Archive for the ‘Business Models’ Category

The box mobile operators find themselves in

Thursday, March 16th, 2017

I joined Sprint in 2003. Until then, my entire career had been in wireline telecom. In previous roles, I’d cared about wireless because it could be either an opportunity (driver of growth) or threat (substitution). But 2003 was the first time I had really looked at the world as a mobile operator.

One of the first questions I asked was “what applications really require licensed spectrum?”

I was surprised that no one inside the company seemed to understand my question. In 2003, WiFi really wasn’t a threat to mobile operator core revenues (primarily voice in 2003). While I had been talking about a future where everything would be connected to the network for years (I called it “bandwidth built in”), very few people were really thinking about an “internet of things.” The only smartphones with any commercial success (and tiny at that) were Palm and Nokia/Symbian. In fact, in my first few years at Sprint, there was real resistance to including things like Bluetooth and WiFi in our handsets. Can you imagine?

What I was seeing was the first side of the box that mobile operators find themselves in.

Over the next 11 years in strategy roles at Sprint I began to see the other sides of the box. I wish I could claim that I’d been successful helping my fellow executives to see them and to either build the best possible inside-the-box business or launch and fund outside-the-box growth businesses. But Big Bell Dogma rules.

So what are the other sides of the box?

The four sides of the box can best be seen by asking four questions, starting with the one I mentioned above:

  • What applications require licensed spectrum? (e.g. what won’t work on WiFi?)
  • What applications/services work best using network vs. device intelligence? (e.g. GPS/location based services)
  • What applications can best be met by a single operator? (e.g. RCS/joyn vs. WhatsApp)
  • What applications are best served via carrier billing? (i.e. What could never be offered for free?)

There is no question that mobile operators offer an incredibly important infrastructure that has enabled innovation that has literally changed every aspect of our lives. I’m proud to have been a part of that. Unfortunately, telecom companies move slowly and have expensive operations. Innovators can’t afford to wait for, or pay for, the mobile operators to provide what they need, so they have innovated around them and increasingly pushed operators back into their box.

To be successful, operators need to figure out either how to be the best inside-the-box (nimble, low-cost commodity transport and related services providers) or… (I tried to find a hopeful way to end that sentence, but each option I thought of I could shoot down. There’s nothing in the nature of a telecom company that positions it to prosper outside the box.)

For today, mobile operators can have some level of success selling voice and data connectivity services to consumers. That’s clearly inside the box. Will the box shrink to squeeze even those services? What options do operators have for growth? Those are great and important questions.

What Might Google Really Do?

Saturday, March 14th, 2015

Google’s entry into any market is cause for existing players to pay attention and potentially be alarmed, so it’s no surprise that the news that Google will become an MVNO and provide wireless services has many forecasting doom and gloom for the existing mobile operators. Before we can jump to those conclusions, I think it’s wise to consider the different scenarios that, given what Google has said, and what they’ve historically done in mobile/telecom, have some level of credibility.

Let’s start by reviewing, briefly, the challenges that MVNO’s have traditionally had to solve. I think they fall into four buckets: distribution, customer service, devices, and brand. I think Google is in a very different place than the vast majority of MVNOs when it comes to these four topics, given their objectives and their starting point.

For distribution, Google’s original Nexus web-based distribution experiment failed, I doubt they’ll try that again. They might try using their physical “stores” in Google Fiber cities, although this isn’t likely to get them enough customers to provide meaningful scale and impact. They might also strike a distribution deal with big box retailers, like Best Buy or WalMart.

However, given Sundar Pichai’s comments, I wonder if Google isn’t actually negotiating with the mobile operators to sell the service in their own stores or through their distribution channels. This would be unusual, but not unprecedented.

When it comes to customer service, mobile operators employ tens of thousands of service reps in both owned and outsourced call centers around the world. I doubt that Google has a desire to establish that kind of customer care infrastructure. Again, it’s possible that they may limit this experiment to Google Fiber markets, in which case, they may be able to leverage the care resources they’ve put in place to support Fiber, or, perhaps, they are going to leverage the mobile operator’s existing customer care infrastructure, as with distribution. Again, this isn’t typical for MVNO’s, but I imagine the operators would seriously consider the potential incremental revenue this would generate.

