Telco as a platform is a buzz phrase that is equally hard to understand. Analysts at Appledore Research, for example, urge telcos to become platforms. What they mean is that telcos need to disaggregate functions and value,
In one sense, the notion is that business models can diverge. “We identify five new types of telco business that will result from embracing Telecom as a Platform: The Utility Telco, the Network Sharer, the Neutral Host, the Innovation Telco and the Hyperscale Platform,” Appledore says.
Generally speaking, the idea is that telco platforms are “open rather than closed,” with roles that can range from simple “bit pipe” operated at low cost to wholesale models to strategies that require creating or owning applications and services of many types.
Typically, the advice is to use the open approach to build ecosystems of value, as Rakuten is doing. The key observation, however, is that the Rakuten approach involves using the telecom network to support applications and services that Rakuten itself owns, as well as third party apps and services.
Still, disaggregating the functions necessarily builds on the idea that the transport and access networks themselves are going to become a commodity, as the telco ecosystem mimics the internet itself: any lawful app accessible by any customer or user irrespective of the transmission network.
By definition, transport becomes a simple “bit pipe” function, largely undifferentiated and no longer providing any gatekeeper role. That does not preclude a telco owning and operating other assets also able to use the bit pipe. Rakuten might be a good present example of that.
On the other hand, it must also be noted that this requires that telco efforts move beyond the traditional core skill set of building and operating communication networks. Anybody with long roots in the industry knows that is both difficult and rarely successful at scale.
In fact, virtually all equity analysts consistently recommend against such an approach. Business analysts, on the other hand, routinely argue there is almost no other long-term growth strategy.
Of course, there are several ways the term “platform” is used. It sometimes is a business model.
About “40 percent of the world’s top 30 brands are now platform businesses ,” BearingPoint consultants have argued. Platform business models involve making money from transactions that happen on the platform.
In that sense, eBay is a platform; Amazon is a platform; Apple is a platform; YouTube is a platform.
But “platform” sometimes is used in the computing industry sense, where the telco network is a foundation for other apps to use. Think of the roles played by Intel, Microsoft Windows, Linux or computers themselves.
In the computing business, a platform is a set of hardware or software upon which other third-party apps can run. So Windows has always been seen as a platform, as have the Intel line of processors.
In that sense, the internet is a platform for both communications and applications. But there is a new sense of the term that refers strictly to business model, not computing or communications infrastructure.
In the internet era a new meaning has emerged. A platform is a business model based on an entity that acts as an exchange, connecting buyers and sellers.
A platform business model essentially involves becoming an exchange or marketplace. A pipe model requires a firm to be a direct supplier of some essential input in the value chain.
A platform functions as a matchmaker, bringing buyers and sellers together, but classically not owning the products sold on the exchange. A pipe business creates and then sells a product directly to customers. Amazon is a platform; telcos and infrastructure suppliers are pipes.
Amazon is a platform. Etsy is a platform. Uber and Lyft are platforms. Airbnb is a platform. All connect buyers with sellers; sellers with sellers or buyers with buyers. None of those platforms “owns” the assets traded on 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.
A true platform in the digital commerce sense 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.
In that sense, no telco I can think of actually operates as a full platform, yet. Service providers always make money directly from selling services (access and transport). Sometimes they also own apps that run on the network. But few actually operate as actual exchanges, making money from transaction fees.
If by “platform” one means a business model based on transactions, few telcos will be able to manage the transition. A platform business model essentially involves becoming an exchange or marketplace. A pipe model requires a firm to be a direct supplier of some essential input in the value chain.
A platform functions as a matchmaker, bringing buyers and sellers together, but classically not owning the products sold on the exchange. A pipe business creates and then sells a product directly to customers. Amazon is a platform; telcos and infrastructure suppliers are pipes.
Platform creation is not especially easy for a connectivity services provider. If you think about every business as either a “pipe” or a “platform,” then most businesses are “pipes.” They create a specific set of products and sell them to customers. That is a classic “one-sided market.”
A bandwidth exchange might be one example of an actual connectivity business platform. The operator of the exchange would federate business access to networks of all sorts, allowing customers to buy and sell use of any of the assets. The exchange could focus on consumers, business-to-business, carrier-to-carrier, app to app; computing as a service or almost any combination of those transactions.
But the exchange might not actually own any of the underlying networks. By that measure, “becoming a platform” is a tall order.
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