If Telco Platforms are Created, Acquisition is Likely the Driver

If any telcos are successful at becoming platforms, acquisition is likely to be the path forward. 

Some observers now believe that about 70 percent of new value created through “digitalization” over the next decade will be based on platform-enabled, ecosystem-based business models, according to the World Economic Forum. 

That should raise questions about how much of that economic activity can be captured by telcos that mostly operate in non-platform markets. Basically, telecom is a “pipe” business, not only related to common parlance about selling connections, but also because of the “direct to customer” sales model. 

Telecom is not the only business or industry where debates about business strategy include the issue of “pipes versus platforms.” In fact, almost all businesses use a “pipe” model: they source and create products sold to customers. Firms create products, push them out through various distribution systems for sale to customers. Value is produced upstream and consumed downstream. 

Virtually all consumer goods use a pipe model, as does manufacturing, media, most software products and education. 

Platforms are different. Unlike pipes, platforms do not just create products and sell them. Platforms allow users to create and consume value as well. When external developers can extend platform functionality using application platform interfaces, that usually suggests a platform model could exist. 

Another way of stating matters is that, on a platform, users (producers) can create value on the platform for other users (consumers) to consume. Think of YouTube, Wikipedia, Amazon, Uber or Lyft. 

The business implications can be profound. Some attribute Apple’s rise to prominence in the phone industry not on its design, its user interface or operating system features but to its creation of an ecosystem and platform. 

In fact, the ability to generate revenue from acting as an intermediary or marketplace for different sets of market participants is the functional definition of whether some entity is a platform, or not. 

So any telco aspiring to become a platform must necessarily become an enabler of value creation, not the provider of a “pipe” product. It is almost inconceivable that any firm could do so without making a huge acquisition. 

Failing that, providers might hope to replace some lost revenue with new products, with a goal of harvesting revenue as long as possible. If profits remain elusive, then massive industry consolidation could happen, as connectivity networks become--once again--monopoly providers highly regulated by governments.