Why Service Delivery Platforms are poised to become Service Providers’ most valuable assets

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 ...