ATT Has Google And Apple Envy
  • MONDAY, OCTOBER 24, 2016

  • Posted by: David Moffly

As humans, we are fundamentally tribal in nature. We want to belong and share our experiences with like minded groups of people. Our tribe helps form our sense of self-worth and identity. Traditionally these tribes have broken down on racial and religious / ethnic foundations. Shift gears, fast forward to the 21st century and we now have global tech tribes in every corner of the world that supersede the traditional concepts and boundaries of tribes. The new tribes resolve to Microsoft, Apple and Google. There are innumerable splinter tribes but these span the globe in the greatest numbers. As part of the Apple tribe you believe fervently in the moral and tech superiority of Apple products and software. You have an iPhone and a Mac and use all aspects of their tech stack smugly believing in your superiority. As a member of the Google tribe you find the Apple tribe to smell slightly of Patchouli and wishful thinking. Members of the Microsoft tribe suffer greatly but take solace in the fact that they own the best business productivity software (Office) ever published and get their cheesy business voyeurism on "Linkedin." What defines these tribes is that they are intensely loyal; very few people make the jump back and forth. These tribe affiliations are deep and lasting and largely built on the perceived utility of the devices and tech stack behind them. But even with a whiff (IOS 10, Window 8, Google Glass), very few people defect their tribes. The telecom titans have longed for their own tribes for years. Each giant takes turn kicking the other to the curb with special promotional pricing and plans churning their user base over and over. Loyalty is regularly traded for a few dollars a month. Sprint is currently asserting in its marketing that they are within 1% of Verizon's vaunted network but half the price. To be honest this is a pretty compelling argument and surely they will create some churn and grow their subscriber base based on this campaign. No one loves their carrier or their cable company for that matter, there are no heated debates in the office or over the dinner table over the love of their carrier or cable operator and inflexible belief in its superiority. Most references to Telco's and their cable counterparts are in the negative. The numbers in the proposed acquisition by ATT of Time Warner sound huge. $85 billion is massive, but ATT's revenue in 2015 was $146 billion and they have a market cap of $226 billion and total assets of $402 billion. ATT engulfed Direct TV in 2015 for $49 billion and didn't break a sweat. ATT is trying to build its own churn resistant tribe with this and the Direct TV acquisition. ATT must replace roughly 15% of its 110 million wireless customers every year to account for customer turn over. The average wireless customer spends $700 per year on service so annually ATT needs to replace roughly $11.5 billion in lost revenue every year before it can grow sales. If churn can be reduced, the billions of marketing dollars spent on retention can be deployed to customer acquisitions. Sales and profits will accelerate faster than its peer group. You can see the early seeds of this tribe building effort with ATT's new promotion of unlimited wireless data if you subscribe to Direct TV. How many households with teen children have the monthly argument with their parents about their data consumption? How many children are now pitching to their parents Direct TV as a solution to this problem? Add an entertainment and news colossus to the mix where maybe HBO is "free" with a monthly subscription and no one will ever leave (at least this is the idea). ATT's strategy is a bold attempt at creating a global Tribe of its own and break out of the monthly customer replacement cycle. It remains to be seen whether the Google and Apple tribes built on powerful brand sentiment and perceived utility can be superseded or augmented by ubiquitous access and programming. Truly though we know the real secret to this is that ATT will end up owning MySpace.com. Facebook be warned. BTW - what is the use of having a blog if you can't roam off topic and bloviate about strategy on the occasion.
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