History doesn’t repeat itself, but it does rhyme
When Mark Twain said that, he almost certainly was not thinking about the fate of network operators and mini-computer companies, but it seems more and more likely that 20 years from now Verizon, AT&T, Sprint, Comcast, Cingular and T-Mobile will be where DEC, Prime, Data General, Stratus, and Tandem are today.
Sun was right, at least about one thing – the network is the computer. Now, more than ever people get IT services from the cloud, whether its Gmail or Salesforce, or a hosted IP PBX. That trend, if anything, seems to be accelerating. So, if the network is the computer, what forces will shape the architecture of that computer.
In the 1980s mini-computer companies competed with each other at an architectural level. Customers invested in a DEC architecture or a Data General architecture. Their applications ran on one or the other but not both. When the PC companies burst on the scene, the mini-computer companies reacted (in character) by building architecturally differentiated “PCs” – remember the DEC Rainbow.
The PC companies like Dell and Compaq did not try to differentiate their architecture. Instead, they worked to improve the price performance of their products while maintaining compatibility with the standard PC architecture. They also innovated at the business process level, experimenting with direct distribution, flexible supply chains and low cost, high volume manufacturing systems
As PCs became more powerful and low cost servers began to displace core minicomputer applications, the minicomputer manufacturers used their substantial R&D capabilities and their access to capital, not to compete under the new rules but to try and extend the life of the old rules. Instead of focusing on reducing costs, they regarded their current cost structures as a given and looked for ways to improve margins by selling complete “value added” solutions.
For those of us who have been around for a while, the rumblings of the telcos about moving up into the applications space, or the cable companies moving more aggressively into content, or the wireless operators focus on value added “on deck” services all start to look familiar. None of these players seem to embrace the decentralized innovation that created the PC and the Internet. None seem to be using their substantial R&D capabilities and access to capital to build the best price performance connectivity. None seem to be innovating at the process level. They all seem obsessed with innovating at the architectural level, creating supersets of the open standards that created the web, and reaching up into the applications layer to create high margin vertically integrated “value added” solutions.
There are some substantial differences between the situation today and the one the minicomputer vendors faced 20 years ago, most importantly regulation of the last mile and wireless spectrum, but there are enough similarities to appreciate the rhyme.
The question is - who will be the Dell of the network service providers? Will one of the existing players recognize that decentralized innovation on a modular, standard platform will inevitably win in the long run and take the steps to position themselves as the low cost, high quality provider of standardized network services, or will a new player capitalize on that opportunity? My bet is the latter.
September 18, 2006 04:04 PM, By Brad Burnham
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Comments (6)
I'm not sure there will ever be a Dell of the value-added applications space. Dell managed to sell a commodity product more efficiently. Your terminology of "value added" solutions are inherently not going to be commoditized any time soon. Those services that are being commoditized are the network level, and the "Dells" (if you will) of that sector are AT&T, Level3, and Cogent.
So, I would bet with you that a new player will capitalize on that opportunity, not an old network service provider. But, I would rather go out and call them the "SalesForce.com" or "Intuit" of the future rather than the "Dell" of the future.
At the end of the day, this is a huge opportunity, and there is room for a lot of players. Hopefully, the products/services don't commoditize too quickly and some companies are actually able to make money.
Posted by Charlie Kemper , September 18, 2006 06:54 PM
Earthlink may have a shot at it.
Posted by Scott Rafer , September 18, 2006 07:33 PM
Providing the edge of the network belongs to those that control the real estate at the edge of the network. Central Office to the home, CATV Headend to the home, Power to the home. Mobile connectivity will devolve into a modem that enables you to attach to the edge of the wireless network, and the model that fixed connectivity has now, i.e. (speeds and feeds), while connectivity to the fixed location will be fought over by the owners of the wire centers, coax, fiber, and power poles. It's a real estate game, not a standards play.
Posted by Craig Plunkett , September 18, 2006 09:30 PM
You may want to check out
Remote Service Management from XNAPWorks
http://www.xnapworks.com/support_remote.htm
The general idea is to dominate the network service market.
Posted by Anil , September 19, 2006 04:25 AM
When one looks at the Internet and IP backbone networks, I suspect there is a case to be made for disassociating the network operator (or, connectivity provider) from the service provider. Most of the companies you mention provide both connectivity and services. They increasingly rely on value added services to increase their ARPU and margins as prices for pure connectivity and voice services have declined. As a result, they have had a fairly strong interest in controlling who can offer what services to their customers. Their concern is two-fold. One, they do not want to compromise network performance and security, understandably so, as they have significant legacy technologies in their networks. And, two, they want to maximize their share of revenues from new services (and content), as the single controller of access to the network.
Some operators are taking initial steps towards Service Delivery Platforms, which promise streamlined operations among various components of value added services (e.g., DRM, device management, transcoding, security, etc.), and enable third party developers to offer services on the network. This is similar to what has happened on the Internet. Not surprisingly, much of this activity is in Europe and Asia-Pac at the moment. If I were a betting man, I'd bet on GSM operators to take the lead in the US, as well.
Posted by Okan Azmak , September 19, 2006 10:52 AM
Funny.
My previous employer was a major financial institution. They still use DEC, Stratus, Tandem, and even Unisys as well as Mainframe, AS/400, Unix, Windows, etc..
Tandem is a very common platform for ATM. One of the major platforms running many ATM machines is Tandem. I don't see Tandem fading away anytime soon.
Just like mainframe is still the iron horse of the banking world where 1 mainframe = 1,000 linux servers. Mainframes are extremely reliable these days.
In terms of the next distribution innovation, I think the innovation where data can run over electric lines and wireless technology will be the bleeding edge while services over cable will comprise the bulk of the industry. I see AT&T having a very hard time catching up to Comcast in service offerings.
This is just my opinion.
Posted by Jim Eiden , September 18, 2006 06:43 PM