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Lessons in Video and Voice

Comcast’s numbers, which included broadband subscriber gains that far outstripped the estimates of analysts.  Basic cable subscription losses were less than expected, but still there was a loss.  The data suggests that the media blitz on “cord-cutting” was largely hype, which is what my model had showed.

TV viewing is definitely undergoing changes, and some of these are exacerbated by the increased availability of online material.  But the big problem is a growing dissatisfaction of viewers with “network TV” and defection to cable channels for an alternative.  This defection works for a time, but the material on cable isn’t inexhaustible and some of it isn’t much better from the viewer perspective than network TV.  The same can be said for online content via Netflix or Hulu or whatever; the pool of material is only so large and the subset that will appeal to a given viewer is even more limited.

Live sporting events continue to garner large audiences; better penetration of the viewer base than in the past, in fact.  That shows that it’s what you want to watch and not how you want to watch it that matters most.  Comcast’s NBCU deal, in this context, is critical.  What the company needs to do now is to create a different model of content, something tuned to the way that consumers have already voted (with their remotes).  They don’t want star power, or series TV that quickly grows stale, or successions of follow-on shows or re-makes.  They want stuff that’s entertaining, and some summer-season successes in cable show that can be achieved with low-budget production.  On their earnings call, their management suggested that it recognizes the cable-channel properties may be the secret value to this deal.  I think Comcast has an opportunity now to churn out dozens of new shows for what one big network series might have cost them, and by doing that collect a larger audience and greater loyalty to the channel model.  They can then focus on how to exploit their growing content inventory online, through multi-screen.

AT&T may be looking at its own video marriage, but rather than buying a network it may be buying a satellite company.  Rumors of a deal to acquire DISH have restarted, and there are certainly things that recommend the deal.  AT&T doesn’t have the economic demographics that Verizon does, and can’t easily deploy fiber to the home for a large chunk of its population (in fact, it’s behind even on fiber to cell sites).  U-verse, based on the slotting of DSL bandwidth for multi-channel delivery, is pressured by the demands of HDTV (and possibly 3DTV) and by cable company competition offering higher broadband speeds.  In theory, a strong satellite position could be a big help, and while AT&T has offered that in a resale deal, buying DISH would give them control and all of the revenues.  There’s also speculation that AT&T might want the spectrum space DISH controls.

In the telco space, MWC seemed to bring out support for VoLTE; both AT&T and Verizon indicated they’d be making the Big Move, though over a period of two to three years.  There are still open questions on how LTE networks will support voice, how they’ll support roaming and premium services, and how much or little IMS and more traditional interconnect concepts will drive the process.  But presuming that the migration happens on schedule and that operators continue to push hard with phones, it’s not unreasonable to think that by 2015 we’d be seeing some pressure on wireline voice.  Will this create that final push to FMC and IP infrastructure everywhere?

Sure, but probably not all that quickly.  The problem is that the great majority of households retain PSTN voice services.  Operators tell me that they don’t believe that they’d have reached 80% penetration of LTE handsets before 2016 or even later in some areas.  They believe that regulators would be distressed by plans to force upgrades either in wireline or wireless unless the operator could essentially create PSTN at the home dmarc and sustain compatibility with current in-home and in-business phones.  They’re worried about lifeline, about powering phones, and about 911 services.  But most of all they’re of the view that recapitalizing voice services when voice ARPU has nowhere to go but down is a bad move.  So they aren’t in a rush to change their strategy for wireline.

What VoLTE does show is that migration to VoIP and the resulting changes in infrastructure are most likely to come about because of some business initiative that creates new revenue.  Transformation is a proactive process, driven by opportunities to make money or requirements to make it on something different.  Because LTE is 4G, 4G is the future of wireless broadband, and wireless broadband is the future of mobile, operators are moving to VoLTE.  The “future” in all these cases is seen as being revenue-positive.  It remains to be seen how fast IP voice will penetrate the rest of the TDM world.

