Innovation and the new economics

With wireless firmly established in a dominant position in the communications ecosystem, many telcos and their competitors are in a race to provide consumers with compelling applications and services integrated across a variety of platforms.

Cable operators have joined forces with Sprint to form Clearwire to roll out the nation's first 4G WiMax network. AT&T and Verizon, both in the midst of major fiber rollouts, continue to add broadband subscribers across voice, video and data services while laying out their own 4G road maps. Amazon, Google, Microsoft and Yahoo! are all moving in various ways into communications services. The handset players, meanwhile, are vying to capture the hearts of their customers, using the device as the lightning rod for brand loyalty.

But the recession has changed the terms of competition. Personal consumption, which provided 70% of U.S. gross domestic product between 2001 and 2007, isn't expected to rebound anytime soon. And with tight credit and unemployment hovering around 10%, we're not likely to see a consumer spending spree like that of the past decade anytime soon. With more products chasing fewer consumer dollars, innovation will be more important than ever.

It's no longer a simple matter of winning early adopters and then rolling up the mass market. It's a question of offering genuine value. That's why mobility has been at the heart of the winning innovations for 2009 and will continue to win in 2010 and beyond.

Mobility provides value through increased knowledge and convenience across all devices and media, putting what we want, when we want it, where we want it. At last, we have a technical tool that makes our lives easier, not more complicated.

What was everyone talking about this year? Some form of great new app for their wireless handset: Facebook, Twitter, new information and commercial tools like CNN mobile, Eucalyptus, Postage, RedLaser.

Netbooks and e-book readers — again, offering real value — were also strong performers in this year's challenging economy. While netbooks captured much of the system business, the 2009 update of Amazon's Kindle made it one of this year's hottest items.  And it sparked another round of innovation as Barnes & Noble, with its Nook, and Sony, with its e-Reader, tried to keep up.

Smartphones also became an arena for some of the fiercest competition in the consumer market. In one of the best product rollouts in a long time, the Palm Pre was launched to great fanfare. Google Android found its footing and, perhaps, its perfect partner in Verizon. BlackBerry's Tour and Bold updates were strong. And Motorola did some great product development with Droid. Ultimately, smartphones became the single most important technology category in 2009, and that's unlikely to change in 2010.

Meanwhile, some other players appear to have been paralyzed by the recession. They concentrated more on cash management and cost-cutting than on innovation and its partner, corporate transformation. But as this year's winning products and services demonstrate, customers will pay for innovation even in these constrained times. And in an economy where financial pressures are driving increasing rates of landline displacement, innovators have even greater opportunities.

As a result of these trends, traditional telecom lines of business could shrink severely or even go into bankruptcy while new, more innovative players arise and seize opportunities.

For telecoms, as for other sectors, the single most important driver of innovation is talent. Telecoms CEOs must ensure that their organizations have the culture and innovative talent needed for forward-looking, competitive advantage. As 2009 made clear, those companies with both the talent and the fortitude to foster innovation are not only weathering the economic storm, but emerging from it far ahead of their more timid competitors.

Laura Lee Gentry is telecommunications practice leader for the Americas for Egon Zehnder International