MVNOs have often struggled to get deals with OEMs for devices because they can’t commit to enough volume to make it work. In recent years, Sprint, for one, has tried to help MVNOs overcome this challenge with their BYOD program and their custom-brand, white label program, but if Google wants to innovate in software, hardware, and connectivity, this won’t be an option. Of course, for Google this also isn’t the same problem as it is for other MVNOs, since they will likely pair the service with a new Nexus device, which gives them a unique position with OEMs. This likely is easily solvable for Google.

Most MVNOs in the market are new brands that must invest significantly to establish a position with a narrowly targeted segment. Google doesn’t have this problem. If anything, Google’s issue will be ensuring that only the right customers for their experiment are the ones that choose their brand for wireless.

Second, I think we need to clarify Google’s objectives with this experiment. Google wouldn’t be investing in this experiment if they didn’t think it would create direct or indirect value for their business. That being said, I doubt that Google believes they can make money competing with Verizon, AT&T, and the others with traditional cellular service.

As with Google Fiber, they may believe that Mobile Operators are constraining use of the Internet and applications and that they can introduce “innovations” that the existing players need to respond to, changing the overall trajectory for the industry.

Net neutrality, or to use the Google Fiber terminology, providing openness and choice, managing the network in an open, non-discriminatory, transparent way and giving users a choice of multiple service providers, may be an objective. Clearly Verizon and AT&T are going to resist the FCC’s new rules and Google may want to have market pressures to combine with regulatory pressures to ensure that the operators adopt “open” policies.

Another target may be the strong trend away from unlimited plans. The FCC’s new rules actually are likely to accelerate the move away from unlimited since it takes away the option for Mobile Operators to throttle unlimited plans. Any customer that doesn’t have unlimited has to stop and think about whether or not to watch that YouTube clip while on the go, or before they do just about anything bandwidth intensive when not on WiFi. This constrains use of the Internet and therefore impacts Google’s core business.

Finally, let’s not ignore what Pitchai presented as Google’s objectives during the interview. Although improving WiFi to cellular interworking and making problems like dropped calls less painful are noble goals, I don’t think that pressuring Operators to implement those types of improvements would truly justify Google’s attention. I think, more likely, as Pichai hinted, maybe this isn’t about traditional cellular service at all. Maybe this really is about the Internet of Things – clearly a space that Google is investing in at the device and software level. Maybe Google wants to make sure that the beyond-WiFi connectivity is being developed in a way that serves Google’s objectives.

So, with that as a framework, let me propose three different potential scenarios for what Google might really do.

First, this really could be like Google Fiber – disguised as an “experiment” but really a new business, competitive entry into the mobile service space. The biggest challenge with this scenario is that Google will be dependent on the mobile operators for at least network capacity, and that’s never the position you want to be in when you’re trying to disrupt the operator’s business (just ask the CLECs of the late 1990s who tried to resell RBOC service under the Telecom Act of 1996). Next, if Google were to pursue this approach, at least all operators not providing Google’s underlying service, would drop or deprioritize Android devices in their portfolios, seriously hurting Google’s momentum and leadership in the smartphone OS space. I can’t imagine that Google would see enough potential upside from this approach to offset the serious downside it would have on their core business.

As a second scenario, let’s take Pichai’s comments at face value and assume that this truly is a smartphone- and/or tablet-centric experiment, working closely with the operators. In that case, it would look a lot like Nexus. I wouldn’t be surprised to see Google rely heavily on their operator partner(s) for distribution and customer care. I also would expect the scale to be limited, meaning it would have relatively limited retail impact on the operators. I also wouldn’t be surprised to see Google want to move it around, so maybe each new Nexus device launched is a new MVNO on a different operator or set of operators. Google would effectively be proving out new/unconventional approaches to connectivity offers (e.g. unlimited) in a way that proves out to the operators that there’s market demand (enough to be a threat) and that the economics can work (so that it’s attractive).

The third scenario is that this really isn’t about smartphones and tablets at all, but it’s really all about IoT. Google obviously is making big investments in hardware and software for IoT, so it would be natural for them to invest to get the “beyond-WiFi” connectivity to work for them as well. AT&T has had meaningful success with IoT, and I think Verizon still has serious hopes for the space, so they might not be the first to open the door to Google’s entry into being a connectivity service provider here, but I think other operators may be more than happy to have Google’s wholesale business and to help define the de facto standards that others likely need to adopt.