Grappling with Next-Gen Mobile Services

A couple of talks at MWC may be signs of important future trends in mobile and online.  AT&T CEO Stephenson said that the difficulties in moving content between devices, was hampering mobile content opportunity.  He also commented that AT&T believed that apps should run across devices, not be linked to a single gadget.  While at least the second of these could be a sour-grapes reaction to Apple’s App Store concept, no longer an AT&T private lake, it does seem likely that Stephenson is on to something regarding content portability.

Google’s outgoing CEO Eric Schmidt also spoke, and his often-disconnected talk did showcase something important; online mobile services are reshaping our lives in ways nobody predicted.  If you add this to Stephenson’s talk, you get a picture of an industry that’s grappling with a combination of enormous opportunity and influence and enormous structural change.

We can find out what friends are doing almost in real time, so at least for a time we do.  We can grab video clips to laugh over, check the weather, and so forth.  But all of this is like a new TV show in a way; the first couple episodes are fresh and exciting, then the writers just run out of ideas.  What Stephenson is worried about is that a focus on mobile social indulgence is going to cover up the need to establish something real and useful at the core of the mobile revolution, particularly in content.

My research has long shown that the majority of online content consumption takes place when and where traditional content can’t be consumed, meaning that it tends to be incremental to rather than to replace the old forms.  It also suggests (though this is a hard point to survey or model) that a decent piece of the consumption is either linked to youth behavior that passes with age, or to novelty.  But there’s no question that a smart multi-screen strategy would go a long way to creating a truly useful and enduring model because people often have to skip out on something, move during a showing, etc.

Deeper into Stephenson’s talk you find the app reference, and if you think about it there’s a linkage here.  Apps that are truly compelling need to be fully pervasive.  We know that the reduction in price of consumer electronics is going to breed a multiplication of devices, and so we need to ask whether we can become dependent on future apps without having those apps available to us when we think we need them.  What Schmidt is suggesting is that mobility and online services will change our behavior, and that’s most likely to be true when we can learn to depend on the combination.  Every time we don’t have access, every time we have to stop and start, every annoying glitch, makes dependency harder to establish.

In many ways, what both Stephenson and Schmidt are suggesting is that we need more network-centric services for mobility, which is ironic given that for voice service that’s what we’ve had from the first.  The broadband revolution in the mobile world bypassed the network operators almost totally.  They jumped on smartphones to pull through higher ARPU and let the appliance vendors and their stores add non-voice (and now even voice) features.  That could have been a fatal step, and still could be.

Handset players, especially those like RIM and now Microsoft/Nokia, seem to be courting operators to dodge the problems of feature disconnect by partnering with them.  That, of course, only limits the number of people stealing from you in the perception of the operator.  Somehow they’ve got to be a part of the picture, and they’ve been so far unable to wrestle the initiative from the handset players.

More from MWC

As MWC unfolds, we’re starting to get a clearer picture of the thrust of the event and also some feedback from operators on their specific take-aways.  The picture isn’t simple, but it’s interesting!

Microsoft has said more about its Phone 7 plans, no doubt to take some pressure off new partner Nokia.  The new software will have multi-tasking and perhaps most interestingly a link to Microsoft Live and the SkyDrive cloud service.  The question with these latter two capabilities is less whether they’d be there (they’re clearly accessible via IE, and IE9 is a coming feature for Phone 7) but whether they’d be more integrated with Phone 7 or simply browser-accessible.  If, for example, Phone 7 used SkyDrive as an extension to local storage it might be a big thing.  If it doesn’t, then Microsoft is putting itself at competitive risk by suggesting that kind of integration would be a good idea.

At MWC, both Microsoft and Nokia are playing to carriers, and the sense of the message is that “We understand developers”.  The problem is that it’s not necessarily true that phone development success translates to operator success.  If there are no features in the network, only in the phone, then the operator isn’t doing anything but pushing bits and we’ve reinvented disintermediation.  A cloud angle might help, but only if Microsoft doesn’t try to steal the feature hosting for itself.

