I was very pleased and interested when Don Clarke, an old friend from the days of NFV, posted a link on a “code of conduct” to “boost innovation and increase vendor diversity”. He asked me to comment on the paper, and I’m going to give it the consideration it deserves by posting a blog on LinkedIn as a comment, then following the thread to respond to any remarks others might make.
One of the biggest barriers to a real transformation of network operator business models and infrastructure is the inherent tension between incumbency and innovation. The vendors who are most entrenched in a network are the ones least likely to see a benefit from radical change, and thus the least likely to innovate. The vendors who are likely to innovate are probably small players with little or no current exposure in operator networks. For transformation to occur, we either have to make big vendors innovate at their own business risk (fat chance!) or we have to somehow help smaller players engage with operators. The barriers to that second and only viable option are profound, for four reasons.
First, startups that aim at the infrastructure space and target network operators are far from the wheelhouse of most VCs, so it’s difficult to even get started on such a mission. There was a time perhaps 15 years ago when VCs did a blitz on the space, and nearly all the startups that were founded in that period failed to pay back as hoped. The investment needed to enter the space is large, the time period needed for operators to respond is long, and the pace of deployment even if they make a favorable decision, means payback might take years. All this is exacerbated by the cost and complexity of creating and sustaining engagement with operators, which is the focus of the rest of the barriers below.
Second, transformation projects, because of their scope of impact, require senior executive engagement, which smaller firms often can neither establish nor sustain. A big router vendor can probably call on the CTO, CIO, or CIO of most operators with little trouble, and in many cases get a CFO or CEO meeting. A startup? Even if somehow the startup gets in the door, the big vendors have a team of experts riding herd on the big operators. That kind of on-site sales attention is simply not possible for smaller companies.
Third, transformation initiatives by operators usually involve standards processes, international forums, open-source projects, and other technical activities. Participation in any one of these is almost a full-time job for a high-level technical specialist. Big vendors staff these activities, often with multiple people, and thus engage with operator personnel who are involved in transformation. Small companies simply cannot donate the time needed, much less pay membership fees in the organizations that require them and pay for the travel necessary.
Finally, operator procurement of products and services impose conditions easily (and regularly) met by major vendors, but beyond those normally imposed on startups by smaller prospects they regularly call on. As a result, simply complying with the song-and-dance needed to get an engagement may be a major investment of resources. Some operators require financial disclosures that private companies might be unwilling to make, or insurance policies that would be expensive enough to be a drain on resources.
It’s my view that if the Code of Conduct proposes to impact these areas, it has a chance of doing what it proposes to do, which I agree is very important. Let’s look then at the paper in each area.
In the area of VC credibility for funding transformation startups, the paper makes a number of suggestions in its “Funding” subsection, the best of which would be an “investment fund”. I do have concerns that this might run afoul of international regulatory practices, which often cite cooperative activities by the operators as collusion. If a fund could be made to work, it would be great and the suggestions on managing it are good.
If a fund wouldn’t be possible, then I think that operator commitment to a small-vendor engagement model, such as that described in the paper, might well be enough. VCs need the confidence that the whole process, from conception of a transforming product through either an IPO or M&A, will work because transformation opportunities will exist and can be realized. For this to be true, though, the strategies for handling the other three issues have to be very strong.
The next issue is that appropriate engagement is difficult to achieve and sustain for startups. Some points relating to this are covered in the paper’s “Innovation” and “Competition” subheads. Because some of those same points relate to my participation in industry activities section, I’ll cover both these issues and the paper’s sections in a single set of comments.
I like the notion of facilitating the field trials, but as my third issue points out, participation in industry events is a critical precursor to that. Startups need to be engaged in the development of specifications, standards, software, and practices, if they’re to contribute innovation at a point where it has a chance of being realized. You cannot take a clunker idea out of a fossilized standards process and ask for innovation on implementation. It’s too late by then.
I’d propose that operators think about “creative sponsorships” where individuals or companies who have the potential to make major innovative contributions are funded to attend these meetings. Individual operators could make such commitments if collective funding proves to pose anti-trust issues. These sponsorships would require the recipients to participate, make suggestions, and submit recommendations on implementation. From those recommendations, the “Innovation” recommendations in the paper could be applied to socialize the ideas through to trials.
This would also address the issue of “public calls” and “open procurements” cited in the Competition portion of the paper. The problem we have today with innovation is most often not that startups aren’t seen as credible sources in an RFP process, but that the RFP is wired by the incumbent and aimed at non-innovative technology. Operators who want an innovative solution have to be sure there’s one available, and only then can they refine their process of issuing RFIs and RFCs to address it.
A final suggestion here is to bar vendors from participation in creating RFIs and RFCs. I think that well over 80% of all such documents I’ve seen are influenced so strongly by the major vendors (the incumbent in particular) that there’s simply no way for a startup to reflect an innovative strategy within the constraints of the document.
The final issue I raised, on the structuring of the relationship and contractual requirements, is handled in the Procurement piece of the paper, and while I like all the points the paper makes, I do think that more work could be done to grease the skids on participation early on. There should be an “innovative vendor” pathway, perhaps linked to those creative sponsorships I mentioned, that would certify a vendor for participation in a deal without all the hoop-jumps currently required.
In summary, I think this paper offers a good strategy, and I’d be happy to work with operators on innovation if they followed it!