The Dilbert comic strip for today was a perfect trigger for me to revisit something I’ve been thinking about for a while, and that’s the impact of apathy and laggards on the adoption of new technologies in telecom (something I promised to write about here), but almost more importantly the abandonment of old technologies. Here’s the strip:

The key point that I’ve been thinking about recently is that these late adopters or laggards have a pretty dramatic effect on telecom spending, in that they considerably slow the rate of change, and especially the rate at which old services decline.

A case in point: AT&T’s standalone long distance voice service. This used to be AT&T’s bread and butter, alongside its services for business customers, and it sold it aggressively (as illustrated by New Yorker cartoonist Kim Warp in another cartoon, at left). In 2001 it made just under $14 billion from these services and made up the vast majority of its consumer revenues. Around that time, local telcos such as Verizon, SBC and BellSouth began marketing their own long-distance services, sold as part of a bundle with local services and over time broadband and video as well. Also, in 2003 the FTC introduced the ‘Do Not Call’ list, preventing companies like AT&T, MCI and Sprint (and also obviously many others in other industries) from cold-calling non-customers to sell their services. This in essence destroyed the main way these companies signed up new customers.

As a result of both of these trends, AT&T saw its long-distance revenues drop from that $14 billion in 2001 to $10.4 billion in 2002 and $7.5 billion in 2003. That’s a pretty steep decline for a core service. But look at the equivalent number for 2007: $3.7 billion. Yes, it’s about half what it was in 2003, which is a steep decline. But look at it a different way: this is a service that AT&T hasn’t marketed for five years and which competitors have been aggressively selling against for even longer. And yet the subscriber base has only declined by 50% in four years.

That’s actually pretty remarkable! Every one of the customers still using AT&T for long-distance must have been contacted by their local phone company to add long-distance to their package, and yet they’ve resisted? Why? Because these people are by their very nature apathetic about changing services that serve them perfectly well – they’re classic laggards when it comes to new technology. And yes, I’m sure the over-60 set is unusually well represented among this group as the Dilbert cartoon seems to imply.

But they’re not the only ones. A few years ago I heard one manager at a telco talk about two types of customers in the context of bundled services:

• Those who were cash rich but time poor. This group tended to be favor a telco bundle, because the money saved by switching to several individual products at a lower price was worth less to them than the time they’d spend researching, choosing and switching replacement products. Busy professionals earning a decent living would be among the prime examples.
• Those who were time rich but cash poor. These people needed to save money wherever they could and had the time and inclination to hunt down the best possible deal, even from multiple separate providers if appropriate. 

Laggards don’t just include the seniors who simply can’t keep up with changes in technology and just want the phone to work. They also include those in the first group above – young and middle-aged, affluent people. The interesting thing is that, although all providers naturally chase the group most likely to switch, this is often a mistake. The laggards can often be far better customers, because once you’ve got them they’re much less likely to switch to someone else. The second group would have taken up the old AT&T, MCI and Sprint on every offer presented during a telemarketing call and probably ended up being paid to take long-distance service from whichever provider they were using at any given time. Those are the worst customers in the world to have!

Telcos should be doing everything they can to ensure that they can hold on to those customers that are motivated by inertia more than they are motivated by cost savings. A former colleague of mine did some analysis a few years ago about net present value related to wireless subscriptions, and he discovered that the ‘glovebox phone’ – the cellphone someone signs up for and then stashes in the glovebox in the car for emergencies – is the highest net present value subscription that carrier has – lots of revenue, hardly any cost. And they’ll never churn.

In all the segmentation work telcos are currently engaging in, they need to ensure that this group is identified and respected for what it is: the backbone of their business. Obviously a telco can’t afford only to attract those customers in this laggard group – at least at current revenue levels. There are many more customers who are much more likely to churn, and lost customers to win back. But this group of customers can be the anchor for a broader customer base, and provides the economies of scale to keep costs low for the rest of your customers. This group of customers provides a massive chunk of overall cash flow and margin. So this segment should be rewarded for its loyalty with perks and appreciation. In addition, telcos shouldn’t take steps designed to save 1-2% of customers which reduce prices for the other 98% of customers as well, including those who were already entirely happy with their service and very unlikely to switch. 

