By Amanda Noz, Marketing Director, Alcatel-Lucent
Yoga has been in the news lately and for network operator strategists, who may be feeling more like pretzels than yogis as they try to twist this way and that to accommodate rapid changes in the value chain, the idea of letting go of strict control over their networks and opening up to a world of potential security threats is anything but relaxing. Yet network operators who ignore these changes, risk falling out of the whole chain of innovation and in the process, defaulting to a commodity utility business, rather than maximizing their revenue streams as innovative and differentiated customer experience providers.
So how do you bring these two opposing views into alignment?
Today network operators who operate the broadband data networks (wireline and wireless) have thinner margins than in the past, while at the same time; all kinds of new players are making money by creating new applications that we did not even know we needed to run on the networks. Innovation brings disruption and disruption brings opportunities and threats. It transforms application and content value chains.
The telecom business is evolving from selling network connections to a more complex circular value chain with all kinds of transactions happening on their networks that are creating an immense value chain, especially in the world of business and enterprise.
The real top-line opportunity is in opening networks to innovation from other value chain players to use their particular expertise to create new things with the exposed abilities of the network at a price. For example, what if Netflix were to cut a deal with the carrier to provide QoS for a premium monthly charge? The network operators start to get a slice of that revenue pie. Imagine further that all kinds of different capabilities such as location, presence, security, content caching and delivery are made available to developer communities and enterprises and the carrier is compensated per transaction? Their business moves from connectivity to transaction fees over time.
This is analogous to how Apple is leveraging APIs to increase their core business. Twitter had 11 billion API calls per day (May 2011) and Amazon has over 260 billion objects stored in S3 (May 2011) and even Netflix had 10 billion API calls per month at the start of 2011, according to Programmable Web (a company recently acquired by Alcatel-Lucent). Like Apple the internet players all use APIs to support their core business models.
Google is a good case in point. APIs give Google traffic, more traffic gets Google access to targeted traffic as they understand how people are using specific applications and can potentially segment according to the information that the application uses. This subscriber intelligence leads to more effectiveness in their advertising which leads to more money being generated through their search/advertising business. No wonder Google has announced $1 billion in mobile revenue.
Similarly, eBay uses traffic from transaction APIs to pay for the core auctioning business. There is huge value in understanding and playing in this new market with many different types of developers: all the way from large enterprises and development houses to the stereotypical “in the garage” developers working on the next popular “must-have” application.
To understand the speed at which this market changes, look no further than the Kindle Fire from Amazon. Released on Nov 15th, 2011, by early December, it was already the second best selling tablet! In just a few WEEKS it leapt over all other tablet suppliers except the market leader, Apple, with the ubiquitous iPad. Looking at the iPad, its use is proliferating across many industries in innovative and previously unimaginable ways. It is even becoming popular with parents as a must-have gift for the 2011 holiday season. And, iPad capabilities are being integrated into toys . This market doesn’t just require more flexibility from operators; it also demands agility, speed, imagination and the ability to strategically change business models rapidly in response to extremely rapid market demand changes.
For network operators, this requires an integrated plan to use network intelligence and to nurture an ecosystem that allows service creation by outside developers and enterprises without compromising the security of the network or their customer data. Network operators essentially need to evolve up the OSI (Open Systems Interconnection) stack. In addition to providing the physical telecom network, network management and OSS/BSS services, the network operator now needs to provide a platform and APIs for securely integrating applications from application and content providers, developers and enterprises in order to enhance the services that they can offer to their end-users - thereby increasing the value of the network core business (the network and communications services) and by extension, their revenue opportunities.
In yoga, stretching and letting go leads to stronger muscles. Could the same be true for Network Operators? By expanding their ecosystem and sphere of influence, their business models and revenue becomes more robust and flexible too.
This is a paradigm change, not just an inversion. It is not a case of evolving the network to 4G and then thinking about what services to offer on it after the fact, nor is it a case of developing 4G services behind closed doors and then upgrading the network to support them. Both of these approaches miss the point. It is about developing an ecosystem that includes everything needed to enable innovation and finding new ways to get paid for it– wherever in the value chain it comes from and making sure that in the provision of that ecosystem are APIs with business models that will enable network operators to get a fair share of revenue for services offered.