While investments in SDPs represent a tiny fraction (less than 1%) of overall Telecom Service Providers annual investments (both Yankee and ABI estimate the annual CAPEX in this sector at around $300B) there is something really special about this type of investment: extensive enablement and high return.
The much discussed business transformation is a cocktail of goals to be lean, agile, customer focused, open to partners and developer communities, etc. These goals are neither mutually exclusive nor collectively exhaustive so they can not be addressed in silos! And they shouldn't be because each Service Provider will need a different mixture and concentration to bring him from its current situation to where it wants to be. Support for such goals lends itself to the idea of a possibly unlimited set of reusable enablers (for process automation, for data correlation across various sources, for technology independent exposure of resources, for secure and controlled access, for unified identity, etc) together with the means to quickly and easily repurpose and combine them across existing assets and organizations. This is achievable using SDP architectural concepts (horizontality, shared and standard execution environments, standards aligned development, composition, orchestration, exposure and management of services, common repository of information on services, etc) hence with no surprise we will see fragmented (hey, there is no one size fits all - this is why we further need frameworks) proliferation of SDPs not only in support of rapid creation and monetization of the "long tail" of services or exposure of capabilities (network or billing alike) to 3-rd parties but also in support of processes automation across OSS/BSS and across domains (B2B, B2C, (B2B)*2C, C2B), creation of SaaS environments and even offering Computing as a Service (CaaS).
So if the recipe is so common and simple why isn't everybody using it? Maybe they are not persuaded that the "transformation" itself is necessary but in very limited or focused areas such as increased bandwidth of access points or better communication between NOCs and Call Centers (I estimate this is the majority) or because those who try for more profound changes have a gun pointed at them to be sure that every penny put into such enablers shows either an operational cost reduction or an increase in revenues (this I estimate is the minority). For these courageous ones who want to try but know that the logical explanation above does not hold water when exposed to factual minds with short attention span, I bring the second argument to why SDPs are most valuable assets: high return.
After inventorying the 300+ SDP deployments as well as Suppliers and Service Providers plans for the next years as part of the research behind the recently published Moriana SDP 2009-2012 Analyst Report , I can assert with good approximation that there are south of $2B invested yearly in SDPs. From the samples analyzed, the average revenue from services delivered on these SDPs is $1M/day which gives an approximate $100B/year overall revenue.
Let's do the math then:
- consider the cost of goods sold (e.g. content and services from 3-rd parties) at as much as 50% from this revenue (a typical share in the content delivery chain) = $50B
- add 200% of the total cost associated with the software platform as OPEX (taking the guilt that percentually operating software platforms may be more expensive than operating hardware due to engineering skills, configurations, upgrades and continuous temptation to improve something on an open platform - in network environments OPEX is estimated at around 30% the total cost associated with the network although it depends heavily on the infrastructure vendor) = $4B
- let's add no more than 100% of the total cost associated with the software platform for marketing and selling (most of these costs will be absorbed by the network, device manufacturer or content provider anyway) = $2B
Return on new SDP asset = net income/SDP acquisition value = $(100-50-4-2)B/$2B =
11 times
CFOs please do not laugh at me yet!
Let's take a look at the "big" numbers now, those more known to the CFOs. I'll pick some numbers from the latest Gartner report on the world wide telecom market which are aligned in terms of investments in network equipment estimated by Yankee and ABI (Gartner says $353B total telecom equipment revenue in 2007 and $1.490B revenue from telecom services)
- cost of new goods needed for supporting telecom services, most probably including SDP services, for 1 year = $353B
- OPEX estimated at 30% of the new investment = $100B
- cost of selling and marketing at the same 100% of the new network infrastructure cost = $100B
Return on new network equipment asset = net income/network equipment acquisition value=$(1.490 - 353 - 100 -100)B/$353B = 2.65 times
CFOs now you can forget the laugh as your shareholders look at their investments outcomes.
I know is a very simplified calculation and argumentation - we do need the network equipment investment, the fiber to the home and 4G mobile access - but think what shifting a few billions of investment on the SDP side can yield!
I'd like to bring this analysis to the new business models supported by platforms (consisting of one or more SDPs) and delve into how the transactional activity among the parties there can impact the platform owner's profit margin on specific services. Who knows what that may reveal ...
