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How can Communications Service Providers benefit from the New Digital Economy – Part II


How can Communications Service Providers benefit from the New Digital Economy – Part II


Digital Services, Business Models and Innovation


David Sliter.jpg

In this second in-depth discussion of our Digital Economy series, David Sliter, VP and GM of HP's Communications and Media Solutions business describes the new digital services opportunities for CSPs, business models being used and Innovation approaches.


Note:  this is the second article in a series of blogs addressing the Digital economy and its impact on Communications Service Providers and the telecom industry.  The first blog is also posted in the HP Telecom IQ blog  hereIn the final part, Dave will cover:  success in digital services and the relevance of big data in the Digital Economy.



Dave, following on from last month’s blog where you described the digital economy:  what Digital Services will be critical for CSPs and how does Cloud relate?


What is clear is that the CSP industry has not found a “killer app” for new kinds of value added services.   While Cloud was seen as the great hope for the industry initial results are not as great as many would have liked.  Yes Cloud will be relevant, but like all information, financial and value added services, a CSP’s success will depend on their own strengths, abilities and local market conditions.  CSPs are also adopting varying organizational models to ensure success of these services with some restructuring completely, some spinning off new divisions, some partnering and others embracing these new services in existing lines of business (i.e. consumer vs. enterprise).



Can you categorize Digital Services for our readers?


Some of the key categories of new services we are seeing – ordered roughly from most mature to less mature – are:


  • Media and Content
  • ICT services such as security services for mobile devices and computing, managed desktop
  • Financial and payment services
  • Cloud services:  SaaS, IaaS and Communications as a service (CaaS) – both enterprise and consumer
  • Contextual services (based on location and social interaction – local versions of Facebook, Foursquare and Yelp)
  • M2M services:  the CSP as the ecosystem enabler and platform provider
  • Vertical services: specific bundled solutions for certain verticals: healthcare, government, transport, construction, retail etc.


Who is driving these digital services today?


Thanks to a “perfect storm” of advances in computing virtualization, mobility, handsets and ubiquitous broadband, as well as advances in big data, new digital services are popping up on an almost daily basis.  “Snapchat” has recently been in the news due to current privacy concerns, since it provides “self-destructing” photo messaging.    The rise of cloud computing and SaaS has acted as a disruptive force in IT, unleashing a huge variety of new offers from known, new entrant and start-up companies.  


So that answer is that that these services are coming from many different sources which I categorized in the previous interview as connectivity providers and Over the Top (OTT) suppliers.    However each group can be further broken down, especially OTT suppliers which include small app developers, well-known names such as Google and Facebook, traditional IT services providers, vertical industry providers as well as those groups in the CSP competing with these.


What are some of the challenges CSPs face in launching Digital Services?


Clearly Digital Services fall outside the sort of communications services that many CSPs focus on today.  Launching these services means moving into a different market with different dynamics, business models and competitive landscapes.

The speed at which these markets move tends to be much more rapid than traditional telecom services.   In the past, new communications services came with new silos of technology, management platforms, and operations teams.  They were launched at great risk because they came with large capital expense, long development cycles, and complicated integration with back office systems. 


Service Velocity is the ability for CSPs to deploy and decommission services rapidly on common hardware and software in a highly automated and orchestrated way.  Cloud, Network Function Virtualization (NFV), and Software Defined Networks (SDN) make this possible.  With these technologies CSPs can take more risks on new services and innovate more freely.  And they can design services to “flex” to customer demand by adding, reducing, and moving capacity dynamically avoiding stranded capital investment.

Then there is the question of what business models are best for each service and market.


So what business models are CSPs using for Digital Services?


There are two aspects to the business models discussion for CSPs.  This first is: what are new models CSPs can employ to take innovative approaches to the digital economy.  The second is with what new models CSPs will sell services to customers.


In the first area, we already see extensive resell relationships that CSPs have engaged in for both enterprise services as well as consumer.  For enterprise, we’ve seen reselling of IT services such as PBX and call center and more recently email, collaboration and compute and storage.  For consumer, content is being sold from CSP catalogues and we see both fixed and mobile operators partnering with streaming content services such as Deezer and Spotify to bundle these into customer packages.


