What Service Innovation Means to Me George Miller

What Service Innovation Means to Me George Miller, Client Industry Executive, Global Partner Group, BT Global Services June 14 th 2010, Manchester 1

What Service Innovation means to me • …the greatest opportunity to improve our world/ our quality of life everywhere • …an opportunity to work on some of the human race’s most significant challenges • …the chance to work with some of the brightest, most determined, & most entrepreneurial people you could ever meet • …the potential to make a profound impact rapidly • …the possibility of earning a good living…and perhaps more 2

Unlimited, unprecedented, universal services value creation …Let’s learn from some of the greatest entrepreneurs & leaders of our generation • Business model innovation (e. g. new ways of creating/ delivering/ capturing value) • The organisation in its environment (e. g. open/ distributed) • Innovation management within an org (e. g. governance/ methods/ tools) • Process innovation (e. g. consumer led) • Technology innovation (service innovation through use of technology/ incl. in ICT) 3

Project your thinking into the future, and work back to today “There is no fate…the future is what we make” TERMINATOR 2 Future we create STRETCH Future based migration path Future we accept Present Past SOURCE: STRATEGOS 4 Traditional extrapolation Future we are exposed to FIT

Defining innovation Whatever you can do, or dream you can, begin it. Boldness has genius and power and magic in it. GOETHE SEE what everyone else has seen THINK what no-one else has thought DO what no-one else has dared Hard Work 5 Networking Passion Courage

Innovating your business model The “game” is to Make the Cake bigger 6 SOURCE: PA CONSULTING

Building and managing an innovation pipeline Seek new opportunities to innovate at the intersection of lenses Discontinuities Customer Insight What new growth opportunities or alternative business models might exist that we (others) are not taking advantage of today? Orthodoxies Core competencies Economic engine SOURCE: STRATEGOS 7 Business models

Three technology “laws” that continue to change our world… 1. Moore’s Law: “The number of transistors on a chip will double about every two years”. 2. Gilder’s Law: “The value of a telecommunications network is propositional to the square of the number of connected users of the system (n 2)”. 3. Metcalfe’s Law: “The total bandwidth of communication systems triples every twelve months”. 8

The promise from IT is great…but can we accelerate value realisation? From… Architecture (bus/ proc/ serv) DIY Standardised/ Templated Regulation/ compliance Client controlled Collective control/ responsibility Inter-operability/ changeability Siloed/ Incompatible Inter-operable/ inter-changeable Service delivery People centric Automated Interface/ Access Complex Intuitive/ simple/ controlled BPaa. S Segregated/ bespoke “Snap & Click”/ Composite Caa. S Islands/ Staccato Embedded/ Frictionless Saa. S Monolithic Open source/ Modular Paa. S Distinct applications Aggregated/ Orchestrated INFaas/ KMaas Business intelligence systems “True” Intelligence DBaa. S/ Daa. S Client managed and controlled Federated/ Integrated Iaa. S Silos/ fixed devices Clouds Services/ Mobile devices NWaa. S Separate fixed and mobile n’works Integrated networks, Co. S, Qo. S SMaa. S 9 To… Multiple infrastructure SLAs Business SLA/ ISD/ Cloud Broking SECaa. S Best efforts Security SLA/ Transparency

Let’s think about large numbers… 10

…with Service Innovation things can soon add up $1 million in $100 bills 11 $1 billion in $100 bills

…and just keep on adding up $1 trillion in $100 bills 12

Smart Metering: Revolutionising the way we manage & consume energy Biggest UK energy impact since North Sea Gas in ‘ 70 s Investment Service Model £ 9 bn UK programme • £ 1, 000 av. fuel bill • Target: 3% annual savings (…but 10% US) • … 26 m UK households • £ 1 bn pa UK savings in 2020 • 4 fewer power stations • Visible consumption • Energy deals to spread loads • Remote home device management • Sell home produced energy to grid Technical Solution Future potential Time horizon GPRS/ long-range radio/ hybrid 13 Benefits Smart Grid Smart Home From 2014 - 2020