Apple seems likely to be heading in that same direction.  The WSJ reports they’re planning to drop the fixed fee for MobileMe, and I’m hearing that they have a plan to make the basic service free and to then incorporate basic “locker” storage for iTunes and App Store items, as well as to make storage online available seamlessly as an extension of the iOS device storage and to offer cloud services/features as a kind of “URL Store” like Android/Google proposes for Chrome.  How much you can trust rumor is always difficult, but it seems pretty likely that we’re going to see some major developments this year, though probably not revealed during the rest of the show.

Moving on, the dynamic between mobility and behavior is something I’ve talked about for years now.  Tablets, as I’ve noted, change that dynamic because the specific features of the tablet play to a specific set of applications.  That’s particularly true if you consider the previous appliance set consisted of mobile phones (including smartphones) at one end and wireless laptops or netbooks on the other.  Nobody (meaning no significant market quantity of people) keys stuff into laptops while mobile, and nobody (same qualifier) watches feature films on smartphones.  Tablets can do feature films and also can be used as a realistic input device for enterprise applications—the device may not be ideal for either but it’s much more serviceable than the alternative.

What the tablet explosion does to operators is to stress their mobile infrastructure planning.  A simple example illustrates the issues.  If we presume that the ideal tablet is iPad-sized, then it’s clearly a device that would be used primarily while stationary—the “migratory user” model rather than the mobile user.  If we presume that a smaller 7-inch size is ideal, then the device could be used in a much larger set of locations and by users who were moving about more often.  These two presumptions would empower WiFi or femtocells on in the first case, but less so in the second.  I like Alcatel-Lucent’s lightRadio in large part because it addresses (embraces, even) this uncertainty.  But it’s also true that operators lose any ability to decide on WiFi versus femtos if tablet vendors offer low-cost WiFi models; consumers jump on them and WiFi wins.  But tablet-only issues also count; should tablet players try to differentiate their platform (as HTC seems to be doing) or rely on a standard Android like Honeycomb to get the most developer support and avoid fragmentation?

This uncertainty spills over into both infrastructure and services.  Nobody will buy tablets to make a voice call, so what’s the mission of voice on tablets?  Is it likely people will want phones and tablets because there will be times when they want only calling or simple data apps, and others where they want to sit and consume video or collaborate?  Will they be more interested in basic entertainment or enterprise-related apps?  Is social networking a driver, and if so how do tablets facilitate social network use versus smartphones?

Operators think that vendors are starting to see the operators’ side of the issue, but they’re not yet convinced that vendor strategies align fully with their own.  Thus, they’re still looking for somebody to help them face up to the increased tension in the mobile space, and they’re not finding it at MWC, or likely elsewhere, in the near term.

Early Look: MWC

As Mobile World Congress opens this year, it’s already clear that we’re going to see a battle of relevance as much as one of technology.  Network equipment vendors divide roughly into two groups; those who have wireless 4G assets and those who don’t.  The former group has a direct link to wireless projects and investment, which means that they can pull through backhaul and metro gear in larger projects.  The latter group is hoping to make their network-layer products relevant in a world driven increasingly by mobile and radio technology.  Cisco and Juniper have already announced products that are aimed at creating a mobile-accommodating backhaul and metro infrastructure, and at improving the management of the experience.

Arguing over which of these vendors has the best “box x” or “box y” is an exercise in futility.  The one area where they may differ in a tangible way is what we call the “service layer”, the software and “networkware” tools that reside above the normal transit/connection assets.  While Cisco is clearly widening its pool of assets at the service layer, they’re not yet integrating them into a single structure.  Juniper’s Junos ecosystem does that, which makes it a bit easier to position the assets as symbiotic.  Symbiosis among service elements is critical in assuring an end-to-end experience.  It’s hard for me to believe that Cisco doesn’t plan something more ecosystemic at the service layer, but on the other hand they’ve had plenty of inspiration from competitors (including Juniper but also Alcatel-Lucent) and they’ve not made the move yet.

The big question for both Cisco and Juniper is whether Alcatel-Lucent has finally got something going for itself.  The lightRadio announcement is a strong one, and while both Cisco and Juniper have either developed or acquired products that can be used in hotspot deployment, they’re not able to address the RAN itself.  Ericsson and NSN can, but they don’t have a strong switching/routing portfolio.  Alcatel-Lucent also has an increasingly cohesive service-layer strategy, and were they to get that story to gel convincingly they’d make it a lot harder for any of their competitors to tell their own service-layer story, no matter how far along that story might be.  He who sings first, wins.

