Enron’s failed effort to create a bandwidth trading market similar to energy trading operations provides an insight into why it is so hard to create telco services platforms. For starters, Enron did not actually operate as a neutral third party supporting transactions. Enron actually purchased capacity from various service providers and then made that available for purchase by customers.
It operated not so much as a bandwidth exchange but as a wholesaler. Of course, the intention was to outgrow the wholesaler function and eventually function as any other commodities market. Service providers hated the idea.
The last thing in the world they wanted was to certify their core products as “commodities,” in the sense of “low value, low profit margin” products with little in the way of differentiation. The fear was more akin to telecom products being viewed as “lower value” sugar or flour, rather than “high value” gold or rare earth elements.
Many would argue that the effort also failed for other reasons, apart from telco resistance. The information and network operating systems actually were not robust enough, and liquid enough, to support the hoped-for ease of transactions. Think of the value of a bandwidth exchange as “bandwidth on demand” and you get some sense of the issues.
“Bandwidth on demand” is not ubiquitous on any single telecom network, for consumer, retail business customers or enterprises. Though a few locations, well supplied with optical fiber and virtualized network operations capabilities, might theoretically support near real time bandwidth on demand, that is not possible at most locations.
Something possibly closer might be feasible for the few global wide area core networks and key landing stations, internet points of presence, hyperscale data centers and key colocation centers. But even there the capabilities required to support full bandwidth on demand arguably do not exist.
Much the same problem exists for connectivity products other than IP bandwidth, including voice, messaging and enterprise private network services.
The issue is whether communication networks can become actual platforms, in the sense Enron envisioned it. Among the practical problems is that Enron--not the service providers themselves--would own and operate the exchange.
It all boils down to “who makes the money” and “how” the money is made. Even when understood as a business-to-business marketplace, a bandwidth exchange, for example, a key principle is that buyer and seller transactions volume is how the platform makes money.
Some might argue that ubiquitous communication networks are two-sided markets, as users connect to user, and telcos make more money, in some cases, based on usage volume.
But that is not the definition of a two-sided market, much less a platform. A platform does not own the resources its users buy and sell. Telcos do own their facilities and do create the products they sell directly to buyers.
A communications service uses a traditional “pipeline” model, where a product is created by an entity and then sold to customers. So telcos are not platforms simply because the product allows entities to connect.
The connectivity service provider revenue model consists of creating a capability and then selling that to customers. That makes a telco a user of the “pipeline” model, not the “platform” model.
Nor is that a two-sided revenue model. All revenue comes from sales of access, subscriptions or rights of use. That is a classic one-sided pipeline model.
As an automobile must have tires, so a communications service must offer the value a buyer seeks, which is connectivity, using one or more essential protocols and features, to the relevant locations, persons or devices. Still, the revenue model is a traditional pipeline approach: the connectivity provider owns and creates the product sold to customers.
A true platform does not own the actual products purchased using the platform, and makes money by a commission or fee for using the platform to complete a transaction. A ridesharing platform does not own the vehicles used by drivers. A short-term lodging platform does not own the rooms and properties available for rental. An e-commerce site does not own the products bought and sold using the platform.
As always in real-world commerce, there are some hybrid models, where a platform might also sometimes act as a pipeline, when using the platform. House brands sometimes are created and sold by the operators of a platform. In such cases, the platform owner also acts as a pipeline product supplier on the platform.
Whether a firm can act as the organizer of an ecosystem, a platform or not creates or limits business model opportunities, especially around “how” a firm earns its money. Keep in mind that most businesses, most of the time, have a “pipeline” or pipes revenue model.
It is not an easy analogy. Some might say the issue of who pays matters, in that regard. Some might point to new services as an area where telcos actually do operate in a two-sided market, as do media companies.
Sales volumes and product relevance matter for any revenue model, for any firm. Additional issues, such as scale and value creation, are important for platforms. For a platform, scale leads to more value creation. For a pipeline model, scale leads to lower unit costs.
A real platform creates value that is directly supplied by its users, rather than created by a product supplier. Recommendations, for example, add value to platform buyers and are directly created by users, not the platform or the sellers using the platform.
Consumers and producers can swap roles on a platform. Users can ride with Uber today and drive for it tomorrow; travelers can stay with AirBNB one night and serve as hosts for other customers the next. Customers of pipe businesses--an airline, router or phone suppliers, grocery stores-- cannot do so.
Some day, efforts might again be made to create platforms for the parts of the connectivity business. It will remain a difficult challenge. Any telco hoping to become "the" platform for trading would have to be a carrier-neutral broker, and not be an owner and operator of network services in a direct sense.
By definition, that calls for a neutral third party. So it will remain difficult for any single telco to emerge as a universal platform.
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