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What’s the future of service providers – telecom and cable companies – in the emerging platform economy? Connectivity and mobility are fundamental, for sure. But right now it feels like our industry is just a spectator as the really big changes unfold. No more a participant in that transformation than, say, Goodyear and Continental are in the tectonic shift to autonomous electric vehicles. Part of the furniture; not part of the conversation.
We’ve become accustomed to clicking a button on our phones to summon a ride or book a room on Airbnb or to adjust our home thermostat. Platform companies Apple, Alphabet, Microsoft, Google and Amazon dominate the top market cap spots on the stock exchange. This was not the case as recently as five years ago when only one tech company was among the valuation giants. Futurist Mike Walsh made the observation that “change appears incremental until it’s too late”. Companies that are not working to migrate from purely linear pipeline business models to the platform economy will wake up one morning and realize that the world has changed.
When we step back and assess why this is happening precisely at this point in history, we can see a perfect storm of mass broadband connectivity, the penetration of smart mobile devices, the move to cloud virtualization and open source collaboration. Within the next few years, over 91% of the world will enjoy 25Mbps and a third of the world with have over 100Mbps of broadband connectivity according to analyst firm Broadband Trends. Further, we continue to see competitive pressure for service providers to deliver Gigabit and 10 Gigabit services so we can feel confident that no matter how bandwidth intensive the application, we will be always connected with seemingly limitless performance.
Historically companies have focused on linear, pipeline business models where firms create goods and services, push them out and sell them to customers. Value is produced upstream and consumed downstream. In this model the company can control the value chain from their suppliers to the end customer. Telecom and cable companies are classic examples. I was reminded recently that in days gone by, AT&T used to manufacture even its own office furniture.
On the other hand, platforms are multi-sided business models that enable its users to both create and consume value. ‘Value’ is abstracted from the asset and is realized by the interaction between producer and consumer. The ‘product’ emerges through this interaction – a ‘ride’ if you’re Uber; a travel experience if you’re AirBnB.
Platform businesses leverage Bob Metcalfe’s network effect to scale in value and efficiency incredibly quickly. Producers attract consumers which attract more producers, and so forth. The strategy implication is that a company will need to shift its focus from scaling production to scaling communities.
The platforms themselves comprise of open communities of consumers and producers, the algorithms to match them, channels for them to interact and transact, and some rules that govern behavior. To avoid linguistic tripwires, let me state bluntly that platforms in this context don’t refer to combinations of hardware, or relate to network architectures. If you want an example YouTube is a platform: a telco’s content delivery ‘platform’ isn’t.
So, with that background in place, here are some of the questions that we’d like to form answers to over the course of this debate:
One alternative and legitimate route for service providers to follow is leveraging technology advances and supply-side scale efficiencies to drive down the marginal cost per bit. Become an ultra-efficient bandwidth utility. Another is to increase vertical integration, by adding ever more content services atop the bandwidth. Arguably – and we are trying to start a debate here – compared to the first option, this one has a pretty limited lifespan, simply because other content platforms (by our new definition) are doing a better job of connecting consumers with a diversity of content producers, through some very smart matching engines.
So if you can’t beat them, can you join them? And if not as a content platform, then what as?
Possibly this is a better place to start. Right now, platforms aren’t offering their producers or consumers any choices in, or control over, connectivity and capacity. They treat the networks like the biscuit layer at the bottom of a cheesecake: a necessary foundation, the same for everyone, adds a bit of crunch but no flavor. What could service providers offer, by way of a differentiated service, to whet the appetites of the platforms?
Or are we too quick to run down the rabbit hole of speeds, feeds and QoS? What else could be traded on a telecom platform?
Net neutrality regulations were set up to ensure that all businesses providing services over the Internet had equal access to consumers. Service providers consequently aren’t allowed to charge Internet companies for access – only the end consumer. For a service provider to launch a platform, it would need to create a business model that allowed it to charge all participants. How likely is this?
Is it a stark choice between becoming a platform, or becoming the ultimate bandwidth utility? Can you combine the two? Well, Apple does. Its iPhone business is pipeline to the marrow, in an effort to maximize the customer experience. But the iPhone technology alongside iOS is also a platform for millions of producers on the App Store, and gazillions of consumers. Can this apply to telcos too?
We’re trying to start a debate here so we’d love to hear what you think. There’s a few ways to do that:
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