Why can Facebook, Google, Salesforce and Twitter role out new features every day and regular telecom operators only every 6 months? Although they are dotcoms, they have thousands of employees and a lot of legacy systems as well. However they are able to roll out a new feature every day, if not every hour or minute and large new systems every so many months, weeks or even days.
How do they do it and how can the telecom industry learn from it?
On highscalability, you will find a lot of information on the architectures of large dotcoms. However if you look at different articles you see that each of the larger dotcoms has an architecture that is shared among different products and services, e.g. scaling messages at facebook.
This is the secret sause of the dotcoms. They have built and continuously improved a highly distributed architecture that can handle millions of users and peta bytes of information. On top of this “shared architecture” go the services. New employees are able to quickly create new services because they do not have to worry about scaling data, monitoring the service, deploying/upgrading versions, backing up data, versioning code, etc.
On the other hands operators have no standardized shared architecture. Instead there is a puzzle of different solutions that often use totally different technologies, hardware, etc. Maintenance and upgrades are a nightmare.
Trying to launch any new service requires a massive amount of planning, lots of different skills, expensive investments in third-party licenses and hardware, etc.
How can you do it differently?
Building a private cloud with virtual servers and storage will not resolve operator’s problems. Just virtualizing the puzzle of solutions is not going to do away with complex integrations.
Operators need to make a more bolt move. They need to separate the new from the old. Legacy systems should be kept and isolated. However a new architecture should be built that works in parallel with the legacy systems. This new architecture should focus on launching new services and partner services at dotcom speeds. Everything should be handled as an independent service. Each service should get its own API. A storage services, a billing service, a monitoring service, a provisioning service, an identity service, a datawarehouse service, a deployment service, a mobile shop service, an inventory service, a support service, etc.
All APIs should use a common technology. APIs for third-parties could use REST. APIs for internal high-load usage could use Thrift or Protobuffers. Each API should have two versions, the easy and the low-level version. The easy API offers the most used but in general basic functionality, e.g. sendSMS(from, to, message). The low-level API offers a complete feature set, e.g. sendBinarySMS, sendSMSWithDeliveryConfirmation, etc. This will allow most services to use the easy API but to have access to the advanced functionality when needed.
Loadbalancing when using the services is key. The loadbalancer is the secret for many rolling upgrades in the dotcom world. An application that uses a certain service will use client-based loadbalancing. By having the loadbalancing be able to receive events, it is possible to dynamically add/remove instances of an API, gradually move requests to a new version of the API, etc.
New service developers will now have to focus on building the business logic for the new service and not on data migrations, scaling, monitoring, backups, etc. The service can have completely new ways of billing and charging, a complex deployment workflow, advanced monitoring requirements, large data storage requirements, etc. However it is not the billing or charging system that has to be extended. Neither a centralized EAI. Nor the monitoring system. Instead it is the service that decides what is best for the service via the use of the easy or low-level APIs. By moving the peculiarities of every service into the service and not into generic OSS and BSS systems, these support systems can be drastically simplified.
Operators should try to focus on launching a lot more niche services and opening up their infrastructure to a long-tail of service suppliers. Instead of general services like PBX for SME, operators should think about hotel reservation services, doctor scheduling services, etc. The value of the operator should be in offering a reliable back-office architecture, assuring service quality and managing the support eco-system. The long-tail of service suppliers should be put to work to launch competing niche offerings and let customers decide which one will survive or not.
Innovation used to be something related to an R&D department that would experiment with new technologies and a marketing department or product management that would ask customers what new features they required. The business team would be killing any innovation that did not present a business case which complied with company rules: e.g. x% margin, €yM revenue in two years, etc.
Why is traditional innovation no longer good enough?
The cost of launching a disruptive innovation that changes a complete industry has come down dramatically. There are many examples: Skype and roaming, Amazon’s Kindle and paper books, P2P and network bandwidth / media revenue, Salesforce and shrink-wrapped software, iPad and Windows PC, iPhone and Nokia, etc.
Disruptive innovations are more frequent than ever and enablers like Cloud Computing, Open Source, Off-shoring, 3D Printing, etc. allow innovators to launch big solutions on a modest budget.
Most traditional innovation is about evolving a current product by adding new features and improving current functionality. Traditional innovation focuses on prototyping new features and products and showing them to potential customers. However process innovations (e.g. Toyota Production System), business innovations (e.g. freemium), marketing innovations (e.g. Intel Inside), disruptive innovation, etc. are often overlooked.
Every one should innovate
More and more companies are convinced that every one in the organization should innovate and not only R&D and product marketing. By putting special innovation processes in place in which employees can share innovation ideas and use collective knowledge to improve them and get funding, innovation becomes more democratic and often more successful. Companies like Google allow employees to focus one day a week on innovation that can be totally unrelated to their day jobs. People vote with their time which project is worth it. Ideas are shared hence collectively the services get better.
