Platforms Add Value for Consumers by Reducing Information Asymmetry

Reducing information asymmetries between consumers and service providers is one outcome, and one precondition, for “platform business models.” Greater competition for incumbent suppliers is almost always an outcome. 

source: OECD 

A company with a platform business model earns its revenue by facilitating transactions between buyers and sellers. Often such facilitation includes rankings and ratings, but almost always includes the ability to purchase or make reservations as well. Travel websites are examples. 

Other platforms monetize otherwise unused assets (rooms, clothing, tools, cars, scooters or bicycles), enabling commercial revenue creation for assets that otherwise would not be in commercial service. 

Typically, information asymmetry protects prices. So platform business models should always increase competitive pressure, first by reducing information asymmetry, and secondly by creating new competitors to existing products.

Great Bosses are Relatively Rare

There is a reason people resonate with the TV show “The Office,” or in past decades have found the comic strip “Dilbert” so funny. Most of us who have worked a long time know it is somewhat rare to encounter “great bosses.” Most of the time, most employees realize their bosses are not especially talented in such roles, including both middle and top management. 

Very few people ever are ready to occupy the top rungs of any organization, research suggests. Nearly 70 percent of CEOs report they were not fully prepared or those new roles. 

In fact, companies fail to pick the right people for such spots as much as 82 percent of the time. 

In fact, according to Gallup research, only about 10 percent of people actually possess the skills necessary to provide leadership that makes a difference to organization results. Also, note that leadership and management are conceptually different matters. 

If you think about leadership as always involving change, stress or danger while management involves the conduct of processes on a day-to-day basis, without major external threats, you get some flavor of the difference.  

If leadership can be informal or formal,management is always organizationally determined. And the best of the best arguably are superior at both.

“It's important to note that another two in 10 people exhibit some characteristics of basic managerial talent and can function at a high level if their company invests in coaching and developmental plans for them,” says Gallup. 

All together, finding that 10 percent of top managers, and cultivating the additional 20 percent, can contribute about 48 percent higher profit by their companies, compared to firms that did not make those choices.

Companies that hire managers based on talent also tend to see a 22 percent increase in productivity, a 30 percent increase in employee engagement scores, a 17 percent increase in customer engagement scores and a 19 percent decrease in turnover, in addition to the 48 percent boost in profit. 

“Sure, every manager can learn to engage a team somewhat,” Gallup notes. But outperformance will not happen. “Being a successful programmer, salesperson, or engineer, for example, is no guarantee that someone will be adept at managing others.”

“Most companies promote workers into managerial positions because they seemingly deserve it, rather than have the talent for it,” Gallup notes. “This practice doesn't work.”

Gallup finds that great managers have the following talents:

• They motivate every single employee to take action and engage employees with a compelling mission and vision.

• They have the assertiveness to drive outcomes and the ability to overcome adversity and resistance.

• They create a culture of clear accountability.

• They build relationships that create trust, open dialogue, and full transparency.

• They make decisions based on productivity, not politics.

 

source: Gallup

As some other studies suggest, outcomes are more likely when organizations focus on strength, rather than attempting to overcome or compensate for weakness. “Companies repeatedly put people in manager roles because they were successful in previous roles or because they have been with the company for a long time,” Gallup notes. “This is a flawed strategy.”

 

source: Gallup

Hedonic Quality Adjustment and Broadband Prices

Hedonic qualIty adjustment is a method used by economists to adjust prices whenever the characteristics of the products included in the consumer price index change because of innovation. Hedonic quality adjustment also is used when older products are improved and become new products. 

That often has been the case for computing products, televisions, consumer electronics and--dare we note--broadband internet access services. 

Hedonically adjusted price indices for broadband internet access in the U.S. market then looks like this:

source: Bureau of Labor Statistics 

In other words, dial-up internet access and gigabit broadband are not the same product. 10 Mbps broadband is not the same product as 100 Mbps or 500 Mbps service. 

