Tuesday, September 30, 2008

The Future of Directory Assistance Discussed at Pelorus

Yesterday I gave the keynote presentation at the Pelorus directory information services conference in Savannah, GA. This conference is focused on wire line and mobile directory assistance in the US but since my blog primarily focuses on mobile I am writing this from a mobile industry perspective (although anywhere you see "mobile" you could substitute with "telco" or other term that encapsulates both mobile and wire line and likely get an accurate read).

The US paid directory assistance market is being eroded by alternative information services - ranging from 800-Free411 to various mobile search options. Interestingly, although the average price per call for paid 411 is more than $1.70, most people who are DA users don't have any idea how much they are paying. Also, the demographic of those who use paid 411 skews older and the pool of people who continue turning to this service is diminishing. Those that use paid 411 do so on average less than once per month but at $1.70+ a pop the US spend still amounts to more than $5 billion (and shrinking).

So the big questions the attendees at Pelorus (largely executives from the large carriers - AT&T, Verizon, etc... - along with a multitude of vendors) are trying to answer are 1) how can I get more call volume on my paid 411 service and 2) what can I do to position well for the future and capture a new base users with an accompanying revenue stream?

Before I dive into my answers to these questions, it's first important to offer some context.

The US Market is Different from Europe and the UK

As you read this, you are probably saying to yourself "no kidding Captain Obvious" - but I have heard a few people make the claim that the markets are the same and therefore consumer adoption of new paid services in the US will follow a similar path to Europe and the UK. Time will tell but I personally believe this view is incorrect.

The US market for directory assistance (and mobile services in general) differs dramatically from Europe and the UK. In the US, we have a regulated directory assistance market. The carriers have an oligopoly on 411 in the US. Further, consumers in the US select a carrier who then dictates the handset and service contract options to that consumer. Although Google's Android mobile phone operating system is pushing to help ease carrier control over the services (by allowing consumers to easily download and use applications written for that operating system) the vast majority of handsets are locked down by carriers. From a service contract perspective, unlimited use for a fixed fee is what the carriers push in the US - counting on "breakage" to make their services profitable (if 100% of people used 100% of what their service plans allowed for the US carriers would lose loads of money).

In Europe and the UK, the landscape is much different. These are deregulated markets where consumers choose "unlocked" handsets and then independently select the carrier of their choice. They also download various applications and access services that lead to pay-per-use charges. Deregulation has had a huge impact on 411 services. A few years back, directory assistance (the number was 118) was deregulated in the UK which opened the market for paid directory assistance alternatives. A couple of companies mobilized to take advantage of this window of opportunity by launching their own numbers - 118 118 was launched with a clever marketing plan to become known as "the new directory assistance". Of course, the carrier (British Telecom on this case) was on the losing end of this deregulation move as paid call volumes shifted to 118 118. Today, 118 118 is well-known as a preferred provider of pay-per-use directory assistance and is attempting to expand into providing a broader base of information using call center rep's.

In summary, the US market for directory assistance differs dramatically from the UK and European markets. The differences have a major impact on the market opportunity for competitive mobile pay-per-use information services. Following is my quick attempt to provide some points in logical order that further illustrate this position:

1) Paid 411 in the US already captures the market of those who are willing to pay (and they actually have no idea how much they pay in most cases).

2) Paid 411 is an older demographic that uses 411 as a default because people are "creatures of habit".

3) The demographic that is served by paid 411 does not drive "viral" (geometric word-of-mouth) growth.

4) If Paid 411 in the US is enhanced with a broader "answers" capability, the volume of monthly calls from the existing base of paid 411 customers can be increased.

5) The smooth, paved "deregulation road" that was built for new directory assistance entrants in Europe and the UK does not exist in the US. Therefore, the market dynamics in the US are such that marketing a new pay-per-use number won't resemble what has occurred in the UK and Europe. Rather, it will grow slowly in response to massive marketing expenditures (think hundreds of millions of dollars) and will erode the existing base of people who formerly turned to paid 411 as those people move over to the alternative pay-per-use services.

6) Eric Schmidt, Google's CEO, has clearly stated that Google will make more from mobile than desktop over time. Google provides voice, text, and WAP-based information services and certainly intend to be the leader in this space. Google will not be pay-per-use - they will be free and ad-supported. Therefore, the reality is that to truly win in the US marketplace (and ultimately global marketplace) the mobile information services provider will need to deliver a product experience that delivers a much more relevant answer in response to requests than Google and they must generate profits from the service through targeted ads and offers.

So my recommendation to carriers is to immediately enhance 411 services to include a broad range of "answers" and market that capability to their existing 411 base (because that is the market opportunity for the service - don't burn marketing dollars trying to reach the 18 - 30 year old demographic because they won't be receptive to a pay-per-use service). Further, embrace the offer-based answers market and aggressively position to become ubiquitous with a service that is more viral and sticky (and, as a result, growing faster) than any other mobile information service on the planet.

Of course, I made the point that ChaCha is the partner to enable these strategies!

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