One of the most-common suggestions for connectivity service providers selling to consumers is the notion that the business model has to evolve from “connectivity” (dumb pipe) to something else, up to and including “becoming platforms.”
So look at what telcos have been doing in the edge computing business so far. You might argue the approach is not “becoming a platform” but supplying dumb pipe (hosting, in this case). Amazon Web Services, for example, is partnering with several tie-one telcos to create edge computing as a service nodes.
Wavelength is a physical deployment of AWS services in data centers operated by telecommunication providers to provide low-latency services over 5G networks. Operators signed up so far include Verizon, Vodafone Business, KDDI and SK Telecom.
Keep in mind, in this arrangement, it is AWS that becomes the platform. The telco participates as a supplier of rack space and related services, and benefits indirectly to the extent that its connectivity service adds value.
Taxonomically, the telco acts as a “pipeline” business, creating a capability (server hosting) and selling it direct to a customer (AWS). Most businesses historically have been pipelines, creating products and selling to customers, so that is not unusual.
The important fact to note is that, for this particular opportunity, telcos are not seeking to create a platform. AWS is the platform. Telcos sell a pipeline service, which, by definition, is sold to a single type of customer.
A platform, also by definition, involves becoming a marketplace where services or products are sold to at least two different groups of constituents, and where the platform enables transactions.
Ridesharing services, for example, are platforms, linking drivers and riders, but not owning or creating the resources used for fulfillment.
The optimistic view on creating a platform is that any product can become a platform if information or community can create new value. The unstated corollary is that the “platform” activities must generate incremental revenue.
And there is no shortage of recommendations that telcos become platforms. “Operators will have to shift from traffic monetization (relying mainly on connections) to traffic value monetization (inclusive of rate, latency, and slicing),” say HKT, GSA and Huawei. “In other words, operator business models must provide both intelligent platforms and services instead of merely traffic pipes.”
If you have been in the communications business long enough, you have heard that suggestion almost all the while you have been in business. “Value, not price” is the way forward, one hears.
That is correct, up to a point. Any pipeline business can add, augment or replace the actual products it creates and sells to customers. It matters not what the product is that is created and sold to customers. Generally speaking, this is the meaning of the advice to “move up the stack,” supplying value beyond connections, bandwidth or minutes of use.
The more-challenging notion is “become a platform.” The Wavelengths deal is not the only way telcos can participate in the edge computing business. But it is unlikely to create a platform for telcos, because, by definition, the sale of hosting to AWS is not a platform business model.
Quite to the contrary, Wavelengths is both traditional “hosting” and also seems a direct outgrowth of the way AWS has in the past sourced computing infrastructure, including a mix of owned and leased facilities. Along the way, AWS has had to create and get comfortable with the idea of its servers operating in somebody else’s facilities.
Up to this point, the “somebody else” has been third party data centers. But edge computing requires even more decentralized facilities. Hence, Outposts, a rack of servers managed by AWS but physically on-premises.
The customer provides the power and network connection, but everything else is done for them. If there is a fault, such as a server failure, AWS will supply a replacement that is configured automatically. Outposts runs a subset of AWS services, including EC2 (VMs), EBS (block storage), container services, relational databases and analytics. S3 storage is promised for some time in 2020.
Local Zone, currently only available in Los Angeles, is an extension of an AWS Region, running in close proximity to the customers that require it for low latency. Unlike Outposts, Local Zone is multi-tenant. AWS deploys only when there is a critical mass of customers unable to take advantage of an established AWS region.
All three services essentially are built on Outposts and local server facilities using third party sites. As AWS had to get comfortable with third party data centers hosting its servers, so Outposts extends that hosting to enterprises.
A Local Zone is effectively a large group of outposts.
Wavelength involves Outposts located inside a telco facility of some kind, likely often a central office. AWS is early to move, but the other hyperscale computing-as-a-service providers also are expected to make big moves toward edge computing facilities as well.
By 2023, by some accounts, the hyperscale cloud computing firms will be spending $23 billion in a single year to create edge computing facilities, about half of total capex in that year.
All interesting. And telcos are likely to experiment with other initiatives in edge computing. But Wavelengths does not achieve the objective of creating a platform.
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