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Amazon's Lessons for TelcosAmazon's Lessons for Telcos

Do network operators have what it takes to make an Amazon-style shift to third-party openness?

May 15, 2009

5 Min Read
Amazon's Lessons for Telcos

What can network operators learn from Amazon.com Inc. (Nasdaq: AMZN)? A whole lot, to judge from Amazon CTO Werner Vogels's stirring call to action at the TM Forum 's Management World conference in Nice this month.

The buzzword in Nice was "transformation," and Amazon is an inspirational example of transformation at work. In 1997, Amazon sold nothing but books and CDs to consumers. In 2009, Amazon earns almost as much revenue from other products as it does from "media" products – a transformation in itself – but its dedication to reinvention goes much further than that. Though most people still see it as a retailer of consumer goods, it is now believed that the company makes more money from third-party sellers than it does from selling direct.

Taking the decision to open its platform to those third-party merchants was a tough one, Vogels told delegates in Nice, because it looked so counter-intuitive. Why open your most valuable asset to companies that are effectively competitors? Because, according to Vogels, Amazon's creed was and is "to be the most customer-centric company on the planet." And since customers wanted to buy from all sellers, that's what Amazon did.

That's far from all it has done. Vogels walked his audience through Amazon's long list of recent innovations, including its Merchant platform; the Associate Model, which drives buyers on other Websites to Amazon's site; the Web Store Platform, which enables sellers to create their own site but use Amazon for fulfillment; and the Enterprise Platform, which is used by major Websites such as Marks & Spencer. Most recently, Amazon created the Infrastructure Platform, which provides virtualized cloud-based computing, messaging, and storage services to enterprises. And that's not to speak of Kindle, which Vogels didn't even reference in his whirlwind tour.

All of which means that Amazon continues to dominate its sector, achieving a rare double in 2008 of very rapid growth (up 30 percent in 2008, to just more than $19 billion) and healthy profitability and cashflow.

Why should that matter to telcos? Because the vast majority of network operators have been agonizing for years over how and why they should open their platforms to third parties. And while they ponder, the market marches on. On the fixed network, thousands of third-party services now run "over the top," and telcos add no value to those services other than the connection and the bandwidth. On the mobile network, things are going the same way, as companies such as Apple Inc. (Nasdaq: AAPL) lead the way.

This raises an obvious question: Do telcos actually have anything to sell to third parties, apart from bandwidth? Do they, in other words, have a platform that is, or might be, as valuable as the platform that Amazon offers to its myriad enterprise clients and to its half-million-strong developer community?

Perhaps they do. Among other assets that telcos own and could expose to third-party developers and Websites are a billing system able to handle micro-payments, a ton of data about customers and their behavior, information on devices in use, knowledge of customer locations, and the ability to securely authenticate and authorize individuals. It's not a trivial (nor a complete) list, yet their record to date in exploiting it has been woeful.

Space precludes a full litany of failed initiatives here, and the jury has to be out on whether the rash of new efforts to work with third parties, mostly by wireless operators, will be successful. The Salt SA Partner program is the largest of these to date, but it doesn't have anything like the traction of Apple's AppStore, let alone Amazon's platform. Others, such as Verizon Communications Inc. (NYSE: VZ)'s Open Development Initiative, have achieved little. And it's too early to know whether new programs such as the AppStore-like initiative announced by Vodafone Group plc (NYSE: VOD) this week will capture developers' imaginations. (See Vodafone Puts Its Apps in Gear.)

There are also some creditable efforts to get operators to work more effectively together to make their collective assets more valuable to developers. But these efforts, such as the OneAPI program announced by the GSM Association (GSMA) in February, are also at a very early stage.

In some ways, the slow progress made to date is understandable, since the challenges are formidable. The focus at Management World was on transformation of OSS and BSS – a topic Heavy Reading will be exploring in October at a one-day event in London, OSS 2.0: Driving the Services Revolution. But since many telcos have literally hundreds of different systems installed, exposing the information locked up in this forest of silos in an Amazon-like manner will be near-impossible until operators have begun to rationalize the current mess – an enormous and expensive task.

In a panel debate after Vogels's speech, a skeptical audience suggested that network operators simply don't have what it takes to achieve the transformation that Amazon has. That may be right; but it's surely at least worth trying.

Asked what advice he had for network operators seeking to work more effectively with third parties, one senior TM Forum official put it as plainly as possible: "F***ing get on with it." Maybe that robust advice can be adopted as the inspirational slogan that telco executives hang over their desk in the difficult months ahead.

— Graham Finnie, Chief Analyst, Heavy Reading

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