Far from facing extinction, I firmly believe that Telcos have a bright future, and if you are interested in innovation, and in moving communications forward, you simply must include the Telcos in your ecosystem and value chain.

I’ll wait a minute while you catch your breath. For those of you in the United States: if you have pains running up your left arm, please stop reading, grab that evil corporation supplied phone, and call 911.  And, as I’m sure somebody is thinking, I didn’t have a stroke myself. At least, I don’t think I have… my speech is always slurred.

Earlier in the month, my friend and respected thinker Ken Camp posited that Telco 2.0 was a flawed delusion, and I cried foul. (OK, I cried bullshit – and all I’ll say about that is that I won’t hesitate using that term with my own wife, so Ken’s in good company.  Ok – that’s not true either- but only because she’s within arm’s reach and takes Karate.  If she lived on the other side of the country and was not trained to kill geeks like me, I would call bullshit. But I digress.)  In short, Ken’s assertion was that Telcos are a doomed industry, and it was nonsensical to believe that a doomed species would evolve into something better.  Ken further suggested that the points that social media required were exactly what a telco could not provide, and since future communications was based on these principles, the closest analogy to operators were dinosaurs, and they were on their way out.  I blew up, not because I disagree with Ken about how our market should change, but because I believe Ken disregards some fundamentals, because I don’t think that telcos needs the ability to change with the times (no complex organization, biological or not, actually can) and because I’ve been recently memorizing (literally) Richard Dawkin’s excellent expose on evolution (The Selfish Gene) and Nicolas Carr’s future vision of technology (The Big Switch).

In fact, I have come to firmly believe that telcos are a lot closer to enabling communications innovation than I, and probably many, have understood in the past.  That’s not to say that the traditional carrier will be free from change, nor to deny that we will see a different set of players in the future, but instead to say that the essential role of the carrier is safe and sound, and will be for a long time to come.  It will be up to today’s carriers to make those changes (or not) which will benefit their future selves. There’s no doubt that in my mind, some will make these changes – and many others will not.  However, to believe that, as a whole, carriers are doomed belies the facts, and in the coming years, they will most certainly become what we today identify as Telco 2.0 providers.  Why?