The same trend holds for mobile phone service, phones and other consumer electronics gear. The value and “quality” of a mobile phone subscription in 2000 is not the same as the 2020 value. Nor are the capabilities of a mobile phone the same in 2020 as was true in 2000. 

Without hedonic adjustment, it is hard to track value, capabilities or price over time. And that is before adjusting for inflation, or comparing prices to the overall cost of all goods bought in any single market. 

Telecom Is Not the Only Business With Tough Profit Margins

Slim profit margins also explain many other parts of the end user experience, automation imperatives and downsides, capital and operating cost concerns. Stranded or under-utilized assets are a business issue for both connectivity providers and airlines. 

Still, the next time the customer experience sucks, ask yourself whether you'd rather have a much-better experience for prices three times what they presently are. We might choose what we've got. 

Disaggregation Works Both Ways, Though Opportunities are Not Symmetrical

One observation about the way connectivity networks are becoming virtualized and disaggregated is that we most often see that the disaggregation brings new suppliers or partners into the business. Functions once conducted mostly internally become externalized.

source: STL Partners 

What we tend to see talked about relatively rarely are ways that disaggregation in other industries might similarly lead to opportunities for connectivity providers to enter value chains or assume new roles in other industries. 

Internet of things, private 5G or 4G networks and edge computing are among the areas where telcos or connectivity providers might have opportunities. But such opportunities tend to be anything but easy. 

In some cases that occurs because other contestants seemingly are better positioned to take on new roles in disaggregated operations. Existing system integrators, for example, might be better placed to act as 5G private network operators than would telcos. The same might be true for IoT system integration as well.  

In other cases the financial return from acting as app, platform or other value suppliers is challenging enough to discourage active pursuit. That is true for efforts to craft vertical market internet of things value propositions, for example. 

The other observation is that it almost always is easier to move down the stack and vertically integrate a lower-level function than it is to move up the stack and integrate a higher-order function. 

source: Vermont IT Group

In other words, the business process provider knows precisely what it requires from functions l;ower in the stack. 

But companies lower in the stack “have to guess” at what potential buyers higher in the stack will want, and have to be prepared to support all potential buyers (lowest common denominator) or optimize for a few verticals. 

There are other approaches, such as attempting to create horizontal platforms of some sort. Some argue that operating neutral host systems for in-building mobile network access are an example. Some might argue that operating as a wholesale-only access or transport platform is an example of horizontal specialization.

Most such examples use the computing industry notion of “platform” and not the business model sense of “platform.”

Operating edge computing real estate facilities might also qualify as a “platform” function, as the term is used within the computing industry (software or hardware that other software or hardware can run upon). 

But real estate functions for edge computing suppliers are not a “platform” in a business model sense, where an entity makes its revenue by facilitating exchanges and transactions between buyers and sellers. 

Disaggregation in other industries does offer opportunities for connectivity providers, albeit difficult opportunities in most cases.

How Valuable is Telco Data?

One often hears it said--in the communicatiions service provider business and elsewhere--that a firm’s data is valuable for reasons other than keeping track of sales or ensuring payment for sales made. Customer data is said to be valuable and monetizable in various ways. 

Of course, the reverse might also be true: a company’s customer data might be less valuable than that provided by third party sources, at least in some cases.

Consider the results of a survey of U.K. retailers and e-commerce firms by Oxylabs.

That study found that 57 percent of respondents make use of public third party data by means of web scraping, the culling of structured website data. Just 51 percent reported using their own internal data 

source: Oxylabs 

That might bear on the question of “how valuable is your data?” “Businesses in the retail and e-commerce sector clearly have a growing need for public web data, and the interest in old school sources of information is waning,” says Oxylabs.

In other words, there are at least suggestions that a retailer’s internal data is less important, in some ways, than external, third-party data obtained by web scraping. 

