The Telco 2.0 Methodology - Transport Systems for Information Goods
In our previous post on Telco 2.0 Methodology we introduced a framework for thinking about business model innovation in telecoms and media. We'll delve into that deeper in forthcoming posts...
In the meantime, this article provides an update to our analysis of probably the most important structural change facing the industry: the fragmentation of 'service transport systems'.
By 'transport systems' we mean the ways in which Information Goods (valuable bits and bytes, including telecoms services and content) will be transported over the next 5-10 years, and how money might flow differently as a result. It provides an important context for understanding the opportunities for and threats to all players in the Telecom-Media-Technology value chain, and thus for designing sustainable business models.
Since we originally published this in March we've talked it through many times with various audiences. This has helped us to refine the way we describe it. Here's an updated version of the key chart. Below that we explain it in more detail:
So, what exactly do we mean by service/content 'Transport Systems'?
Here's a way of thinking about it. With physical goods, it's easy to see the difference between the goods inside the box and the "postage and packaging" distribution or 'transport' part of the product. You can order a toy and have it delivered by next-day courier from Amazon, slower parcel post, or collect in person from a store. Same product, many ways of getting hold of it. As well as the physical box and delivery, there are many different patterns of payment: "postage and packing included", cash-on-delivery, pre-paid return, self-addressed stamped envelope, agents who collect and deliver on your behalf, or explicit separate payment. The combination of both the physical delivery system and the payment system gives us all the different distribution or 'transport' business models.
There's a similar pattern for information goods. Computer software can be transported to users via retail stores or via download networks like Kontiki. Facsimiles were transported to users via PSTN, ISDN and now the internet (fax.com). Web pages can be tranported to users via dial up PSTN, cable modem, or broadband DSL. Digital photos can be transported via Bluetooth (device to device), internet (Flickr, Picasa), by CDs, by printed paper, or just by handing your cameraphone to someone for on screen viewing.
(We've picked the example of content delivery here, but the bits can equally be made valuable by the users themselves and flow the other way to a service provider like a social networking site.)
In traditional vertically integrated systems (broadcast TV and radio, and telephony) it's much harder to see the difference between the service itself and the transport system as they're tightly coupled together. For physical goods this is rarely the case - most are delivered over general-purpose transport. A petrol tanker which only carries petroleum is probably the nearest equivalent of vertical integration.
So, in telecoms and media is we find it harder to distinguish between the service and the transport system, in part because we don't always have separate words for them. In telephony the service is "POTS" (plain old telephone service) while the transport systems are "PSTN" and "Mobile Phone Network", broadband Internet (which supports SkypeOut) or NGN networks (such as BT's 21CN). In messaging the service is SMS and the transport system is "the collection of SMS RAN channels and SMSCs and their interconnect" (we don't have an equivalent word to "PSTN") or it's GPRS/3G Internet access and a 3rd party (e.g. SMSbug, Vyke).
So, how should we be thinking about Transport Systems?
Firstly, as we've described in detail before in seeking to understand how transport systems are evolving and how money might flow differently between value chain participants, we need to map these systems in terms of their levels of:
- technical integration (how far is the delivery of th bits tied to one application or generic to many applications?), and
- commercial integration (does the money flow through the value chain automatically as a result of user content consumption or service interaction, or is it more manual? Does the access network payment cover service, or vice versa, or are they separate?).
As we've shown here, this analysis helps us to see the change from the bi-modal world of telecoms-related service/content transport systems today (PSTN/SMSC at one extreme, Broadband Internet at the other, with a number of much smaller hybrids in between) to a much richer one, with a new and exciting 'zone of opportunity' opening up for existing or new players in the 'information goods transport business'.
What should telcos do about this?
For telco operators to realise this growth opportunity they should focus their efforts on ensuring that, in this increasingly complex world, the retail (end-user) experience is dramatically simplified. This requires making wholesale MUCH more sophisticated than it is today. The 'Broadband Incentive Problem' is the industry's Sword of Damocles. To ward it off and start the process of innovation in Wholesale we must start by breaking up the broadband business model, horizontally and vertically. Horizontally breaking it into tiers: free (ad-funded), subload (e.g. backups), standard best-effort, priority and full "QoS assured". Vertically, slicing it up so it can be packaged with devices or services as "postage and packing included".
Of all the structural and operational changes we see that are required to create sustainable growth, this rich wholesale environment is the most important one. Sure, you can create a value-added personalisation platform appealing to Internet portals, or diversify a little into mobile payments, or eliminate capex by sharing open-access infrastructure. These buy you time. But you'll still be caught between the Broadband Incentive Problem for Internet access, and the stagnant, closed environments of IPTV, IMS, PSTN and broadcast media.
Over the summer we will be conducting more detailed analysis to create more thorough and tangible descriptions of the scenarios described here, and attempt to provide some market sizing forecasts. If you're interested in getting involved please contact us.