• Communications as a Service: As Nicolas Carr posits in his recent work “The Big Switch”, one undeniable trend is that we our outsourcing our applications into the network.  Even the casual observer must admit that the desktop is not where innovation lies, it’s the browser, and for very fundamental economic reasons.  Just like mill owners who abandoned mills powered by waterfalls in favor of mills powered by electricity, the economic advantages of hosted solutions are undeniable, and now in the face of so many successful hosted services, such claims are externally verifiable.  Only something that looks something like a Telco can run applications such as these at sufficient scale for mass market adoption.  For those of you who aren’t bellheads, I want to call out that running an application at scale is a larger issue than simply an efficient network: it requires billing, operations and support.  Smells like a carrier to me.
• Own the Customer:  What’s the hardest thing to acquire? Ask Vonage for the answer: the customer.  Name another set of companies that’s convinced the entire adult population of the civilized world to fork over $30 bucks a month for a renewable resource.  Right – there isn’t one.  Seems like something that any industry would want, but no one’s even close. Why? Don’t over think it -  no big thoughts required.  It’s because it’s hard to do.  The carriers have a trusted, billing relationship with every single adult who can afford it, and no other set of companies does.  Here’s a direct example: I’m happy for Ooma’s recent success, but I remain skeptical that they will in any way solve this fundamental customer acquisition problem.  When, at first, I criticized Ooma, CEO Andrew Frame called me up. He hung up rather quickly when I asked him how Ooma would solve this problem when Vonage was not able to.  Still waiting for an answer to that one.  Facebook is viral because it doesn’t require the establishment of a billing relationship and doesn’t require custom hardware.  Try as you might, it’s hard for phones to be viral.  Skype’s as close as it gets.  Worse yet, for the same reason Facebook is unlikely to be displaced, try setting up a parallel PSTN.  The first customer will be pretty lonely.  In videoconferencing, the joke was that I bought the first videophone, but I had no one to call.  Even the jump from e-mail to phones has been problematic, as we are conditioned to identify on E.164 phone numbers.   Habits are hard to break.  “Yes, Mom. Call my e-mail.” Thus, the carriers have a very valuable, hard to replicate resource: a billing relationship and a functioning discovery mechanism with every single adult on the planet.  Who’s got that? Carriers. Anyone else got that? Nope.
• Data : This billing relationship brings forward another colossal advantage of the carriers: data. The carriers know so much about their customers: who they talk to, where they travel, what phones they carry, their credit score, etc.  As we come to a place where “doing” is very easy, the way we can sustain value and innovation is through the collection and use of data. Google is simply an organization that monetizes hard to replicate data.  Let’s not forget that the front door to the Internet is exclusively provided by carriers, so not even providers like Google have a seat closer to customer behavior. What do you call an organization that knows more about you than you do? Yup. A carrier. In the next century, as any social communications pundit will tell you, the game is in using this data for value creation, and no one (literally) knows more than those “brontasauri” we call carriers.
• Legacy : When I was the software architect for the very first commercially available ADSL chipset, you should have heard all the criticisms lobbed at us from the industry.  We were counted out – we were counted in.  Some was on target; most was just wrong.  At the end of the day, one datapoint dominated: it’s a very big world. Those that said DSL will be universally available were wrong, because there were simply too many lines out there, and you couldn’t light them all.  Those that said that DSL would be a failure were wrong, there were simply too many places where DSL made sense, and today there are hundreds of millions of DSL lines in the world.  (And as a man who still owns unregistered shares of Aware, I thank you.) There are thousands of carriers servicing billions of customers, and very, very few of those customers are in a position to arrange for their own basic communications needs. They are going to outsource it to a large organization (fundamentally so, if only because of Metcalf’s Law ).  You can call those large communications companies something else other than carriers, if you want. I think I’ll start calling roses “smelly plants”.  What will your inner Bard call them? I insist it won’t matter in any practical way.  And look Mom  – I never even mentioned the word “regulation”.
• APIS :  We’ve seen the shift that Carr identifies in the Big Switch a few times in the computer markets, as we’ve gone from mainframes, to minis, to desktops.   The major market force here was control: the desktop allowed us to control our applications and experience better.  If this was true then, isn’t it true now? Why are we giving up that level of control? Web services APIs allow the users, the casual developer and the serious business concern to control the functionality and data from a web based application, satisfying this requirement. In fact, unless you had a really good application on hand, and specialized skills, even desktop applications aren’t as controllable as Web 2.0 applications are.  It’s too bad that carriers haven’t caught on.  Oh – wait – they did. Orange, BT, Deustche Telekom, Vodafone, Jaduka, IfByPhone, Intellipeer, Voxeo, TellMe and Angel have APIs, along with hundreds and hundreds of other larger companies. APIs are here to stay, folks.  Providing a functioning API at scale requires operational excellence… and who do you think will do that?  Is there are a better word than carrier? Fine – we’ll use that.
• Viable Models:  This is the sticky point, no?  Isn’t how we got to this place because carriers were the only ones to provide applications, and because they were so big, slow and far from a customer, they simply couldn’t get of their own way? If we are on the cusp of a brave new world of applications, who’s to provide them? From where I stand, I think the jury’s ruled on this one.   The answer is that the carriers provide them, but they don’t write them.  The iPhone store shows us the future in spades. AT&T and Apple provide the customers, the channel and the billing, the platform and the API. Not the application. Applications are written by schmucks like me, using the APIs provided, allowing for a win-win-win for the carriers that sell them, the developers that write them and the customers that use them. This model depends on the carrier to provide the marketing, the platform, the billing and most importantly the customer. Something they can do, and something they can do well. The application developers need the carrier. Something they can do, and something they can do well. The users need the applications.  Carriers don’t leave, go away or die.  They have just learned their place.