As you might expect, external data is viewed as most valuable for forecasting. Predicting market trends and consumer demand; benchmarking against other firms and setting pricing are among the key uses of external data. 

source: Oxylabs  

What your own customers buy, in what quantities and when, in what packages and at what price levels, is valuable information. What is less clear, in the connectivity business at least, is how valuable firm customer information might be to third party buyers or users, especially when only available at an aggregated anonymous level. 

All of that shapes reasonable expectations for monetizing connectivity provider analytics. Telco data might be less valuable to third parties than many believe.

What Has Changed for FTTH?

For more than two decades, U.S. cable operators have won the market share battle with telcos (net new additions) as well as the installed base battle (percentage of total customers). That appears poised to change, with telcos now believed to be possible installed base gainers. 

To accomplish that, telcos also would likely have to win the market share (net new additions) battle. We haven’t seen that in two decades (some might argue telcos never have won the market share battles) but it seems possible for the first time. 

So what has changed? Several things, probably. Some important tier-two telcos that had been capital constrained have now restricted to the point where they can afford to invest in new fiber-to-home facilities where they had not been able to, in the past. 

Tier-one suppliers also arguably have altered options. Verizon, which had largely halted FTTH deployments because of the business model, now sees different returns as a result of fiber deployment to support its 5G small cell deployments. One byproduct is a denser optical transport network that can change the incremental cost to provide FTTH. 

But market share or installed base can change in other ways directly related to that denser fiber transport footprint. In some cases, 5G fixed wireless can allow Verizon to gain share without full FTTH. If the issue is “bandwidth to the home” or “gigabit to the home,” then 5G fixed wireless might work, irrespective of the platform. 

AT&T has been deleveraging, and is the telco with the most room to upgrade its access networks to FTTH. 

source: Standard & Poors 

Lumen Technologies, on the other hand, recently divested itself of about half its total consumer access lines, to concentrate on its denser metro areas. 

It might seem paradoxical that perceptions of return from FTTH investment are higher than once was the case when three mass market services--each with high adoption--were possible with FTTH. With the decline of voice and linear video entertainment revenues, the fixed network business case for consumer services largely rests on internet access. 

Logically that should create a worse business case, as revenue mostly must come from a single lead application. But other parts of the revenue and cost model also are changing. Third party sources of funding sometimes are more lucrative (either from joint builds or bigger government subsidies). 

Divesting linear video reduces revenue, but also cost. Harvesting voice while concentrating on internet service provider operations might in some cases lead to lower operating costs. 

Also, though telcos failed to halt the slide in broadband market share over the last two decades, the growing need for more-symmetrical bandwidth now offers telcos a possible marketplace advantage over cable operators. 

Also, telcos increasingly are building models that rely on broadband for nearly all the financial return from a new FTTH build, based on steadily-improving efficiencies. Telcos with 5G backhaul networks now can leverage those other fiber transport investments to support consumer home broadband investments. 

Expectations about installed base share also help the new payback models. Where telcos once might have held only 30 percent share of the installed base, they now can reasonably expect to eventually take 50 percent share of the installed base, which changes the financial return. 

Up to this point the U.S. FTTH footprint has been rather modest. All together, telco FTTH probably today passes only about 29 percent of U.S. homes. That percentage will grow closer to half of all U.S. homes over the next five years or so. 

That still leaves telcos with a problem: they wil be able to sell FTTH-based gigabit services to only half of U.S. homes. What to do about the rest is the logic behind 5G fixed wireless. 

In 2021, for example, Comcast, the biggest U.S. cable operator, faced an FTTH competitor in less than 30 percent of its footprint. That obviously limits the amount of total share loss Comcast is exposed to, as cable trounces digital subscriber line platforms  in performance. DSL simply is not competitive with cable modem service. 

Then there are the strategic issues. Absent the upgrades to FTTH, can a fixed network service provider reasonably expect to remain in business? Increasingly, the answer is “no.” To the extent that internet access is the paramount driver of fixed network revenue, then FTTH either is installed or the telco faces bankruptcy. 

The argument then is not so much “we will make more money” as it is “we get to stay in business.”