With the telecoms industry rapidly changing from being telephone-focused to being application-focused, the convergence that people like me have been talking about for more than a decade is slowly becoming a reality.
Like anything else, this will take the form of evolution, rather than revolution. As a matter of fact, one could argue that a third of the process is already underway; another third will be done over the next three years or so; and the remainder will take until around 2015 to complete.
But, nevertheless, those in the know are the ones that are involved in the very crucial first phase. These are the companies that are positioning themselves for the future. And those companies at the big end of town in telecoms, IT and the media who are not yet involved in this convergence will find themselves on the back foot, and will have difficulty surviving the full onslaught of convergence.
With telecoms moving into applications it is no wonder that companies such as Google, Microsoft, Yahoo, eBay, Skype and Amazon are building the infrastructure for those applications. Each one of these companies is building data centres the size of football fields. Google, however, is by far the most advanced (450,000 servers worldwide) and it will be quite an exercise for the other Internet media companies to catch up. The closest is Microsoft, with 200,000 servers (to be extended to 800,000 over the next five years).
Those who haven’t even begun won’t have a hope of catching up any time soon. And this group includes most of the telcos. There are a few exceptions here, but even the most progressive telco, BT in the UK, doesn’t come close to what the Internet media companies are building. There are others, such as KPN and France Telecom, who are also more serious about this market than many of their colleagues in Europe.
What this will mean for most telcos over the next 5 to 10 years is that they will be relegated to pipe builders. For a decade I have been talking about value-added infrastructure requirements such as data centres, content hosting, ASP, Internet outsourcing and so on. And, yes, some progress has been made – but nowhere near what is necessary for the developments that are already taking place in digital media.
I have been suggesting that each telephone exchange in the country should be turned into a data centre.
Over the last five years telcos have been cutting costs, and in many situations the value-added infrastructure developments have been the main victims in this bean-counting exercise. Simply keeping their basic telephone network up and running under the pressure of competition in their traditional markets created enough of a headache for them – looking to the future seemed to be impossible for most of the incumbent telcos.
This is a real pity, as the value-added infrastructure would have been a natural fit for them and a way to tap into new revenue streams. Sure, some will be able to buy themselves into this market, but I would not be surprised if they are being increasingly sidelined.
For the abovementioned Internet media companies to protect the business that they have been able to build up over the last five years it will be necessary for them to operate more and more independently from the network services (quality, speed, unbundling, etc), that telcos are prepared to offer them.
The ridiculous network neutrality debate is a case in point. The Internet media companies are supporting millions of businesses – and their applications and advertising – and these operators will need to be able to deliver first-class services to their end-user customers. And they will not allow the telcos to create a new ‘broadcast quality’ broadband oligopoly that they want to keep for themselves.
Luckily, in most other countries outside the USA there is a good opportunity for more infrastructure-based competition, and this will prevent broadband monopolies from developing in these countries. Network neutrality, therefore, will be less of an issue in countries with infrastructure competition; the USA, at best, has a duopoly and this is one of the main reasons broadband in the United States is slipping behind the rest of the world in terms of penetration and quality.
Emerging Digital Media
Roundtable with Paul Budde and Industry Experts – 19th July 2006
Over the last year I have been writing many articles about the re-emerging Internet economy.
While we had the right vision in the late 1990s, the timing was wrong. What was missing at that time was the infrastructure needed for the Internet economy. I have always maintained that there was nothing wrong with the so-called dotcom businesses if their organisations were built upon sound business models. Unfortunately these companies had to wait around for broadband before they could really take off.
Of course, another group of cowboys, driven by greed, also entered the dotcom market, and they all went under in the subsequent dotcom crash.
On a global scale, we have seen the emergence/survival of companies such as Google, Yahoo!, eBay, Skype, Amazon, MSN, News Limited (MySpace) as the key players in this economy. This is only the tip of the iceberg and millions of other organisations will eventually become part of the new Internet economy. Most will simply add this as a new strategy to their existing business models, but also a whole range of new companies will build dedicated Internet businesses and/or will service this new industry.
There are especially good opportunities for ISPs and content/service/media companies to merge and take more of a leadership role in this market.
Companies earmarked for leadership include Reeltime, Anytime, Legion, destra and some of the other players in the m-commerce space. They certainly are at the head of the pack. While Sensis has thrown itself up as a key player, we haven’t seen much innovative action there, and it will have a hell of a job to stop the deterioration of its paper-based services before it can fully participate in the Internet economy.
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