When a CEO does not understand his business

What happens when a CEO does not understand the business logic of the business he is in?

Do not get me wrong. I am not saying the CEO is an idiot. I am simply saying that he does not understand the underlying logic of the business he is running.

Think of it this way. A business is embedded in market competition. In the market a business develops its products and services to find perceived competitive advantage. A business is just as much a process of evolution as it is a process of understanding and engineering skill.

With evolution however it is chance and time which perhaps help in getting things right. Evolution is not about understanding.

Ok, let’s cut the theory and the philosophy and get to the case in point.

The CEO of Sonera (TeliaSonera subsidiary in Finland) Robert Andersson proposed that mobile data will be priced according to usage (Aamulehti 25.3). Seems reasonable doesn’t it? Well, he could not be more wrong.

One should remember that the Internet emerged as a process of evolution and one of the chance choices during the process, was that it was not priced based on usage. In fact if you look at the user profiles in Internet traffic you will notice that someone will be using his connection very conservatively (i.e. consuming very little data), somebody else will be using his connection extensively (i.e. huge amounts of data) and yet paying the same monthly fee. When observing even more thoroughly, one will note that some users are very connected and others less connected. Yet they are paying the same monthly price. It is this connectedness you need to make the Internet work. The users spin the web. The challenge is in creating a pricing method which allows for high connectedness, but does not need huge data consumption.

The Ceo of Sonera, as anyone else in the business, should be asking: why? Why did the Internet emerge with a model of all you can eat data? They should focus on understanding the above explanation.

I actually answered this question in my PhD in 2006 and in the interview by Howard Rheingold email, scale free networks and the mobile internet in April 2005, predicting that mobile will migrate TOWARD flat rate data and that flat rate is a prerequisite for the success of the mobile internet. Today mobile internet has become a success and there are more or less 500 million users with a more or less flat rate plan. Connecting people efficiently is a skill (almost an art) and some companies have clearly lost ground because they have not uderstood how to connect people efficiently. Nokia is a case in point.

The Ceo of Sonera wants to change this i.e. move to usage based pricing. Within the constraints of the logic of flat rate data i.e. ensuring that connectedness is preserved moving away from flat rate data is possible. These moves however should be so very slight and their affect to connectedness should be measured and understood.

The CEO of Sonera does not seem to have this understanding. He is basically following blindly other players in the industry (and this is not a way to create competitive advantage) by arguing that others have “bucket pricing”, "price caps" or "degrading of service speed" i.e. quality after a certain amount of data consumption has been reached. He is treading in difficult waters, without an underlying understanding. Let´s see what happens. Let´s also see what the customers will have to say.

It seems, that used based pricing, is actually only wishful thinking. In reality TeliaSonera has been very active in advertising that data prices throughout the Baltic and Nordic states (please check the fine print of your agreement) are fair and that you need not be concerned of an oversized bill, when roaming abroad. International data roaming is one of the last frontiers of usage based data pricing and the very reason why tourists do not use their mobile when abroad and the reason why operators in Finland recommend to their customers that they buy sim cards which do not allow data roaming abroad.