Innovator’s Dilemma - Model Uncertainty

What do the following companies .... Discover Financial, Barclaycard, American Express, MasterCard, Visa, HTC, LG Electronics, Motorola Mobility, Samsung Electronics, Research In Motion, Sony Ericsson, Device Fidelity, Capital One and Chase ... all have in common? 

All were involved in partnering with the same company 2010-2015 ... the recently given-up and sold 'Softcard' JV (rebranded from ISIS Mobile Wallet in 2014) between at&t, T-Mobile and Verizon. 

The 'Softcard' (ISIS Mobile Wallet) saga appears to be ripe for a future business case study. Since late 2010 when the ISIS JV was formally announced, these 3

major carriers initially embarked on a form of recycled innovation - to leverage their core competencies to establish a innovative mobile wallet paradigm solution just as mobile wallet usage was poised to achieve critical mass in the US market. In spite of the war chests of these three major Carriers, along with all three Carriers having tested the waters and validated the promise of Carrier billing of eCommerce/mCommere transactions - directly and via evident global trends  (i.e.:  at&t via the organically developed  'ClickAT&T'  Carrier billing

solution early in the prior decade [1999-2000], then again in more recent years via a Amdocs Qpass Digital Commerce solution that incorporated into at&t a Carrier billing of commerce, along with differentiated storefront functionality, included Carrier billing plumbing to reach upwards of 98% of US households via strategic alliance with clearinghouse BSG Solutions [3Q2008]; T-Mobile via Deutsche Telekom's [1Q2010] acquisition of ClickandBuy - a eWallet licensing/ outsourcing solution that had proven its potential as a supplier-partner to BT, Swisscom, TelMex and others; and Verizon that had just a few years earlier [2007] done their due diligence on a thorough 'Verizon ClickandBuy' proposal) - the market waited and waited and waited for the ISIS mobile wallet/Softcard to deliver on its outlook ... until the JV recently gave up [1Q15].

Barely a year later, as the industry awaited the arrival of ISIS in the market, ISIS surprised the market by announcing it was abandoning its model of processing its

own transactions and instead embarking on a model to have credit card companies process ISIS transactions.  In one fell swoop, the differentiation of the ISIS solution all but vanished.  While online merchants for years had hailed Carrier Billing as the Holy Grail of online payments, not only did Credit Card companies see the competitive threat of Carrier Billing but even within leadership ranks of Carriers, support of Carrier Billing - during the booming new reality of the digital economy - was often not fully appreciated and thus not relentlessly supported. 

Of course leaders of innovative solution-models have to be open to marketplace feedback, then consider if new information from clients/prospects/’the-market’ merit rethinking and possibly adjusting or even significantly changing innovative solution-models.  That said, there can be times when model changes are force-  

fed on organizations due to reasons other than genuine market realities.  To illustrate by example, in the early phases of preparing to launch AT&T PrePaid WebCents in 2002, I led pioneering engagements – from evangelizing to deal closing – with marquee web merchants such as Walt Disney Internet Group for their MMP Disney Toontown game and their Disney Blast game, Sony Online Entertainment’s Everquest game, Rhapsody Music service from RealNetworks, Vindigo’s Location Service, Atom Shockwave’s casual games, and other premium content applications.  Premise of innovative model was a new AT&T-branded prepaid card distributed at brick and mortar where larger addressable markets (especially teens) could be reached via what was essentially a currency swap from the physical world to the digital world.  The 'soft-

spot’ in the model pitched to 3^rd party VAS (value added service providers) web merchants was that while AT&T had distribution of pre-paid phone cards at many of the nation’s biggest retailers, none of these retailers had been contracted to carry the new AT&T WebCents card.  The pathway was to assure prospective online merchants that the logical step was to get online merchants onboard first, then circle back to retailer clients to leverage good existing relationships to secure j-hook space for the new AT&T WebCents card that was to be a gateway to an exciting suite of premium content.

While online merchants, then existing retail distribution partners were being brought onboard as planned, a wild card caused a complete flip of the model.  What was the wild card?  Leadership inside AT&T Consumer’s PrePaid BU had made commitments ‘upstairs’ that they would acquire a new marquee retailer – Blockbuster.  However, Blockbuster could not be convinced on the AT&T WebCents model. They insisted that if they were to participate, AT&T had to flip the model so that instead of a new AT&T PrePaid Digital Content gateway card to the likes of Disney, Sony, etc., …. flip it so that it’s ‘Powered by AT&T WebCents’,

but, branded a Disney Toontown card, a Rhapsody Music card, etc.  That flipped model also had sizable incremental cost in that now the online merchants had to bear the costs of designing a new physical product plus pay for advertising (all commitments AT&T had already made in my negotiations with the marquee content providers mentioned above).  Fundamentally every deal had to be resold - and fast, along with selling online merchant leadership to still trust AT&T … and oh by the way, now pay for advertising (for Disney, a 7 figure proposition to re-secure distribution already committed at Wal-Mart).