These points keep the future of the carriers bright.  Carriers of the past weren’t that far from robber barons, and I actually expect some level of this behavior in the future.  But, and this is really important, it is simply not necessary for carriers to understand these issues and react to them. Evolution absolutely does not depend on intelligence to work. It depends on changing environments and variation in organisms and organizations. Giraffes did not get together a million years ago and decide to grow their necks. Some had longer necks: they lived longer and had more offspring. Others didn’t, and the population progressively, brutally and unstoppably changed until all the short necked giraffes were dead.  As Dawkin’s the Selfish Gene details, all organisms can be viewed as survival machines for the genes that live in our cells.  Genes don’t think, feel or have intentions.  The reason that we have our particular set of genes is because of all the possible gene combinations, the ones in our cells have been the most successful at replicating themselves.  Why is that?  Dumb luck, people.  Some carriers will be successful in adapting to a more open environment, other’s won’t. But some will, and those will most likely look like Telco 2.0 companies.  However, remember that evolution is absolutely unavoidable and absolutely provable, but it takes time. A lot of it.

Let me close out with this: VoIP is certainly not dead, but we certainly called it wrong. I predict that social communication pundits will call it wrong again if we don’t learn our lesson. We as a species are doomed to understand backwards, yet live forwards.  We expected that VoIP would usher in a new world of applications development, but we were disappointed.  As a man who worked on the very first VoIP protocol, I can assert that no one that I met actually designed it to enable voice applications.  We were trying to get two heterogeneous multimedia terminals to negotiate, setup and control a call. All this VoIP stuff happened afterwards; we were not looking to change the applications development world.  SIP was not designed with voice applications in mind; it was designed to create multi-media sessions in an Internet architecture. It’s a long trail from streaming a concert to being the platform for applications innovation.  In contrast, web services APIs were designed to enable applications to be written based on loose couplings of data and services.  Thus, we should expect success now, right? Well, I hope so – but what am I but a survival machine for my genes.  I’m skeptical that we’re calling it right now, as our track record is spotty at best.   However, I do know that I can be a fairly accurate weather man by simply predicting that tomorrow’s weather will be just like today’s.  In the same respect, I reject the notion that carriers are gone tomorrow, for reasons fundamental and simple.

I see that it’s snowing outside.  Just like yesterday.

Thank you to everyone who came out to hear me speak on the opening day of Ecomm 2008. A couple people have asked me to post my presentation from the Paprika : Voice is a Spice talk, so here I’ve put it here.

The premise of the talk is that voice is a lot like a commodity market that tries to grow by changing the commodity, not the ways it’s used. For instance, I used paprika as my example, and suggested that if a paprika CTO faced the same problems as the telecom market, the response might be to produce paprika soup. (Yes, I picked paprika because the idea of paprika soup is nauseating.) For all the higher value paprika soup has over just plain paprika, no one wants it. I used corn as an example of success, which for all kinds of good and bad reasons, is a commodity that supplies a good percentage of products in the average grocery store, including it’s inclusion as an ingredient (corn flakes), a drink (high fructose corn syrup), a food additive (Coke food coloring and flavoring) and even as what cows now eat in the feedlots (even though cows eventually die because they cannot digest corn well… they simply keep the cows alive long enough using anti-biotics and then kill them.) Corn is a commodity, but is now dominant in our diet not because we eat more corn, but because it’s used in so many ways to make other products better or less expensive. Relating this back to paprika, the proper response isn’t to pretend that paprika is the important part, but to find other recipes that would benefit from it’s rich, red color.

Mashups are a very compelling architecture by which we can add voice into other applications. I gave examples from logistics, health care, financial and IT help desk applications, none of which are voice applications, but all of which can be made better with voice. As a business side effect, all of these applications currently serve problems that enterprises pay for. As businessmen, all we need to do is to convince them that the voice mashup solution is better than the current solutions, and from my research, it currently is.