Also upper management is no longer looking from above but should innovate by example. Name all big innovative companies and you see that founders are a big part of innovation and participate in it every week: Google (Larry Page and Sergey Brin), Amazon (Jeff Bezos), Apple (former Steve Jobs), Facebook (Mark Zuckerberg), Salesforce (Marc Benoiff), etc.
Daily Innovations instead of Product Releases
The large dotcoms (Google, Facebook, Amazon, etc.) no longer do market research in the traditional way to find out if users like a feature or not. They also no longer focus on major product releases. Instead they focus on incremental innovations on a daily basis. Users request new features via social CRMs and the most voted features get implemented. Often a feature can have multiple implementations. Users are divided into different groups and new features get enabled for subgroups. If a new feature has a positive effect then it survives and gets rolled out to the rest, if not it gets killed or adjusted.
New products no longer get productized from an idea and afterwards customers are searched for it. Instead customer’s pain points result in paper prototypes that get validated and redrawn until they solve the problem. Afterwards real prototypes are made that get launched in beta or even alpha shape towards real users. Beta can already mean that users are paying for it.
Discovering New Innovations
Discovering new innovations is done by combining groups of people with different expertise (marketing, psychology, arts, technical, business, etc.), to understand a new domain and to question a status quo. Most of the time the best innovations are those that remove a status quo and make a painful activity into a joyful activity, e.g. LinkedIn: networking with people and keeping up to date your business network.
After questioning experts and novice users, innovative companies also observe how users use their products. Often heavy users or first-time users are unsatisfied with current products. New ideas are shared inside but also outside of the company with a network of experts as well as people with completely different skills. Afterwards solutions are built based on experimentation. A very important aspect is also being able to transport solutions from other industries. Making associations between unrelated topics and understanding how things are done in a completely different environment can bring new inside…
It is very important that different departments (business, marketing, operations, maintenance, etc.) all work towards launching new innovations and removing obstacles because killing innovation is very easy, making it succeed is not.
Let’s assume a new telecom competitor is entering the European market: RyanCom. Similarities to RyanAir are purely fictual
1) The Network
Instead of building expensive antenna networks RyanCom would make deals with Cable operators to put Femtocell equipment in cable modems and as such cheaply get coverage in major cities. Everybody that would switch to a Femtocell modem in their home or office would get 6 months of mobile usage for free.
Ryancom would have an agreement with the smallest operator in every country to sublease capacity if a Femtocell is not available.
2) Target User
iPad, Tablet owners, Websurfers, Roamers, etc. Ryancom would allow one data plan for the whole of Europe. Since the bulk of the traffic would go via Femtocell, better access costs could be provided. €5-10-15/month to have €5-10-15 Gigabyte/month.
3) Backoffice systems
All backoffice operating and business systems would be running in a cloud and open source is heavily used. Since there are only a limit number of data plans, there is no need for a billing system. SaaS like Zuora are enough. Google Apps and Salesforce would also be heavily used.
4) Social aspects
Social aspects would be very important. There would be competitions going on for which subscriber can convince more friends to join RyanCom. There is no helpdesk in the traditional manner. There is community support just like GiffGaff.
The End Result
RyanCom would be able to gain young data-intensive and roaming subscribers. They will see RyanCom initially as a second provider for their tablets. Little by little RyanCom could become their first provider when Skype and other applications become common use to make mobile calls.
RyanCom might be a fictional company but operators should be warned that fiction and reality might be just a matter of time…
The European telecom market has been a fragmented market with many languages and local laws. Small successful US dotcoms often completely avoid Europe. This makes the European operators feel relatively safe and not aware of the disruptive technology that awaits them.
How could Google disturb the current European telecom market?
1) Become a Pan-European MVNO and offer cheap no-roaming data plans.
Tablets are reaching the Tipping Point. If Google would offer one SIM to cheaply access the Internet everywhere in Europe, then operators would loose out enormous roaming revenue and their most lucrative market segment: travelling businessmen.
Google could also allow the usage of this data plan in mobiles and offer Google Voice and Talk on the mobile via VoIP.
2) Micropayments together with Energy providers
Telecom operators have been reluctant to set-up a long tail eco-system of partners that can sell services, content and apps and charge them directly onto your phone bill. Each operator has its own interfaces, if any. The operator’s revenue share is extremely high, making most business models unprofitable.
What if Google would partner with giants in other industries? Would consumers mind if their online game purchases would be billed on their electricity bill instead of on their telephone bill when the amount is below €2? They would probably not. The energy giant has to send you a monthly bill anyway, so getting some extra profit would be nice for them.
3) Top-up NFC with no merchant commissions
In your Android mobile you would use your NFC (near field communication) device to pay small amounts. From time to time you would recharge your mobile via Google’s Checkout or enable an auto-recharge. Merchants would receive the combined money transfer at the end of each month but would not pay commission. How would Google make money? A top-up and late payment to merchant means that Google can hold large amounts of money for easily 30 days. The interests should go far in paying daily operations costs. Additionally you would share with Google all your purchases, so they can target you with virtual coupons and other long tail advertisements.
