The decision this week by BT to charge for otherwise free BBC content on its IPTV service highlights the sharp contrast between business models for delivering content. Content owners increasingly cut out (or not even consider) the distributor and adopt the Over-The-Top (OTT) web route to their customers, riding the internet infrastructure for free. Verizon, Comcast and MTV also came out this week hitting at the ‘free’ model of content distribution by companies who don’t have to pay for transport cost.
At the Advertising 2.0 conference in the US last week, Terry Denson, Verizon's vice president of programming and marketing for FiOS TV, said that the industry is evolving "two competing programs, two competing ad models, two competing consumption models that are going to collide on the same screen."
In the UK, the BBC’s web-based TV replay service called iPlayer has become increasingly popular but has been causing major issues for ISP’s as traffic generated has lept to almost 10% of UK internet traffic within 6 months of its launch. It is causing other internet traffic to suffer and ISP’s are having to invest in more capacity but without any increased revenue. In return, BT claims the charging for the replay capability on its IPTV service is reasonable given that it offers a much higher high quality service than the basic web service offered by the BBC. All of that revenue goes to BT, none of it back to the BBC - in other words this is a charge for superior carriage, not for content.
This increasing stand-off does not bode well for industries that actually need each other and need to work together. Either web based players naively regard the net as a birthright and aim to just keep pumping content across it as long as someone else (the ISP) pays for the infrastructure, or maybe they are just taking a first mover approach to ensure that they don’t get their position threatened by communications companies. As Carolyn Everson, executive vice president at MTV said, "They've got it for free -- we're training them to get it free”. Given free content available on the net, will IPTV service providers be able to persuade many people to pay for something that is available free elsewhere, even if it is better quality?
There is an underlying reality here: both sides of this debate are symbiotic and need each other to survive. Content distributors need good quality distribution which involves significant capital investment and distribution companies need useful content to drive new revenues. If the infrastructure companies are cut out of the revenue stream, they are unlikely to dip their hand in their pockets and pay for upgrade of networks to deliver very high speed services – to the detriment of digital content distributors.
Squaring this circle brings another value chain layer into the frame – the advertiser. The advertiser can provide the money to pay for both the infrastructure and the content, provide that there is a business model that makes sense – to the advertiser that means access to eyeballs and the better targeted and profiled they are the more they will pay. Just ask Google.
But what keeps going missing in all of these debates is that all of these players are dependent on each other. Advertising can’t work without a delivery mechanism and content: content needs someone to pay and users are reluctant; communications companies need to move on from just basic voice and messaging services. Guys, you all need each other but to make it work there needs to be a fair and equitable sharing of risks, costs and revenues.
Trying to leverage benefit from the other or invading each other’s turf may be a part of daily business in open economies – so an economist might say:” let the market decide”. But to me the whole digital content sector might stall because of the clumsy baby steps that the parties are making. There is a lot of new revenue in here for everyone if only people would get round a table and look at how to make it work – not technically but in sustainable business terms.
The TM Forum’s role has always been to help business work more efficiently and effectively. We stand ready to help foster this debate, so everyone can make money.
Well a few weeks break from blogging clears the mind I hope.
So Microsoft fires its canons at Jerry Yang in an attempt to catch Google. Nothing like a $44bn bid to get the pulses of bankers racing. But what does it mean for those of us in the web and communications business? I suppose it means that Microsoft has figured out what Google's strategy is and has a cunning plan to outwit them. But you have to make a lot of assumptions if that's the case.
First you have to assume that Google has a master plan, secondly that Microsoft + Yahoo would have an answer. Just because you are mega rich, doesn't mean you are mega smart. Countless marriages (remember AT&T and NCR; Time Warner and AOL?) end in divorce and acrimony. Clearly Yahoo doesn't like the cut of Mr Ballmer's' jib and is casting around for more acceptable suitors. A telco maybe – AT&T keeps getting mentioned. Erm.
So what is the master plan? Well, as I've said before, all of that investment in processing power, storage and now bandwidth and device resident software has to be going somewhere other than just faster search tools for more people. I think it's about providing an end-end, managed platform on which Google and anyone else can mount applications and seamlessly get to most of the population on the planet through a variety of devices – PC's TV's mobiles and so on with Google in ringmaster seat handling all of the money flows, transactions settlements etc whether ad based or subscription based. At least that ought to be their plan.