In the end, we will undergo the same transition as the agricultural market. In the last one hundred years, we have moved from a nation of farmers to a nation of cooks. I see the future of voice as an identical transformation.

The bottom line is this: voice is truly a commodity, and to expand it’s reach in the world, we need to treat it that way. Our attempts to innovate voice through additional features reduces it’s value as a commodity. We need to turn our attention away from voice application innovation, and instead concentrate on making other applications better with voice.

In a recent conversation with my wife, I lamented that I may never have another chance to work at the very beginning of a truly disruptive technology, like ADSL or VoIP. Lucky for me, I’m wrong about ten times an hour. (I better hurry up and finish this post before I get something else wrong!)

We are at the start of a major upheaval in not only technology, but in the basic business models that drive our industry. The intersection of Web 2.0 technologies and business models and the communications industry will result in a massive change in how applications are created and delivered. Don’t get me wrong, I’m not shorting my Verizon stock just yet. Bill Gates put it best in 1998 – we overestimate the short term effects of fundamental technology shifts, and underestimate the long term effects. We still only at something like 10% penetration of VoIP into US households with broadband service. We are seeing this fundamental shift, and in ten years, we will point back with confidence to 2006 as the time when the shift occurred.

In essence, the real hope and promise of VoIP is that businesses can truly tailor the business and the communications processes. Make no mistake, our market is still driven by cost savings and increased revenue opportunities that arise from an increased customer base – not by truly compelling features. Name the number of new telephony services you’ve seen in the past five years. I like ring tones and ring back tones… the Versatel Call Pod idea was pretty cool, but it’s a short list. I can name dozens of new web applications I like from this year alone. This is a direct result of the innovation and customization that Web 2.0 provides. The promised land of VoIP comes from this integration.

Tomorrow at the European VON show, I am announcing a project I am leading in 2007. Myself, and a small group of like-minded geeks, are going to spend a few weekend days to create examples of these applications. The first application is going to make a service that will automatically translate voice mails left on Asterisk into text using Amazon’s mechanical Turk service. With this, you can not only have a copy of all the voice mails in your Outlook mailbox, but you can have TEXT copies, that you can search with Spotlight or Google Desktop.

The point behind this effort is only to prove that we can do it, and to learn from the experience. We will take what we learn, and publish it to the industry in the form of a Wiki and a podcast. With a litle luck, we’ll see somebody take this and add it to their conferencing engine, so I can stop taking notes when I attend a conference call.

I posted my presenation to the right; I tried to record my talk too – I’ll see if I can clean it up enough to post.

Stay cool,
Thomas

Here’s a little quiz for you…

Most cell calls in the US cost 11 cents per minute. How much does a 411 call cost? Mine costs $1.50 for about three minutes. Your’s much better? Didn’t think so. And you thought margins were going through the floor!

So, if you haven’t heard of it, there’s 1-800-free-411. From their site :

1-800-FREE-411 revolutionizes the 411 (directory assistance) marketplace by offering consumers a FREE alternative to the high cost service provided by traditional carriers. In addition, FREE411.COM on the Internet provides consumers with an easy to use Web-based destination for telephone number lookups. National and local merchants sponsor this service with a 12-second audio jingle about their services, which are played to consumers at the point they make a 411 request for a business in their category.

So, you call, it costs 11 cents a minute, and you get connected. You listen to the add, and off your call goes. Now, here’s the great part. If you ask for the local pizza shop, they give you a number, but Domino’s pays for their add to play before you are connected. Maybe they offer you a free pizza deal or something. If you like what Domino’s is selling, you press 1, and the call is sent to Domino’s instead. Good deal for Domino’s, huh? They have the ultimate targeted add – this person is hungry. Good deal for you too, right? It costs much less, and maybe you’ll get a better deal for your pizza. And, most importantly, good for the Free 411. I hear rumours that they get something like a 5-10% take rate on their advertisements. That’s better than Google, by a factor of ten.

Here you go – an excellent voice enabled application.