Thursday, July 9, 2009
Friday, June 26, 2009
Management World Nice 09 - what I remember
By the heat of these summer days, anybody can see this post is quite late in respect to the subject. All significant activities that happened there are even virtually available if you have the chance to be a TM Forum member. So why bother?
First of all, if there was something really outstanding or controversial, I may have been incited to write about it. This means that, for what I know about the event, everything was as usual, maybe a little bit less crowded spaces.
Second comes the test of time - what do I remember after almost a couple of months? This must be what the event impressed into my memory, whether I wanted it or not. By writing about it now, I feel more objective: no pressure to report immediately as any media representative would do to get the first readers attention, no feelings of excitement and explosive new ideas and hopes after a good keynote or panel, just memory traces recounted.
TM Forum treats media well - relevant telecom analysts and freelance writers were presente and active.
"Write about the Forum and this event" asked Martin Creaner, TM Forum's CTO, it his welcome speech for the media. I just looked at Analysys Mason's Commentary on events webpage and haven't seen anything yet on this one. Maybe somebody will read my blog, then ...
The keynotes featured an interesting blend of speakers, predominantly telecom (BT, Vodafone, Orange, AT&T) but with substantial Internet infusion (Yahoo, Amazon) and a little bit of spice from the Ogivly Group. It was obvious that telecoms do not connect with their customers at the same level and to the same degree as the Internet companies do. Yahoo's "who, where, when, doing what" -real time consumer connection, Amazon's business model where "choice and low prices" drive customer experience, increase traffic to sellers and lower costs which ultimately is passed as a benefit to consumer contrasted by far with AT&T's "operations guy" who oversees costs reductions in operational environments without any indication that this can be translated into "choice and lower prices" for the subscriber, not even clear metrics for the degree of improvement in service to subscriber. And now I realize that Customer Experience is something that telecoms and TM Forum talk about a lot, lately, but I haven't heard it strong and loud from any of the Internet players. Maybe they made it seem very easy to achieve or maybe it has something to do with the value chain each Service Provider plays in: Telcos - voice so call centers, Internet players - web so online feedback and support. Two worlds apart even when they are brough on the same stage!
The Telco 2.0 initiative took the opportunity to organize a new Executive Brainstorm event in parallel which increased the value of traveling for those executives and decreased their stress on the stage as they could repeat the main ideas to the two audiences : TM Forum and Telco 2.0.
I guess most of us left these "on stage" representations asking why smart people can not get their feet on the ground and those people who have their feet on the ground ... ups ...
The vendors exhibition grounds, a little bit less crowded, was like crying "sorry, not much innovation this year"! On the main floor, from CA's "half car - half airplane: we can help you find out what it is" (who could come up with something like this?) to Accanto's "say it in one breath: Customer and Service Assurance" to feel the "experience" (of the Customer, of course) , a lot of less imaginative marketing messages and many same old products from established brands.
A nice surprise, Huawei, showing up and clear a Service Delivery Platform banner, pointing in the direction of how the many OSS and BSS-es will finally be brought together and new services deployed in operations environments, there where it is not clear yet how software can provide a service.
More advanced ideas in a couple of catalyst projects, one about margin analysis - sponsored by Swisscom and executed by Connectiva addressing segmentation at a finer detail and allowing what-if scenarios to maximize margins on bundles of services, the other about service lifecycle management - sponsored by Qwest and executed by Network Cadence and Comptel (the Axiom PSA "legacy" for those who remember that bright catalyst a coupel of years ago) and looking at a service catalog solution that can combine data and processes around service lifecycle to support any type of business model and minimize cost of service delivery per customer.
Should I dare to say that if there were some glipses of innovation they sparkled from very small companies and many of them were beyond what current TM Forum solution frameworks (NGOSS) based on eTOM, SID and management applications offer? SquareHoop with a framework to rapidly create those custom applications for product management, Connectiva with a data model and business intelligence in support of targeting customers for maximum profit, ConceptWave with a cross breed between intelligently supporting fulfillment by fixing broken orders and intelligently presenting product offerings to the customer to match their profiles, CIQUAL challenging the network focused approach of measuring what matters for a customer of a mobile broadband service or Openet adding policy management to its offering - well yes, you have the data :-) I do not remember where is policy management in eTOM and SID, maybe they are ...
