Does the failed Disney/ESPN MVNO mean the model is wrong?
With Disney Mobile saying its failed MVNO with ESPN will cost it $30 million, some have been quick to say that lower priced voice tariffs across the board now mean that MVNOs will not be able to make a business case based purely on low cost calls and texts.
And that seems fair enough, but in fact the reaction to the failure has been that Disney/ ESPN forgot that most people are after low prices and relied too much on brand power without developing a good enough value proposition.
We have been pulled up before for saying that to us, relying on brand to pull people to MVNOs was always an idea that was unlikely to fly. Well now it seems that Americans have not been brand loyal enough in this instance to switch service provider simply because the new guy was its favourite sports broadcaster. Yet Virgin Mobile is having some success in Europe and the USA. So is their success just due to a more compatible brand, or is there some other reason for their success?
The answer, according to Hugh Roberts, senior strategist at Logan Orviss International, is that Virgin has been able to do it marry its brand power with a primary goal to “innovate in the arena of customer value propositions.”
“Virgin knew its brand power wouldn’t be enough to cover a poor business model in mobile telephony, with the harsh landscape of this market,” he says.
But Logan Orviss also point out that to do this, Virgin invested in its own billing system and back office functionality. As it combines offerings from its merger with ntl:Telewest, it will give the MVNO a measure of control.
This is all in contrast to ESPN, which saw mobile as merely another channel for its content. Yet at the same time it was providing this content to other US mobile operators. So why would consumers want to switch?
The implications stretch not just to the business models of MVNOs, who in fact may have to actually operate more like operators than they may like, to the operators themselves, when they think about what value they are adding as they rush to set themselves as cross- platform media and content providers.
Orange has obviously invested a great deal in the power of its brand, pulling down Wanadoo and France Telecom, and also Equant in the corporate world, in favour of its integrated Orange name. Vodafone is hoping that wholesale access deals to enable it to become a DSL provider will not confuse its customers. Far from it, the bet is that customers will welcome getting their DSL, IPTV, fixed line telephony (or FMC equivalent) from the provider responsible for their mobile.
This much we all know, of course, but the Disney/ ESPN experience gives pause for thought. Consumers are more inert than we sometimes like to think in terms of switching service provider. Most go for price reasons, of course, but that’s not really a game that the big operators, with their flat growth rates, can really afford to get into right now. Brand extension, it seems, may not be enough on its own.