Mobile Needs to Focus on Pipe; Won't Be Much of a Factor in Apps

You would be very hard pressed to find a single mobile executive who actually will say in public that providing "dumb pipe" services is the key to their future prospects. Up to a point, this is correct. Most service providers already are preparing, testing or deploying new services that add new "services" to "access" products.

But there might be clear limits to how much service providers can escape, or should want to escape, their fundamental position in the ecosystem. "Access" is the unique contribution service providers make in the Internet ecosystem and value chain. That does not mean service providers cannot, or should not, attempt to occupy other roles within the ecosystem as well.

But one can question how much success can be found in some of the adjacencies. Most end users won’t need much help from service providers to to discovering and use their preferred Web content on mobile phones and portable computers, says Declan Lonergan, Yankee Group analyst. In other words, there might be limited opportunity in the web apps area.

At the same time, though, dependency on mobile Web access increases as hosted, in-the-cloud services replace on-the-device apps. Perhaps there is more opportunity in focusing on "connectivity" than many believe, including both packaging innovations, quality of service features and integration with wired networks.

Customers’ mobile content and Web experiences will be delivered almost exclusively by others in the ecosystem, regardless of whether consumers are using apps or browsers as their primary means of access.

The issue with some ideas and concepts is that unstated assumptions are associated with the ideas. Service provider executives hear the phrase "peering" and they understand it as "settlement-free" interconnection. That has financial implications entirely distinct from the issue of manner of connection. Service provider executives hear the phrase "dumb pipe" and think "commodity-like, low-margin service."

But "dumb pipe" does not necessarily mean "low margin, lower price, undifferentiated" pipe. "Dumb pipe" might just mean "access."

The point is that service providers now are suppliers of a number of values, including simple access to the Internet and web, as well as other services that are managed. Entertainment video, voice, mobile voice and texting are the primary examples.

Telcos, cable companies and satellite companies cannot escape their place in the ecosystem, which is network access. In addition to access, they provider other services, applications and value as well, but all are built, fundamentally, on access.

As always is the case, participants in any value chain will fight for a bigger share of total profits from the ecosystem. It is no surprise others want "access" to be as affordable as possible, as that is better for the other participants. But "access" is the one, unique, irreplaceable value that service providers supply. Everything else they might do hinges on access.

Yankee Group Research Report

Everything About Business in 3 Charts

Ultimately, businesses live and die on three simple dynamics: Distributions, network effects and sigmoid curves (S curves), says Niel Robertson, Trada CEO.

Distributions tell you how much you can afford to spend selling a product, S curves determine how far you can scale a business and network effects account for the outsized returns when a business can achieve huge market share.

Almost all problems (and most opportunities) come from understanding how to take advantage of these functions – rather than fight against them, he says.

Everything I learned in business I learned from these 3 charts | VentureBeat

"The World Has Changed," or Has It?

"The world has changed," Orange Business CEO Says

Speaking to an audience of enterprise executives, Orange Business Services CEO
Vivek Badrinath noted that the world has been changed forever as a consequence of the economic crisis.

"The world is not the same as it was two years ago in terms of what's expected in this room," he noted. The logical question is what those new things are that seem to have changed the market so vastly. The answers aren't easy to figure out.

"New collaboration and social networks for customers and employees are emerging and we now need to work around multiple interactions with our end customers," he says. Sure, but hardly a need that was "transformed" because of the economic crisis.

"We have both the obligation to provide Sarbanes-Oxley compatible, efficient, protected environments for our customers and we have to face the challenges of openness," he says. Yes, but that was true before the economic crisis.

"You're asking us to be faster because the world is moving fast," he says. Agreed, but hardly something new.

"Our ambition is to become the leading developer of applications; to establish ourselves as a true integrator of services," he says. That is the more-shocking statement, perhaps.

Specifically, Orange plans to add a new layer of services that would, for example, enable CIOs to manage all BlackBerrys (password management, policy management), no matter what network they are on.

Services underpinned by the core network expertise seem to be the direction Orange wants to go. "Telecom can get commoditized but its the customer experience, with the services and systems we bring, that defines the value that we bring to this market," he says.

All worthy goals. But one suspects Badrinath was engaging in a bit of enthusiastic hyperbole. I see nothing here that speaks to a "world that is not the same."

It is an ambitious, worthy goal to aim to become the leading developer of applications, and to own the customer experience. Badrinath is right to note the huge change this would represent in a new world with many third-party experience providers. It just isn't entirely clear this has changed much because fo the global recession.

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What is Yahoo's Strategy?

