Thursday, September 14, 2006

Offering third-party content & services may save traditional businesses

Recently I have been immersed in the world of telco, media and entertainment; all related industries for communicating different stuff. At the same time I've been digging more deeply into the telecommunication companies: wireless/mobile, wireline/landline, and VoIP. It is prime-time for new technology driving new consumer capabilities, and new market requirements driving new technology. Despite this, telcos struggle to keep up with the new possibilities and opportunities that technology offers, partly due to their traditional philosophies and business models. They, like other traditional service providers risk losing long-term customers to new innovative companies if they don't adapt.

Telecommunication carriers have traditionally been highly conservative in the way they develop and adopt new technology, driven by an underlying philosophy requiring measurable and controllable Grade of Service (GOS) and Quality of Service (QoS). Grade of Service roughly equates to how likely you will be unable to place a call because of network congestion. Quality of Service is more about the actual quality and reliability of individual calls. As the technology for the telephony system was growing, significant engineering rigor was applied to ensure every component of the system operated effectively to ensure service levels. To ensure service levels, stringent control is taken to what is plugged in to the system, and all that can pass across the wire is voice, fax and dial-up modems.

Mobile/wireless carriers adopted the trusted approaches of their landline parents, to build telco networks on top of far less controllable infrastructure, while still offering a level of service generally acceptable to their customers. The network and all that plugs into it is still stringently controlled. Despite rapid increases in capabilities of mobile devices, the ability of mobile carriers to adapt and provide new services and content has lagged due to stringent requirements for quality and control over what is plugged into the network.

Based on initial network philosophy and subsequent rapid growth, the Internet is built on the concept of being an interconnected system of unreliable and largely uncontrolled networks and components. After adding the World Wide Web on top of this network infrastructure, the result is a highly organic, often disorganized mass of media, information, services and devices. All of this leads to a level of service that is largely unknown. It is only the efforts of the best datacenters and network infrastructure that enable any control of the level of service experienced by users. But it is the ability for services of low quality and reliability to be accessible to users at all that makes the Internet a breeding ground for rapid advances and disruptive technology.

Internet users love the speed of change they experience. Telcos, both wireless and wireline are slow to respond due to their traditional business models and perceived need to control everything that is attached and everything that is put on the wire.

As telcos start to offer themselves up as an entry to a range of mobile media, services and entertainment, tech-savvy users will demand far more rapid development of new offerings. The networks have the opportunity to capitalize, by meeting this demand and being the simplest identifiable means for customers to get at new stuff. The high walls around everything that is offered by today's mobile networks will start to erode if they don't manage to keep up with the expectations of their customers, but they can't do it alone.

Ringtones, wallpapers and basic games offered by some of the networks have satisfied basic customers for a while. But fast 3G networks and off-deck (third-party) websites like Jamster make access to new content, services and applications far easier. If the networks don't keep up by making their own portals better while opening them up to more third-party services, they will start to lose an important revenue stream as customers start to identify more closely with third-party mobile content providers.

Customers start to switch their allegiances fast when they see the opportunities offered by a renegade third party service provider, threatening traditional business models and revenue streams. Wireline telcos are seeing the threat from VoIP. Mobile telcos are at the point of losing lucrative content services to easier to use third-party portals. Maybe other traditional services will start to experience that soon. The question is, how much do banks have to feel the pressure of services like PayPal and Zopa before they start producing innovative new offerings for customers?

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