I would not do justice to Wipro if I did not remember their comprehensive service offering, their project lifecycle methodology and marketing based on benchmarking against competition.
But this is pretty much what remains in my memory about this event. Looking forward to the next one!
First of all, if there was something really outstanding or controversial, I may have been incited to write about it. This means that, for what I know about the event, everything was as usual, maybe a little bit less crowded spaces.
Second comes the test of time - what do I remember after almost a couple of months? This must be what the event impressed into my memory, whether I wanted it or not. By writing about it now, I feel more objective: no pressure to report immediately as any media representative would do to get the first readers attention, no feelings of excitement and explosive new ideas and hopes after a good keynote or panel, just memory traces recounted.
TM Forum treats media well - relevant telecom analysts and freelance writers were presente and active.
"Write about the Forum and this event" asked Martin Creaner, TM Forum's CTO, it his welcome speech for the media. I just looked at Analysys Mason's Commentary on events webpage and haven't seen anything yet on this one. Maybe somebody will read my blog, then ...
The keynotes featured an interesting blend of speakers, predominantly telecom (BT, Vodafone, Orange, AT&T) but with substantial Internet infusion (Yahoo, Amazon) and a little bit of spice from the Ogivly Group. It was obvious that telecoms do not connect with their customers at the same level and to the same degree as the Internet companies do. Yahoo's "who, where, when, doing what" -real time consumer connection, Amazon's business model where "choice and low prices" drive customer experience, increase traffic to sellers and lower costs which ultimately is passed as a benefit to consumer contrasted by far with AT&T's "operations guy" who oversees costs reductions in operational environments without any indication that this can be translated into "choice and lower prices" for the subscriber, not even clear metrics for the degree of improvement in service to subscriber. And now I realize that Customer Experience is something that telecoms and TM Forum talk about a lot, lately, but I haven't heard it strong and loud from any of the Internet players. Maybe they made it seem very easy to achieve or maybe it has something to do with the value chain each Service Provider plays in: Telcos - voice so call centers, Internet players - web so online feedback and support. Two worlds apart even when they are brough on the same stage!
The Telco 2.0 initiative took the opportunity to organize a new Executive Brainstorm event in parallel which increased the value of traveling for those executives and decreased their stress on the stage as they could repeat the main ideas to the two audiences : TM Forum and Telco 2.0.
I guess most of us left these "on stage" representations asking why smart people can not get their feet on the ground and those people who have their feet on the ground ... ups ...
The vendors exhibition grounds, a little bit less crowded, was like crying "sorry, not much innovation this year"! On the main floor, from CA's "half car - half airplane: we can help you find out what it is" (who could come up with something like this?) to Accanto's "say it in one breath: Customer and Service Assurance" to feel the "experience" (of the Customer, of course) , a lot of less imaginative marketing messages and many same old products from established brands.
A nice surprise, Huawei, showing up and clear a Service Delivery Platform banner, pointing in the direction of how the many OSS and BSS-es will finally be brought together and new services deployed in operations environments, there where it is not clear yet how software can provide a service.
More advanced ideas in a couple of catalyst projects, one about margin analysis - sponsored by Swisscom and executed by Connectiva addressing segmentation at a finer detail and allowing what-if scenarios to maximize margins on bundles of services, the other about service lifecycle management - sponsored by Qwest and executed by Network Cadence and Comptel (the Axiom PSA "legacy" for those who remember that bright catalyst a coupel of years ago) and looking at a service catalog solution that can combine data and processes around service lifecycle to support any type of business model and minimize cost of service delivery per customer.
Should I dare to say that if there were some glipses of innovation they sparkled from very small companies and many of them were beyond what current TM Forum solution frameworks (NGOSS) based on eTOM, SID and management applications offer? SquareHoop with a framework to rapidly create those custom applications for product management, Connectiva with a data model and business intelligence in support of targeting customers for maximum profit, ConceptWave with a cross breed between intelligently supporting fulfillment by fixing broken orders and intelligently presenting product offerings to the customer to match their profiles, CIQUAL challenging the network focused approach of measuring what matters for a customer of a mobile broadband service or Openet adding policy management to its offering - well yes, you have the data :-) I do not remember where is policy management in eTOM and SID, maybe they are ...
