Loosely-coupled value chains create new business problems for firms used to operating in tightly-coupled value chains. The big business problem is the “permissionless” ability to participate in the value chain.
App, content or marketplace suppliers do not “need the permission” of the access provider to conduct business. And that lessens the connectivity provider’s ability to construct a direct business relationship with any app layer supplier, as well as the app provider’s need for any such relationship.
Even in the case of multi-access edge computing, where there arguably is a greater value to integrating 5G access functions with edge real estate, “convenience” or “time to market” or “cost” is more often the driver of collaboration than “necessity.”
So one often hears advice for connectivity providers that they must move beyond the connectivity role.
“In order to monetize 5G, operators need to move from a connectivity mindset focused on the underlying technology to providing a network as a platform that connects customers efficiently with their services (in the way they choose) by enabling multiparty B2B and B2B2X models,” argues Sandra O’Boyle, Heavy Reading analyst.
It is reasonable advice. In fact, creating a platform or ecosystem is de rigueur thinking these days in most industries.
But “platform business models” are very difficult to create in the communications services business, even when it remains true that connectivity is required for modern cloud-based computing.
Few words are as misused or misunderstood as “platform.” Only “digital transformation” comes close. A platform business model is based on an entity facilitating transactions between third parties, and making money by doing so. Older examples include eBay and Amazon, which do not “own” the products being bought and sold on their exchanges.
Even used in the classic sense within the computing industry, operating as a platform means that third party apps can be built using the platform. To be sure, there is indirect value as the ecosystem of apps and peripherals compatible with the platform grows. But there often is no direct financial relationship between any of the third parties and the platform upon which they run.
Newer examples of platform business models include Airbnb, which facilitates the renting of short-term lodging, without owning the rentable assets.
A platform business model essentially involves becoming an exchange or marketplace, more than remaining a direct supplier of some essential input in the value chain. It is, in short, to function as a matchmaker.
The platform facilitates selling and buying. The platform allows participants in the exchange to find each other.
Platforms are built on resource orchestration; pipes are built on resource control. Value quite often comes from the contributions made by community members rather than ownership or control of scarce inputs vertically integrated by a supplier.
To use an analogy, the whole business runs on electricity, but in few cases do we hear strategy advice to “partner” with electricity suppliers.
It is true that network slicing creates bandwidth on demand and customized forms of bandwidth on demand that support potentially new revenue or value creation models for enterprise users of the network.
But that is not so much a case of “creating a platform business model” as it is creating additional value for connectivity services.
O’Boyle says this adds “flexibility to support any service for any industry through any business model.” True, but not necessarily an instance of “changing” a connectivity business model. It is an instance of potentially increasing the value of communications, though.
Perhaps the better way to characterize network slicing is less a shift away from a connectivity mindset and more an issue of whether connectivity providers can reposition at least some of their revenue opportunities in other parts of the value chain that do indeed benefit from network slicing.
In other words, generating revenue as an app, marketplace or service provider--in addition to earning money as a connectivity services supplier--is the issue. Owning apps and operations that create value is the issue, rather than “becoming a platform.”
Few connectivity service providers can genuinely hope to become a marketplace supporting transactions between users and suppliers of bandwidth and access, rather than making money selling such access directly to customers.
In a strict sense, the former means the marketplace owner does not own the assets being bought and sold; the marketplace simply makes money when a transaction occurs. When the latter case--selling connectivity services to customers--remains the main source of revenue, a firm is not truly using a platform business model, no matter how sophisticated its products.
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