The 21st century heralded an era of unprecedented growth and profitability for service providers (SPs) as they controlled both the network and the services (voice and messaging) consumed by their customers. Today, however, the market has been experiencing a fundamental shift. Growth in voice and messaging has become flat while there has been a tremendous growth in “data” traffic. Ironically, even as this traffic load is being borne by SPs, revenues are being siphoned off by Over The Top (OTT) application providers like Skype, Google and others. Additionally, SPs are facing new competition from technology companies who have traditionally played a partner role. A prime example is Microsoft, who has quietly become a significant provider of enterprise voice lines. Microsoft is aggressively targeting the same enterprise market revenue sources that service providers have been relying on for decades.
Service providers have reached a fork in the road where they must either forge partnerships with existing OTT providers or brand their own OTT services. On their current course, SPs are slowly being relegated to the perilous position of “dumb pipes,” while OTT providers are making strategic and financial gains at their expense in this evolving market. Fortunately, the cloud market is still in its infancy and SPs are in a great position to capture significant market share. The initial reaction has been to forge partnerships with prominent OTT services like Google and Microsoft, benefitting from the demand built by them. This approach is shortsighted. It is tantamount to seeding the market for a potential competitor and accepting a greatly reduced role in the future. It gives SPs little more than short-term profits in the form of minimal “reseller” margins. A more strategically sound approach is for SPs to launch their own OTT services, to take control of their customers’ data and to offer them branded OTT services aligned with their strategic and financial goals. By leveraging their own brand and their sales and marketing strength, SPs will get a much larger share of the revenue pie while protecting their customer base.
Once this is recognized, the first task for SPs is to identify high potential OTT markets that may be explored. Business OTT services like Unified Communications and social collaboration, represent an attractive option as they are experiencing a surge in demand (Gartner predicts the collaboration market with grow to $21 B by 2018), and offer much greater margins than consumer OTT services, which are harder to monetize. As PWC (Consulting Company) observed in its recent report, SPs are especially well-positioned to serve the business market, given their preexisting relationship in business IT departments, and ownership of networks and infrastructure which allows them to offer best-in-market Service Level Agreements (SLAs).
While SPs have network expertise, operational experience and sales and marketing prowess, they are understandably anxious about developing their own OTT applications. The risks of building a cloud-based, scalable, simple to use and successful software product, under budget and in time to take advantage of a rapidly moving market are significant. To mitigate these risks, SPs should partner with innovative technology companies focused on specific OTT applications, with proven products and without any competitive threat. I believe a service platform layer in the new SDN/NFV world needs solutions that creates unified messaging and capabilities to lower cost and increase productivity and capability as well. This is a place where SPs can move from a pipes and ports model to a new service model which creates a new set of revenue and balance Average Revenue Per User, establishing superlative free cash flow for years to come.
Dr. Eslambolchi
