startups in the internet and telecoms domains. Nowadays it is quite common to talk about our VUCA world (volatile, uncertain, complex and ambiguous).

As you will see in this clip from the programme below, there is nothing new about living in a VUCA context. As I mention, in the late 90s and early 2000s we were learning on the job with knowledge almost becoming out of date as soon as you learnt it doe to the myriad technological standards which were all competing to become the defacto standards for the nascent mobile internet.

I quite like this clip as you can really sense the buzz that I and my colleagues were living each day in this new world of new business models which we were creating from scratch. Genie Internet was the first internet portal for example which allowed someone to send a text message from a web page. This sounds trivial by modern standards, but not only did we have to build the platforms from nothing, we had a lot of convincing to do with the most senior executives at BT.

Launching Genie as a beta and unfinished service gave us an incredible head-start compared to our competitors, principally Vodafone and Orange, and as a result we won many design awards. We were continually worried about Vodafone, thinking that at any minute they would launch their own competing portal, but this never happened.

One of Steve Job’s most famous quotes is his observation that it does not make sense to employ intelligent people then tell them what to do. With Genie, this really was one aspect that worked well. We went through a pitching process and we managed to secure various rounds of funding. Once we received the funding, it really was a case of getting on with it, with a very small key team, and outside team of software developers, and little interference from head quarters.

I do remember the day when we discovered that our colleagues at BT Openworld, the broadband internet division of BT had secured £1 million in order to purchase the rights to an Elton John concert, rights which were never fully utlised. This was our total budget for Genie. Our reaction was one of a little jealousy, this I cannot hide. But we were pragmatic, and we were living examples of the theory of constraints, whereby you accept you constraints as triggers for the search for creative solutions.

In 2002, in order to create a more customer-focused brand, BT Cellnet rebranded to become O2 (mmO2 PLC) and with this came the merging of Genie back into the main company as the o2 mobile platform. It had been an amazing journey in many aspects, with Genie launching many cutting-edge and world-first products and services, including GenieMobile, the world’s first on-line only mobile phone service.

Up until now you may have been thinking that this article was a case study on how to be extremely successful in structuring and commercially launching type B transformations. What I really wanted to do with this article is to offer a cautionary take, and that take is the one of Vizzavi, internet portal owned by Vivendi Universal of France and Vodafone of Britain, at the time the world’s biggest wireless operator.

Despite the much greater size of Vodafone, Vizzavi launched a full two years after Genie, an absolute eon when looked at in relation to startup time. Vivendi saw Vizzavi as an opportunity to exploit its content in different media as a result of a proposed merger between Canal Plus, Vivendi and Seagram. Vodafone would benefit as this deal would help it to win the takeover battle for German mobile phone company Mannesmann.

The video below was produced to help customers in Vodafone shops understand Vizzavi better. I do not want to offer any spoilers, so simply watch it and see what you think.

Unfortunately for Vodafone, although Vivendi Universal was a media giant, by 2002 it was struggling, and as a result it sold its 50% stake in Vizzavi to Vodafone for 142.7m euros (£90.4m; $140.5m).

That is a lot of money. Remember that at Genie we had nowhere near that budget, but we grew Genie to reach a market valuation of £1 billion, this coming too as a result of taking Genie to BT’s international mobile partners.

British marketing journal Campaign reported on Vodafone’s misadventure in the following manner:

Vivendi’s erstwhile president, Jean-Marie Messier, had been building a rival to AOL Time Warner, a global empire that brought together conventional media content with new media channels, including digital interactive TV, the internet and mobile communication. Vizzavi was to be the digital glue binding the whole empire together.

Vodafone was involved because Vivendi was weak in the mobile sector (it owns SFR, which is only active in France), while across Europe Vodafone was desperate for a content partner. It seemed a marriage made in heaven.

It was actually a ferocious cash furnace, burning well in excess of £500 million over two years. In the UK alone, not content with taking on expensive offices in Shellmex House on the Strand, it drafted in the Roux Brothers to run the canteen and when someone moaned about the coffee-making facilities Starbucks was invited to help. “Never in the field of digital media has so much money been spent by so few people on so little,” one former employee says.

Source

The opening citation about Dual Transformation mentioned that the authors also noted the need for leaders to embrace courage, clarity, curiosity, and conviction. They also need to embrace cash – or the lack of it. Without any kind of focus on cash burn, a leader and the company attempting to embrace type B transformation are going to be burned.

Big time.

Despite having spent £100 million on advertising Vizzavi just one year previously, Vodafone made 90 people redundant and stopped using Vizzavi as a brand, rolling the small amount of remaining technology into the Vodafone Live! mobile portal.

At Genie we were always focused on our burn rate but we also delivered results very early on, even before any kind of commercial mobile payment method or way of monetising content was available, but reducing the churn rate of BT Cellnet mobile users, and by developing content partnerships which did not depend on the development of insanely expensive joint ventures. EMI, Virgin Music, MTV and Ministry of Sound all shared our same pioneering spirit, and we developed many excellent services which were created to probe and explore the mobile space as soon as the first WAP solutions were available. This was all possible due to the way in which Genie pushed what could be done with SMS, a humble 160 character message, to the absolute limit.

When a company does not have this type of innovation experience, and an intimate knowledge of how to launch beta services rapidly, and which gain immediate traction and grow exponentially, attempting to buy yourself into an industry late and with little experience could cost you dearly, as Vodafone found out to its expense.

Main image credit: Dual Transformation presentation by Scott D Anthony

One thought on “Dual Transformation – Multi-Million Lessons from the Internet’s First Wave

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s