But that's a big trick and it takes more than just assembling the raw materials and throwing them together. It's going to take an awful lot of managing across many underlying technologies, countries, legislation; regulatory boundaries. And with fare paying customers whose business will depend on the underlying platform, it will all get very serious when it comes to quality of service and great customer support.
So where are the people who do that for a living today - the world's communications providers? Is this battle of the titans something to watch from afar or is it their livelihood that's being fought over here? What, if anything, can they do about it?
Quite a lot actually. Google and Yahoo, plus Myspace, Facebook etc have all worked out that providing services on a country level doesn't make sense. You have to have a regional or preferably global service play. Provide services that earn small amounts of money from a very large number of people and you make a lot of profit. They have also worked out that consumers prefer to pay nothing, so money has to come from business that want to reach those people – advertising is the most obvious but there are lots of others, governments, health sector companies and so on. That's where the communications business, both telecom and cable fall down. They only usually only provide services where they have network infrastructure – usually a single country or a handful at best. Even multi country giants like Vodafone don't actually provide seamless services – they just happen to be the same owner or part owner of many fragmented providers around the world.
Bad news for fighting players with global markets and stratospheric stock prices. That's because the people who pay Google (the advertisers not the Google users) want access to global markets. So do lots of other people like content providers and so will all sorts of upstream service providers who want to access certain market sectors divided not necessarily by geography by lifestyle, age, needs, wants and so on. Among 6 billion there is probably a perfectly viable market selling special edition woggles to 4 feet tall, left handed, 45 year old ex boy scouts with orange hair. If only you could find them and reach them simply and cheaply wherever they were.
But hang on a minute; don't communications networks cover the entire planet these days? Can't you make a sat phone call from the North Pole if you want to? Yes of course, networks and call services do cover the planet in a grand federation of thousands of service providers. But go beyond that lowest common denominator of voice calls and you‘re screwed. Try lunching content or advertising based services out over the fragmented zoo that is today's mobile and fixed networks. Every service provider works in a different way with different business processes,; different information formats; different screen formats; different commercial arrangement; different quality of service levels and so it goes on. Google' master plan relies on the establishes competition being hopelessly divided – all content providers and advertisers want is an easy life, not hacking though a jungle of technologies, contracts, processes, prejudices and regulations.
So what is the key ingredient if the world's communications and cable companies wanted to provide such a service platform? Getting their act together and wanting to do it is the first step but coalescing on a common approach which would allow a seamless global, high quality service platform to be built would be second. How? By federating the underlying fragmented infrastructures and gluing them together with a set of standards that cover not just connectivity (that's the easy bit) but standards for signalling and management. It's not as if they haven't done it before – they just did it for voice calls, not today's converged services. I don't mean at the connectivity level – that's IP and that debate is over. |I mean all of the hard, enabling and management stuff that wraps around that to make a service work. Much if this technology exists but today its focus is to help service providers transform their internal operations to be slicker than before. But this is a big step beyond – we're talking about the glue between service providers that allows a global platform to exist to carry emerging content, location and advertising based services to anyone, anywhere anytime on any device.
Service Delivery Platforms are a relatively new concept. They have grown from the basic notion that to be a service provider in today's fast moving market you need to be able to build services from reusable components – assembling them as required. These are components like bandwidth, presence, location, billing, security, authentication and so on. To make that work has meant a marriage between the ‘communications up' view of life ( NGN's IMS et al) and an ‘application down' view of life ( SOA, PLM etc). I'd like to think the TM Forum has helped play cupid to that. But we are talking 2 steps beyond that position. The big realisation beyond the notion of rapid service assembly from SOA based components is that those components can be (web service) exposed to third parties to build new, novel services on top of your infrastructure and thus allow the component owner to share in some of the revenue that today goes ‘over the top' of most communications providers.
But the third step in this realisation is that if you can share exposed components with 3rd party application / service developers (i.e. the next Stanford students on their way to becoming zillionaires),why not use that capability between service providers to provide that global, seamless service platform?
Some players are seeing the light. At TM Forum we are working hard on the business and technology frameworks need to make that happen. It's complicated but it's not rocket science either. The main barrier is getting everyone on the same page and having a common vision.