Of course, all of this is pure conjecture. I have not been privy to any discussions between Google and mobile operators. There’s more that we don’t know than we know, at this point. However, I think these three scenarios outline a solid framework for anyone to consider the impact on the industry as a whole, or their particular business.

This should be fun to watch!

What Did Google Really Do? – A Historical Perspective

Friday, March 13th, 2015

Just as Sundar Pichai did, I think it makes sense for us to look historically at Google’s forays into mobile and connectivity. I think there are three historical precedents to consider: Android, Nexus, and Google Fiber.

Android
Google followed Apple into the smartphone market. You can either say that, together, they created the smartphone market, or you can say that they significantly disrupted an existing market dominated by RIM (Blackberry), Microsoft, Palm, and Nokia (Symbian). Google had virtually no meaningful relationships with any of those four, but Android was a key element in the destruction of what had been a very strong relationship with Apple.

Including Apple, four of the five market leaders all had an integrated hardware/software approach to the market. Google chose an “open” or “ecosystem” model, similar to Microsoft’s successful approach to the PC market. In fact, the initial announcement of Android was made by the Open Handset Alliance, made up of 34 companies including OEMs, Operators, Developers, and Chipset companies.

Today, by far, Android is the dominant smartphone operating system. In his talk last week, Pichai claimed that 8 out of every 10 phones shipping around the world are running Android. Google has built a strong relationship with OEMs and, somewhat less directly, with Mobile Operators, to get Android to market. It is important to remember how critical Android was for Operators to have a competitive response to AT&T which had the exclusive on the iPhone. Verizon particularly rode the Droid horse hard until they gained access to the iPhone.

It is also important to note that Google’s Android play has always been focused on their core business model – increasing how much time each of us spends online, with Google providing web-based services and enabling monetization by 3rd party developers that ultimately drive advertising dollars for the company. (Advertising represented $59B of their $66B in 2014 revenues.)

Nexus
In January 2010, Google partnered with HTC to launch the Nexus One smartphone running the latest release of Android. The phone introduced some new features, but mostly it was an attempt by Google to demonstrate how strong a “pure Google” device could be. At least to some extent, it was an attempt to get the OEMs to stop modifying the Android platform. As you may recall, at the time, there was a fair amount of noise in the marketplace about fragmentation in Android (multiple operating system versions, different screen sizes, user interfaces, etc.) relative to the monolithic iPhone.

With the Nexus One, Google also tried to introduce a new approach to the market, selling an unlocked phone at full price, only available for purchase via a website, and with customer service only available via online support forums. None of these experiments were successful and undoubtedly contributed to the lack of success for the phone itself.

The second Nexus handset, the Nexus S (based on Samsung’s Galaxy S platform) was more successful. It introduced the Gingerbread version of Android (2.3) and had hardware specs that were impressive, including NFC. In fact, the Sprint version of the Nexus S became the launch device for Google Wallet. For this second Nexus device, Google stepped back from selling only on the web, selling as a full price unlocked device, and providing support through forums. Instead, they adopted the traditional industry models – sales and support primarily through the Mobile Operator channels.

Google has continued to partner with OEMs to introduce new Nexus phones, often using each new model as an opportunity to introduce new capabilities that perhaps the OEMs and Operators weren’t yet ready to place a bet on otherwise. It’s important to note that Google had to work hard to make sure that this program didn’t alienate the OEMs and Operators on whom the company was dependent. With each Nexus, Google partnered with a different OEM, and made sure that versions were available for the major operators.

To some extent, Google has used the Nexus devices to continue to push openness and capabilities that can enable mobile devices to be used for more and more applications, ultimately driving their core business.

Google Fiber
On February 10, 2010, Google announced plans to build an experimental fiber network, delivering 1GBPS, which they characterized as “100 times faster than what most Americans have access to today”. In their press release, they said “We’ve urged the FCC to look at new and creative ways to get there in its National Broadband Plan – and today we’re announcing an experiment of our own.”

