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October 2007 | Volume 2 / Number 5
Eye on IMS

IMS, Service Delivery Frameworks, and the Long Tail

By Grant F. Lenahan
Nevertheless, revenues and margins are under downward pressure for traditional high-volume services such as POTS, mobile voice MOUs, broadcast video and commodity Internet access. Much of this downward pressure comes from the very fact that the new networks being built-out by fixed, cable and mobile companies allow them to enter each others' markets (e.g.: VoIP over cable, video over broadband), increasing competition and driving down prices. This all says that high-volume, commodity services - on their own - represent a declining market and even faster falling margins.

At the same time, there is significant good news for struggling operators. By offering bundles of voice, data and video, each can address a larger overall market and generate larger monthly ARPUs. More importantly, new IP-based networks open the door to an entire range of new services, from digital content to financial transactions to advertising. Many analysts report the revenue opportunity in digital content and advertising to be larger than today's market for voice, data and messaging services. This opportunity, however, demands a new service paradigm - one in which operators focus on the delivery of interactive, targeted, personalized services. It is important to recognize the operational implications of this - that each of these services will generate smaller revenues, and thus the cost of development, deployment and operations must be correspondingly smaller. And, of course, there must be many more of them.




This situation parallels those already made by many sectors of the global economy. Over the past decade or so, many industries have migrated from the traditional focus on mass production to a new paradigm of mass customization. In effect, flexible manufacturing has made it economical to make products that are targeted to individual market niches.

One highly visible example is the auto industry, where flexible manufacturing has made it cost effective to create a wide range of specialized models, based on a smaller set of common components. Economic production runs have fallen from a typical range of 100,000-300,000 30 years ago, to as little as 5,000 units for a niche model to be profitable today. A similar trend has occurred in retailing and distribution, where companies like Amazon.com (News - Alert), Dell, Apple, and Home Depot have built successful businesses based on huge consumer choice and customized configurations.

Ultimately, the new economics of niche marketing is summed up in the popular notion of the Long Tail. The Long Tail basically states that a large proportion of demand comes from niche, often personalized, goods and services that consumers buy as an adjunct to a basic service - such as mobile telephony or broadband communications. One illustrative data point sums it up succinctly: Borders stocks approximately 150,000 book titles in its largest stores. Amazon.com, on the other hand, generates over 50% of its revenues from titles that fall outside the top 150,000. (See Figure 1.)

Figure 1. The Long Tail - Applied to Telecoms.

Clearly we are in a world of customized products and services. Telecom companies that are able to offer attractive, well-targeted and rich services will win market share and likely will be able to defend higher price levels and margins for their services. Their products will be less commoditized - and therefore the propensity for customers to churn for a lower price will be reduced. Most importantly, they will have made the transition from operating networks to innovating in new services - which will fundamentally place them on a trajectory to increase service revenues over the long term.

This is not an academic argument. Nor does the telecom industry have the luxury of time. Internet and media players are already changing the rules of the marketplace with alerts, enhanced IM, streaming media products and yes - even VoIP. One of their key differentiators is a personalization of services - witness My Yahoo, YouTube, My Google (News - Alert) - that binds consumers to their service. This is setting a new bar for the communications industry - new services must be feature-rich, personalized, interactive and they must be created quickly - if they are to succeed in this hypercompetitive environment.

Two essential tool kits for the telecom industry are IMS and the associated service delivery framework. Both provide (or at least promise to provide) modular, flexible environments that enable quick, cost-effective development of rich new services. The main drawback is that IMS development so far has concentrated on the migration of traditional mass-market services to the IP environment: voice to VoIP; TV to IPTV (News - Alert) with QoS, etc.

There is no argument that it is essential to support VoIP and TV on broadband IP networks. These will, for the near term, form the economic bedrock for IMS and IP networks. But at the same time, IMS and SDFs need to support the thousands of new services, pricing plans, ad sponsorship arrangements, etc. that we have not thought of -- the multitude of personalized services that for the tail (of the Long Tail). This means that we need to put equal emphasis on the set of services that put customers - and their preferences - at the center of any communications experience. This interactive communications framework is conceptually illustrated in Figure 2.

The interactive portions of a Service Delivery Framework (SDF) and of IMS are neither magical nor mysterious. They are where essential personalization takes place; where customized charging occurs; subscriptions are enforced; preferences are maintained; allowances and usage limits are imposed and promotions and sponsorships are delivered. In essence, it is where generic services are personalized - on an interactive basis. The three most important and widely applicable capabilities to realize this vision are charging, policy and custom service logic (often called service creation).

Before I conclude, let me call attention to the OSS/BSS portion of this process. Every service needs to be defined, created, activated, executed, charged for and assured/monitored. These operational costs need to be commensurate with the overall revenues derived for a service. As the number of services increases exponentially, while at the same time revenues per service decrease almost as fast, the overall costs of establishing operations must decrease proportionally with overall revenues (preferably more!). Similarly, if time to market must be one week, the operational support must similarly be available within that timeframe. This, too, is a paradigm shift compared with today's expectations. And yet operations are as much a part of the critical path as access facilities, application servers and other critical network devices. After all, the chosen pursuit is pointless unless revenues are collected.

Every chain has its strong links and weak links. As an industry we've already sunk hundreds of billions of dollars/Euros/etc. into the costliest parts of our next-generation infrastructure. The beauty is that 100% of that core broadband and mobile infrastructure is ready to be leveraged. Now its time to spend far less, but wisely, on the SDF and OSS/BSS components that will transform the industry from facility-based utilities to market-based innovators, and from dumb pipes to revenue machines..

Or we can watch web-based competitors do it for us. It's really our choice.

Grant F. Lenahan is Vice President and Strategist, IMS Service Delivery Solutions at Telcordia (News - Alert) Technologies, Inc. For more information, visit www.telcordia.com.

Figure 2. Interactive Services Framework.

 

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