A couple of weeks ago I talked about backwards looking regulation. Last year I talked about structural changes in the Communications business. I want to extend that look at how the future is going to be different than the past. I will start by pointing you at a video that I did today. In it, I mention that the Telliant 5000 was a failure in breaking into the Tier 1 telcos. When I began to understand why about 12 years ago, I began to understand the structural changes that were going on in the business. This is important to us as consumers because it has to do with change and innovation. I am postulating that innovation in telecommunications and broadband services is dead. I will explain why in this post and I think this is not a bad thing but what it means.
Going back to the Telliant, we (AFC) bought the product to break into the large carrier DSLAM business. What we didn’t consider is that the changes of from 1984 – 1996 in telecom regulation was finally sinking into the carriers. It meant that they were not interested in building and rebuilding networks for the same service over and over again. If they were going to buy new equipment it would be for a new service. From a carriers viewpoint (as an example), 4G LTE wireless service was new compared to 3G service. From a consumer standpoint, they are not greatly different. From a carriers viewpoint, they are completely new networks. What this means is that products are up front winners or failures. Fast followers need not apply. This has shown to be true over the last decade.
What has the result been? Well, a dearth of equipment startups. There has been no point if there is no way to enter markets in a big way. This is on top of the technology stagnation that we see at the hardware layer. All the innovation has moved into the application services and into the way that applications are constructed. We have not seen the end of that revolution yet, but the IT guys are almost a decade into the world of “cloud” services, virtual machines, and open source. Yes, I know that many of these items predate a decade. But at this point, would you start an IT development without thinking about the open source that you would use to build it with?
So the application and IT world is moving at a new pace. The carrier world is still arguing about standards to implement networks using the new technologies of SDN and NFV. The IT world has been there and done that. What this means is that the world is moving past being able to build these things into carrier networks and begin to make money. What is happening is that Data Centers are dominating this market. Whether they are hard data centers like Equinix or virtual ones like Amazon Web Services (AWS), this is where the new killer applications are being developed and deployed. What this means is that the complicated networking stuff is happening inside data centers not between them or in connecting to them. Every day that carriers argue about how to build something and not how they are building it this becomes more and more true. The applications can’t wait and don’t have to. They are simply moving past the point that having fancy carrier services matter.
Why is this a good thing potentially? Well, it means that the carriers will settle back in the business of building a cost effective and reliable transport network. They will complain about the value that others derive from their transport. But that is like Fedex complaining that Amazon.com is making too much money on its deliveries. Maybe then we can stop having this silliness of major carriers trying to innovate like they are a 5 person startup South of Market in San Francisco.
Have a great weekend!
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