Fear of a common enemy is a good catalyst for forging a common view even if the common enemy is intangible and simply the fear of being relegated to by-standing bit haulers in the emerging digital marketplace. Does that turn into a “service providers of the world against Google” strategy. No, I don't think so. As soon as Google does start acquiring bandwidth big-time or even makes a play for some communications companies, they get to be in the same boat. Everyone needs everyone else.
Especially when you can avoid wiring up the planet twice or 3 times over.
I was recently at an Innovation Roundtable kindly organised by Deutche Telekom in Berlin. A very varied and interesting group of people met in the Olympiastadion used to host the 1936 Olympics and the 2006 Wold Cup final where famously, Zidane was sent off for headbutting Materazzi. So quite a venue for thinking about innovation!
There was a lot of talk about how telecom service providers need to seize the initiative, get more innovative about launching new products and services faster and to generally learn from their more fleet afoot web and media nephews and nieces.
All of which is true but from my 27 years in BT and nearly 40 in the telecom industry, I’m not sure the problem is a lack of innovative people at the grass roots level - what I think telecom service providers lack is a system that allows innovations to flourish and prosper. Technologically, our industry is a marvel, well able to invent a better mousetrap for sending more bits over a bit of copper, coax, fibre or air. But from a new innovative service perspective, the phrase that leaps into the mind is…. we suck!
Why is that? Well, for a long, long time, the telecom industry didn’t really need to invent anything at the service level. Even mobile services and SMS are just by-products of the underlying technology rather than any breakthrough in new service ideas. In fact, SMS happened despite the best efforts of a number of operators because, early on, you could only text other people on the same network (just like early e-mail services). The sheer size and profitability of line rentals and calls made innovation unnecessary – technology advances ensured rising profits from lower costs and when call revenues started to fall because of competition, market elasticity meant that volumes increased to compensate.
So the need to innovate is really only a relatively new requirement – prices of traditional services are now at a point in many markets where many service providers are seriously concerned about future profitability and the markets are reflecting this in their stock prices.
But as I said, I don’t think that service providers lack innovative ideas – I think they lack the corporate culture and systems to help foster those ideas and bring them to market. When I joined the British Post Office back in 1969, I was given a piece of advice which, happily I never stuck to. It was “keep your head down, keep out of trouble and by the time you’re 60 you’ll have a good pension waiting for you”. Nearly 40 years ago but that kind of risk averse, “don’t stick your neck out” kind of culture still pervades our industry. As in government and politics, people get promoted because they are a safe pair of hands rather because they push the limits, sometimes failing. When learning to ski, I was told “if you’re not falling over much, it’s because you’re not trying hard enough”. But in the telecom industry, failure is seen as a weakness, not as a way of battle hardening people to want to try new, risky things.
Individuals in the telecom industry are quite capable of designing an iPhone or a Facebook, but the ‘system’ filters them out. The old Japanese saying “the nail that sticks up is soon hammered flat” is a good metaphor. Telecom, like other long established industries, has a viral defense mechanism – “white cells” if you like, that kill off invading ideas.
“Who else is doing it” is usually the first question any budding innovator gets when asking for investment funding. “Nobody – we’re the first” is not a good answer – it’s much more risky to be a pioneer than a follower. “How much money will we make” – a good question but hard to impress even if the idea has fantastic revenue growth because telecom companies have product lines that measure revenue in billions. “I can make more money in an evening on one phone quiz than you can make in a year” says the guy who manages call revenue. So new ideas, if they get funded at all, tend to get low priority as they barely show on the management radar screen. Low priority means that in the scramble to launch a service, all of the resources you need – engineering, IT, customer care, marketing etc are all too busy doing ‘important stuff’. New ideas try to get off the ground on a shoestring, as a skunk-works or hoping nobody will notice rather than with the encouragement and enthusiasm of top management.
Another barrier to innovation in the telecom industry, not shared by the web fraternity, is a blinkered sense of ‘place’ and existing business models. Telecom companies tend to identify themselves with providing services in specific country - not globally, so their market ideas and projections tend to be governed by their existing customer base. But most new service innovations have evolved a ‘little bit from a lot of people’ model – i.e. tiny revenues from a very large number of people globally. And often not using the “I provide you a service and you pay me money” model. Many web services use the model of building a large customer base, free at the point of use and then monetizing that to ‘upstream’ customers like advertisers to build revenue.
