More than a Dumb Pipe?
written by Eric HernaezAugust 13th, 2006
What is the importance of owning the network? Is content really king in the converged world (by content, I mean to include traditional content like music or a video, as well as online applications like Plaxo’s address book optimizer and online advertisering like Google’s AdWords)? That prospect presents the worst possible scenario to a facilities-based network operator. Network operators don’t want to be dumb pipes. More specifically, they dread the idea that companies like Vonage, Yahoo and iTunes may collect rich service fees from subscribers, while they are left with relatively paltry access fees. Especially after spending billions of dollars to lay fiber, buy frequencies, build cell towers, and launch satellites. Yet, that seems to be the direction things are headed.
So what will the pipe providers of the world do? The immediate answer is that they will fight tooth and nail. They will push their own content and tend their walled gardens for as long as they can. They will lobby congress (or the relevant governing bodies in other countries) against net neutrality in an effort to maintain the world they know - one where there is no distinction between services and access. Along the way, initiatives such as SBC’s IPTV, Verizon’s online gaming, and Cingular’s mobile TV will plod along.
However, the pipes will ultimately have to realize that they can not be all things to all customers. First, they will never be able to provide ALL of the content or services that subscribers will want (some question whether they will provide ANY content that users will want). And, for reasons I blogged about here, their ability to provide content will always conflict with their role as a pipe.
For as long as the existing duopoly held by the bells and cablecos exists, its not likely that the status quo will change. But it won’t be long before wireless and powerline broadband technologies allow alternative pipe providers to threaten their dominance. As soon as a competitor emerges with the right mix of technology and business model, it will become clear that pipes are best suited to, well, being pipes. Already, innovative competitors like Clearwire, Earthlink and Google are starting to make their presence known.
I can only speculate about how these companies view the potential threat of the content vs. pipes conundrum. If I were them, I would begin realigning my long term strategy to contemplate a new role. How? To start, I would view the content providers as my potential customers instead of my competitors. I would ask myself how I could provide value to them. Rather than fighting them off in courts and congress, I would find a way to be of service.
When viewed in this way, there is actually quite a bit about the potential for pipes that is not dumb:
- Payments - The bane of all digital content providers is collecting payment. Without a physical address to which goods may be delivered, digital merchants are constantly battling fraud and chargebacks. A pipe provider could very easily fill this void. They know where the customer lives, and they have a tangible physical connection to them. Much like NTTDoCoMo has been doing for years with iMode, they could act as a trusted intermediary and content providers would happily pay them for this service.
- Presence - Many of the promising applications just over the horizon will depend on the concept of presence. Are you in your car, or at your desk? Is your preferred method of communication a video call or an instant message? Does your device of choice support MP3 or AAC as a file format? All of these questions are answered by presence, and as the entity with a direct connection to your gadget, the pipe provider is in the best position to mediate it.
- Directory Services - Closely related to the idea of presence are directory services. The ability to reproduce the good old phone book has proven to be one of the most vexing issues of the post-Ma Bell era. Just try to look-up the phone number of a mobile phone or VoIP user and you will understand the dilema. The lack of a trusted repository has caused ambitous attempts at creating online directory information, such as ENUM, to falter. Oddly, rather than evolving into online resources, the Bells have been steadily shedding their directory services ever since divestiture.
- Location - As mentioned above, the pipe provider can best determine the actual physical location of the mobile subscriber. Content providers are willing to pay for this knowledge.
- Marketing Intelligence - Since the pipe is the only common denominator between the subscriber and the many different providers of content the subscriber might access, the pipe owner is in an optimal position to provide marketing intelligence to the content owners. An astute pipe provider could build a comprehensive profile of its subscribers and offer this as a service to content providers. A supercharged Neilsen for the digital age (sans the box). Granted there are privacy concerns surrounding this role (adroitly discussed by Scott Lemon here) but they can and will be addressed. (Could this be the role that Google has in mind with their wifi network?)
- Quality of Service - Finally, it probably goes without saying that the pipe provider is in the best position to guarantee quality of service for bandwidth intensive real time media. Rather than threatening to degrade service for competing content providers, the pipes should be offering options to content providers for optimized quality.
The issues I raise here are but the tip of the iceberg. The point is that there is a substantial need for the functions that a pipe owner is in the best position to provide. If the pipes worked to empower content providers rather than compete with them, they could wind up collecting fees on almost all aspects of their subscribers’ online experience. The question I have is why none of them seem to realize this?
________________________________________________
Related: Wireless Week, Brad Waller, Paul Kouroupa, Jonathan Spinney, Quickly Bored, Current Analysis