Vodafone: Embracing open source with open arms

Kerry Capell
15 Apr 2009

Vodafone (VOD) never put much stock in open innovation, or tapping outsiders for ideas. It didn\'t need to. The company, after all, had grown into the world\'s biggest wireless telecom operator on its own. But with such interlopers as Google (GOOG) and Nokia (NOK) starting to tromp on its turf, Vodafone became a convert. \'We were a bit naive thinking everything could be done in-house,\' says Chief Executive Vittorio Colao. Now \'the only way to create a fertile environment for innovation is to have open platforms and leverage them.\'

The clearest sign of Vodafone\'s new philosophy can be found on a Web portal called betavine. The site allows anyone from hobbyists to software pros to create and test one another\'s mobile applications, which can be downloaded on any wireless network, not just Vodafone\'s. While developers retain intellectual property rights, the British giant gets insight into the latest trends and ensures that new apps are compatible with its network. Vodafone itself used betavine to enlist those enthusiasts to test a software add-on that enables mobile broadband customers to access the Internet via Linux.

That open-arms strategy may be the way more companies will go in the current economy. Like many industry leaders, Vodafone got to the top largely through acquisitions, buying interests in two dozen phone companies around the world in the past decade, including a 45% stake in Verizon Wireless in 1999 and 70% control of Ghana Telecom last year. The purchases were made mostly to add customers, revenue, and sheer heft; innovation was an afterthought.

But these days, with little stomach for megamergers, companies are relying on existing assets to get bigger. Coming out with new goods and services makes this easier"”especially if outsiders chip in with ideas, as Vodafone and other trendsetters such as Apple (APPL) and Nokia are doing. \'Smart companies have found that open innovation helps them reduce costs while preserving growth options for the future,\' says Henry Chesbrough, executive director of the Center for Open Innovation at University of California-Berkeley\'s Haas School of Business.

The Dell connection

Vodafone\'s shift in strategy coincides with a change in leadership. Colao, 47, moved up from deputy CEO of the company last July. His predecessor, Arun Sarin, prided himself on his wheeling and dealing, moving into such emerging markets as Turkey and India while divesting units in such tapped-out markets as Japan and Sweden. Colao sees his role as making the most of current assets instead of inking big acquisitions.

Scale clearly gives Vodafone an edge. With 289 million customers in 27 countries, the $35 billion company has had no trouble finding help from outsiders who\'d love to sell to at least some of this population, too. Among its collaborators: Dell (DELL), which has joined with Vodafone to design laptops and low-priced netbooks with built-in wireless broadband access over Vodafone\'s network.

Operating subsidiaries and affiliates are becoming another source of new revenue generators. Take M-Pesa, a service that allows people without bank accounts to transfer money by text message. Developed by Kenya\'s Safaricom, in which Vodafone has a 35% interest, M-Pesa has grown to 5 million customers since its launch in Kenya in 2007. The service is now available in Tanzania and Afghanistan, and analysts expect it to be rolled out in India and South Africa soon.

Up next: An apps store‾

The telecom\'s next breakthrough may be in the emerging field of mobile health.


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