Wednesday, September 20, 2017

Why Telco OTT Partnerships Rarely Succeed

“Moving up the stack” is about as key a concept in the telecom business as “dumb pipe” likewise is notable. “Up the stack” is a phrase that means an access services company (cable TV, satellite, telco, capacity supplier) moves from being a supplier of “pipe” services (network access and transport) to being an application provider.

In other words, such a firm returns to its roots. Recall that, historically, telcos made their business by providing voice communications. Communications (voice, originally) was the value and the business driver. To do so, telcos had to build networks.

They did not necessarily want to do so, but the product (communications) could not be sold without doing so. The same has been true with most products telcos sell. The product consumers and businesses often buy is some application with value, and the network is required to use those apps.

Broadly speaking this is now true for most consumer and business applications. What matters is the app and the value it provides. To use those apps, internet access is required.

This leads to an idea telco executives often are exhorted to act upon, namely “partner with over the top app providers” to re-establish a position in one or more applications areas with clear value for customers.

There is one big problem with such advice. It almost never works very well, from the telco’s perspective. There is a simple reason. The structure of modern communications, content and computing separates “infrastructure” (infra) from application.

Simply, access to the network is logically separated from application supply. Application providers need to direct business relationship with a network access provider to make their features available to potential users.

Internet access is required, but not the business relationship. Any user requires only some form of internet access, supplied by somebody, to use any internet app.

And that is why “partnering” with over the top app providers rarely works every well. Access providers simply do not offer enough value in an ecosystem where, by definition, any lawful app can be accessed by anyone on any connection, with not business relationship between the app provider and the internet access provider.

When Uber engineers look at how they design software, infra has to be assumed, of course. But Uber does not have to own, manage or operate any internet access infrastructure to create its software solutions.

So even if an infra services provider might like to partner with Uber, what value can it really deliver that Uber might find worth paying money for? All partnerships require value obtained by both or all parties. But no access provider “needs” a business relationship with an infra services supplier to build its business. That is what the internet is all about.

And also why “partnering” is rarely a successful or feasible strategy.

source: Uber

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