Collective Intelligence: Revolutionised the way Politicians campaign • US “Politician-made” You-Tube videos views: 150 m • “Consumer-made” political video You-Tube views: 1. 5 bn • Internet main source of political views: 2004… 10%; 2008… 33% • 18 -29 year olds… 49% • Obama 18 -29 y/o share of votes: 66% 14

Collective Intelligence: Revolutionised the way Politicians campaign Obama Number of Facebook friends on Election Day 2, 397, 253 622, 860 Number of unique visitors to the campaign website for the week ending Nov. 1 4, 851, 069 1, 464, 544 Number of online videos mentioning the candidate uploaded across 200 platforms 104, 454 64, 092 Number of views of those videos 889 million 554 million Total amount of time people spent watching each campaign’s videos, as of Oct. 23 14. 6 million hours 488, 000 hours Cost of equivalent purchase of 30 -second TV ads $46. 9 million $1. 5 million Number of Twitter followers 125, 639 5, 319 Number of blog posts using the phrase “voting for ______” 79, 613 42, 093 Number of references to the campaign’s voter contact operation on Google 15 Mc. Cain 479, 000 325 Source: Politico, The Web, 2008’s winning ticket

Gartner’s 10 disruptive technologies to 2012 1 2 Virtualisation & fabric computing 3 Social networks & social software 4 Cloud computing & cloud web platforms 5 Web mashups 6 User interface 7 Ubiquitous computing 8 Contextual computing 9 Augmented reality 10 16 Multi-core & hybrid processors Semantics Source: Gartner

Just a few of the companies making a big difference to our planet… Intel Microsoft Oracle Salesforce. com Apple Google Facebook RIM/ Blackberry You-Tube Linked-In Twitter Skype 17 BT Nuance

…. not forgetting the founder of the internet era • “Today, just 20% of global population have internet access…” • “There are 3 bn mobile users…” • “…but only 15% of these can get online” Vince Cerf VP & Chief internet evangelist Google • Attack plan: mobile access/ low or medium orbit satellite (30 m/s round trip)…Africa/ central Lat. Am/ Pacific Islands/ fibre where feasible/ local Wi. Max Designed TCP/ IP protocols & basic architecture of the internet 18

Intel: Revolutionised our ability to create the small, powerful, low energy use computing devices…. now being embedded everywhere Robert Noyce Gordon Moore Dates b. 1927 - d. 1990 b. 1929 - Intel Co-founder Impact Co-inventor of the integrated circuit President & CEO Other 16 patents on semiconductor methods, devices & structures Moore’s Law Net worth NA $3. 7 bn …and not forgetting Andy Grove, CEO from 1987 - 1997 • Intel now delivering 32 nm technology • World has c 10 quintillion transistors; 10, 000/ ant; 1. 5 bn/ person • Intel market cap: $114. 91 bn 19

Innovation management insight: Tick Tock 20 Year 1: "Tick“ New silicon process technology (transistor density/ performance/ energy efficiency). Year 2: "Tock“ Entirely new processor micro-architecture…optimize value of new transistors/ tech.

BT: Revolutionised services access through ubiquitous broadband Ian Livingston – CEO BT Group PLC Age 45 Previous roles CEO BT Retail CFO BT Group FD Dixons • £ 1. 5 bn investment…fibre in 10 m UK homes by 2012 • Top speeds 100 mb/s; potential for 1000 mb/s • BT Infinity now launched: Downstream 40 mb; upstream 10 mb • Faster: surfing…downloads…uploads…online experience (Infinity-powered downloads up to x 7 faster on i. Tunes; online gaming up to 30% faster). • Dedicated: business user “fast lane” 21

Vodafone: Revolutionised our ability to communicate anywhere Sir Gerald Whent Founder, CEO 1982 -1997 Sir Christopher Gent CEO 1997 -2003 Arun Sarin CEO 2003 -2008 Vittorio Colao (47) CEO 2008 - • Now largest company in FTSE 100 • £ 41. 7 bn annual revenue; £ 11. 5 bn adj. operating profit • Growth drivers: Intl presence (esp India); fixed broadband (Europe); consumer & business data services; smart phones; machine-to-machine • Now targeting Google’s mobile search/ advertising revenues 22