Then there is the regulator. Oh how life would be easier if there was an early retirement plan for the world’s regulators! “Great idea but the regulator would never allow it” has killed many an innovation. Maybe they would but many service providers have become gloomy masters at predicting what the regulator would and would not allow. Who are these internal proxies for regulators? – usually either in-house lawyers or pen pushers who wouldn’t know an innovation if they fell over one – success in their job is measured by minimising the number of calls from the regulator, not maximising the bottom line.
And just to make sure nobody goes without an insult, there’s the CFO. Very few operators know how profitable their different lines of business actually are because so much cost is shared between them. So CFO’s allocate costs to various product lines on some arcane basis known only to one or two people who share a special handshake. Any new and innovative product, not understanding how the game gets played, may well get slapped with a huge amount of internal cost meaning that its unprofitable from day one and soon gets canned “because it has never made money”.
Many new ideas fail. But some of them become Google or You Tube. But if you never try, because your white cells systematically kill off those “2 kids in a bedroom” type of ideas they never will become big. Instead, service providers wander the planet from conference to conference hoping to spot a brilliant idea that someone, somewhere has made work and has proven it makes money. Pre-paid mobile was one of these – another accidental product – it was popularized globally by a follower approach.
If telecom companies truly want to become more innovative, they have to do some serious surgery to the way that innovative ideas are fostered; their inventors get rewarded and promoted; the way that costs and resources get allocated to innovative ideas and the way that success gets measured. Some people do this by setting up incubators or product nurseries to provide a way of letting fledgling services get a toe hold. Some of these succeed, some don’t – it all depends on the climate that senior management create to incentivize good people to come in and risk their careers. Some smart companies would look at the incubator being at arm’s length from the parent, even allowing the people working in that area to have stock in the subsidiary meaning that they really get some reward if their idea takes off.
One thing is for sure; just dreaming of being an innovator won’t get you there if you manage your company in the way you always used to. What you’ll get is what you always have had – and that’s losing revenue in many cases, rather fast.
Determined never again to face invasion from the East after World War 1, the French government spent a fortune building the vast line of forts called the Maginot line stretching along its Italian and German borders. In the end, the Luftwaffe simply flew over it and the German Army went around it through Belgium. Generally considered one of the great failures of military history, the term "Maginot Line" is now sometimes used as a metaphor for something that is confidently relied upon.
Something similar now seems at work in our industry. While regulators have been quite successful at opening up the ‘last mile’ of fixed line networks, the ‘last mile’ of wireless is still firmly in the hands of mobile service providers. Although mobile virtual network operators have sprung up, they have not been wildly successful to date, so the infrastructure wireless operators have a pretty good lock on this last piece in the jigsaw.
Which is why Google and Skype seem intent on getting round the ‘Maginot line’ by embedding their software on as many handsets as possible. Their equivalent of Belgium is using IP connectivity (GPRS, EDGE, 3G even Wi-Fi) to get around the operator’s ability to control the user’s service. Google’s recent announcement of the Android project plays directly into this “get round” strategy and their sabre rattling of buying spectrum in the US is designed to scare off any doubters that they are serious about getting directly in front of the end user.
Why are they doing this? Does Google want to be a phone company? I don’t think so for one minute. They make their money from companies upstream in their value chain – the e-commerce and advertising revenues they unlock, not downstream users like phone companies. The more users looking at their content and the more they know about them (such as where they are) the more valuable becomes the ‘inventory’ that they offer their advertisers. Monetizing 6 billion eyeballs worldwide is very valuable indeed and Google wants to stay well ahead of the game. If someone else cracks mobile advertising (heaven forbid it’s the phone companies taking the initiative), Google potentially gets squeezed into only being a player that can reach an audience on PC’s. In the emerging ‘any content on any device, anywhere’ world, that would be a bad place to be, so Google’s move is both self defence as well as opportunistic.
What should the mobile operators do about this move? The tanks are lining up on the horizon and the Maginot line can be breached. Ignoring it and hoping it will go away would not be a smart move. Trying to fight it by developing their own ‘upstream’ facing business selling all sorts of players - not just advertisers- valuable information about their user base would be a good move. Or the two camps working together might be an even smarter idea – after all communications players know squat about the advertising business and Google knows squat about the mobile business.
