Most commentators have likened the scandal over FTX to the Ponzi scheme run by Bernie Madoff.
Some of us see more analogies to Enron Broadband and WorldCom. In both those cases, promising and hyped technology-based businesses mixed with hyper-aggressive accounting and outright fraud, ultimately leading to bankruptcy that was a contagion spreading to the rest of the industries they touched.
Enron’s collapse, along with that of Worldcom, led to jail terms for CEOs and exposed other inflated oversupply issues that took a good decade to work off. Doubtless, the FTX scandal has caused some spillover in the blockchain and cryptocurrency spheres that likewise will take some time to work off, as excess capacity roiled the transport business for years.
But Enron, Worldcom and FTX also illustrate the excessive optimism that often accompanies big shifts of business and technology revenue opportunities. For Enron and Worldcom, the driver was the emergence of the internet. For FTX, it was cryptocurrency (not blockchain, per se).
Back in 1999, broadband was among the hyped phrases that excited investors. Enron also traded on the promise of video streaming, which would fundamentally alter capacity demand. Enron was essentially right about that, if too early.
Enron arguably was right about other things as well: edge data, interconnection points, content delivery networks and the massive change in global traffic entertainment video would bring.
But it was wrong about immediate demand for bandwidth trading and streaming revenues, as well as the ability of partners to participate and trading platforms robust enough to handle such trades.
Enron might also have missed the ability to use interconnection as a substitute for trading. These days, it is perhaps not so much capacity that is important as interconnection. And the domains that need to be interconnected are hyperscale app provider data centers and other data centers.
As it turns out, the source of value is the interconnections, not the capacity as such, even if those two are related.
Worldcom likewise grew on the back of a furious acquisition spree and ultimately fraudulent financial reporting as demand simply did not exist for the supply being built.
Still, Enron was perhaps several decades ahead of the curve in wanting to create capacity trading mechanisms similar to energy trading.
Enron Broadband hoped to create a true trading platform for capacity, a business model where it would make nearly all its money from fees generated by trading, not sales of capacity, as was and remains the connectivity provider model.
As a business model, that remains an essential foundation for any connectivity business model that is built on “being a platform.” Though the term gets thrown around casually, the platform business model is not the same as the use of the term “platform” in computing.
For computing ecosystem participants, a platform is simply hardware or software upon which other software can run. By that definition, virtually every internet service provider is a “platform” upon which applications run.
That does not mean ISPs have platform business models. In a platform business model, revenue is earned by facilitating transactions. Think Amazon or any other e-commerce platform, which enables buyers and sellers to conduct transactions.
It remains to be seen whether the trading platform operations Enron Broadband envisioned will emerge. To the extent a “platform business model” requires such an exchange, it will have to do so.
The point is that big frauds in the connectivity business or in any other business have happened at times of fervor over a “big new thing” such as the internet, video streaming or cryptocurrency.
One has to separate the fraud from the fact and the future.
No comments:
Post a Comment