I admit I'm not sure I describe, with certainty, Yahoo or AOL strategies. To be sure, I'm not sure I could adequately describe Google's fundamental strategy, either. Maybe it doesn't matter whether I understand it. But it typically does matter when a company is a bit fuzzy about telling its own story. You can be the judge of whether this is clear enough.

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Qwest: An Example of What to Do When Only "Bad" Choices Are Available

Sometimes a company might find it has only bad choices available to it. For Qwest, that might arguably be said to be case. Faced with huge debt burdens, Qwest sold off its high-growth wireless business and then spun off its cable-TV division.

The moves allowed U S West to trim debt, avoid expensive capital investments and maintain the healthy dividends long associated with a traditional telephone operator. But those moves also made a growth strategy nearly impossible, since other arguably comparable larger telcos such as AT&T and Verizon used wireless to underpin most of their growth over the last decade, while video services now are starting to be a material factor for the fixed services business.

From a short term financial perspective, divesting those assets was helpful, but strategically ensured that Qwest would not have the industry-standard growth drivers of wireless and video. Of the two, the lack of a wireless offering was most significant.

To be sure, Qwest had other problems. Its service territory was the least dense of any of the former Regional Bell Operating Companies, which would have been an issue even if Qwest had retained its wireless and video assets.

Nor will Qwest be the last company to face the problem of having only tough choices to make. That doesn't mean a firm cannot harvest the returns from a declining business for a time. That is precisely what EarthLink is doing, for example. But there is no long-term future.

Qwest, and many other firms in telecommunications, likely face issues not quite as severe as EarthLink does, but with the same limited set of strategic options. Communications remains a scale business, so the largest firms have had an advantage in both wireless and video. The largest firms also will have similar scale advantages for the next wave of potential innovations as well.

Though access providers of all sizes face some fundamental issues, such as their place and power within the Web and Internet ecosystems, wired services providers face such issues most acutely.

How Long to Post-Recession Job Levels? Expect Huge Merger Wave in Any Case

So what does this chart showing job recoveries after recessions since World War II suggest to you (Click on image for larger view)?

Obviously, the immediate past recession was more costly in terms of jobs than any comparable recession since WWII.

The discouraging question is whether the job recovery curve looks more like the shallow "U" shape of the 2001 recession or all the others, which are "V" shaped.

You can make your own decision about which curve will manifest itself this time. But logic suggests the recovery will take a while, simply because the curve already looks more like 2001 than any of the other curves. Also, none of the other recoveries had to face the financial headwinds imposed by our shocking, and growing, deficits, which will crowd out private capital that is the fuel for business growth.

A rough guess, given the depth of losses, which are twice that of the 2001 recession, suggests it might take twice as long for the economy to return to the level of jobs it had when the recession started. That would be 40 months, or roughly 3.3 years from today.

But that assumes no additional fiscal drag from the deficits, and nobody seems to think that is reasonable. So some believe it might take six to eight years. As one might assume, this will make for sluggish sales growth.

In a business such as telecommunications, which irrespective of the recession was in the throes of a massive transformation of its core business model, which will in any case require replacement of perhaps 50 percent of its existing current revenue by new sources over a 10-year period, and perhaps another 50 percent of revenue over perhaps a 20-year period.

Those would challenges enough for virtually any industry, without the pressure of sluggish job and housing growth and high structural deficits. Normally, sluggish growth in the telecommunications business has lead to mergers and acquisitions, since one way to obtain growth in a sluggish market is to buy that growth in the form of acquired customer bases, revenues and assets.

One has to expect quite a lot of that in this environment.

Covad and MegaPath Merge, More Activity Expected

Covad Communications Companyand MegaPath say they have agreed to a merger combining their businesses to create a larger managed services company serving business customers, though Covad's wholesale operations will continue as well.

D. Craig Young, MegaPath CEO, will take the post of Executive Chairman of the combined businesses, while Pat Bennett, CEO of Covad, who will continue as Chief Executive Officer.

Covad offers IP broadband services in more than 4,400 central offices nationwide through its commercial and wholesale distribution channels, though the bulk of revenue still comes from the wholesale side of the business, where Covad sells service to wholesale partners including AT&T, Verizon Business, and Sprint.

MegaPath sells hosted VoIP, managed security, MPLS VPNs for connecting multiple sites, and SSL VPNs to19,000 direct SMB and enterprise customers.

Consolidation in the telecommunications industry is not new, nor is consolidation in the competitive telecom industry, so the deal is not a surprise in that regard. The "roll up" is a time-tested growth strategy in the competitive communications, cable and wireless industries. . Nor is it surprising that company executives say more deals are coming.

