By Tobin Ireland, Co-Founder and CEO at Smartpipe
Record labels and telcos have more in common than is immediately obvious.
Both are being forced to diversify and evolve business models in the digital age, both hold extremely valuable assets they need to monetise, and both are trying to protect the value of those assets from online piracy.
Just as the music industry could not survive on CD album sales, telcos can no longer rely on fees from calls, texts, mobile data, or roaming charges to deliver a margin and grow revenue.
Competition in the market is driving down prices and fixed line convergence provides opportunities for scale and improved efficiency, putting increasing pressure on ARPU – especially in the mature and developed markets of Europe.
Unlike the record industry, which waited to a point of digital crisis before taking the initiative, telcos have been exploring alternative revenue streams outside of their core business.
Partly because the market developed ahead of technology, the record labels resisted selling their music to eager fans through download and streaming services.
But telcos are showing a renewed interest in monetising vast stores of customer information by making it available to advertisers – driven by new and vast programmatic advertising opportunities.
The challenge for telcos is finding a way to place their precious data into the wilds of the digital ecosystem, while safeguarding against exposing information to a similar form of piracy that the music industry is still battling with today – Napsterisation.
So why is telco customer information so valuable, and is there a way to monetise this asset without risking data piracy?
The deterministic nature of telco data is the key to its value.
Derived from large-scale user bases, telcos’ authenticated first-party data is gained through on-going consumer interactions that reveal demographic, behavioural and location information, and are then verified by information such as billing addresses.
This makes it highly valuable in an advertising ecosystem awash with poor quality, diluted and adulterated data.
The need for high quality data is there, and its impact on the industry will be dramatic.
Last year, Telefonica provided London Underground advertisers with aggregated data about O2 customers including demographic profiles, when and how often they visited certain locations, how they travelled, and insight into their mobile phone, app and web activity.
Data like this can be used by advertisers to reach precisely targeted audiences with highly personalised messaging, increasing the efficiency and effectiveness of their campaigns.
It is a great start, but there is still a huge leap forwards to be made by using individual data.
While customer data can bring high yields, telcos must be careful how they use it.
Protecting personal information – given as part of a trusting exchange – is vital to maintaining primary customer relationships.
In a market with ever-increasing competition, trust is vital and risking brand reputation through ill-conceived data monetisation is just robbing Peter to pay Paul.
The telecoms industry comes under more scrutiny than any other sector – with advocacy groups ready to kick up a media storm – and with the General Data Protection Regulation (GDPR) coming into force in May 2018 maintaining data privacy is vital.
The concept of telcos monetising customer data through advertising is nothing new but the approach has historically been to build vertically integrated walled gardens.
The shared goal of Singtel’s multiple mobile acquisitions, O2’s takeover of Weve, and Verizon’s purchase of Yahoo, was to allow telcos to do everything from content creation to advertising execution – as well as attempting to maintain data safety.
But most telcos don’t have the deep pockets or their own technology to develop and support this highly integrated model.
The move towards more open ecosystems therefore offers greater opportunities for monetisation, but brings a risk of data piracy that could threaten users’ privacy.
The ad tech network ecosystem is characterised by a huge number of intermediaries sitting within the data stream, and the more open the system, the more third parties are involved, reducing the control telcos have over their data.
Data leakage – where advertisers or middlemen harvest information through routine processes such as cookie synching – is relatively common.
If this data is taken and either sold on or used directly by advertisers for their own ad targeting it becomes worthless to telcos.
As Metallica’s drummer Lars Ulrich said of music piracy: “If we are going to sell our music on the internet, in whatever way we so choose, we cannot do that if the guy next door is giving it away for free.”
A move towards open ecosystems is necessary as telcos look for growth and margin through data monetisation, but this must not be at the expense of data control and the customer relationship.
Just as the music industry embraced alternative models such as Spotify to combat music piracy, telcos are looking for new approaches with sustainably reduced or removed risks as the regulatory climate heats up.
Privacy-first platforms have emerged as telcos and their partners aim to beat the ad tech pirates and monetise customer data in a secure and privacy compliant way.
Most of these platforms use pseudonymisation – the process of replacing personal identifiers, such as a MSISDN (Mobile Station International Subscriber Directory Number), with artificial unique and persistent identifiers.
They enable the data to be shared because it has been encrypted and given a new “hashed ID”.
But, while the MSISDN can no longer be used, the hashed ID can still be cascaded, copied and propagated, and used for profiling.
This model – like the online music store – means the data is downloaded and leaves the control of the operator.
The Spotify model, which allows the streaming of protected data, offers an alternative.
Here tokens are injected into ad requests to ensure impressions are matched to the correct audience without revealing valuable customer data.
This prevents data piracy as the token is useless to advertisers as they are “one time use”, and will quickly expire before pirates have chance to discover that data.
Pseudonymised data is more valuable to advertisers than anonymised data as – although the individual isn’t personally identifiable – cross-device identification is still possible, which is vital for seamless multichannel campaigns.
Just like the music industry, telcos must respond to the changes of the digital age and embrace new models of revenue generation.
Data leakage in the open ecosystem is as real a threat as music piracy, but if telcos partner with privacy-first platforms that make use of innovative techniques in data pseudonymisation they can maximise the value of their customer information without falling prey to data pirates.