Change sure is a constant in this business. Regular readers of this column may recall I’ve written about Microsoft’s Telco 2.0 strategy in terms of being a platform play. This article follows up my last column which discussed Microsoft in the broader context of their common destiny with service providers. I had a pretty clear plan for Part 2, when - bam! - on December 2, Microsoft quietly announced the end of their CSF – Connected Services Framework – initiative. Am not sure why, but this development did not attract much attention in the media.
How’s that for a 180 degree change in direction? Life would have been simpler if this happened after writing this article. The conclusion from Part 1 would have been nice and tidy – but life isn’t like that. It’s better now, actually, as this curve ball raises some new issues that show how challenging this whole business of being a platform play really is.
Without sounding like a Microsoft apologist, I’m holding to my theme here – both MSFT and service providers need each other. I could choose to drop Microsoft like a hot potato and move on to other things, but there’s a lot to talk about here. First, a bit on why this happened. As noted in earlier articles, Microsoft has talked about Telco 2.0 as being a $2 billion business already and that many of the world’s largest carriers are on board. What’s wrong with this picture? Their CSF Sandbox was a great proving ground for third party apps to integrate with Microsoft solutions, making it easy for service providers to pick and choose what works for them.
I haven’t done in-depth research about what happened, but it looks like CSF is not the ideal SDP – service delivery platform – for all carriers. Many carriers are not yet willing or able to think in terms of a platform play strategy, and there are a number of reasons why Microsoft would not be their SDP partner of choice. The same is likely true for the developer community, upon whom Microsoft heavily depends to drive innovation. Developers move in packs, and with the allure of smartphone ecosystems being so strong right now, CSF is up against some strong competition.
In short, carrier adoption must not have been happening fast enough for Microsoft, and they likely had to prioritize resource commitments. I don’t see this spelling the end of Telco 2.0, and true to my thesis, Microsoft will remain a player, but with more emphasis on service delivery than service creation. Nothing wrong with that, as they have an unrivalled product set for carriers to draw from. They just won’t be trying to lead the market as an innovation engine for third party apps.
Looking back, the clues were there in my columns all along. BT (News - Alert) was their first CSF partner, and this was a great way to gain early validation for both parties. Microsoft gets instant credibility entering the telco market, and BT gets first mover advantage with new services over their competitors. I recently started writing about Ribbit (News - Alert), and saw them as a promising platform play. My regular readers would know that BT acquired Ribbit in August for $105 million, and in hindsight I’d say that was the kiss of death for CSF. There’s no way BT could buy Microsoft, but Ribbit was pocket change for them. It’s hard to see them paying this kind of money for Ribbit today, especially with their recent job cuts. No matter – BT did a prudent thing – bring the platform play in-house. They actually end up with the best of both worlds, since they’ll continue doing services integration with Microsoft – there’s just too much upside there to ignore – and will use the Ribbit platform to drive their own innovation engine. It’s all good.
Let’s get back to the storyline. I’m only going to touch on a couple of ideas for the balance of this article, and will pick up the rest in the next column. Even with Microsoft backing away from service creation, there is still a very strong symbiotic fit with service providers. Whether it’s Microsoft or Ribbit – or other platform play variants such as Jajah, Jaduka (News - Alert), Ifbyphone, Artilium, BabyTel, etc., service providers cannot do it all themselves. The pace of change is too fast, there are too many competitors, the value proposition keeps evolving, and time to market is king.
Microsoft in particular needs service providers because they have to move beyond the desktop to capture new growth opportunities. Service providers control the other screens that Microsoft needs to migrate to – phones and TVs – so there’s a net benefit here.
Whether it’s Microsoft or a service creation platform play, service providers need to explore these partnerships. Their business model is changing as is the relationship they have with subscribers. As voice becomes commoditized, they need to offer new services that are relevant to today’s market. Not only are these services different, but so are the pricing models and the economics of offering them.
Subscribers don’t think in terms of telephony any more – they want services – voice, data, video. And they want their services to be anywhere, anytime, and personalized to their tastes – and preferably free. The one-size-fits-all model will not work much longer. This scenario is much like the way television evolved from broadcasting to narrowcasting – same pipe, but a more fragmented market where we all want our specialty channels. Just as the remote clicker forever changed the experience of watching television, so has the mobile Internet changed telephony. Subscribers are in control – they are no longer passive consumers – we now have prosumers, who know what they want and customization is a key part of the value proposition.
How will service providers adapt? Applications are a big part of it, and the more the better. Look no further than the success of the iPhone (News - Alert) apps store. Service providers need to move away from the linear model of pricing on a per service basis – call display, voice mail, etc, and offer subscriptions that more realistically reflect usage patterns. Much like the way cable offers bundles where you choose 5 channels from one group, and 5 from another, telcos need to think more horizontally in how they package up their services.
Like the iStore, they also need to think in terms of a never-ending stream of new services and applications. A key reason why IP communications has bypassed conventional modes is innovation. Incumbent telcos stopped innovating a long time ago, and it is not a stretch to say that virtually all the notable innovations around voice communications in the last 20 years have come from outside the telecom sector.
So, is it any surprise to conclude that today’s telcos need partners like Microsoft? To stay competitive, they can’t just roll out one or two new services a year. They need to bring out dozens of them. Actually, I would say hundreds – every year. New ones. Different ones. Some are free, some are paid. Some are voice, some are video, some are mashups. Not only that, but many of these will fail – and that’s okay.
This is not in the DNA of big telcos, but it’s a new world now. These services are not expensive to develop or complex to deploy, so there is little downside to trying new things. Subscribers will not leave you if most of your new services are not of value to them. However, they will leave you if you don’t bring anything new to market, and your competitors do.
In this context, the name of the game is service velocity. How quickly can you get new services to market, and how will you develop these services? Unless you have a Ribbit in your stable, no carrier can do it alone. In less than a year’s time, Apple has proven this is where communications is going, and Google (News - Alert) will soon add an exclamation point to that. The market may have lost one solution in the form of the CSF Sandbox, but there are many others out there, and I’ve mentioned a few already. I’ll keep exploring this theme as there’s more to talk about, and if you have other platform plays to suggest, let me know.
Jon Arnold, Principal at J Arnold & Associates, writes the Service Provider Views column for TMCnet. To read more of Jon’s articles, please visit his columnist page.
Edited by Jessica Kostek