Business model insight: Tiered mobile bandwidth pricing Idea Charge mobile broadband customers a premium if they want access to higher bandwidth. What? Manage levels of network usage through price discrimination. Why? Data explosion…levels of mobile data usage predicted to grow x 3 How? Demand driven…customers pay more to get a higher quality of service, including better speeds Success? Yet to be implemented…although some traffic management already in place…EU/ Of. Com consultations Spring 2010. 23

Microsoft: Revolutionised how we work through accessible software Bill Gates Age 54 Forbes 400 debut Aged 30 Debut year 1982 Wealth then $320 m Wealth now $53 bn • 2009/10 Q 3 revenue: $14. 50 bn (+6%)/ $4 bn net income • Windows +28% (10% of all PCs globally run Windows 7) • Growth drivers: Windows 7; Bing Search; X-Box Live; emerging Cloud Services • Market cap: $224 bn 24

Business model innovation: MS Bing helps you cut through the clutter Challenges Google attempting a move on MS ownership of operating system market with Chrome OS; MS is targeting Google’s core profitability driver – search (SVP Yusuf Mehdi). Customer insight Explosive growth of online content continues; c 30% of searches abandoned (source: com. Score Inc); 66% of people using internet searches to make more complex decisions (source: MS research) Bing value proposition A decision engine – for faster, more informed decisions, through deeper insight and knowledge from the web (launch June 3 2009). Features • Bing Social: incorporates Facebook & Twitter in experience (tweets/ updates/ links/ trending topics) • Personalised interface: Users can select own background image (Google now copied) • Four “verticals”: Making a purchasing decision; planning a trip; researching a health condition; finding a local business Benefits Deliver great results; a more organised experience; simplify tasks; provide insight…resulting in faster, more confident decisions. Service Design 25 Search: Best Match; Deep Links; Preview; Instant Answers Organised Experience: Explore Pane; Web Groups; Related Searches; Quick Tabs.

Oracle: Revolutionised the way we store, manage and access data Larry Ellison Age 66 Forbes 400 debut Debut year Wealth then Wealth now $28 bn • “Oracle” originally a CIA database project • Inspiration: “A relational model for large shared data banks” • Started Oracle in 1977; first release: Oracle 2 • Initial focus: midrange/ microcomputer segments • Operating systems supported: UNIX, Linux and Windows • Market cap: $111. 8 bn 26

Sales. Force: Revolutionised how we manage business processes Marc Benioff Age Forbes 400 debut Debut year Wealth then Wealth now • • • 27 $1. 3 bn Founded Salesforce. com in 1999 Vision: “the end of software” Force. com cloud platform (2007) App. Exchange 2010 $1. 3 bn annual revenue/ net income $80 m “ 1 -1 -1 model”

Apple: Revolutionised how we interact with software…device design…how we consume music…and now how we consume published material Steve Jobs Age 55 Forbes 400 debut Aged 27 Debut year 1982 Wealth then $100 m Wealth now $5. 5 bn • $43 bn (+14%) total sales… • i-phone $13 bn (+93%) • i-tunes store $4 bn (+21) • portables $9. 5 bn (+9%) • i-pod $8 bn (-12%) • 2 m i-pad sales in 2 months • Market Cap: £ 232. 91 bn (June 4 th 2010) 28

Business Model Innovation: Apple i-pad raises stakes for e. Readers Customer insight Anyone who wants to consume multi-media on the move. Value proposition Multi-media anywhere… a new category of device – positioned between the Smart Phone & Laptop; Apple’s alternative to the Kindle & the Nook. Features • • • Benefits Better digital experience for e. Book, magazine & newspaper reading; also general internet surfing (speed/ responsiveness/ intuitive interface/ rich display detail). Services • i. Tunes store; App Store; Mobile. Me; i. Bookstore 29 Business model Multi-touch display sensitive to fingertips i-pad specific apps (also those for i-pod/ i-phone) Wi-Fi or 3 G Wi-Fi trilateration provides location information for Google Maps 3 G data connection (3 G version contains a GPS) 3 axis accelerometer (portrait/ landscape switching) Magnetometer Battery life: 10 hrs video/ 150 hours audio/ one month on standby Digital rights management: Remote delete of apps/ media/ data • 70% service revenue share to publishers