Telecom is a scale business, and scale is doubly important when margins are under pressure, as is the case for virtually all legacy telecom products. When profit margins get squeezed, financial performance can be maintained by selling more units. And that means more scale.

The combined businesses will be owned by Platinum and MegaPath investors.

Tesco Abandons VoIP Market

U.K. retailer Tesco, which began selling consumer VoIP service in 2006, now is pulling the plug, though it will continue to sell mobile service. Without reading more into the news than is warranted, the move is illustrative of the fact that consumer VoIP might be less an innovation than some had hoped for, and certaintly is a less-robust business than anticipated, especially compared to mobile service, at least for the moment.

That is not to say other competitors, with different assets, can fare better. But the April 27, 2010 shutoff at least suggests that the "VoIP" market has not proven to be the lucrative business Tesco once believed it was, given its ability to support and market the business, as well as the evolution of end user demand, which arguably has tipped in the direction of mobility.

Earlier in the last decade, there was much more apparent optimism that fixed-line VoIP would "change telephony forever," creating significant new opportunities for non-traditional providers.

One might argue that VoIP's primary impact has been to accelerate voice price erosion, without creating a significant new market, though it has been the way cable operators have taken market share from telcos.

Tesco says "trends in technology have moved forward since we launched Internet phone so that this is no longer a sustainable service". One might infer that means mobility now is the "hot" service.

"Tesco Internet Phone" was basically a Skype-style PC offering, though the supermarket did offer a Vonage-style terminal adapter version as well.

That is not to say further innovation in voice services is impossible, or in fact unlikely. There will be advances. The issue is whether the scale, impact and economic importance of such voice innovations is going to approach the advances being made in mobility, broadband, Internet and Web services.

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The Creative Age is Different, Way Different

General Motors isn't Facebook. Heck, it isn't even Cisco or Microsoft. But neither are any of those companies like Facebook. I don't mean "like Facebook" in financial, social or cultural terms. Facebook is unlike other companies in the way that it creates a product. Most companies create products using some combination of internal resources ("employees") and business partners ("suppliers").

Most companies can tell you who "works for the company" and who does not. What is different about Facebook, and Wikipedia, Google and YouTube is that the "product" is produced by all sorts of people, both inside a "company," inside its "partner suppliers," and from "outside the company." What makes Facebook's product different is that "users" must participate to create a better and more useful product.

That might be true for any sizable organization, to some extent. Consumers help shape products when they decide to buy some more than others, and some not at all. Consumers help products evolve when they start to use products in new and unexpected ways.

But Facebook and others with a "social" product cannot develop with passive or secondary input. They require active creation of content, links and networks by participants. Not every product can be produced in this way. But it is a so-far distinctive attribute of products produced in a "post-information age" era.

Some might call the upcoming era the "creative" era, to differentiate it from the information age. Collaboration is a key cultural attribute of firms that create social products. Facebook depends on users, developers to create its product, which is an experience.

fuller discussion

Google's Culture Flat Out Rocks

Nilofer Merchant, Rubicon CEO and founder, has penned a fabulous post about Google's corporate culture, that is worth reading, especially because you and I will rarely, if ever, encounter a company with a culture this unusually oriented towards innovation; so fearless its atmosphere towards new ideas; so intellectually egalitarian.

Few companies you encounter will ever approach this level of cultural openness. You will run into lots of companies that claim they are this way. They are not. If you speak with enough people, at enough companies, you will discover that most of them think they are "above average," "very good" or even "excellent" at  customer service, or quality, for example.

By definition, this is incorrect. No normal distribution can have a majority, or the vast majority of the population ranked in the top five percent, 10 percent or 20 percent of anything. And yet that is what you'd tend to find, if you asked.

Google, whatever else one thinks about the company, should be applauded, studied and emulated, as should Apple, in some key ways, when it is possible. Most companies cannot meaningfully emulate the core cultural traits of either company, of course. But that's why Apple and Google will remain such important companies.

Most will not try to emulate them, and most cannot, even if they want to. Sometimes the problem is simply that the culture of an organization matches the core tasks it must tackle to be successful. You wouldn't expect a "Google" style culture at a nuclear power plant, a telco or larger military organizations.

You would hope and expect to find it on any small software team, smaller consulting organizations and think tanks, smaller research or policy institutes, smaller marketing firms or architectural firms. Note the emphasis on small; that normally has something to do with it. Still, smallness is a necessary but insufficient prerequisite.

Lots of small organizations are not "collaborative" in the robust sense. People matter.

Merchant's full post