It’s also clear from MWC that tablets are the pivotal product in the mobile space.  All the financial analysts have estimated iPad growth will beat that of the iPhone, and you can tell that everyone is frightened of an Apple market sweep by the fact that tablets are being rushed out for display with neither pricing nor availability noted.  A part of this is the fact that the tablet players are still looking at carrier deals and don’t want to spoil any negotiations, but another is the fact that Apple competitors are just not ready.  Android Honeycomb is the first tablet-sensitive version, WebOS is just emerging from its new HP parent, and nobody is even sure what form factor makes sense or how important the enterprise is versus the consumer.

Smartphones and tablets might become the next battleground between traditional players and the emerging China competitors.  ZTE is going to ramp smartphone production and is promising models under a hundred bucks.  I’ve also heard that both ZTE and Huawei are looking hard at the tablet space, both focusing on an Android model.  The story is that there won’t be a big push by either until late this year, but you never know.  The entry of either of these players could throw a big monkey-wrench into the market because both might be inclined to offer a very cheap WiFi-only model that would decouple tablets from carriers on a larger scale.  That could confound the strategies of the current giants, though some (like Apple) already have a pure WiFi capability.  The reason for vendors liking the carrier strategy is the subsidy, which gets the price down and increases acceptance.  If somebody does that without the subsidy, all bets are off.

Microsoft Invades Finland and Alcatel-Lucent Rises

“Half a loaf is better than none” is an old saw, but it sure seems to describe the newest mobile development—the Microsoft/Nokia pact.  The pact is being hailed and panned depending on perspectives, but maybe it deserves it because it’s not the whole solution for either party.  Both probably know that, and are gambling that taking this step will win them enough time to think of the right answer.  But that may be behind both companies now, and maybe forever.  Half a loaf may be no loaf at all.

For Nokia, the deal gives them a mobile platform that has a partner in the most critical smartphone market—the US.  It offers them developer cred, so to speak, and it acknowledges in a backhand way the fact that they need a marketing partnership to be cool (their homeland climate notwithstanding).  For Microsoft, it offers the promise of a much faster ramp on Phone 7 through a conduit with the largest provider, and a much-needed boost to 7’s credibility in an ever-more-competitive mobile OS space.  It sounds win-win, so why am I so down on it?

Well, to start off with, you have Nokia the marketing-deprived joining forces with Microsoft, whose own marketing (particularly in the phone space) has left a lot to be desired.  In its core businesses, Microsoft is losing market share and credibility against both the top mobile rivals.  They lost mobile share until Phone 7 came along, and it’s too early to say whether that will gain them anything.  Get every marketing type in Microsoft and Nokia in a room, and a couple Apple or Google guys would nail the doors shut in a minute.

Then we have the issue of “joint development”.  Where has either company had a major success with that?  In fact, neither Microsoft nor Nokia independently have been able to drive a product to market in a timely way, or address the evolving needs of the mobile space before somebody else tied them up.  Now we have the two trying to do it together, separated by miles of polar waste?  Sounds like an advert for Cisco’s telepresence.

But the big problem is the timing.  This is not an alliance of the agile, guys.  They are not going to hit the ground running.  Even spokespersons for the companies suggest that there’s a multi-year transition period to be faced.  At the end of that period, where will iOS, Android, and perhaps even WebOS be?  Will they suspend progress to give the Microsoft/Nokia alliance a fair shot?  Will people stop buying phones to see what the new collective comes up with?  Get real.  The fact that Nokia refuses to acknowledge any meaningful change of status for Symbian or MeeGo doesn’t help, nor does the broader commitment to Microsoft for Bing and ad brokering.  It makes Nokia a junior partner in their own deal, junior to a company that’s losing market share to mobile competitors too.