But if push comes to shove, I know who I would bet my money on learning the fastest. We had a good chat on all of this at the Executive Masterclass held at our Management World in Dallas a couple of weeks ago. The whole concept of developing a new class of customers upstream of the operator as well as conventional end users is an exciting area for the communications industry. It has pretty radical implications of how a communications company works and how its processes and systems get organised.
So it has big implications for an organisation like TM Forum and that piques my interest. If this is a viable approach and service providers do start to move in that direction, what kind of business frameworks and technologies will be needed to support that business?
What do you think about this? Let me know your thoughts on the subject.
So the great Google mobile announcement happened on the run up to our Dallas Management World event. Clearly they held back the presses to give us the scoop on their Android program! At the same time, our friends at Apple have crossed the Atlantic to unleash the iPhone on the UK. A nation awaits!
Both themes were much in evidence at our annual Management World Americas bash in Dallas last week. The event has been getting bigger year on year since its low point just one month after 9/11 and for the first time in a long while, the show had a similar upbeat buzz to match our big global conference in Nice. Whether this was the joy of having iPhones in their pockets or the thought of being able to Google from a mobile phone I’m not sure, but it was certainly there. But then, this year is the first time in a long time that some major merger or acquisition wasn’t underway, so maybe people felt it was safe to leave the office for a few days in the chance that their desk might still be there when they got back!
But I’d like to think that a lot of the buzz had to do with some of the new things we have launched in the Forum over the past few months. Many of these saw the light of day at Dallas. First was the great success of the Content Encounter – the Forum’s vehicle for opening up the issues surrounding managing content from end to end. A consortium of players – Microsoft, AT&T, IBM, Alcatel-Lucent Cognizant; BEA Motorola and media company Westwood One invested a seven figure sum with TM Forum to bring the Content Encounter Showcase to life as a ‘super-catalyst’ project. Its five year mission; to boldly go where no consortium has gone before; to seek out new management challenges; to engage with new creatures from other industry sectors; to highlight the art of the possible and at the same time pragmatically to forge the basis of some new industry agreements.
Situated in its own purpose built set as a part of the Forum’s ‘Forumville’ showcase, the Content Encounter allowed customers to see the whole content lifecycle from studio through to the seamless handoff onto multiple devices and mixing media with various innovative bits of merchandising and promotional tie-ins. It was certainly life Jim, but definitely not as we know it!
Another launch at Dallas was a new group aimed at forging a universal approach to managing devices. With over 1 trillion of them expected to litter the universe in the next 15-20 years, having a common way of managing these increasingly diverse and multi-functional beasties is going to be essential otherwise we will have to leave it to end users to cope with all of their funny little ways. When all the user wants to do is to use the thing rather than worrying about setting it up and integrating it with the service, a common management approach seems to be a must in an “any content, anywhere, anytime” world. To bring the device issue into focus, Blackberry CIO, Robin Bienfait gave an interesting keynote on day one. More on this by clicking here
Other big news from the show was the rapid involvement of the cable sector in the Forum’s work. Fourteen cable companies have joined the Forum over the past few months and a special cable interest group has been formed. Time Warner Cable led one of the catalyst projects at the show and their board member and CTO, Mike Lajoie, also keynoted.
But of course the oil- tanker sized job of turning the telecom industry into a lean and mean butterfly goes on and much of the conference was focussed on the less glamorous but equally interesting transformation of the Telco. Kevin Salvadori of Canadian innovator Telus gave a very clear object lesson in how to go about a transformation program. Quite what the Telco might turn into was the subject of a good panel debate between Phil Dance of BT, Mike Hill of IBM, Bhaskar Gorti from Oracle and Simon Torrance of the Telco 2.0 group. Simon also spoke at the well attended half-day Masterclass workshop called “Telco 2.0 – the movie” that also featured Colin Orviss, Rob Rich and yours truly.
