Simplifying the telecom value chain
Mission Impossible or a done deal?
|Tues. August 12, 2008|| |
I recently had a discussion with the folks from Telco 2.0 that got me thinking yet again about new business models for the telecom industry. The Telco 2.0 blog brings up topics about various types of digital content, content distribution and one of my favorite subjects: value chains and how they work, who’s in them and what we can do to smooth them out.
The plain fact is that although much has been said about mobile TV and IPTV with any content available on any device, it’s still a very tiny fraction of the market because it’s only available to some very determined early adopters who don’t care how awkward and clunky it is.
So all of these exciting services are not quite out in the mainstream, and the reason — to use a term from economics — is that there is too much friction in the value chain that’s leading to a lot of different problems and challenges.
If you have four or five companies in the value chain, then the poor user often has to negotiate with each one of them to solve a problem. It’s not a robust, well understood, slick and smooth value chain where all the focus is on the end user and getting money from them. Quite the opposite, it’s actually very clunky.
Greasing the value chain wheels
One of the emerging primary roles for TM Forum is figuring out how we can take some of this friction out of the value chain and what that actually means. It’s not about how to connect A to B to C and making sure data gets through. While this part hasn’t been worked out completely due to disparities among handsets and other end user devices, they are not the insolvable parts of the value chain.
Rather, it’s the business and operational side that’s causing the most grief. So rather than looking at connecting players at the network level, we’re looking at the stuff that wraps around that, where there are too many issues to count. If you’re the content partner, how do you ensure that your content is looked after legally in order to avoid piracy and ensure licensing agreements are in place?
Then there’s another mass of issues when it comes to passing content from player to player in the value chain in terms of service quality, billing and tariffing and more. So basically, how do you get all the players in the value chain to solve the problem rather than the user having to figure it all out?
In order to go from an early adopter model to the mass market where everyone makes lots of money, we have to completely transform the market by solving all of those business and operational issues.
Demystifying the value chain
After having done a lot of work for the telecom industry, I’ve identified three things that can also be applied to a larger value chain.
The first is creating a business model that everyone understands, meaning everyone has basic knowledge of how everything fits and works together. The second point deals with what exactly is the information that’s going to pass up and down the value chain, and do we have a common view of that data. So does everyone agree on what it is that we are supplying and what the options are?
Third is the underlying computing platform, software and APIs and how you physically plug everything together. This means what are the application interfaces that need to be exposed to hand data off from one value chain player to another so you can pass all the critical information.
We’re really taking the first steps along that journey of getting to a seamless value chain. Our challenge is how to extend concepts that are working in the telecom industry out into a world that no one fully understands because it’s an emerging Wild West scenario where players, services and business models are rapidly changing.
At the moment, we are reaching out to the various players in the value chain, but it’s more complex that you might think. At one end you have the content players, which are easy to see and identify. The other end, which includes mobile handsets, TVs and other devices, is also pretty plain to see. It’s the bit in the middle that’s kind of fuzzy because there are lots of companies that don’t fit into neat little boxes.
A lot of these companies you’ve never even heard of, and in many cases they are small upstarts that are too busy and just not interested in standardization. They probably don’t even realize the problems they’ll encounter in a mass-market, high-volume, low-cost and high-quality kind of situation.
Crossing the chasm
The core issue remains that right now we’re looking at an early stage market that has the potential to grow into a mature or high-growth market, but only if some fundamental things change.
You can look at the tip of the iceberg with Apple and iTunes and its new App Store, where it looks like you’re getting everything from Apple, but behind the scenes to make it all work you have agreements with the content providers, content delivery networks, media service providers, content aggregators and a whole host of other participants.
All of the underlying software and systems have to integrate, which can be easily done in a one-off situation, but once you’ve got a many-to- many situation and have to scale it up, good luck!
So we’re really down to two basic truths: if the end user isn’t happy, nobody in the value chain is going to make any money; and we’re never going to cross the chasm unless someone figures out how to do highly scalable integration of all the bits and pieces that make for a successful value chain.
If we’re to glue the value chains together in some way, what are the top two or three most important barriers that can only be solved by collective action? That’s what we are currently looking into. Are there a few small things we can do to make an enormous difference for companies to work closely together?
If the answer is there aren’t any barriers, then that’s fine. If the answer is there are thousands of them, well that’s another story, and probably another article entirely.