Can Telcos Become Platforms?

In many emerging industry segments, when executives are asked what role their firm might aspire to, they often have said they were aiming to become a platform. What has been less clear is whether established firms such as connectivity providers might likewise aspire to become platforms. 

Perhaps it matters how a “platform” is defined, and how it is different from marketplaces and retailers in general. 

Some define a platform as a business model that creates value by facilitating exchanges between two or more interdependent groups, usually consumers and producers. Using that definition, a shopping mall is a platform. 

Using that same definition, Amazon is a platform. So are Google, Facebook, and other apps of that sort. Irrespective of what the specific value is for end users, the platform brings together advertisers and merchants with potential customers. 

source: Applico

Using a different definition, Apple might also be a platform, as many considered Wintel to be in the 1980s and 1990s. 

Another way of looking at matters is that platforms feature “two-sided” business models. Such models involve an intermediary that enables exchanges between at least two distinct sets of actors. 

Examples include credit cards (cardholders and merchants); health maintenance organizations (patients and doctors); operating systems (end-users and developers); yellow pages (advertisers and consumers); video-game consoles (gamers and game developers); recruitment sites (job seekers and recruiters); search engines (advertisers and users); and the internet. 

But that definition involves a subtlety: all market transactions involve two actors, one buying, one selling; one producing, one consuming. The notion of platform impliciting involves the notion that some economic value is produced by the platform that enables such transactions at greater scale. An advertising network or social media app might provide a good example. 

Facebook enables advertisers to reach an audience, for example, at scale. But network effects, in and of themselves, are not what defines platforms. Telecom networks have network effects, but arguably are not historically platforms. 

True, traditional communication networks bring users together--as does Facebook--but not users with advertisers, or customers with retailers. That might be less true in the future. Telcos who sell video entertainment services might become platforms to the extent that they connect advertisers with audiences, while also providing services to subscribers. 

That is another twist on two-sided markets: sometimes revenue is earned from serving the interests of both actors. In the case of video entertainment, suppliers earn subscription revenues from subscribers, and also advertising revenues from retailers. In some other cases the same might happen when telcos also become support app providers trying to reach their subscribers. 

The point is that the shift from a traditional one-sided (revenue from subscribers) telco model and a platform or two-sided business model is a big change.