Thursday, November 8, 2018

Someday, "Connectivity" Will Not be Your Value Proposition

With the caveat that any attempt at predicting the future is inherently hazardous, Nokia Bell Laboratories is creating a Future X Lab to illustrate its thinking about how networks will supply value in coming decades.  

That effort supports a vision of the future centered on the FutureX network that dramatically reshapes understanding of the purpose and function of a next generation network that will have moved beyond connectivity as its source of value.

“Creating time” is one way of illustrating the difference between “we connect you” and “we create time” as the core value proposition. By “creating time,” Bell Labs means greater productivity, in both personal and work spheres.

In this illustration, note the base of the “analog needs” pyramid: “free Wi-Fi.” That illustrates the connectivity conundrum, which is that revenue per bit keeps falling, while value shifts to other areas higher on the stack.

In the coming era, the value proposition will have to be recreated, in ways that transcend “connectivity.” And it has to be said, such proposals will seem ethereal and “academic” for people who work in commercial enterprises.

There are other obvious issues. Few people, few executives and few firms will be able to invest sufficiently in efforts to create solutions for “new needs.” It is commonplace in the tier-one portion of the business to note that new revenue streams smaller than $1 billion cannot get investment because the financial return is too small to “move the needle” on overall revenues.

Smaller firms, in niche areas of the market, are even more constrained, as there generally is little free capital or cash flow to invest in “broader” initiatives not central to the core business model.

For reasons of scale, the “normal” or “typical” way tier-one firms grow is by acquisition. That is unlikely to change, no matter how great the imperatives for industry transition.

On the other hand, observers often decry the “cultural” issues that “prevent” firms from changing. That, too, is likely correct, but largely irrelevant. If the strategic direction is to reinvent the whole business by participation at higher levels within the value ecosystem, then it is almost pointless to worry about changing culture in the legacy areas.

The people who work in the new areas will run those parts of the business. In other words, efforts to “change culture” at the lower levels of the business stack probably are largely wasted effort.

If and when service providers become relevant at supplying solutions at higher levels of the value stack, different people--with different skills required for those parts of the business--will be supplying those solutions.

The point is that connectivity providers eventually will find new roles (larger or smaller) within the value ecosystem. Many firms will lack scale to do much other than supply local connectivity, and will be acquired or sold. Firms with scale will gain scale, but vertically within the stack, rather than simply horizontally.

If Bell Labs is correct, the key value proposition for the “communications” business will shift from “we connect you” to something else, related to solving big human or business problems. It might seem quite ethereal. Someday it will be seen as eminently practical.

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