This article originally appeared in the March 2011 issue of NGN.
Service delivery platforms: We all vaguely understand that we need one (or know we do). Yet whenever I ask five people for their definition of an SDP, or whenever I ask a similar sized group to describe the business drivers behind SDPs, I get five different answers. I think this reflects very different perspectives on communication service providers’ places in the industry. I think it can help us all make better business, technology and investment decisions if we really think through where CSPs fit in the emerging value chain.
Voice and data plans will remain significant – and hopefully stable – sources of revenues. But that business is at best mature. Consequently, I will focus on what roles CSPs can and will play in the growing revenue streams for all of the information and content-rich services that will flow over IP networks.
In these new areas – content, entertainment, sports, news, social networking, and commerce –third parties own much of the business. Most apps are delivered by third parties and most content – from movies to music to financial information – is at least created and owned by third parties. So the question is: What role will CSPs play in delivering those services and that content?
In subsequent columns through the year I’ll look at specific issues around making money from these new services – from adding value to content, to implementing yield management in terms of data plans – hopefully making all parties happy (and CSPs profitable).
I believe that no single model will dominate. The key to CSPs’ success is for them to participate in multiple models – generating revenues from as many consumer and B2B truncations as possible. Let’s look at the primary business models.
First, there is the managed service, offered by the CSP (News - Alert). Digital cable TV and IPTV solutions, and their derivatives, are the most well established examples of this model. In this case, CSPs are the content aggregator/distributors, and also manage the service from catalog through delivery, billing and customer support. This is a traditional and comfortable model for CSPs, but one that cannot dominate forever. Yet I predict that this is the surest route to near term revenues, and CSPs should do all they can to make these services as attractive as possible in the competitive environment that is unfolding.
Already, web based on-demand content solutions are capturing the interest of younger people, who have grown up in the on-demand world of web videos. This creates an alternative model in which services like Hulu (News - Alert), BBCiPlayer, Amazon, Netflix, Fancast and myriad others deliver premium content directly to consumers. While movies and TV come immediately to mind, a similar play exists in online gaming, and online applications such as hosted Microsoft (News - Alert) Office –branded Office365.
This second model is clearly led by third parties. It distinguishes itself via global reach (rather than particular to your local CSP), and on-demand delivery – to you and just you, on your schedule. This is a seismic shift, from broadcast to narrowcast to unicast. In many ways it is inevitable, since it is the ultimate continuation of personalization. And it offers the advertisers’ Holy Grail – individual targeting and delivery of personalized and maybe interactive ads. Nirvana! The question for CSPs is: What role can they play to make this model better and generate their own revenues? Bandwidth management, direct-to-bill charging, parental controls, QoS, and ad delivery all come to mind, and there are aspects that can be done only by CSPs or be done better by CSPs. But that’s a column for another day.
The world of apps (mostly downloaded and used locally, but many client-server) offers a similar, yet distinct model. One reason is the sheer number of apps – hundreds of thousands of them, often created by small developers. The small size of these developers, combined with the fact that even some of the larger ones are far outside telecom, means that they could be eager users of in-app tools if provided. Apps may require low latency (e.g. games, etc.) or authentication of the user (e.g., financial). Maybe they have in-app (e.g. advertisements) that could use improved relevance courtesy of a private, CSP-resident profile. Or maybe app developers simply want an easy way to change micro, in-app charges in real time, with little or no overhead. This is the kind of reliable, secure, high-transaction-rate, personalized stuff that the telecom industry does so well.
The industry will slowly have to either transport the bits or become part of a large ecosystem in the cloud, where some firms own content, some write apps, some provide ads, others perform charging, etc. Just like today’s web, which is constantly evolving, the business models will be fluid. The key to success is being sufficiently fluid (not a telco trait, you’ll agree) to thrive in the flow.
And that will underlie many of my upcoming columns this year.
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Edited by Stefania Viscusi