Thursday, June 29, 2006

Stuck in a consolidating business? To grow, look for the white space

I know very little about the banking business, but I find it fascinating in this respect: large banks continually acquire smaller banks, then invariably new small banks emerge (started by executives who left the acquired bank, sometimes occupying branches left by the big guys), grow, and are themselves acquired. And so on. It never stops. It seems that there is an unlimited potential to start and grow new banks.

I was thinking about this as I spent two days at the Yankee Group Wireless Leadership Summit in New York. The wireless telecom industry seems a lot like the banks in that the markets they serve are rapidly saturating (nearly 80% of Americans have a wireless phone). And consolidation has accelerated, resulting in four nationwide carriers and six to ten second-tier carriers of significant size.

Yet in spite of this, there is a great deal of activity in a wireless startups--Mobile Virtual Network Operators (MVNOs), companies that lease airtime and data capacity from the carriers and repackage and resell it to new customers.

The jury is out on whether MVNOs will be successful in the long run. And one could argue that the barriers to entry for the MVNO business are a lot higher than those for a startup local bank. However, it is clear that the bank model offers a strong indication that there is a market for MVNOs.

Startup banks typically focus on geographies or customer segments that the consolidating banks have left underserved--white space.

MVNOs have the opportunity to win customers in segments that the consolidating carriers have similarly left open--ethnic/immigrant, enterprise, local, content-sensitive and youth/elderly markets.

And the exit strategy for a lot of MVNOs is to be acquired by one of the big operators. Sound familiar?

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