4) Youtube + Google TV can become the European Netflix
For those not familiar with Netflix, and similar services, it is a “cheap” all-you-can-eat video-on-demand service in the US. It streams the latest movies and series from the Amazon Cloud right towards your SmartTV, Set-up Box, Tablet or PC. Prices have recently gone up but are still relatively cheap.
Using Youtube’s streaming platform and Google TV’s content, operators could be seeing their data network costs skyrock without any major revenue gain.
5) Combine all of the above
Google could be launching all of the above in a very short time period, leaving operators no time to react. Roaming/calls/SMS would drop enormously, third-party revenue from premium SMS would drop, lots of new innovative services sold over-the-top and an unseen bandwidth usage explosion.
Sometimes you wish you would be working for the other side…
Long Term Evolution, LTE or sometimes also referred to as 4G, is the next generation mobile network technology. It promises to bring network speed to the mobile that can beat the current ADSL offerings. In the beginning LTE prices might be high but competition especially from new entrants – “the Ryanairs of telecom” / “4G Bitpipes” – are likely to bring affordable pricing plans soon. The US already has the first “4G Bitpipe players”: Clearwire and Lightsquared.
So what does it mean if tomorrow you can have ADSL-like speeds for an (almost) flat-rate. In practice, end-users would be crazy to still pay €0,15 for minute for a call or per SMS. Skype with its optimized codecs (e.g. SILK) will offer better voice quality and will throw in video for free. Instant messaging, Twitter and Facebook chat will completely substitute SMS. This will be the end of the telecom cash-cows: calls and SMS…
What will be the next cash-calf? For those operators that are still looking for the “Killer App” – that single technology that only telecom operators can offer and is extremely successful – I have some news. Postal services are still looking for their killer app after the stamp was substituted by email. So is the music industry. There is no economic law that says that a former monopolist has the right to pick its next monopoly.
So if there is no “Killer App” does it mean that all telecom operators are doomed to become bit-pipes tomorrow? Over time several will but not necessarily all. Although dotcoms have the sexiest solutions, large corporations are unlikely to massively shift their communication services to a heavily indebted 25 people company close to a surf-paradise beach. So due to inertia the abyss is still some years away. However should you just give up and let consumer ARPU drop year by year?
I believe there is still a window of opportunity for telecom operators to bring new appealing services. However they must be willing to abandon some important historical laws of telecom.
1) Standards slow innovation
Collectively negotiate a standard that is more a political compromise then the simplest, most effective way of doing things is not helping innovation. In the Web 2.0 era, dotcoms launch new ideas all the time. Most of the time it is a “winner takes it all or at least most” market. So the winner sets the standard. How many Twitter competitors do you use?
By designing an architecture around obscure standards, few operators have employees that can explain their company’s architecture. Google and others have invested heavily in their architecture. They constantly update it. But on a blackboard a Google architect can draw you exactly why they choose Bigtable, GFS, etc.
2) Don’t talk about subscribers, call them users
A subscriber is an entity that signs a monthly contract with a telecom operator. By doing so a subscriber seems to subscribe to a list of applications that the marketing department of the telecom operator has preselected as the most adequate for him or her. The operators seems to know what is best for their subscribers. WRONG!!!!!!!!
Call them users and give them the tools to select/create/design/customize/configure the services they want. Let the community vote about which feature is needed. Ask users why they stop using a new service after a week. Let users define the price they are willing to pay by offering multiple alternative solutions in different price ranges with different feature sets.
3) Go from a catalog of few to an infinite catalog
If Telecom can no longer survive based on a few hit services, then they could go to the other extreme: the long tail telco. A long tail telco offers an almost infinite catalog of solutions that combine communication assets with other solutions in order to solve user’s problems, to make them more productive or to entertain them.
Users should be able to combine products to resolve their needs. A good example is what is offered by Invox. Via wizards, templates or a Yahoo Pipes drag-and-drop configuration, small to large enterprises can configure their own telecom services like call centers, PBX, etc. They can easily integrate the best of the Internet (Salesforce, Google, Yahoo, etc.) with IP-based communication. You use what you need. You configured it the way you want it.
What is missing is a market in which those users that don’t want to do it themselves or who need specific support (e.g. custom integrations), can go and find the right help.
Telecom operators should no longer focus on end-user services but on enabling the end-user and an eco-system of independent third-parties to be able to create and sell solutions and services to one another. As long as it is easier, faster and cheaper for a third-party to use an operator’s tools and assets they will see no need to design an alternative solution. This brings us to the next point…
4) Monopolists die because of greediness
Revenue shares of 40-95% are often not in line with the value and risk the operator takes in the value chain. Those operators that think that “squeezing partners until the last drop” is a good long-term strategy, will be the first to die. Innovation needs out-of-the-box thinking. People don’t take risks if they don’t see rewards.
You will need to do more than to just blindly follow these four rules. But by applying them and listening to users, you are on your way to create new cash-calfs…