On the flip side, though, telcos also need to understand that these customers will still be on an old network even when the vast majority of the base has migrated to the new technology. Shutting down analogue cellular networks was delayed for a long time because of the rump of subscribers still using those old phones (or at least keeping them in gloveboxes). ATM and Frame Relay networks (yes, this effect applies in business too – businesses can be at least as inert as individuals) will have to be run for several more years even if the vast majority of customers have migrated to MPLS. This means you have to find ways to migrate those customers gracefully when the time comes, in such a way that they suffer no disruption and the service works the way it always did (don’t be tempted to think that it has to be better – they won’t see it that way).

Overall, my key message is that this group, and the effect of inertia and apathy on telecoms growth, cannot be ignored. These are some of the most valuable customers telcos have, they need to be served differently, and they don’t want to migrate to the latest greatest product or platform. Telcos need to understand all of that better and act accordingly.

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I am constantly astonished by the fact that many websites still use Mapquest on their “directions” pages. It makes me wonder why they do so, when surely no-one really uses Mapquest anymore when there are alternatives like Google Maps and Yahoo Maps around. For several years now, those two alternatives have been considerably better options, with a much more usable interface (both on PCs and on mobile devices) and much higher quality maps (Mapquest’s were until very recently still those funny line drawings where roads are shown as single lines instead of two dimensional objects although this appears to have changed in the last couple of months).

And yet, according to Hitwise, Mapquest still has an over 50% share of the online mapping market. Google Maps, while coming up quickly, is still around 20%. Yahoo Maps, which had been in second place, has recently dropped to third, losing subscribers to Google along with Mapquest itself. Microsoft’s Live Maps product, meanwhile, is hovering around 3% of the market.

I found this astonishing, because I’m not sure I’ve ever used Mapquest, and I certainly never have in the last 5 years. For a time, Google Maps and Yahoo Maps were playing leapfrog in courting my attention by launching new features alternately. But Mapquest was never a serious contender. So why is Mapquest still such a major player?

I think the answer lies in the fact that many people on the Internet are inherently inert when it comes to choosing service providers. Their inertia ties them to the first service they used that worked in a particular space – be it mapping, search or photo sharing. They don’t actively seek out alternatives and so never realize that there are better services available. In the case of Mapquest, it was so dominant in the early days that its name transcended its brand and became generic in the manner of Kleenex, Hoover or Ziploc (”shall I give you directions?” – “no – I’ll just Mapquest it”).

I think this same inertia is what has allowed AOL (coincidentally, the owner of Mapquest) to continue to exist as a walled garden provider even when the same content and services that you can pay $10 to $26 a month for is now available for free at aol.com. The same group of subscribers probably make up much of the customer base for both Mapquest and the old AOL service. And this group of relatively inert Internet users is large and probably growing as more seniors and others who are less adventurous on the net come online.

This all gives a massive advantage to the first company that makes a significant new service work well enough for these relatively conservative users of the Internet. Google is able to overcome this advantage in the case of mapping and other areas such as email because it already has a strong entrenched position in search and is good at leveraging its strength across its properties through those links at the top left of each of its pages.

This is in contrast to Yahoo!, whose website is so cluttered that finding new services is very much more difficult. There are lessons to be learned both from Mapquest and from Google here. From Mapquest we can learn that being the first good provider of an online service is a massive advantage. But from Google we can learn that it is possible to overcome that advantage by leveraging mind share in an existing market into an adjacent one. And we can also learn that the time to market for competing services is very much shorter today than it was when Mapquest first launched, so that the first mover advantage is being eroded over time.

Service providers on the Internet have essentially two choices: they can target this large group of inert users, which takes a long time to jump on a bandwagon but will then ride it for many years, or to target the equally large group of more technically savvy users who are more adventurous and therefore faster to adopt a new service but also faster to jump ship when something better comes along. A third option, the holy grail, is to produce a service which serves both markets and can therefore grow quickly but also retain a large base over time. But that’s a rare service indeed.

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