I would not do justice to Wipro if I did not remember their comprehensive service offering, their project lifecycle methodology and marketing based on benchmarking against competition.
But this is pretty much what remains in my memory about this event. Looking forward to the next one!
Monday, April 27, 2009
CTIA Wireless 2009 - After ... thoughts
Coming back from CTIA Wireless 2009 I felt beaten up in the struggle to bring forward good arguments for an intelligent services layer that could transform network operators from Carriers to Service Providers, give them the agility to apply the right business model for the right consumer, right on time. There was so much ebullience around 4G - on its way to making “mobile broadband similar to what fix broadband offering brings to the customer today” because Internet AppStores such as Apple’s, RIM’s and many others are there to generate more and more data traffic! Mobile data traffic will be doubling each year by Cisco's estimates, but network operators see it tripling, others even increasing 10 times! Nevertheless, a panel of 6 VP and above, executives from Sprint, Virgin Mobile, Boost Mobile, AT&T, T-Mobile and Orange labs, went completely blank when somebody asked the pertinent question: “then, as a smart device owner, whose customer am I anyway: Apple’s, Google’s or AT&T’s?” Neverminding the unanswered question, carriers have a new reason to be “busy bee building 4G, WiMaX or LTE” - btw, I learned from Clearwire’s CEO that it does not matter, “there is almost 80% compatibility”. Moreover, with so much data traffic that will be generated, there is yet another opportunity to develop new areas of network management: “policy control and Deep Packet Inspection (DPI)”! No doubts there are good reasons for this attitude. The complexity of the network, starting from the access point for broadband, increases tremendously! Think only about the fine granularity of phase synchronization that is needed to support high bandwidth wireless traffic or about the heterogeneity with which core network management has to deal due to so many vertical additions of services. And so many suppliers for all these pieces that need to come together somehow to deliver service to customer! Being able to manage this complexity called “network” is after all the pride of being a “Network Operator”! The trouble with this model and the above “broadband strategy” is that data traffic increases exponentially while revenue follows rather a logarithmic increase. Following this data "plot", time is limited until the model will become unsustainable because it will cost too much to operate the network for the amount and variety of data flows, even if the Network Carrier becomes a smart IP traffic cop and starts banishing the illegal (BitTorrent) and hurting the foe (Skype)! Only so much done for understanding what the customer wants and how much he is willing to pay or to give up, like time to watch an ad, to get that service! But if the new business models are not for network operators, what will happen then? Internet players do get them, these new business models, they need them, this is how they make money today! Will one of the big Internet players, say an AppStore owner, buy the mobile operator who runs out of money operating 4G networks because this hurts an application distribution channel? I don’t think so, no mobile operator has the global reach Internet players need and have! Nevertheless, there must be some sort of calculation that shows how to “subsidize” network operations, whoever carries their burden, to allow viral applications penetration anywhere, on any device so that everybody on the value chain/network survives. Maybe this is a version of the 2/multi-sided business models where the platform is the Device or the AppStore, not the network operator’s SDP as we all thought at the beginning of the NGN era. The network operator may be just a side that will be paid by the platform owner. And when the side is not worth it, it will be dropped for just another one. Do you see network operators competing to become the ‘preferred’ side for an AppStore so that AppStore reaches more subscribers? For me, sounds more like what is happening today. The optimistic twist now: to win in this competition network operators still need to build some form of a Service Delivery Framework so external partners can tap in without any knowledge of the network behind. The value provided in this model, be it just bit transport, must be exposed as a manageable service otherwise it will be hard to on-board it and make it a side of the real money making platform. And this could be the beginning of understanding of what we are all trying to preach here…
Sunday, February 1, 2009
Paradigms and paroxysm
A network operator struggling with the increased traffic from content over its broadband access realizes that working at IP level or below it is unable to deliver the expected quality of service by customer or by application so is asking: do you think that the United States Postal Office can offer you to pay a monthly fee and then allow you to send any number of any letters or packages of any size or content? What do you think?
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