A final note; Alcatel-Lucent announced its earnings yesterday and the results were a sharp contrast with Cisco’s, sending Alcatel-Lucent’s stock up more than twice the percentage that Cisco’s fell.  The most impressive fact was that revenues increased in all geographies and product sectors.

If you couple this with Alcatel-Lucent’s lightRadio announcement, too late to impact the latest numbers, you wonder whether the company may not be finally getting it together.  Another implication is that if nobody is effectively linking service opportunities vertically through the network, then the guy with products in every part of the network has an edge.  For Cisco, that may be another reason to get serious about service-layer strategy.

Lessons from the Fall(s)

Cisco’s numbers were a big disappointment to investors, and they focused on two issues that are in fact the key ones for Cisco (and the market) at this point.  First, Cisco’s gross margins were off, and that’s likely due to discounting forced on Cisco by competition.  Second, Cisco suffered in the critical switching space, the place where most enterprise investments and the key data center investments would be likely made.  Even service providers today are more likely to buy switches or switch/router gateways than pure routers.  Thus, it seems likely that either the market is unexpectedly soft or that Cisco is losing share here.

I think it’s the latter.  The problem Cisco has is the classic incumbent market leader problem.  They can’t accept organic sector growth, they can’t hope to gain market share, and so they have to look for adjacent opportunities.  The problem is that these are proving harder to grow quickly than Cisco had hoped, and in the meantime the lack of focus on core business sectors has created a greater risk of market share loss.  There are plenty of drivers for that outcome, too.

Switching, meaning Ethernet and lower-layer technology, is highly price-sensitive because it’s the largest category of network investment enterprises make.  It’s also hard to differentiate because, well, bits are bits.  Thus, while enterprises are eager to modernize their data centers, it’s proven difficult to demonstrate that switching features are relevant to that task.  The goal, after all, is IT modernization and switching doesn’t link well or even directly to IT features.  For service providers, switching is mostly about aggregation, which is also a hard application to differentiate.  There’s no clear link between switching and the service layer where the money is, because vendors (including or even especially Cisco) haven’t worked hard enough to create one.  Thus, going cheaper is a powerful motivation, and everyone is under pricing pressure.

This is bad for Cisco, of course, but it’s not a good sign for the market overall either.  Gaining market share against Cisco based on price is a kind of hollow victory; you only set the stage for commoditization and loss to Huawei or ZTE.  I hate to keep beating the same drum, but the problem is that without new revenue hooks to pull through infrastructure, operators can’t keep investing and they certainly can’t value small feature advantages over larger price advantages.  Industry: beware!

Nokia’s falling status and confidence continues, with leaked documents from CEO Elop suggesting that perhaps the MeeGo alliance isn’t going to perform and renewed rumors that Nokia will adopt Microsoft’s Phone 7 or Google’s Android, or maybe both.  The fact that this debate is happening at all, and in public, is evocative of the gulf between what Nokia needs to be as a 21st-century marketing machine and what it is—an old-line conservative in a market that no longer values either attribute.

The question at this point is whether any choice it might make could possibly matter.  Probably not, I think, not because of the confusion and loss of confidence that the current debate creates, but because the issue has even come up.  With a lead in the phone space, and with a smartphone OS that could have been a contender (so to speak), Nokia has passived itself into irrelevance.

We live in a consumer age, a time when there are both players eager to offer whatever the current fad might require and frameworks to facilitate the offering.  That kind of situation doesn’t create many opportunities for the guy who thinks that he can wait for a market opportunity to develop and then to support it with superior engineering or a known brand.

The question isn’t what Nokia is going to do (same as always—not much) as much as what some of the other entities in a similar situation will do.  Ericsson comes to mind, and NSN obviously.  Alcatel-Lucent, I think, has demonstrated with lightRadio that it’s capable of doing something compelling, but even that significant step needs service-layer buttressing.  Their announcement in a socially linked call center is another good sign, but it would have been better had this app been linked to a service-layer strategy for enterprises and operators and not just an atomic announcement.  Innovation is the process of authoring services for the masses these days, not pushing bits.  It would have helped Cisco, or NSN, or Ericsson, or Alcatel-Lucent, or Juniper in the current quarter.  Sooner or later somebody will figure this out.