Blackberry: Revolutionised the way we work through push-email Michael Lazaridis Age 49 Forbes ranking 437 Debut year Wealth then Wealth now • Revenue $14. 93 bn • Net earnings $2. 46 bn • R&D spend $946 m • 41 m users globally (3% global mobile users) • …incl. President Obama • …target is 100 m 30 $2. 2 bn

Google: Revolutionised how we source & sort information…and now how we manage IT infrastructure Sergey Brin Age 36 Forbes 400 debut Aged 31 Debut year 2004 Wealth then $4 bn Wealth now $17. 5 bn Larry Page Age Forbes 400 debut Aged 31 Debut year 2004 Wealth then $4 bn Wealth now 31 36 $17. 5 bn

Technology innovation: The search engine that changed our world Challenges Scaling…index millions (now billions) of pages; respond daily to millions (now billions) of queries; technical…exploit the additional information contained in hypertext…deliver search precision Precedents 1994 World Wide Web worm could index 110 k pages…and received 1500 queries per day; in 1997 best search engines (e. g. Altavista) could index from 2 m to 100 m pages…and handle 20 m queries per day Requirements Efficient storage of indexing/ optionally documents; process hundreds of gigabytes of data efficiently; handle thousands of queries p/s Google design goals System features 32 Improved search quality (avoid “junk wash out”); push more understanding into academia; build systems many people can use; support novel search uses Use web link structure to “quality rank” each page (Page. Rank); Anchor Test – associates text link with page link points; location information; proximity search; visual presentation details (e. g. font size); retain full HTML of pages.

Amazon: Revolutionised how we buy goods…and now how we manage IT infrastructure • 2009 net sales +28% $24. 51 billion (x 15 1999). • Free cash flow +114% $2. 92 billion Consumer: • 50% more items/ 21 new product categories • 7 m customer reviews added to site • US Kindle Store: 460 k books/ 8. 9 k+ blogs/ 120 countries/ 6 languages 33 “We Jeff Bezos Age 46 Forbes 400 debut Debut year Wealth then Wealth now $12. 3 bn Corporate (AWS): • Relational d’base service • Virtual private cloud • Elastic Map Reduce • Cloud Front Streaming • S 3 streaming seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers”

Governance Insight : Goal setting 2010: 360 of Amazon’s 452 goals will have a direct impact on customer experience. • The word revenue is used eight times and free cash flow is used only four times. • In the 452 goals, the terms net income, gross profit or margin, and operating profit are not used once. …but in practice they have rigorous financial goals behind all these 34

Business Model Insight: Amazon Mechanical Turk Idea “Artificial” Artificial Intelligence…AAI What? A crowd sourcing internet marketplace: enables “Requesters” (programmers) to co-ordinate use of human intelligence… perform tasks which computers cannot. Tasks? e. g. Choose best store-front photo; writing product descriptions; identify performers on music CDs How? Requesters set tasks…Providers browse tasks…complete for payment set by Requester (reward: from 1 cent to $10+). Success? Still in Beta…March 2007 100, 000 Providers from over 100 countries 35

Facebook: Revolutionised how we network with others Mark Zuckerberg Age Forbes 400 debut 2008 Wealth then $1. 5 bn Wealth now 36 Aged 24 Debut year • • 25 $1. 6 bn Business founded: 2004 12 month user growth: 130% Total users: 400 m Overtook Yahoo as #2 internet site in US (Jan 2010) Facebook visitors to other sites “more sticky” …but only 57% click on ads cf 79% wider internet Business value: $15 bn

Business Model Innovation: Exploit existing offline social behaviour Customer From college students (driven largely by dating activity)…to “everyone” engaged in social networks, & “everywhere” Solution From high utility online student directory service, enabling preexisting offline social behaviours; …restricted registration to. edu for given college; …limited search & browse; …credible “face” (MZ); …”viral” audience build; …roll-out prioritised by student request …the world’s #1 social networking site (aggregation of a series of deeply penetrated micro-communities) Model? Competition? Early competition… My. Space/ Bebo; now…? ? Outlook? 37 Advertising, event listings, e-commerce, lead generation (targeted/ inday, in-week audience contact)… exploiting brand value/ user recall/ trust; audience characteristics; service role/ usage • Be acquired (sustaining app for another business)? …e. g. 2006 Yahoo/ Microsoft talks c$1 bn valuation • Develop/ evolve compelling (disruptive? ) business model