As with Nexus, they made a big deal about the scale being not too small and not too big, saying that they would deliver the service to as few as 50,000 and as many as 500,000 people. They said their goal “is to experiment with new ways to help make Internet access better and faster for everyone” and they specifically called out enabling developers to come up with next generation apps, test new deployment techniques that they would share with the world, and provide openness and choice, managing the network in an open, non-discriminatory, transparent way and giving users a choice of multiple service providers.

They seemed (at least initially) to not want to offend existing broadband providers, saying “Network providers are making real progress to expand and improve high-speed Internet access, but there’s still more to be done. We don’t think we have all the answers – but through our trial, we hope to make a meaningful contribution to the shared goal of delivering faster and better Internet for everyone.”

With that initial announcement, they invited communities to express interest and more than 1000 did, with many doing crazy things to try to win the network for their community. I live in the Kansas City area (the winning city), and although Google Fiber is not yet available in my neighborhood, it has been a big catalyst for innovation across the metro area.

As has been well documented, Google’s entry into broadband also forced the existing broadband providers to improve their offers (speed, capabilities, and/or price). As Google Fiber has pushed into new neighborhoods and suburbs, the competitors have had to respond. Google is coming to my neighborhood this year and that has caused AT&T to expedite construction on their GigaPower infrastructure and for Time Warner to build out outdoor WiFi using streetlight mounted antennas. Everyone is offering special deals with multi-year commitments. We’ve seen similar competitive responses as Google has announced Fiber projects in additional cities.

Of course, Google Fiber is no longer a friendly, sub-scale experiment intended to help the broadband providers. In December 2012, Eric Schmidt said “It’s actually not an experiment; we’re actually running it as a business,” and he announced expansion to additional cities.

As with Google’s other telecom initiatives, the primary focus continues to be the core business. Google Fiber, both directly and indirectly, is driving more overall Internet use, and that helps drive Google’s services and advertising revenues. It’s also important to note that Google has traditionally not had a strong relationship with broadband providers, so they likely felt free to take a more disruptive approach to the market than with Android and Nexus.

In my next post, we’ll take this historical perspective, combined with Pichai’s comments, and combined with an understanding of the challenges that MVNOs traditionally face, and try to speculate on what a Google MVNO might actually look like.

What Did Google Really Say?

Thursday, March 12th, 2015

Especially over the last week or so, one of the big topics of discussion across the mobile ecosystem has been that Google finally confirmed that they DO plan to launch some kind of wireless MVNO. Over the next few days, I’d like to share my perspectives on this news, starting this morning with a quick review of what was actually said and what I think was noteworthy about those statements.

Last week, Sundar Pichai gave a keynote speech at Mobile World Congress in Barcelona. In his speech, he talked about Google’s core services, then about Android, but he spent most of his time talking about connectivity – Google Fiber, Project Link, Project Loon, and Project Titan. Then he sat down for a 20 minute interview with Bloomberg Businessweek’s Brad Stone.

For the first 10 minutes, Stone tossed him softball questions, mostly about Android. Then Stone said “There have been reports in the press that Google is talking to wireless carriers about a Google branded network, also called an MVNO, what can you tell us about those talks?” For the next four minutes, they went back and forth on this topic.

Obviously Pichai was ready for the question and started with a well crafted response. Interestingly, he went back to Android, and then he talked about Google’s Nexus devices before he ever got around to talking about their MVNO plans. In fact, at the end of his Android/Nexus discussion he said “That’s the context in which we are thinking about it.”

I’ll talk more about Android and Nexus in a future post, but I think the key points that he made about these as setting the context for Google’s MVNO plans are:

  • That Android has always been an ecosystem play, working with partners.
  • When they introduced Nexus, they did it in partnership with OEM partners.
  • They are very cautious to not compete with their OEM partners, and part of that, he said, was doing Nexus at a scale large enough to have an impact, but small enough to not be threatening to OEMs.
  • Google always tries to push the boundary of what’s next. He said that all innovations in computing happen at the intersection of hardware and software, and that Google felt they needed to do Nexus so that they could work very closely with both the hardware and software in order to push the innovation.
  • He made the case that “we are at a stage where it’s important to think about hardware, software, and connectivity together” – they want to experiment at that intersection, just as they have with the intersection of just hardware and software.