To help the oil-tanker navigate, we also launched the first in a series of reports by the Forum’s business benchmarking team. This program allows service providers around the world to enter business data such as order-cash time cycles and allows comparison of their information with their peer group. The report was a synthesis of key trends observed over the past year and was produced in conjunction with industry analysts OSS Observer. You can get a free download of this report by clicking here
I must be getting old because I can’t ever remember getting so tired at a Management world event. My sleep wasn’t helped by the interesting plumbing at the Adams Mark Hotel which seemed to erupt at 2 am every morning, but it was just full–on meeting after meeting with members, press getting involved with sessions. And one or two beers it must be admitted!
So, the circus is off to Nice as usual next year but the plumbing at the Adams Mark has proven too much and so we will be in Orlando next year for MW Americas. Yes “Mickey does Management” is the theme for next year. Better than “Debbie does Dallas” I suppose!
This morning, the mobile operator 3 announced that it has launched a new handset that will allow users to make free calls over the Internet via Skype. This is the first time an operator has offered a mass market phone specifically enabled to make VoIP calls from a mobile handset.In my blog last week, I mused on Google doing something just like this and I still think they will. If they are smart, they will look at wrapping a Google phone/ browser client into handset operating systems rather than specific phones, but the message is clear: the forces that have caused “PSTN revenues to drop like a stone” (to quote the TM Forum Benchmarking report due out next week) are now being unleashed on the previously protected mobile market. Unlike fixed line operators, who have had other lines of business to dilute the impact, mobile operators make the vast majority of their income from mobile calls and texts. Although the operator will still make a monthly rental fee from a Skype or Google enabled service, free calling and mobile instant messaging will make a big dent in profits if it catches on. And as I said in last week’s blog, Google has a lot of reasons to want to monetize the nearly 3billion mobile users out there through advertising.
What does this all mean for the operations world that TM Forum lives in? Potentially massive upheaval that could fundamentally reshape the market and the way that services are created, delivered and paid for. A bit of overkill – no I don’t think so. I’ve been in telecoms for nearly 40 years and the potential of companies like Skype but most definitely Google is to rewrite the rules of how the telecom industry works. I wasn’t one of these saying it in the 1990’s when the ‘Silver Surfer” hyped the mobile internet and the world went bananas in a flurry of unrealistic expectation. But a few years on, the technologies and particularly the market conditions are right.
Those of you off to Dallas for the Management World conference next week might like to bring this up as a debating point. Certainly we’ll be taking a strong “Will advertising kill or cure telecom” theme for the next big TM Forum conference in Nice next May because advertising represents as many opportunities for telecom as it does threats. But you have to seize opportunities; something my chosen profession isn’t good at. But it’s a golden opportunity to offset all of those declining call revenues.
I mentioned the Forum’s benchmarking report which is being unveiled at the Dallas Management World conference. Check it out – it’s free to members and it contains some very interesting observations. It’s also a very interesting program to get engaged with –m it’s a free service to service providers who can benchmark their data against other major players around the world in a secure online system. Variuos key operating metrics are defines across a range of services such as broadband, mobile and so on. For more details click here
If you are interested in business benchmarking, why not also check out the Forum’s first business benchmarking summit scheduled for London on November 27th at the London Marriott Hotel Marble Arch. More details here
I look forward to catching up with many of you at management world next week in Dallas. It shaping up to be a great week, so have a safe journey and see you there.
Went to a very interesting conference last week in London. Called Telco 2.0, its aim was to look at the next generation positioning for the telecom industry and how it can prosper in the rapidly converging information, communications and entertainment worlds. This is a subject of hot interest inside TM Forum of course, because as we need to worry about how these services are created, delivered and paid for in a very different business and technical scenario than today.
The problem is, nobody can be sure what that scenario will be, what the services will look like and who will pay for them. Will advertising based services be the norm, as we have seen for Web 1.0 or will people still be prepared to pay for premium , high quality services without the bother of adverts? Right now, we have to assume that instead of the markets we see today changing into something else; we are much more likely to see a mushrooming of different types of services with different business models and with different players in different roles –all at the same time.
Those of you on the way to the Dallas Management World will see the fruits of expanding the Forum’s thinking on the basis required to manage all of this. As the value chains expand, the end-end management issues grow and so you will see the Content Encounter – a practical, hands-on demo of managing content and location based services; the launch of a new program aimed at a universal approach to managing devices; keynotes from both the cable industry (Mike LaJoie from Time Warner) and the device world (Robin Bienfait, Blackberry) and lots of other interesting stuff.