We see progress in “Two sided” business models – where the OTT service provider pays the CSP for connectivity and data carriage to customers.  We think this is going on without much publicity around it.  For example in France Orange was revealed to be charging Google to place ads. Subsequently Free (the ISP and Mobile player in France) blocked Google ads in order to put pressure on them.


Shared risk/reward type business models are also being seen in new environments such as in cloud services where our (HP) customers look to us to invest with them.  We can bring a CSP into our CloudAgile program and thus their HP-powered cloud services are sold by HP as well as by the CSP directly.



What about the end-customer business model innovation?


In terms of consumer pay models, converged charging has opened up the flexibility for all different kinds of models for both post and pre-paid consumers.   These include bundling, purchasing options, pay-per-use, advertising supported, in-app payment, pay per download - such as for content, per transaction fee (i.e. for financial transactions using Mobile money), free with paid upgrade (so called “freemium”) and more.  Early experience to offer connectivity in an advertising-supported model has not been very successful.   An example here was the operator Blyk that launched and retired service in the UK.


For the Over the Top players a similar range of models are available.  Often in the consumer side services are advertising supported for example Facebook, Google, YouTube, and Dailymotion.   However they are also subscription and transaction based: NetFlix or Apple iTunes.   As with CSPs many different models are being tried especially in nascent markets such as music streaming.   


OTT players supplying enterprise are using business models appropriate for each service, in some cases disrupting traditional supplier models.    Cloud computing and SaaS are now both proven to work well in pay per use models, generating revenue for both new entrants (i.e. Amazon and Salesforce) and already well-established players (HP, Microsoft).  



How is this innovation helping enterprises?


Traditionally computing and enterprise software was offered either via large upfront deployment projects with significant Capex investment, or in large out-source or managed services contracts with long term Opex payments.   Pay-per-use allows a new set of users to take advantage of easily accessible computing and low barrier to entry enterprise software.     



Talking about innovation are there particular approaches CSPs are using to create innovation in their business in the realm of Digital Services?


CSPs are already working with each other to develop innovative products and services such as the original GSM standards and more recently Joyn. To complement these efforts, CSPs seek out innovative ideas through other sources such as:

-          Partnerships with universities.

-          Investing in startup companies via internal venture capitalist arms.   Examples include Telenor Venture,   Telefonica Wayra, At&T Foundries, and SingTel.

-          Creating partner ecosystems:  for example, AT&T, Deutsche Telekom, Telefonica, SingTel and SK Telecom have their own ecosystems.

-          Developer ecosystems – hosting communities of developers and providing them with tools and support,  such as  SIX from Singtel and Bluevia Telefonica Digital

-          Forming units in innovation hotspots overseas - AT&T in Israel as an example.

-          Leveraging one's own internal resources, such as AT&T's The Innovation Pipeline.

-          Crowdsourcing innovation as Docomo is doing by offering customers hands-on experience of new services in development.


Taking the AT&T example further - AT&T's Ecosystem and Innovation Organization is responsible for developing and advancing the exposure of APIs, along with relationships with third-party developers, venture capitalists and other ecosystem players (for example, other CSPs and OTT service providers). 


The management of innovation sources can be further refined:  like Telefonica Digital, internal development groups can focus on highly differentiated products for the mainstream market, and external sources can concentrate on the "long-tail" of innovation. This is likely to be driven by productivity and scalability considerations.


To attract start-ups and other external parties to their innovation ecosystems, CSPs will have to contribute their own resources and capabilities. These include (but are not restricted to) funding, applications testing, network diagnostics, training, marketing, business development assistance and mentorship. OTT players such as application developers would rather develop once as opposed to for each CSP offer.   So in the absence of standards CSPs need to compete hard to attract new developers.


Stay tuned for the final part in this Interview series. Dave will cover:  success in digital services and the relevance of big data in the Digital Economy.

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There are two aspects to the business models discussion for CSPs.  This first is: what are new models CSPs can employ to take innovative approaches to the digital economy.  The second is with what new models CSPs will sell services to customers.

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