With that as context, Pichai then provided a little more (but not much) information about their plans, mostly within the context that he had already set:

  • They clearly don’t want to mess up their carrier relationships. He wanted to clearly communicate that their intent is NOT to compete with the carriers, but to experiment in order to “help” them.
  • Google is working with carrier partners for this project. The carrier partners will actually provide the service. (BTW – that could mean a few different things, which I’ll get to in a future post.)
  • They will operate this at large enough scale that people will see whether the experiments work (and hopefully carriers will adopt the ideas), but still at small scale so it won’t be a threat to carriers.

Stone specifically asked if this was about “more innovation and lower prices when it comes to mobile networks” and Pichai’s response was that Google is trying to accomplish something a bit different. He then gave a couple of examples:

  • Making the experience seamless for WiFi and cellular network interoperability.
  • Automatically reconnecting a call when it drops.

Both of these examples seem to imply a traditional smartphone use case, but earlier he had specifically pointed to IoT examples such as a connected watch or Android Auto and said that they want to be able to experiment along those lines.

That’s what Google really said. Over the next few posts, I’ll try to translate that into what might be meaningful from that for the industry.

Zoomin Market Revolutionizing Grocery Shopping

Friday, March 6th, 2015

This week, in my Kauffman FastTrac class, our guest speakers were John Yerkes and Matt Rider, the founders of Zoomin Market. John literally grew up in the grocery industry, while Matt cut his teeth optimizing and redefining logistics and reverse logistics processes for multiple companies across the wireless industry ecosystem. Together, they saw the opportunity to fundamentally redefine how Americans shop for groceries.

While drive-in grocery stores are popular in Europe, Zoomin is the first drive-in grocery store in the United States, and it’s all enabled by mobile technology. The disruptive threat is so significant that WalMart has been watching the company’s every step.

So, what is a drive-in grocery store? The process is fairly simple. You shop online, filling your virtual cart with groceries. You pick a time you want to pick them up, then you complete the transaction and drive to the store. A server brings your groceries to your car and, in minutes, you’re on the way home.

For Zoomin, more than half of their orders are coming from mobile devices, and all of their employees are using tablets to fulfill the orders. Like any grocery store, Zoomin has four environmental zones for foods ranging from frozen to fresh produce, but unlike walk-in stores, the company doesn’t need to keep shelves over-stocked and decorated to appeal to the shoppers eye. They’ve studied Amazon’s stocking system for efficiency (Matt says “let the geniuses be geniuses” and focus on what you’re great at). They use the same wholesalers as their traditional competitors, so their selection and their cost of goods are comparable. However, they can operate in a much smaller building, with much less inventory, and significantly fewer employees than the stores they’re competing against. They’ve chosen to price competitively with no pickup fees (unlike European companies), using their cost advantage to drive richer margins.

Speaking of employees, company culture is very important to both John and Matt. Delighting customers is important to them and they gave a number of examples, from surprising a customer with a product she wanted and didn’t think they had (for free), to greeting the dog of a regular customer with his favorite treat (set aside just for him) each time they pull in for their pickup. All of this, of course, is enabled by the mobile technology that makes it easy for employees to make notes so that each time you pull in they know you better and can serve you better. When asked about their hiring practices, John smiled and explained that they hire “pickers” and “grinners.” “Pickers” are detail oriented perfectionists who make sure that the order is filled correctly and with the quality that delights customers. “Grinners” deliver the order to the customers and establish that strong connection that makes them feel special and appreciated. But to fit in to the Zoomin culture, all the employees have to know how to have fun!

I happened to have a meeting near their store on Tuesday, so I set my wife up with their website and offered to pick up her groceries. She found it easy to place the order. If you want to get your food as quickly as possible, Zoomin says it will be ready in 30 minutes, but we picked a future timeslot after my meeting and I got a notification well in advance that everything was ready whenever I could arrive. When you pull in to Zoomin, you either text them to let them know you’ve arrived, or you enter your 5 digit order code to a touch screen kiosk. Either way, you are then assigned one of the 10 covered pull-through stalls. One of the Zoomin staff rolls out a cart with your shopping bags and loads your car for you, and you are on your way. John and Matt said that the average in and out time for customers is about two and a half minutes. Because of that, the store is drawing customers from a much broader geography than a typical grocery store (customers trading dramatically less time in the store for a little more driving time).