Business Model Innovation: 5 reasons why Facebook is so successful… 1. A huge untapped market…established competitor Friendster targeted at twentysomethings & fading; My. Space < 5% penetration in 2005 2. Experience designed by students…for students 3. Privacy… “walled” social networks 4. Economics…attractive initial segment…elevated perceived status 5. “Sticky” Features…organisation by classes; “the poke”; groups; directory; simplicity; “lightning fast” 38

The organisation in its environment: Clever VC funding negotiation Negotiated value April 2005 first round VC negotiated valuation $85 m… when generating <$500 k pm revenue How? Initial pre-money valuation $20 m… climbed when Facebook approached both VC’s and potential acquirers simultaneously Who? • Seed-corn funding: Peter Thiel $500 k for c 5%-10% of equity? • 1 st round VC 2005: Accel Partners (…other VC’s thought Facebook would exit at c$200 m/ $300 m…x 3 return not worth the risk? ) • 2 nd round VC valuation 2007: $550 m 39

Linked-In: Revolutionised the way business people network Founders: Reid Hoffman, Allen Blue, Jean-Luc Vaillant, Eric Ly, and Konstantin Guericke. Reid Hoffman Age 42 Forbes 400 debut Debut year Wealth then Wealth now • Founded 2003 • 60 m users (Feb 2010); growth rate 5 m in 2 months • 50% user-base ex US; …from over 200 countries • Execs from every Fortune 500 company • Value: in excess of $1 bn • Revenue model: Job listings/ subscriptions/ advertising 40

You-Tube: Revolutionised how we share ideas and experiences Sold to Google October 16 2006 $1. 65 bn Chad Hurley (34) c 700 k Google shares $345. 6 m @$470 per share ($487 10/06/10) Steve Chen (31) c 625 k Google shares $326. 2 m Jawed Karim (31) c 137. 5 k Google shares $64. 6 m • Business founded: January 2005 • 2 bn video viewings per day • Every minute 24 hours of video uploaded • User base 18 -55; 51% use weekly or more • In 2007 consumed bandwidth equivalent of entire internet in 2000 41

Technology Innovation: Near instant response online video service Challenges Precedents Google Design goals Scalability; speed System features 42 The world’s No 1 site for video demands several terabytes of data per day… 20, 000 plus views per second; av. search 70 m/s; “normal” servers would take several minutes per request. Exploit Google advanced caching; each video stored as duplicate (multiple online back-ups); popular content moved to CDN (replicated by geography); less popular content on local sites…but “long-tail effect”; “thumb nails” (x 4 per video) stored separately.

Twitter: Revolutionised how we relate through “instant communication” Jack Dorsey Age 31 Forbes 400 debut Debut year Wealth then Wealth now $100 m+ • Business founded: 2006 • 31 employees • Tweets per qtr: 2007… 500 k; 2008… 100 m; 2009… 2 bn; Q 1 2010… 4 bn; and now 50 m per day… 600 per second • 2013 projections: Revenue $1. 54 bn; earnings $111 m; users 1 bn • Business value: $250 m+ 43

Business Model Innovation: Exploit the desire to “reach out” Customer Solution Web interface that allows 140 -character messages, plus replies, private direct messages, & search Model? Launched as a free-to-use, no revenue stream business Competition? Facebook/ blogging/ me-too – e. g. Yammer (charges companies for closed employee networks) Outlook? 44 People who desire an easy means of one-to-many communication Two ways to monetise: • Be acquired (sustaining app for another business)…e. g. Facebook • Develop compelling (disruptive? ) model…e. g. Google adwords on user profiles pages? Pay-to-reach-users? Product feedback from Twitterers? Channel to advertise products? Integrated search? (advertising model) Charged for features/ analytics

Business Model Innovation: CNN Twitterbuzz 45

…. and now Jack Dorsey launches Square: revolutionising payments 46

Areas of current interest New/ improved ICT enabled service business models Collective intelligence Standardisation Cloud Services Smart Systems (e. g. Smart Energy) 47

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