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Innovation - Many Paths to Follow for Staying Competitive

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June 17, 2010

Innovation - Many Paths to Follow for Staying Competitive

By Jon Arnold, Principal, J Arnold & Associates

A couple of unrelated items caught my eye over the past few days and they serve as different examples of how value is being created by and for service providers. Innovation is a constant with IP, and it cuts both ways. Service providers benefit from IP on two fronts; first it lowers costs and opens up opportunities for higher margin services. Secondly, it allows them to develop new services and enter new markets, which is especially important for legacy carriers who need ways to offset declining TDM services. On the other hand, IP is truly agnostic, and can be used just as effectively by new players from outside the telecom world. As much as IP helps make carriers more competitive, it also enables others to enter their market rather easily, quickly and usually at low cost.

The latter scenario is not good news for established carriers, and there seems to be no end to where new competitors or innovations are coming from. Sometimes carriers respond to defend their business, and other times it's to pursue new business or markets. A good example of the former happened last week, with Vonage (News - Alert) announcing a deal with Amdocs to provide a full featured billing platform. It may seem odd to think about Vonage as a service provider, as they have always been viewed as outsider coming in to steal subscribers from incumbents. At this point in time, however, Vonage's station in the market is pretty fixed, and their priority is more about protecting existing subscribers than growing at the expense of others.

One of Vonage's limitations has always been the lack of a billing system. As any Vonage customer knows, monthly payments are made by credit card. This is convenient for the customer, and efficient for Vonage, but it's a holdback for Vonage when it comes to monetizing new services. Aside from the fact that they need to find new ways to grow with their core landline VoIP service, they are missing out on the more promising wireless opportunity. The bottom line here is that Vonage needs to find new revenue streams and they can't do it very effectively without a proper billing system.

While Vonage is making a defensive move to strengthen their value proposition with subscribers, I'd like to cite a different example of how IP-based technology is helping operators go on the offensive and enter new markets. Last week I came across a new company called Ringio (News - Alert). They are not a service provider, but are relevant to this article in two ways. Before getting to that, let me tell you a bit about them. Ringio offers a cloud-based CRM solution that will be of particular interest to SMBs without contact center support, either internal or virtual. In short, Ringio provides intelligent Caller ID that allows employees to be better able to managed incoming customer calls before the call is answered. Being hosted, it's a great way to extend this capability to all your employees, whether in office or remote. The idea here is that the customer's phone number connects to all the company's internal data about them, so when the call is answered, employees can have more productive conversations, or route the call more efficiently to the best person to handle it.

Traditional contact centers do these things as a matter of course, as does CRM software, but both options are not practical or cost effective for most SMBs. Since these capabilities clearly have value for all businesses, Ringio's approach brings it to a broader audience. Why should this be of interest to service providers? Well, one of Ringio's routes to market is to offer this solution on a white label basis for operators. Think about the value-add this can bring for any type of operator - telco, cableco, ISP, OTT, etc. - and how Ringio can be a great point of entry for them to attack the SMB market.   As such, this can become a differentiator for an operator looking for a way to offer something that the incumbents do not.

There's a second aspect of Ringio that I think speaks to the bigger picture about how the service provider landscape is shifting. The fact that Ringio is cloud-based isn't that special. What I find interesting is their choice of partners - Amazon and Google (News - Alert). Amazon has long been a leader in cloud computing, and for Ringio to partner with them for a contact center solution says a lot about easily voice and telephony applications can be outsourced. Google, of course, is the essence of cloud communications, but both these partners are well outside the realm of traditional telecom.

The point here is that innovation can come from anywhere, even if we're talking about a telephony application. So, not only can outsiders be used to enhance fairly conventional voice-based services, but they can also take service providers in entirely new directions. As such, innovation on its own isn't enough. Service providers must always be looking for better ways of doing things. Equally important, though, is applying innovation in the areas that are best for the overall business. Some operators need innovation to protect what they have, and others need it to find new customers or enter entirely new markets altogether.

Regarding the last point, wearing my smart grid hat, Paetec is a great example. They've been a successful, progressive CLEC with telephony services, but have also moved into the energy business. Paetec isn't about to become a full-fledged utility, but particularly among their enterprise and data center customers, data services and energy consumption are closely linked. They saw an opportunity here, and reinvented part of their business to apply communications technology to the delivery and management of energy services.

While most carriers may not think along these lines, Paetec saw this as a good direction to help offset declines in their traditional telephony business. Sometimes innovation yields better returns by fishing somewhere else instead of trying to extract incremental revenues from existing services. Both have their places, but to get the best results, service providers need to consider innovation in the broader context of what's best for the business. There's no magic formula here, and I'll revisit this with other examples as I come across them in upcoming articles.

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 Patrick Barnard

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