In class, I had asked John and Matt about produce. They said they love that question because everyone’s first reaction is that you’ll never buy produce that you can’t pick yourself. In reality, produce is their top selling category, so in our order, we bought a lot of produce. My wife loved the fact that she could order bananas as either green, ripe, or spotty and she could order avocados as ripe or firm. Most of what we got was fine, but some of the items, although not technically “bad” – probably are different from what we would have picked. (For example, we bought a potato and what we got was the biggest potato I’ve ever seen – a bargain since the price was 79 cents no matter the size – but actually almost a bit scary and not one we would’ve picked.) Also, when the groceries were brought to my car, the Zoomin employee explained that when they went to pull the white organic mushrooms that my wife ordered, they didn’t look good, so they could instead give us white non-organic (and credit the price difference) or brown organic ones instead. I picked the brown ones – and proved that even when I’m just picking up the groceries, I can still buy the wrong item. :) Which reminds me of another of the benefits that reviewers have identified with Zoomin – the elimination of impulse buying of unneeded items. (Ever since our son and I came home with the purple mustard and green ketchup that we thought was so cool, my wife has hesitated to send us to the store together…)

But back to how disruptive this concept can be to the grocery industry. As I mentioned above, Zoomin’s costs are dramatically lower than their competitors in key areas (real estate, inventory, head count). In Europe, many retailers have had to add a drive-in option for their customers, but this requires them to ADD to their building and hire MORE employees, while still maintaining all of the costs for their continuing traditional customers. If this model is successful in the U.S., it will be hard for existing grocers to respond. Which explains why WalMart is so interested in what Zoomin is up to. The week they opened, a handful of WalMart executives showed up with hopes of studying their operation (John and Matt met with them in the church next door instead). A few months later they found a local engineer poking around outside of their building with a clipboard and flashlight. He said that WalMart had hired him to figure out how Zoomin had implemented their refrigeration system. Last Fall, WalMart opened a test concept drive-in store in Bentonville, Arkansas.

It seems to me that John and Matt have thoughtfully implemented a defensible strategy. Convenience, friendliness, and a dramatically better cost structure will be tough, even for WalMart, to match.

If you want to try out Zoomin, be sure to use the coupon code FIRSTZOOM to save $5 off your first order.

Net Neutrality: The Anguish of Mediocrity

Saturday, February 28th, 2015

It is rare for me to be on the same side of an issue as AT&T and Verizon and on the opposite side of Sprint and T-Mobile, but I think the new Net Neutrality rules that the FCC adopted this week are a mistake that will hurt consumers and the telecom industry.

I won’t take the time to go point-by-point through the various elements of the new rules. Plenty of people smarter than me on regulatory topics have written about that elsewhere. The two aspects that really have me concerned are:

  1. the inability to prioritize paid traffic
  2. the inability to impair or degrade traffic based on content, applications, etc.

I believe that these restrictions will lead to networks that will perform much more poorly than they need to.

The Importance of Prioritization

Thirteen years ago, while I was chief strategist for TeleChoice, I wrote a whitepaper using some tools that we had developed to evaluate the cost to build a network to handle the traffic that would be generated by increasingly fast broadband access networks.

In the paper I say “ATM, Frame Relay, and now MPLS have enabled carriers to have their customers prioritize traffic, which in turn gives the carriers more options in sizing their networks, however, customers have failed to seriously confront properly categorizing their traffic. There has been no need to because there was no penalty for just saying ‘It’s all important.’”

With the new rules, the FCC ensures that this will continue to be the case.

Think about it. If you live in a city that suffers from heavy highway traffic, if you’re sitting in slow traffic and you see a few cars zipping along in the HOV lane, don’t you wish you were allowed into that lane? Of course you do. Hopefully it even gets you to consider making the change necessary to use that lane. Why do HOV lanes even exist? Because it was deemed a positive outcome for everyone if more people would carpool to reduce the overall traffic. Reducing overall traffic would have many benefits including reducing the amount of money needed to be spent to make the highway big enough to handle the traffic and at the same time improving the highway experience for all travelers.

