Data price madness — Economic realpolitik, disruptive innovation

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SOCCER superstars are of two kinds: The artist and artist-cum-scientist.

THE BRETT CHULU COLUMN

Lionel Messi of Futbol Club Barcelona is an artist. He writes enthralling poems with the ball. He Messi-merises. Lionel means a young lion. Messi is a merciless lion on the pitch.

In Cristiano Ronaldo of Real Madrid Club de Futbol, art and Stem meet. The ball worships at his feet. Cristiano is Portuguese for Christian. We all know he is no such in front of goal.

Our mobile network operators (MNOs) attempted a Ronaldo and Lionel on the unsuspecting millions. Unfortunately, raising the prices of data a bold five-fold is poor entertainment. Our MNOs gave us a poor show of non-art and non-Stem.

Our MNOs are only waking up to the quintessential disruptive innovation effect discovered in 1992 by Clayton Christensen of Harvard Business School. Disruptive innovation refers to a simple-to-use and more affordable option when compared to existing services offering a similar functionality.

When a disruptive innovation first enters the market it is not good enough for the majority of existing customers — they typically shun it. WhatsApp started this way in Zimbabwe. People who in their lives could not dream of accessing the existing service because they could neither afford nor possess the savvy to navigate its operational complexity are normally the first to embrace a disruptive innovation.

A disruptive innovation typically improves its performance with time and becomes good enough for those who once rejected it.

WhatsApp is now second nature to both the rich and poor in Zimbabwe. Blue chips now proudly use it in their marketing communications. When those who once disdained the disruptive innovation embrace it, we become aware that disruption has been taking place all along. Disruption is a process; it does not happen overnight. You cannot use your business’ financial and operational data to detect it early.

When your operational data detects it, it is already too late. Typically, the reaction is panicky. This is exactly what has happened to our MNOs.

In 2012, signs were all there that over-the-top (OTT) services such as WhatsApp, Viber and Skype were taking a foothold in the Zimbabwean market. In an interview with the CE of one of the MNOs published in the Zimbabwe Independent in 2012, the CE, on being asked if WhatsApp was killing SMS, revealed that SMS was growing in absolute terms. Thus when OTTs were silently killing MNOs, their financial data was saying they were not in harm’s way. In fact, one CE is on record as boasting that OTTs were their friends — they saw them as driving their fledgling data business!

Recent work on disruptive innovation (2015) shows that disruption is a four-stage process. That work showed that disruption operates like a plant species invading a colony of native plants. The four stages of disruption are acquiring disruptive traits (genesis phase), profit-making as the disruptive innovation gains customers (growth phase), invasion-and-displacement phase and finally the invasion-replacement phase.

Disruption of MNOs’ voice service in Zimbabwe is now firmly in the invasion-displacement phase. When you hear that in one year our MNOs lost 180 million minutes of voice calls to OTTs, you definitely know that disruption of traditional MNO services is now in the third phase of disruption.

Disruption explains why MNOs reacted with aggressive data prices meant to deal with the threat of OTTs. MNOs are reacting late to the disruption process. The horse is long gone. Their financial data could not detect the first two phases. In the past, those caught napping by disruption either fled to other markets or attempted to fight back the disruptors.

Those who chose to fight back, more often than not reacted by reproducing their old models of business — predictably they lost the fight. Our MNOs are trying that. Good luck.
Others tried the political and legal routes, lobbying their governments and approaching the courts to ban disruptive innovations. None succeeded.

Ironically, the law industry itself in the United States is undergoing disruption! There are three reasons why fighting disruption politically and legally is futile. First, due to their nature, disruptive innovations appeal to the masses — a a government trying to stop a service that benefits the majority of its citizens is a political no-no.

Second, disruptive innovations characteristically do not fit in existing legislation. For instance, voice transmitted over WhatsApp or Viber is no different from Facebook — it’s all data. Third, disruptors always find a way to navigate around legislative barriers. Uber, the lift service, is looking at driver-less cars to dribble past political spikes and labour legislation.

There is an interesting dimension to the disruption story; victims of disruption ganging up to deal with disruption. It is explained by another emerging theory discovered from a scientific study of the kombi industry. In the kombi industry, rivals regularly come together to defend themselves against a common enemy when personal economic gains are threatened. In some cases, they engage in strategic betrayal, temporarily dumping friends in order to defend personal economic gains.

In one illustrative incident, a kombi driver deliberately left a disabled person in a wheelchair stranded by the roadside despite the kombi being three quarters empty. It is a typical behaviour. On being asked why he did it, he was straight about it: Picking up the disabled person wastes time, eating into his kombi’s chances of optimising on the impending peak hour.

The irony: He picked other commuters after this. In 1915, Lucilius Emery, writing in the International Journal of Ethics explained the phenomenon of realpolitik: “Realpolitik is a new political theory which teaches that in political affairs the problem of morals does not enter, that might make right, that the strong must of necessity prey upon the weak in order to increase their strength …” Take Emery’s realpolitik and apply it to business — you get economic realpolitik.

It might be harsh to say our MNOs engaged in economic realpolitik in raising data prices five-fold against the backdrop of economically struggling consumers. Be the judge.

Kombi drivers are more sophisticated than our MNOs — they do engage in engineered windfalls (an indicator would be secretly doing a lucrative private hire). However, they disguise this by giving the kombi owner his/her dues. MNOs wanted engineered windfalls in perpetuity and had the pigs not to be discreet about it! Holy cow! Disruption seems to have forced MNOs to rationalise the irrational.

MNOs can be as merciless as Messi when it comes to service and real innovation, not the copy-and-paste products touted as innovation.

Chulu is a management consultant and classic grounded theory researcher. He has published research in an international peer reviewed academic journal.

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