Sunday, May 3, 2020

Catching Inflection Points Can be Really Important

People tend to think in a linear way: tomorrow will be like today, just differing in small ways. Most of the time, that is a reasonable supposition. Unless it is not. 


The shift from monopoly to competition; the replacement of fixed network services by mobile; analog to digital infrastructure; embedded to virtual; closed networks to open; owned to rented computing and rate-of-return to competitive dynamics provide good examples of non-linear phenomena in the global telecom business. 


Exponential change at power law rates are hard to grasp, at first. Inflection points happen, when slow-changing trends suddenly go non-linear. The practical business implication is that being out of position when the inflection point happens can be unrecoverable.


source: Math is Fun


Once an inflection point happens, a firm or industry can miss a dramatic upturn in demand, ceding leadership to others. Conversely, when an existing product hits a negative inflection point, sales and profit can vanish suddenly. 


It will seem quite odd indeed, but back in the 1980s the best minds in the telecom industry could not figure out how we were ever going to provide voice service to most consumers in developing nations. Mobility changed that rapidly, in the 1990s. 


source: ITU


Many of us thought of voice service as a product with highly-inelastic demand, not a product with a lifecycle. Likewise, the telecom business was closed, not open to third parties. Only telcos could program the network. With the internet, no programming is necessary. Given dumb pipe access, service and app creation is independent of the network. 


Many products were expensive, physical and difficult to supply at lower costs. Now many products are capable of almost-infinite replication at very-low costs. Distributors used to be essential to move those products to customers. Now distribution often can go direct to consumer or end user. 


1980

2020

Natural monopoly

Oligopoly

High margin

Moderate to low margin

Low to moderate adoption

High adoption

Low innovation

High innovation

Stable markets

Unstable markets

Compete on quality

Compete on price

Fixed network dominates

Mobile network dominates

Tightly integrated apps and network

Open network

Owned app creation

3rd-party app creation

Sell app, use network access

Sell network access (dumb pipe)

Voice business model

Internet access, mobile business model

Similar business models globally

Growing diversity of business models

99.999% uptime

99.9% or “good enough” availability

Few lead apps

Many lead apps

IT adoption: enterprise; SMB; consumer

IT adoption: consumer/SMB to enterprise

source: IP Carrier


Such basic questions as “who can be in our business?” now are open and indeterminate. Where every telco basically offered the same products in the monopoly era, strategies now diverge. And where competition once was based on quality, most often it is based on cost, with acceptable levels of quality. 


The global telecom industry, in other words, has developed in a non-linear way. That means we often struggle to keep up. 


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