Continuing the analogy, if you’re sitting in slow traffic and you see an ambulance with its lights flashing driving up the shoulder to get a patient to the hospital, do you consider it an unfair use of highway resources that you aren’t allowed to use yourself? Hopefully not. You recognize that this is a particular use case that requires different handling.

Finally, extending the analogy one more time, as you’re sitting in that traffic (on a free highway) and you look over and see traffic zipping along on the expensive toll road that parallels the free highway, do you consider whether you can afford to switch to the toll road? I bet you at least think about it.

Analogies always break down at some point, so let me transition into explaining the problem that the new rules impose on all of us. Networks, like highways, have to be built with enough capacity to provide an acceptable level of service during peak traffic. Data access networks, unlike highways, have traffic levels that are very dynamic with sudden spikes and troughs that last seconds or less. While all telecommunications networks have predictable busy hour patterns, just like highways, unlike highways, the network user experience can be dramatically impacted by a sudden influx of traffic. This requires network operators to build enough capacity to handle the peak seconds and peak minutes reasonably well rather than just the peak hour.

Different network applications respond differently to network congestion. An e-mail that arrives in 30 seconds instead of 20 seconds will rarely (if ever) be noticed. A web page that loads in 5 seconds instead of 4 seconds will be easily forgiven. Video streaming of recorded content can be buffered to handle reasonable variations in network performance. But if a voice or video packet during a live conversation is delayed a few seconds, it can dramatically impact the user experience.

Thirteen years ago, I argued that failing to provide the right incentives for prioritizing traffic to take into account these differences could require 40% more investment in network capacity than if prioritization were enabled. In an industry that spends tens of billions of dollars each year in capacity, that’s a lot of money.

Why The New Rules Hurt Consumers and the Industry

Is the industry going to continue to invest in capacity? Yes. But the amount of revenue they can get from that capacity will place natural limits on how much investment they will make. And, without prioritization, for any given level of network investment, the experience that the user enjoys will be dramatically less acceptable than it could be.

Let’s just quickly look at the two approaches to prioritization I called out above that the new rules block.

Paid prioritization is a business mechanism for ensuring that end applications have the right performance to create the value implied by the end service provider. This is the toll road analogy, but probably a better analogy is when a supplier chooses to ship via air, train, truck, or ship. If what I’m promising is fresh seafood, I’d better put it on an airplane. If what I’m promising is inexpensive canned goods with a shelf life of years, I will choose the least expensive shipping method. Paid prioritization enables some service providers (e.g. Netflix or Skype) to offer a level of service that customers value and are willing to pay for that requires better than mediocre network performance, and for the service provider to pay for that better network performance to ensure that their customers get what they expect. The service provider (e.g. Netflix or Skype) builds their business model balancing the revenue from their customers with the cost of offering the service. This approach provides additional revenue to the network operators enabling them to invest in more capacity that benefits all customers.

Impairing or degrading traffic based on content or application is a technical mechanism that enables the network to handle traffic differently based on the performance requirements of the content or application. An e-mail can be delayed a few seconds so that a voice or video call can be handled without delay. This allows the capacity in the network to provide an optimized experience for all users.

Obviously, these mechanisms provide opportunities for abuse by the network operators, but to forbid them outright, I believe, is damaging to the industry and to consumers, and a mistake.

Mobile Impact Obvious

Monday, February 2nd, 2015

As my recent set of posts imply, I’m thinking quite a bit beyond the “mobility revolution.” A fascinating article at Wired makes it clear that the impact of mobile has become obvious, and when something is obvious, it’s much less interesting to me. (That doesn’t mean that execution and operations minded folks should ignore mobile – now is the time when the real money is obviously being made…)

Reading this article took me back to early 2012. Facebook’s IPO was the big story and the biggest knock on the company was that it lacked a mobile strategy. Today, more than half its revenue comes from mobile and they are being lauded as one of the few to have figured out mobile. Back then, Facebook wasn’t alone. Perhaps setting the tone for the year to come, in late 2011, the world’s largest technology company at the time, HP, ousted their CEO, at least in part, for a failed mobile strategy (the company doesn’t show up in the Wired piece because they haven’t been able to recover to a leadership spot in tech). Later in 2012, Intel’s CEO was forced to resign because of a failed mobile strategy. (Like HP, Intel rarely gets mentioned these days when folks talk about the companies leading the technology industry.)