Then there’s HP.  The company finally made an announcement of WebOS-based products derived from the Palm DNA, but the announcement was hardly earth-shaking.  A small Pre-like cellphone/smartphone and a 9-inch tablet were announced, but no pricing or release dates or carrier deals were firm.  Thus, the whole thing looks like a place-holder, initiated about six months after the time for place-holding was past.  HP needs to make something of WebOS and the Palm deal, and they need (more than Microsoft) to be successful in the appliance business.  They didn’t offer anything that would be truly compelling.

The nine-inch tablet is their biggest gamble, and hope.  It takes on the iPad more directly than most of the other tablets, which focus on the 7-inch form factor, but corporations tell me they like the smaller tablet and HP has a much tighter relationship with the enterprise than with the hip consumer.  The website positioning is clearly targeting the consumer too, so HP is doubling down and chasing Apple in its core market with a comparable product.  There are some interesting features; wireless keyboard and wireless integration with the HP phones, but whether they’ll sustain the product in a market that will be really hot by the time HP even gets a product in the field is another matter.

Maybe Nokia needs to team up with HP.

Rebellion or Revolution?

We’re continuing to see parallels between the world overall and the world of technology; between global economic issues and tech issues.  It’s so logical (the parts conform, after all, to the Model of the Whole) that you have to wonder if it’s an accident!

Egypt is proving that online social network services can build a rebellion, but not necessarily create an alternative to what’s being rebelled against.  Governments, and even more so societies, are complex systems that arise either through the clever planning of a small group of very knowledgeable people or through a protracted period of trial and error that can generate disastrous missteps.

Telecommunications policy, and broadband policy in particular, are impacted by the same dichotomy.  We have successfully torn down the “old” model of public networking but we’ve not yet created something that can provably replace it.  The challenges of today are rooted back as far as the Modified Final Judgment in the early ‘80s that launched global privatization of telecom.  From that moment to this, we’ve taken each step largely based on public outcry over the effects of the last rather than studied assessment of the likely consequences.

The FCC now says that Universal Service is Universal Broadband, for example.  If broadband is shifting its application to delivery of online video, isn’t that the same as saying that everybody should get free cable or satellite, or have their services subsidized?  The FCC says that the Internet is an open conduit for information, where everyone should have an equal chance to deliver their products/services to consumers.  Is it then something like spectrum, whose use we regulate in the public good?  You get the picture here.  Taken in isolation, these decisions or steps are logical, but we’re creating new definitions by default, by rejecting old ones without replacing them.  What entitles a “service” to be judged “universal”?  What is a “neutral” or “open” Internet?

Congress is likely to get a shot at privacy with legislation due to be introduced that would set standards for tracking.  Congress already has a bill that says that under no conditions can content providers be asked to pay for handling of traffic.  Maybe Billy Joel had the right idea:

They will tell you, you can’t sleep alone in a strange place

Then they’ll tell you, you can’t sleep with somebody else

Ah, but sooner or later you sleep in your own space

Either way it’s okay to wake up with yourself.

We’re closing off economic doors everywhere, and yet economics are the foundation of all markets.  Everybody in a commercial framework has to make money, and so some set of people have to pay it.  Otherwise, the market wakes up eventually as an empty definition; a bazaar with neither sellers nor buyers because it has no currency of exchange.

The success of the iPhone, of Android, and the growing success of tablets is an indicator of revolution that’s as clear and as convulsive as could be represented by demonstrators in an Egyptian square.  But it’s also a revolution, a rebellion, and not a replacement.  Creating a new way to consume information doesn’t create a new information market, only new demand.  There has to be a New Supply too.  The question in telecom, as in Egypt, is whether the forces of change act faster than the forces of reconstruction.  Anarchy is the default form of government, and also the default state of a market.  It’s not typically the desired state for either one.

Are we seeing the failure of the “social” or “crowdsource” model here on a geopolitical and market scale?  I wonder.  Ask a million people a question and you’ll likely get a consensus, but not necessarily the right answer.  Is a true popular democracy, or a true consumeristic market, doomed to fail because it is incapable of creating a functional system for its own operation?  I wonder that too.