The device companies and advertising based approaches seem to me to be two of the biggest ‘jokers in the pack’ on where the converging media, telecom and web industries go. Apple has shown that its possible for a company to have a device as the ‘tip of an iceberg’ and build a growing service-based business behind. The iPod has driven Apple into being a very significant player in retailing music and now video through iTunes, so it’s much more than just an MP3 player business. They are extending this with the iPhone, where the customer activation and preferences for mobile service are also through iTunes – a natural portal to sell downloadable content to the growing base of iPhone customers. Oh and a slice of the call revenues too. So coming from no background at all in telecoms, Apple have the potential to become a major league player in converged services.
Same with on-line advertising. Advertising inverts the telecom model in that you don’t sell to users; you sell the user to an advertiser. Advertisers call the ‘eyeballs’ that a particular route to market has ‘inventory’. The more inventory you have and the more you know about the buying and behavioural aspects of that inventory, the more its worth. Hence Google just breaking the $600/ share value barrier – they’re now worth more than IBM. But even churning over 60 billion searches a month and 60% of the search market, it’s still a relatively small inventory compared to the nearly 3 billion people who have mobile phones. That’s a lot of inventory, especially if you know things like who they call, who their friends are, when they are awake and where they are. So expect a big assault on telecom from the online advertising industry over coming months and expect Google to be in the vanguard.
How will that all play out? How will the market reshape? Who knows but one thing is for sure. Users (or advertisers) will want services that work reliably, give them value for money and are easy to use. They will want to be sure that their information and identity is secure, that any of their money flying around is properly managed and if things go wrong, they get fixed quickly and without hassle. That’s the management business and that’s what TM Forum does.
Life is getting very interesting.
“May you live in interesting times” is fast becoming an appropriate label for the telecom industry. I opened the London Financial Times today to see 2 headlines that seem to sum up the current plight of telecom - one was the news of Gary Forsee stepping down as CEO of Sprint for not bringing home the bacon in the Sprint / Nextel merger. The other headline was “Google Stock tops $600”.
All sorts of conflicting messages flying around right now. When you are in the middle of one of a major inflexion point for an industry it’s really hard to make out what is happening. After it’s over, it all seems blindingly obvious what was happening but bat the time all sorts of false trails abound. For example, what are the real implications of the iPhone launch - certainly not just a cool phone. Apple has such significant market power it can dictate terms to mobile service providers – not just revenue sharing but moving all of the customer’s interaction with the service, such as phone activation, set-up preferences etc to iTunes. Does this presage the emergence of an iPhone service where all of the video and music activity on the phone passes through Apples’ hands with the phone service provider acting as simple bit carrier?
What do we make of the bad news coming out of Alcatel Lucent and even more interestingly the potential for demerger of Nokia Siemens? Does this mean that mergers don’t work? Or are they just hard? Or is it that there remains an underlying weakness in operator spending patterns?
Meanwhile the new kids on the block aren’t having an easy time either. Vonage has had to hand over truck loads of cash to Sprint in settlement of patent infringements; Disney decided to quit the MVNO business and eBay finally woke up to what all of us said a long time ago that they were robbed blind in what they paid for Skype. Not that I’ll hear a word against Skype though, it’s an amazingly service, that pretty much works first time every time, in hi-fi quality, with built-in instant messaging, conference calling etc. And erm… it’s free. Hard to compete with that, better than a phone call and you don’t have to pay.
Meanwhile, despite their motto, I suspect that those nice folks at Google are definitely planning to do evil to the telecom industry. With all of that humongous computing power they are investing in (apparently they bought around 15% of all of the servers sold worldwide last year and lots of dark fibre), they will certainly be able to do something like Skype but possibly better and probably integrated with lots of other goodies. Google is already worth more than IBM, so there really isn’t much a company with that kind of buying power can’t do.
So what does it all add up to? Whatever it is, I doubt it means that the time window is lengthening for telecom to get its cost base down significantly and get new revenue streams flowing. TM Forum has talked for a long time about the operational triple play of integration, transformation and monetisation of the software and processes behind telecom and laid out the frameworks to achieve that.
Time to get on with it methinks.