The Telco 2.0 'Business Model Map': Part One, Introduction
If you're heading to a new world, navigation is everything. The Vikings made it across the Atlantic without really knowing where they were going or where they'd got to. Columbus got his units mixed up, didn't know he hadn't got there at first, but claimed the credit anyway. Amerigo Vespucci did make it, and got immortalised in the process (thankfully avoiding precipitating the United States of Vespuccia in the process).
The Telco 2.0 Business Model Map is our best effort at distilling half a decade of exclusively studying the tectonic forces colliding telecoms, media and technology industries, and ripping apart connectivity from application services.
Why is it important?
If you a telco exec or supplier, and are worried about structural change and Internet encroachment, you need to understand this map: the shape of the world, where the land is, and which way is up.
Where am I?
Where do I want to go?
Which way do I need to go to get there?
We're presenting this here because it seems to crop up in most consulting proposals we're writing for top industry names. One picture seems to crystallise the situation in a way that a thousand Powerpoint bullets never will.
It ties together several of the most important themes about industry change:
- The telecoms industry is indeed in fundamental structural change -- 90% in our survey of over 560 insiders agreed that "The Telco industry is undergoing fundamental structural change - the move to a New World Order" (excuse the unintentional pun).
- The "de-layering" that T-Mobile referred to at 3GSM is the driving force.
- This is confirmed by our survey results as well: around 80% agreed that "The critical driver of change in the industry is the separation of network connectivity from devices, services and content."
- You have to choose which layers to play in.
- And you have to know where to position yourself in those layers, i.e. what business model to adopt...
- ...and around 75% agreed that "[The new] world will require operators to compete in radically new ways with new business models. Those companies that do not embrace these will fail."
Our telegeography course: four lessons
There are a couple of stages to being able to understand our map:
- What the problem is with the current maps and worldview.
- Why we've re-drawn the world with "up" in a different direction.
- Where the land ("value") and sea ("void") is.
- How to interpret the map to navigate your business.
Our Business Model Map is the most important article you'll probably read on this blog, so if you're short of time press "print" and read this preview and the follow-ups quietly when you've time to digest and reflect.
In this introduction article we'll bite off the first two bullets. Later, we'll present the map itself (patience, dear reader) and talk more about its importance and implications.
As far as we're aware, this is the first such map. There are travellers' tales about each of the distant lands, new islands of value arising from an ocean of opportunity, as well as cataclysmic waves of destruction. Being first, it's not a perfect map: more explorers and cartographers will be needed to complete the detail.
Public domain image courtesy of the University of Texas Libraries,
The University of Texas at Austin.
From heresy and apostacy to renaissance and enlightenment
Just as Gallileo nearly got a roasting at the stake for saying the world was round, telecom has brewed its own heretical worldviews. It's not that orthodoxy is necessarily wrong, just incomplete for further journeys from the known. A 2D worldview works for short voyages; Newtonian physics works for engineers if not physicists. In our industry, the "layered model" of telecom networks as most famously espoused by the "OSI 7-layer model" is a useful reference point for network engineers.
There are two heretical ideas bound up together that every reader should be aware of. If you're not, you're illiterate about telecom strategy.
The first was the end-to-end principle, which is a design principle for networks. It says that embedding even elementary service functionality (e.g. assured delivery, QoS, security) into networks generally adds little or no value. (Don't rush to cancel that IMS NGN order quite yet though...)
The second was the Rise of the Stupid Network, which is a value statement that not only is it technically better to make the network dumb, but keeping the telco out of the services space is good. This is because (paraphrasing) it maximises the option value of the network to accommodate unforeseen innovation and user needs -- and stops the interests and assumptions of telcos getting in the way of meeting them.
Together these ideas explain most of why the Internet world is encroaching on and eroding the value of the telecoms world. You probably tell the telecoms horror story to your kids at night when they want something scarier than the usual fairy tale gore.
The critical part of our map is understanding the limits of these ideas. That's where the new beachfront property will be built.
Latitude and longitude
Latitude is the easy one to measure. Just look up at the sun at midday and see where the shadow lands. (You can tell why the great explorers didn't come from a drizzly and backwards Middle Ages Britain.) The conceptual equivalent of latitude in telecoms is vertical integration of transmission network and user services. Up in the north near Svalbard are the original telegraph and analogue telephony networks. Somewhere around Alaska is the modern digital telephony network. These networks have very strong technical vertical integration.
The Internet is the Antarctic -- and it took a long time to get there and explore it. Its success is mostly driven by the end-to-end principle and "Stupid Network" concepts. (It's not at the South Pole, however -- there are too many private IP addresses, strange cache controls, content delivery networks and intranet proxies. It's somewhere out along the Antarctic Peninsula, maybe.)
So latitude to us is about how the functions of an application are embedded in the core network vs. the edges of the network. This is all well known and good.
Now for the crux -- time to pay attention.
Longitude was a nightmare to measure, and took the invention of accurate mechanical clocks that worked under hostile oceanic conditions. If telecom's latitude is about the functional aspects of the network, longitude is all the non-functional bits of the puzzle. The limits of the end-to-end principle and "Stupid Network" are that they say nothing about payment, law, user identity, property rights, copyright, etc. That's OK: they're not about those things. It's not a criticism or omission. It's an orthogonal axis.
If there is an irresistible oceanic current and violent wind driving you southwards towards the technically de-coupled Internet, then your opportunity lies in sailing east and west along the journey taking advantage of all the quirks of those non-functional aspects of the system. Heading north will just exhaust your resources in a futile gesture against the storm.
A pause in our journey
So Galileo's insight was that we lived in a 3D world with the sun (apparently) at the centre. Ours is that we live in a 2D telecosm, and not a linear world with "dumb pipe" at the left extreme and "smart network" to the right as most analyst slides would have it. We're saying that the industry has latitude and longitude mixed up because the promised land is at 90 degees to the route currently being proposed: not fighting the prevailing wind towards decoupling of the network and services, but tacking around those forces to achieve alternate goals.
We believe that telcos have an identity crisis that is easily resolved. Their job is not network operators, per se. They are distributors of value, and they specialise in the distribution of information (as opposed to physical) goods. That distribution can be on physical media, near-field radios, mobile or fixed networks, as well as wide-area broadcast networks.
The Telco 2.0 Business Model Map places a dozen different sources of value of how operators engage in distribution activities. Each one differs from the others in the technical or functional integration (latitude) as well as non-functional integration (longitude).
In our next article we'll give some more concrete examples, show you the map itself, and talk a little about what change of course is needed.