Alcatel-Lucent Hits Half a Home Run

Cost matters, and nowhere is that more true than in telecom, and in mobile broadband in particular.  Operators are trying to manage what’s clearly a decisive shift of their own revenue/profit potential from wireline to mobile, and to manage the cost of creating and sustaining customers and ARPU.  One of the key elements in this shift is the feedback loop created by ubiquitous mobile broadband, a rich inventory of new appliances like smartphones and tablets, and human behavior.  With different tools, we do things differently, and planners are discovering that in mobile broadband one difference is the way cell planning has to take place.  Alcatel-Lucent announced a revolution in cell technology with lightRadio, a completely new way of looking at mobile radio networks that’s tuned to the real-world changes in broadband consumption that tablets now drive.

The basic notion of lightRadio is to make cellular antennas more “populist”; something you can stick on a wall or a light post or a traffic signal or even a billboard.  The ability to deploy the antennas to ad hoc sites is created in no small part by their superior economics, but also by their significantly smaller size.  The combination means that it’s possible to stick a dozen cells in a small downtown area where it might have been difficult to get five in the past.  That means more than double the potential RAN bandwidth available to customers, and at significantly less than double the cost.

The question in my mind now is how much further Alcatel-Lucent might take their mobile revolution theme.  Managing the RAN cost-effectiveness is critical for the mobile broadband space, but all cost management strategies eventually fail and all vendors who rely on them become commodities, or worse.  For Alcatel-Lucent the question is whether they can link the disparate elements of their Application Enablement story to the lightRadio picture, and thus capture the mobility/behavior symbiosis for their customers.  If they’re going to do that, they’ll need to move quickly; monetization strategies at the service layer will be reaching a critical point of transition from planning to execute in the second half of this year, and there’s little time to wire the RFIs and RFPs in your favor.

Paths to a New Content Paradigm?

There are some new indications that the momentum of the web is shifting more decisively toward content, but not in the simplistic “content is king” sense.  What’s happening is a combination of fairly complicated and interrelated shifts, and these are gradually changing the way the online business model works.  How that will impact the online market players is yet to be seen.

One obvious shift is the increased interest of portal players in having their own content, something that we can fairly say is extended into the TV space by the recently approved Comcast/NBCU deal.  Ads have to live in something that consumers want in order to be pulled into view, and so all ad sponsorship (and pretty much all of the online world) has to have that magnetic content.  It used to be that you could act as a portal by simply aggregating everyone else’s material, a move that played to early desire by practically every business and content producer to get a web presence.  AOL’s decision to buy the Huffington Post (a growing liberal media site) reflects the reality that most of the content sites are now looking at monetization on their own.  That means that portal/aggregator sites have less to work with—unless they start becoming producers.

What’s interesting about both the Comcast and AOL decision is that the choice is one of buying professional content and not going with the “crowdsource” trend that’s obviously cheaper.  Google’s challenge in monetizing YouTube is likely the reason, and the fact that crowdsourced portals would start to look a lot like social networks.  Ben there, done that.

Yahoo is the poster child for the other shift—we’re seeing the “semantic web” not as an Internet trend but as an aggregator trend.  Think “semantic portal”.  The notion is to combine search and context with portals and targeting to produce relevant content for consumers.  The relevance factor makes the portal more attractive, and presumably would therefore help Yahoo monetize its higher overall scores at serving content to consumers (they beat Google slightly in unique visitors, for example, in comScore results).  That might let Yahoo pay more for content and dodge the pay-wall trend.