2012 was the wakeup call. 2015 is showing which companies jumped and which hit snooze.

How Mobility is Changing the Book World

Thursday, April 23rd, 2009

Two recent stories provide two different perspectives on how the Kindle is radically changing the book business. The revolution the Kindle unleashes is almost entirely driven by having Sprint’s wireless networking seamlessly integrated into the device and the business model.

First, the user perspective, from Pete Peterson:

I’m the sort of person that typically reads four or five books at a time. Depending on my mood I might pick up Hugo, Buechner, Lewis, Berry, or maybe even Barry. This presents a sizeable problem to a man that travels often and has to weigh the packing of his suitcase against the weight of the many books he’d like to have with him along the way.

The Kindle did away with that problem in one swift stroke. It lets me have a quarter of a million books at my fingertips no matter where I am. That’s because included in the purchase price of the Kindle ($250) is access to Amazon’s Whispernet 3G network that allows you to purchase a book wirelessly, from the Kindle Store’s library and download it in about thirty-seconds flat.

That means that when I’m sitting in a restaurant talking to a friend and he recommends a book that I can, right there, on the spot, pull my Kindle out of my backpack, buy the book, and be ready to read it without ever leaving the table.

Now I don’t go to the bookstore without it. This makes bookstore owners want to put out a hit on Kindle-carriers, I’m sure. But wait, just because I buy a book on the Kindle doesn’t mean I won’t buy a hard copy later. I will certainly still pick up a hardcopy of a book, even if I’ve already read it digitally, simply because I want it on my shelf.

So the Kindle undoubtedly simplifies the buying of books but what about the reading of them?

Remember what I said about a book being about much more than just the words on the page? I was wrong. I was wrong and it seems so obvious to me now. I haven’t yet read a book on the Kindle and wished I had bought the physical book instead (although I have thought that I would like to go buy a physical version much in the same way that movie geeks love to buy a special edition DVD.) A book is about the story. It’s about communication. I love cover design, and paperstock, and the feel of a unique book in my hands just as much as anyone else, but when it comes right down to it, when it comes to the reading, all that other stuff disappears into the background. What matters is the story.

Meanwhile, author Steven Johnson wrote a comprehensive and forward looking view of eBooks for the Wall Street Journal, touching on some of the business implications to flow from the Kindle:

Every genuinely revolutionary technology implants some kind of “aha” moment in your memory — the moment where you flip a switch and something magical happens, something that tells you in an instant that the rules have changed forever.

The latest such moment came courtesy of the Kindle, Amazon.com Inc.’s e-book reader. A few weeks after I bought the device, I was sitting alone in a restaurant in Austin, Texas, dutifully working my way through an e-book about business and technology, when I was hit with a sudden desire to read a novel. After a few taps on the Kindle, I was browsing the Amazon store, and within a minute or two I’d bought and downloaded Zadie Smith’s novel “On Beauty.” By the time the check arrived, I’d finished the first chapter.

Aha.

I knew then that the book’s migration to the digital realm would not be a simple matter of trading ink for pixels, but would likely change the way we read, write and sell books in profound ways. It will make it easier for us to buy books, but at the same time make it easier to stop reading them. It will expand the universe of books at our fingertips, and transform the solitary act of reading into something far more social. It will give writers and publishers the chance to sell more obscure books, but it may well end up undermining some of the core attributes that we have associated with book reading for more than 500 years.

The book industry has been Mobilized. Will your industry be next?

Business Observations: December 26, 2008 Edition

Friday, December 26th, 2008

Standard disclaimer: don’t take from my selections, ordering, headlines, etc. any indications of the interests or plans of my employer (if you do, you’ll undoubtedly be disappointed when they don’t play out.)

Business Observations: December 19, 2008 Edition

Friday, December 19th, 2008

Standard disclaimer: don’t take from my selections, ordering, headlines, etc. any indications of the interests or plans of my employer (if you do, you’ll undoubtedly be disappointed when they don’t play out.)