Real-time services: Changing the basis of competition
In our earlier article we began to muse about some of the problems and opportunities for offering security-based products and services in the communications value chain. In particular, the challenge is to go from trusted computing technologies to confident communications value propositions to end users. The idea that large numbers of computers can become zombies under the control of third parties shows something is deeply amiss.
We'll dive into the complexities of network and processor design and float some radical ideas in a subsequent post. In the meantime, let's look at the business issue:
Changing the basis of competition to something that favours the network owner over its direct industry competition, as well as outsiders.
In this case we're looking for a security answer to commodity minutes and megabits. But in the meantime, let's go for a side trip on how the basis of competition shifts around and examine a wider pool of case studies.
Competing on security and convenience, not price and features
We'll stick with security and privacy for the first example. I recently saw this advert from Paypal in the newspaper:
It's quite clever -- read it carefully. They're undermining the traditional payments industry, but not by competing on merchant fee levels or user kickbacks for using debit and credit cards. Instead, they're attacking the weakest link in the chain: a human call centre operator or merchant Web server intermediating the payment and presenting a security risk. The "intelligence at the edge" idea applied to payments mean connecting straight to Paypal without anyone in the middle to capture your identity or authentication credentials.
We'll be coming back to this one later.
Is green the new way of staying the the black?
The environment is a hot issue at the moment, literally and metaphorically. Standing on the dire Waterloo & City line a few weeks ago I saw this advert for Orange broadband trampled underfoot:
An advantage of online media is that you don't get the physical waste of paper advertising. Will you want your brand associated with street litter and waste in future? How well are operators doing at getting their own and third party marketing material off paper and onto screens? Given two price plans and handsets that you're indifferent between, wouldn't you select the one that promised less landfill?
Making money from hot air
BSkyB have announced their intention to become carbon neutral. They're not alone in grasping for new ways to differentiate their offering in a noisy marketplace. The IT industry has picked up on this too, spinning a new marketing message of energy efficiency, repackaging existing government initiatives with fresh PR spin. When you come to buy a new PC, and they're all screamingly fast, will you just choose the one with the lowest power bills?
A quarter of the opex of running a mobile network is typically power. Mobile operators are major power generators and innovators in energy delivery in emerging economies. At the other end of the radio link, people assume phone chargers are a waste of power when plugged in. As it happens, it's rubbish -- but perceptions matter. Can't be long until telecom really catches up with the green wave.
Spin over substance?
Hot air isn't the only eco issue for telcos. Public concern about the safety of Wi-Fi signals recycles older worries about cellular phones. (Maybe the path to a perpetual motion machine is to sit a journalist in front of a radio transmitter whilst slowly turning the power output down to zero. The output of scare story column inches appears to be independent of signal power, and surely you can capture some energy from the keystrokes.) Whilst it's not hard to whip up such concern among the public, an operator can be sensitive to such concerns. Why don't you sell your home gateway with a WiFi strength meter so concerned parents can check how infinitesimal it is in the kids' nursery?
Then once you're bought, used and outgrown your electronic gizmo, you want to toss it away. If you're selling twenty handsets a second then at some point there's going to be a mountain of e-waste: twenty obsolete plastic bricks a second added. There are already initiatives to recycle or dispose of used phones, but are telcos and their retailers lagging the marketing sophistication of the IT players again? Are they stinging your conscience to come into the store with all those toxic, explosive old batteries?
Sharing the love
Last year there was a big promotion on Red-branded phones, where part of the sales pitch is you're helping the helpless of Africa:
A gimmick? I'd rather take a holiday there and spend some hard currency with the economically active. But it's a clear change from buckets of minutes.
One of the patents I co-invented at Sprint was for smart interchangeable phone faceplates where the faceplate has some affinity brand on it, like a soccer team, charity or alma mater. When you spend money on the phone with the faceplate attached a proportion of your spending your to the affinity partner -- just like with a co-branded credit card. I'm sure Sprint will license it to you for a fee...