What all this means, of course, is that the bloom is off the rose.  We’re past the growing-up phase of the online world and into the hard business middle-age.  I’ve noted the issues of maturity as they apply to the ISPs in the last couple of posts, and the new trends show that maturity is upon even the OTT players.  The question is how much of the online revolution is a fad.  Here in the US, where alternative channels of information dissemination are the richest in the world, we have the lowest online penetration and the least interest in getting online among those not there already.  Does that mean that we’re already seeing an opt-out effect?  It doesn’t seem so, but it does appear that we’re seeing the lack of universal opting in.  That could be a result of a lack of “fad sensitivity” among a segment of the population.  If so, the effect could spread as having your own personal website or being on Facebook or Twitter, or even playing with a smartphone at a party, ceases to be cool.  Not only do we have to worry about re-inventing the Internet as a network, we have to re-invent the coolness model every year or so, because the requirements to achieve the cool state shift rapidly.  Good thing I gave up years ago!

The Field of Dreams Becomes a City of Patio Gardens

One of the issues that now face the networking market is the fate of Nokia, the once-giant smartphone and networking company that has seemed to stumble in every market race for the last couple of years.  There have been all manner of analyses of why this has happened, but they’ve all (in my opinion at least) missed the most critical point because they’ve focused on symptoms of the decline and not causes.  The cause of Nokia’s problem is its culture.

Tech companies in general, and companies that tend to sell to large conservative buyers in particular, become accustomed to serving a market that’s supply-driven.  The buyer sets the goals based on formal (and protracted) planning processes and the seller fills orders.  There’s a nice horizon out there, clearly visible, and everyone can see the path to it.  The Bell System rules; build it and they will come.

Not any more.  What the Internet did in networking was to produce universal data connectivity; IP dialtone.  That opened the way for people to work to deliver stuff without the protracted planning and capitalization issues that would face somebody who had to create the connectivity in the first place.  Forget fields of dreams, plant a garden.  It made data networking consumeristic, and you can see that today in every aspect of networking from appliances to the deep core—or at least the smart players can see it.  Nokia, and again IMHO, other Euro-equipment giants, had the most invested culturally in the supply-side mindset.  Thus, they’re the least adaptable to the new demand-side world.  Nokia may be among the most challenged, but they’re far from the only ones in that mode.  With the exception of Cisco, every single network equipment vendor on the planet is stuck in supply-side quicksand.

Cisco’s not the darling of many financial analysts these days, so it may seem odd to hold them up as a model of facing the future.  But often facing the future means accepting short-term lumps to achieve longer-term rewards.  Cisco is trying to be the networking company of the Age of Network Consumerism.  They’re not always doing it right, of course, but they’re picking their way on their own into a new world, and you can never reach the destination without braving the journey.

In the next two years, every player in the market will be forced to make that same journey.  Some, like Nokia, are clearly falling short in their early efforts and creating challenges for themselves that it’s increasingly unlikely they’ll overcome.  The longer you delay the first step, the further the canoe has slipped from the bank and the harder it will be to step off.  Bigger players are also institutionally less able to support change; there are too many layers of high-inertia humans to be driven into new behavioral models.  Other smaller companies will figure out what to do and will command some of the key transitional issues between the supply and demand visions of the network.  These early positions will then lead them to the future.  There are perhaps a half-dozen such positions in all of the networking market, and right now virtually all of them are unoccupied.  What Nokia needs to do is to identify them, occupy them, and rebuild itself.  But that’s also what every other networking player has to do, or the industry five years from now won’t contain many familiar faces.

In 2000 nobody believed me when I said at a conference that the IXCs were doomed, and yet within five years they had been bought by local exchange carriers their management first considered as the weak sisters of the markets.  Names like MCI that had rung through the markets disappeared.  Don’t think it can’t happen in the equipment space.  Those who refuse to read history are doomed to repeat it.

Verizon and Time Warner have both bought assets in the cloud computing space.  Sure, those assets will be used to create cloud services to enterprises and SMBs, and also to host SaaS services to SMBs and consumers.  But from day one, operators told me that they wanted cloud architectures for their service layer to service both customers and their own feature-hosting needs.  PaaS is not only a service to enterprises, it’s the foundation of the intelligent network of the future.  The question is only whose PaaS it will be, and it’s clear from the cloud deals just done and the AT&T Foundry that the operators are ready to go it alone, without standards or equipment partners.  If they do, then a lot of those key transitional issues will be commoditized at the equipment level, and the future will contain more examples of failure in the equipment space than it will of success.