Are Vertical or Horizontal Markets the Key to Operator Success?

So is Google going vertical?  It sure seems like the deal they did with TELUS’ takes that direction.  It also seems that Google might be responding to the changes that COVID has created, not the simple WFH issues but the more profound issues of reshaping stakeholder and employee relationships to make them work better under any set of market conditions.  There may even be a connection between this deal and Telia’s recent “global IoT” announcement (and yes, I know Telia’s a different organization).

TELUS, of course, is an operator, and the Google Cloud deal is therefore a deal that’s designed to help operators address new service opportunities.  That’s the most important part of this story, in fact, because for years the network equipment vendors have sat on their (…hands…) and watched operators struggle with climbing the value chain.  Why encourage them, the vendors thought, because we’re not what’s needed on the next level.  Well, people, there are other players in the industry who are prepared to step up.  Inside this win for Google is a big, big, loss for those network vendors.

Operators have struggled themselves with that next level, of course.  According to the operators themselves, their problem is a mixture of organizational ossification, fear of changing a business model their great-grandparents could have related to, and an almost complete lack of understanding of the basic tools that are needed to take that giant, scary, step.  It’s easy to say that “The cloud is the future”, but obviously realizing the future has to be more than putting your hand on your heart and chanting “Cloud…cloud…cloud!”

IT vendors, both servers and software, have tended to believe that since other verticals have been able to adopt the cloud, telecom should be too.  The problem of course is that enterprise adoption of the cloud is a straightforward process of running stuff they need, and may already be running in some form, in that cloud.  For operators, you need to convert this to services, an intermediary step.  Many services, and likely all of the most compelling, relate to vertical markets.  Operators don’t know vertical markets as well as server/software players do.  When you sell something whose primary virtue is not getting in the way of what’s running over it, you’re understandably weak on the details of those applications.

There are some cloud-technology things that are almost surely going to underpin any vertical application the partnership might elect to chase.  One is obvious—hybrid cloud.  Very few enterprises will avoid public cloud services, and very few will go totally into public cloud for their IT.  That means everyone who’s a prospect for these applications will want to deploy them as a hybrid.  In fact, what it really means is that these are likely to be a series of SaaS (and perhaps PaaS) offerings that are designed to be integrated with both the data center and any enterprise public cloud the buyer might want.

Things like edge computing are less obvious, though I suspect that both TELUS and Google both believe that the edge is going to be a part of the story.  The press release is pretty vague on whether TELUS will be providing Google with edge-hosting real estate, whether the vertical-market services will involve the edge, or what.  It does seem like Google may be hosting some of the 5G elements, though.

An even-less obvious thing is “why verticals?”  Yes, as I said earlier, the most valuable applications for a business tend to be their “vertical” ones, because what makes them a member of a vertical is their key business focus.  Apps, or services, that support that are of primary importance.  But from the perspective of sales, that’s not necessarily a good thing.  Core business applications are really touchy elements to enterprises.

Vertical markets are also the best places for “viral spread” of technology to develop.  Companies trust the opinions of others in the same business over any other information source, and companies in the same business sector are also more likely to interact in trade shows and forums, and to exchange employees.  References from within the same sector are thus much more valuable, and the best way to get them is to attack a sector as a vertical.

The Telia IoT announcement seems at one level to have little in common with the TELUS one, but what it does have in common is that it’s an application, in this case, IoT.  While vertical applications have the greatest value, horizontal ones like IoT are second, and “platform” announcements that rely on integrators or self-development to adapt to business needs are at the bottom.  Is this just a case of second-place efforts?

No.  It’s a demonstration that “services” have to be more than connectivity.  Operators have always been aware of higher-level or over-the-top services, and in fact have watched them explode while their own businesses dip into profit-per-bit challenges.  But operators view OTT-like services the way a Dark Ages peasant would view a noble; distant, admirable, and untouchable.  Partnerships are a great way to get into something you’re afraid of doing by yourself, and if you do have to take an uncomfortable step, dipping a toe into horizontal solutions is less frightening.

I think the TELUS approach is much more likely to bear fruit.  First, horizontal IoT as supplied by a network operator is notoriously focused on selling more 5G services, which of course is just what the IoT users are trying to avoid using.  Second, horizontal IoT services are almost as difficult for a business to consume as a platform service, because these services need application partnerships to make them work.  It may not be “build it and they will come”, but it’s in some ways worse.  “Show them a blueprint and they will come!”

The big advantage of the TELUS deal may well be Google.  As I’ve noted in past blogs, Google has always been the least frightening of the possible partners from a telco perspective, and that includes “cloud partners”.  Google is also the cloud player who is the most agnostic with respect to things like multi-cloud, hybrid cloud, and even cloud-related technology deployed totally on the premises.  That means that there’s way less risk of lock-in, which is something operators are always seeing behind every bush.

For both TELUS and Google, though, this deal is a major risk.  Any high-profile partnership is equal parts of opportunity and risk.  Do it right and it’s a reference approach you can take to a lot of banks worldwide.  Do it wrong and it’s a potential disaster that will haunt your footsteps wherever you go.  Performing on the potential of the deal is almost surely going to be up to Google, because they’re the cloud and application specialists.  If they can get this right, they could launch themselves into the lead in the race for cloud providers to sign up telco partners.