Deconstructing Microsoft's "Telco 2.0" approach
I'm an admirer of Microsoft. I have friends who are current and ex-Softies. Microsoft has probably been the single largest source of privately-generated consumer welfare in the last 20 years. Although it's now largely forgotten, their success came from making more functional, more usable, and consistently more affordable products than the entrenched competition.
But they struggle to achieve the success you'd expect in the telecom space. That's probably because of a mismatch of cultural expectations and motivational incentives, as well as their propensity to treat telecom as "just another vertical".
The following story is not apocryphal, but we'll keep it anonymous to protect the innocent. It's 2002. Microsoft are doing a tour of telcos demonstrating their upcoming Live Communications Server product. A crowd of senior telco execs are in the room watching the demo. "And now, the user just chooses who she wants to talk to based on her ID, and she picks the carrier from this drop-down box..."
Someone in the audience asks: "How does she know which one to pick?"
"Well, I guess she'd choose the cheapest."
Errr, sorry, and how do we, the telco, build a customer relationship and brand here? And how are we supposed to be differentiating ourselves? I don't think they understood why the reception seemed quite so frosty.
They recently put out an interesting press release on their "Telco 2.0" strategy. (If they're having problems doing trademark searches, we can recommend a good lawyer or two to them -- anyhow imitation is the sincerest form of flattery). Let's see how they're progressing: is Microsoft the telco's enemy, friend ... or lover?
Nobody got fired for buying a Microsoft Exchange server
Here's what's at the core of their thesis:
In the Telco 2.0 era, operators will be able to offer hundreds of services that bring together numerous applications and types of content from a variety of sources to form composite services; in this world, the combinations of potential new services are nearly limitless.
What's interesting is who those services are targeted at: business users. These already have Microsoft desktop and messaging/collaboration systems. Microsoft's hosted messaging product is a challenge to the IMS and telco-centric vendors. The message to operators is surely this: do something special to add value in distributing or customising this solution, or go to commodity minute hell.
IPTV found wanting?
Microsoft also push their IPTV offering as part of their Telco 2.0 suite. This had well-aired deployment issues in the past which seem to have been addressed recently. But the bigger problem remaining is probably one of not knowing which horse to ride: they've missed the "long tail" of YouTube, whilst not capturing the economics of P2P video distribution and user-driven recommendation and search. There's is a monolithic application, closed and controlled. Not very 'TV 2.0', I'm afraid, especially at a time when even the Director General of the BBC says "We're less than 5 years away from fully individualised drag and drop TV stations".
[Editor's note: We're currently gathering together the great and the good of the 'Digital Home' world to debate real sources of value for telcos around home entertainment and communications at the Telco 2.0 brainstorm in March - Belgacom, BT, Orange, Slingmedia, Telecom Italia, Telefonica, Telenor etc. Watch the site for updates on stimulus presenters]
Nokia and Motorola will never surrender
Finally, there's their Sisyphean task of getting the world to adopt Windows Mobile. "If only everyone used this operating system, your compatibility and delivery issues would go away." But the problem is exactly that the "familiar Windows® user experience" doesn't seem to be what people want from a communications-centric device. In 2003 I personally saw Steve Ballmer promising that they would ride down the Moore's Law curve, and the $700 Windows smartphone would come to dominate the market. In the process, they totally missed the opportunity to put the Microsoft brand into the hands of two billion new telephony users, who sought out more basic features and functionality.
Another example of the PC mindset and assumptions: mobile IM has been around for ages, and fails to set the industry alight because the answer isn't migrating PC applications to mobile devices, no matter how hard you hype the service. A truly mobile-centric solution would include richer presence, as shown by people like Packetmobile.
What should they do differently?
As the biggest single force in IT bar none, Microsoft's business and product strategy is endlessly dissected, so we'll keep this brief. They've spent the last 5 years focusing their engineering effort on Windows and Office. These are both tied to the PC platform, whose importance is declining in comparison to the web and mobile platforms. The real action should have been with Microsoft's online services, which belatedly were rebanded Windows Live. That platform could be extended to better embrace the telcos, rather than disintermediate them. This is particularly true given the enormous growth of the mobile industry, where Microsoft remains comparatively weak.
Microsoft's Telco 2.0 strategy will remain a laggard until it explicitly acknowledges the forces "horizontalising" the industry. They need to offer a capability of supporting the three core Telco 2.0 strategies: pipe, platform and product.
Dump pipes can make smart business
A Microsoft approach that supports a telco pipe strategy would, among many other things, have done the following:
- Distributed superb Wi-Fi finder tools to every PC user.
- Made it easier to discover and pay for value-add services like VPNs.
- Increased security to avoid problems like "evil twin" hotspots that steal login credentials.
- Made moving around between networks simpler.
- Smoothed the process of contacting and interacting with network support.
Some of this gets better in Vista, but there's no consistent telco-friendly approach. How come Nokia get to supply all the critical PC apps that make my mobile work with my PC, and not Microsoft?
APIs are everything
Microsoft is possibly the only IT player with a complete self-sustaining ecosystem around its product set. They could have leapfrogged efforts like Parlay and defined API sets that ISP and telcos could have used to expose their messaging, billing, and customer services platforms. It's what .NET could have been: the API of the Internet, not of the networked PC. The opportunity was to put the "third leg" on the stool: 1.) the device OS, 2.) the user data (and services in the cloud), ... and finally 3.) the telco OS. Plug in a Microsoft device anywhere, and with a bit of bootstrapping and auto-discovery the provisioning, payment, profile, security, etc. would all self-configure painlessly. By leaving the telcos out of the picture, and pretending they had no assets of value bar a dumb pipe, they cut themselves off from much of the marketplace.
Telcos are very much in need of a "platform" enabler, but they're suffering from a "chicken and egg" problem that only someone like Microsoft can break: why expose lots of network APIs if there are no devices to access them? (For that matter, how come PCs don't offer standard APIs for peer-to-peer services, for example? We're stuck in a time-warp with the Windows file-sharing and printing services.)
A telco-centric product vision
Microsoft's pitch to operators on revenue-generating services would have more clout if it had a clearer vision on what those services should be. We're of the general opinion that the type of product development that operators should engage in is not "feature-based" innovation. This is better left to Internet innovators and niche vendors. Rather, we prefer coupling telco's unique assets (identity, devices, delivery and payments) together in different ways - see Market Study for how. SMS short codes would perhaps be the best such example. It's unclear why a telco would tightly align with Microsoft as a technology supplier if there's no tangible sell-through/sell-with the corporate channel or product set.
As Tomi Ahonen reminds us, the mobile industry is huge: just the SMS product is bigger than pretty much all content industries put together. Microsoft haven't (to date) given the telecom industry the attention it deserves, and aren't making the impact they ought to.
But with a more creative analysis of the telcos' (real) assets and needs, a more productive and cooperative relationship could emerge...