Getting the message to match the market
If you're going to try to compete differently to the competition, you need to be able to communicate this to the customer. Here's a good example of how not to do it:
The flagship Nokia-branded store on swich Regent Street in London. What's Nokia's hottest product right now? The N-series multimedia phones. Nokia are competing on brand and features -- my phone's (literally) bigger than yours. The message? Cheap memory cards and packaged minutes. Oops. OK, this is really a Carphone Warehouse store in disguise (I think) and Nokia plan to fix it, but you get the idea.
The shifting proposition of voice minutes
Let's circle back to the core voice service proposition of network operators. We're now entering a third generation of digital real-time communications. The first was the replacement of analogue systems with digital equivalents. There was minimal visible change to end users: some audio quality enhancement and a few new features. The business model remained selling minutes and messages. In this first wave, the basis of competition was service distribution: either being given a distribution monopoly as a PTT, getting your central offices upgraded pronto, or building out mobile coverage.
Then we had the initial wave of IP and Internet telephony, from the pure POTS replacement of Vonage to a more enhanced (but still stand-alone) Skype. The business model remains sale of voice minutes, although the price points differ, with lots of flat rate and free telephony thrown in. Price (and to a lesser degree network quality) became the basis of competition.
So far, incumbent operators have done well out of all of these. For every cent Skype has made, some telco has turned a buck selling broadband Internet. Voice revenues have held up as volume growth exceeds margin decline. A parallel instant messaging world grew up, but carriers were making too much money from SMS to really notice or care. The IM vendors were too greedy or short-sighted to interoperate until it was far too late to create a rival in terms of ubiquity and convenience of SMS.
Ultimately, core revenues are at stake
The third wave is slower, more subtle and ultimately more threatening:
- The user's social network -- and the buddy list/address book -- migrates to one of the social networking sites.
- Your personal data -- photos, documents, payment instruments -- is sucked up by Google, who are then in a position to point you to their preferred communications channel when you want to share it around.
- Communications are increasingly initiated from within third party applications (e.g. web pages, video games, Web TV) as "click-to-interact", with the context being carried over and affecting the user experience. So I don't need to tell the call centre agent I'm on page four of the mortgage application form when I call for assistance, and she can see what's on my screen.
- The IP-based pipe is then used to create a more secure and convenient channel between users and merchants -- as we saw above with Paypal. This is the security threat: someone else builds confident communications, and grows is from the strong base of the above applications and services.
Relationships and conversations, not minutes and megabytes
It doesn't matter how cheap your minutes are if the user feels their bank account or online identity could be compromised, or they'll expose themselves to spam or unwanted privacy intrusions. People have demonstrated that they're willing to pay for privacy and security. On the other hand, if it's a lot of manual hassle to shunt data around, users won't bother. Security has to be relatively unobtrusive. (Other Paypal adverts have also focused on their simpler user experience.)
The basis of competition in this third wave is about prompting and connecting people who need to interact -- social and contextual awareness -- whilst preventing unwanted interruption and connection -- i.e. security and privacy. By the time the phone call starts, the money-making is over. If the call was wanted, it's the broker who gets the payment; if it wasn't, it's the filter.
The telecom business model of adding value in transit is in some ways incompatible with this more secure world with value created at the "edges" of the network. It assumes a degree of control and a closed ecosystem with a few large players offering mass market services, and the use of contract and lawyers to enforce good behaviour.
So if the basis of competition shifts, you could be in trouble. Can't happen to you? Hope you're not in the telegram, telex or fax business. In this case, it's not a shift in medium, but rather in message: sending rich information in a secure format. Who will be the Paypal of telecom? Probably not Skype -- there are more threatening products out there.
Assume that we move towards more open ecosystems and a world of niche communications products. These still manage to interoperate via various global "backplanes". Making the system secure and convenient is critical, and it's not going to happen by centralised design of a telco standards committee. It's a multi-decade problem to solve, so don't expect a Telco 2.0 market report on telecoms and security any time soon either.
Which takes us back to our original problem. How can we build a more secure, private communications system? That's the next stop on the journey.
If you want to meet like-minded people looking for growth opportunities and competitive advantage in delivering voice and messaging services, you need to come to our Digital Product Innovation summit. Alternatively, debate the wider issues of telco and media business models at our Executive Brainstorm plenary sessions.