One prospect (Blockbuster) and one AT&T leader who refused to tell his boss that Blockbuster could not be won … caused the model to be flipped, caused delays in launching and worse.  After challenging internal planning discussions moved to executing the new model, every deal was re-secured … yet at-the-end-of-the-day, even with the new model instituted, Blockbuster still declined to participate on AT&T WebCents - even with the new model they insisted upon put in place.  

Monday morning quarterbacking that Blockbuster saga, could it have been managed differently?  In a perfect world, Blockbuster would have been required to contract before AT&T committed to making a model change, however, based on my knowledge of the leadership at the AT&T Prepaid’s group at that time, this approach would have been dismissed.  Sometimes innovators will encounter personalities and cultures that would challenge even the wisdom of Solomon. 

The model change at ISIS in July 2011, just barely 18 months after announcing the JV in November 2010 resonated because of my above Blockbuster experience on model change for reasons other than what appears apparent …

... an experience that was at (by the way), AT&T (albeit the pre-SBC acquired - and by 2010 and forward - Texas based at&t).  There were legitimate pros and cons to Blockbuster’s theory on the WebCents model.  Blockbuster had a reasonable point that a Disney branded prepaid card may be more quickly understood than a new AT&T branded digital card that gateways to Disney, Sony, [etc.] because consumers only know AT&T prepaid cards for phone service.  The flip side of that is consumers have never encountered a Disney prepaid service of anything.  A downside to Blockbuster’s model is that each web merchant would require a j-hook at brick and mortar (vs. just one j-hook for an AT&T WebCents gateway prepaid card).  Two guys at Blockbuster were set with their opinions with their model theory and believed that over time there could be dozens of branded prepaid cards, and only then would consumers start to grow frustrated with juggling so many different prepaid cards and desire one simple card to access all their premium content across multiple merchants. Other retailers did not have 

this view but were persuaded to go along with the flipped model (based on a new-theory for the model, not because Blockbuster insisted).  Fundamentally, AT&T’s model had to change if there was any chance of winning the Blockbuster account … a commitment a leader prematurely made and now was willing to do anything to try to save the Blockbuster deal … as that leader over the innovative WebCents initiative was measured and rewarded on things beyond WebCents.  He personally had more to gain by acquiring the Blockbuster account than risk in jeopardizing the nascent WebCents initiative. (That leadership demanded that NDAs be ignored as desperation mounted to win Blockbuster mounted ... is a ethics/legal topic for another post another day).

What is clear at 'Softcard (ISIS Mobile Wallet)' is that the mobile wallet JV that was announced in November 2010 by at&t/T-Mobile/Verizon has just recently given-up on the effort when these three JV partners recently sold the JV to Google.  From my vantage point, in spite of a industry (mobile commerce) that is 

among the most exciting and promising in the global economy today, this JV failed to figure out how to succeed - also in spite of all the financial power and brand power they could have leveraged. 

Interestingly, the Clickand-Buy business had more success with their business in Germany (where they did not have a Carrier partner), than in the UK, Switzerland or Mexico (where they had Carrier partners).  Years before Deutsche Telekom acquired ClickandBuy, the ClickandBuy Board decided (in 2008) to cease partnering with Carriers, heeding warnings that consultants and industry experts had advised them on over the years – that Carriers will bleed you to death.  I suspect that personnel involved with Softcard/ISIS Mobile Wallet from Discover Financial, Barclaycard, American Express, MasterCard, Visa, HTC, LG Electronics, Motorola Mobility, Samsung Electronics, Research In Motion, Sony Ericsson, Device Fidelity, Capital One and Chase now may have a better understanding of this notion.  

For innovators in general who may find themselves trying to navigate challenging company cultures and/or influential decision makers with agendas beyond the innovative initiative, probably the best advice I can give is be aware.  No two situations are identical and of course personalities vary.  Innovators expect to encounter countless challenges.  

Relenting innovators find a way ... over ... around ... or through.