Time To Turn To Third Trajectory

49. Time To Turn To Third Trajectory - 1610 edited

The communications world has been based on two major business models – the voice model and the internet model. We are about to enter the third major business model era, and the change might be bigger than most players in the market expect.

The voice business model is based on minutes, and initially on a differentiation on location, in other words, local, national and international. The basic model is applied across both fixed and mobile voice. The voice business model did not support internet. It started to collapse for dial up data in the late 1990s, and a new model emerged with the large-scale introduction of DSL and cable.

 

The internet business model is based on mix of “all you can eat,” and the peak-rate-speeds and monthly-data-bucket alternative. The model was pioneered for residential internet and later adopted for mobile broadband. Users are used to a mix of freemium applications for the data paradigm. Business internet/intranet services have evolved from their FR/ATM/leased-line legacy. The internet model does not support the growing video/cloud services in the marketplace, where consumer value is not correlated with bits and bytes.

The video/cloud business model for the Networked Society is yet to be defined and a lot if innovation can be expected. Here are some important boundaries for this model:

* New traffic patterns from video- and cloud-based applications are defining the demands on next-generation communications infrastructure.

* New service paradigms enabled with software-Defined Networking (SDN) capabilities introduced in service-provider networks and tightly coupled to cloud data centers.

* Consumerization of business services and a migration to an increasingly mobile workforce.

* A new balance for end-to-end services, with connectivity providers and application providers needs to coexist and support each other.

 

My predictions about the creation of the Networked Society business model supporting a video/cloud-centric world is:

* A value based business model, diverting from the proven voice and internet models, where time/bits and volumes are key.

* It will be shaped from 2013 to 2015 in a few leading markets, for mass market adoption from 2016.

* It will be the business foundation for accelerating SDN/NFV introduction across fixed and mobile networks.

* It will contribute to major traffic shifts across LAN, metro and core networks.

This blog-post was originally posted September 20, 2013 on Ericsson’s Networked Society blog as: “The Third trajectory a new business model era for the Networked Society”.

 

Scalable, Smart, Superior and Simple: Soon Society Standards

Without a fully-fledged network, society and operators can’t reach their full potential. The network must be optimized to manage the enormous communications transformations taking place in society. And to achieve this, they will need to focus on four key attributes.

First, networks need to be scalable to support: traffic growth cost-efficiently; a growing amount of devices,  new types of them; and signaling to and from devices.

Second, networks need to be smart. Smartphones do not work well together with dumb pipes; and neither do other devices or services. Being smart allows networks to have differentiated connectivity options – and provides application programming interfaces with enhanced applications that have vital service attributes. A smart network is the foundation for delivering higher value to users and service providers. And business model innovation requires smart networks.

Third, networks need to deliver superior performance. As applications and services become more and more similar, superior network performance will be the key differentiator between operators, from a coverage and capacity perspective.

Finally, networks can be significantly simpler than they are today. In IP networks a lot of products are built with a single purpose. Tomorrow, a collection of single-purpose products will be consolidated into a more powerful, more capable multi-purpose product platform.

I believe that future networks  can be predicted as follows:
* Mobile applications will set the network evolution/architecture agenda.
* Triple-network integration will gain traction; in other words, 3G/4G/Wi-Fi will all become part of the same wireless access.
* Network transformation will take over from network transpiration as a primary network strategy. Sweating too many old network assets could be risky if and when the competition transforms its networks.
* With stronger network visions and business models, investment appetite will increase globally.

Billing Beyond Bits & Bytes

© Peter Linder 2012 – All Rights Reserved      Canon 7D | 8-15mm/4 | ISO 100 | 1/250 s | F10
© Peter Linder 2012 – All Rights Reserved      Canon 7D | 8-15mm/4 | ISO 100 | 1/250 s | F10

Today’s most common broadband business model – fat pipe at a flat rate – was launched in 1996 when ADSL and cable came along. The model was re-used when mobile broadband was introduced in 2005. But should this classic business model be used in all networked industries? How do we deal with traffic volumes that can differ by thousands of times among applications that generate similar revenues?

In my daily life, I use three applications with widely differing price and traffic patterns:

  • A smartphone with a data limit , costing tens of dollars per month for 2GB of traffic
  • A Netflix subscription costing dollars per month and generating 30GB of traffic
  • A work environment (mobile, desktop and associated data services) costing hundreds of dollars for 10-50GB of traffic.

All three of these services can be provided with mobile access. It’s hard to see how dollar values spanning from tens of dollars per GB to only a few cents per GB can and should be supported using a single billing base, namely the number of bits and bytes that are transported. Since the value delivered is becoming more and more decoupled from the amounts of bits and bytes transported, and in many cases correlates negatively with traffic volumes, new business models are inevitable.
Imagine what would happen if a hamburger restaurant adopted a unit price per calorie of food. If this were applied to the standard menu, the prices would be very high for burgers and fries – and very low for salads. As a direct result, burger sales could be expected to fall sharply, and sales of salad would shoot up. It would be hard to run a sustainable restaurant business using this kind of business model.

We now have the potential to deliver exceptional added value on mobile broadband. Business-model innovation is essential if we are to capture this generated value. Otherwise, it will be difficult to continue funding the required investments for 3G/4G/Wi-Fi network infrastructure expansion and modernization.

My forecasts for the future of networked business models are:

  1. Business-model innovations will focus on  5 to 15 % of mobile broadband traffic that is most valuable
  2. The billing base for these services will be linked to new kinds of service-level agreements involving one or several new connectivity attributes such as latency, latency variation, availability, reliability, security, integrity and coverage
  3. The factor determining how platinum or gold services and users are defined will shift from “who uses the most network resources?” to “which services or users generate the most revenue or the best margins?
  4. Most business-model innovations will involve higher charges for service providers, to be bundled into the overall price per service.

Mobile networks are among the most advanced infrastructures in business today, and there’s no reason that the value captured in these networks should decline as the value added to adjacent industries increases substantially over time.