How can the telecoms industry take advantage of the platform economy?
In less than five years, we’ve become accustomed to clicking a button on our phones to summon a ride, book a room, watch a blogger’s video or adjust our thermostats, writes Gary Bolton, the vice president of global marketing at Adtran.
When we step back to assess why platform technology is currently taking off at this point in history, we can see a perfect storm of mass broadband connectivity, the penetration of smart mobile devices, the move to cloud virtualisation and open source collaboration all feeding the growth of platforms.
But in the emerging shift to a platform-based economy, service providers – telecoms and cable companies – appear a bit like spectators, not players, as seismic paradigm changes unfold. What could the future of the platform look like and how could service providers enhance and take advantage of that?
Pipelines vs platforms
Historically, companies have focused on linear, pipeline business models; firms create goods and services and push them out to customers. In this model, companies control the value chain from their suppliers to the end customer.
Conversely, platforms are multi-sided business models that enable users to both create and consume value. Value is abstracted from the asset and is co-created on the spot and realised by the value-exchange interaction between producers and consumers. The product emerges through this interaction – frictionlessly connecting riders and drivers if you’re Uber and connecting hosts and guests if you’re AirBnB.
Platforms utilise Metcalfe’s Law of Networking and are a two-sided business model. A two-side model has a positive network effect. Uber attracts riders and drivers. The network effect is that adding more riders benefits drivers and more drivers benefit the riders. This positive network effect of two-sided platforms is why a 50 person WhatsApp was acquired for US$19bn and each employee at SnapChat is worth over US$50m.
It seems the platform economy is only set to accelerate, while the telecom sector appears to struggle to keep up. The success of over-the-top (OTT) services compounds the challenge to network operators by offering the staple services that used to be the domain of traditional telcos and cable/MSOs.
Does the platform need to adopt the service provider?
The world of Uber and AirBnB is conditioning consumers to expect frictionless and customised service experiences.
By switching from a pipeline model to a platform strategy, network providers will create an opportunity to move away from being dumb-pipes, to creators of innovation platforms that scale fast, delight subscribers and drive local economic growth.
But what about net neutrality?
Net neutrality regulations seek to provide an even playing field and ensure that internet services are not blocked or throttled for competitive reasons. An unintended consequence of net neutrality is that it currently limits network operators to monetising only one side of the equation, charging consumers for service, whereas multi-sided platform models monetise from both producers and consumers. For example, a credit card company is based on a platform model. Consumers pay an annual fee for the privilege of using the credit card and pay interest on any balance. The retailer also pays the credit card company a percentage of the sale when a credit card is used for the transaction. Both Uber and AirBnB charge fees to both consumers and producers.
However, the winds of change are blowing a gale. At the 2017 FTTH conference, the EU Commission’s director of electronic communication networks and services, Anthony Whelan, clarified the commission’s revised stance on net neutrality, confirming that as long as they don’t negatively discriminate against OTT traffic flows on their network, service providers will be allowed to apply a higher QoS as they deem fit, for different traffic flows.
Ofcom’s attitude has opened too – it is currently in watching and waiting mode. Although their official stance hasn’t changed, a study they’re due to publish on the revised EU Commission stance could change everything.
Meanwhile, across the pond, the Trump administration is in the process of net neutrality reform with a lighter regulatory touch – a move that has caused controversy but if passed, will ultimately challenge other countries to follow suit in order to stay financially competitive.
How can service providers refrain from being mere spectators and become key players in the platform economy?
It’s human nature to be resistant to change but as the popular saying goes: adapt or die. Apple, Alphabet (Google’s parent company), Amazon, Microsoft and Facebook have added over US$500bn of share capitalization since the beginning of the year and represent nearly a third of the growth of the stock market. Furthermore, these platform companies’ $300 trillion combined value is 17% of the US’s GDP.
Users have quickly become accustomed to having customised services and the immediate gratification delivered by platform companies and network effects enable these companies to scale incredibly fast. Internet service provider companies and the telecom industry must pivot quickly to keep pace and stay competitive with the platform economy.