Comscore reports that two-thirds of the worldwide internet audience regularly visits social networks. This trend is universal. In South Korea, considered by many to be the world's most developed social network nation, more than 90% of teens and almost half of the entire populations are members of Cyworld. In the US 80% of the young adults, 60% of teens and 30% of adults use social networks. And in the UK 90% of the teens spend time on these sites.
Social networks have become a primary destination for a rapidly expanding universe of online users for managing and enriching a digital lifestyle. The sites provide the ability for users to communicate, to develop their identities, to build a network of relationships, to find information, to share experiences and self-generated content, to buy products, and more.
With the numerous communication tools at their disposal, social networks are becoming integrated communication hubs. The integration of MySpace and Skype, for example, illustrates how social networks and communication applications can converge to benefit users. With more than 118 million active MySpace users and over 370 million Skype registered users around the world, this partnership connects two of the most popular communication platforms to create the world's largest online voice network.
A number of telcos are already responding to the challenges and opportunities of social networking. In 2003, for example, SK telecom acquired Cyworld and is now generating approximately $200 million per year selling digital items and advertising. Telecom operators such as Sprint, AT&T and Vodafone enable MySpace and Facebook members to access their profiles from their cellphones. And Vodafone recently launched 'Connect to Friends', a Facebook application that enables Vodafone and non-Vodafone subscribers to communicate with each other from either a PC or a mobile phone.
Communication evolution
The widespread social networking phenomenon is a reflection of shifts in two long-term communication trends:
- Communication patterns are changing from personal and conversational to group communication and collaboration, augmented with links, videos, photos and multimedia content that substantially enrich the communications experience.
- Communication control is transitioning from provider-controlled environments to open internet service providers and greater opportunities for user participation.
The so-called 'Net Generation,' who has grown up in a technology-enabled and internet-connected environment is at the forefront of shifting communication patterns. Their preference is for staying connected, sharing, creating content, multitasking, assembling random information into patterns and using technology in new ways. They are the wisdom-of-crowds generation that grew up rating peers, physical attributes, products and services.
These Digital Natives are native speakers of technology, fluent in the digital languages of computers, the internet, video games and the mobile phone, and often living in a state of continuous partial attention. For many of them, social networking is supplanting email, and even voice, as the preferred method of communication. But the shift away from traditional communications to social networking is not limited to this generation. A growing number of adults now use social networking to get what they want from each other, instead of from traditional media and institutions.
The second trend, the shifting control of communication media from the domain of telcos toward a more open communication platform, is the result of widespread availability and affordability of connectivity and communication tools/devices.
Impact of shifts
For the providers of services, telcos and OTT providers, the combination of shifts in communication control and patterns is redefining the competitive landscape, giving rise to new business models. In contrast with traditional communication models, emerging models are based on open platforms that support many-to many and/or collaborative communication patterns (see figure above).
The traditional model, characterized by two-way point-to-point communication is the domain of traditional telcos. It is the largest segment in terms of revenue and subscribers, but it is showing signs of slow growth as other models take hold. Wireline revenue is declining and although, according to Gartner, global mobile services revenue is forecast to grow 7.6% from 2007-2012, the mobile subscriber base has reached saturation in key developed markets where there is volume growth through elasticity but little opportunity for revenue growth.
The 'open and free' model offers alternatives to traditional point-to-point communication services on open internet platforms. Companies in this domain provide basic communication services such as VoIP for free or at very low cost. Many of these services threaten profitable traditional services such as long distance calling and mobile roaming.
Providers in this space include VoIP provider Skype, Google with GoogleTalk and Microsoft with Windows Live Messenger, which offer PC-to-PC voice services along with instant messaging and chat. With over 370 million registered users worldwide, Skype has, in a matter of five years, come close to creating a truly global telecom service.
Many of the players in the 'open and free' space, such as Microsoft and Google, have considerable resources and leave little room for a commercially viable response from telcos beyond repackaging existing services into convenience bundles. Some telcos, however, seemingly have embraced the model and are partnering with disruptive new entrants. As an example, 3 in Australia and the UK has partnered with Skype to launch the 3 Skypephone, to attract and retain customers.
The gated-communities model focuses on group communication and collaboration in the telcos' 'walled-garden' and will appeal to users and enterprises with a preference for the more secure and reliable communications environment traditionally provided by telecoms.
The most obvious opportunity here is an extension of social networking to the mobile where operators continue to retain some exclusivity. Research companies such as Informa and Juniper estimate that by 2012 mobile social networking will represent a market opportunity of between $22.5 billion and $52 billion, and telcos should be able to seize a share of that.
Studies show that more than 40% of iPhone users in the US, Germany, France and the UK visit social networking sites. In South Korea, a mobile user visits Cyworld on average 11 times per day. The mobile service of the Japanese social network Mixi, which started as an online site, has turned out to be hugely successful with mobile page views already outnumbering online page views.
Telcos have also an opportunity to play a role in the delivery of fully integrated collaborative services to enterprises and organizations that value carrier-grade capabilities in a secure and reliable environment.
Shared social spaces facilitate collaboration on the open internet. The main providers in this space are OTT applications such as MySpace, Bebo, YouTube and Facebook. Also virtual worlds such as Second Life belong to this domain. And Nokia has entered the fray with its OVI/Share platform.
As many of these players integrate telephony services, they have the potential to become fully integrated, end-to-end communication platforms. Though the revenue model remains unproven, they are drawing attention away from traditional communication service providers and are contributing to their slowing growth.
In addition, these types of applications put additional strain on already-burdened network infrastructure, particularly with the rapid increase in video content sharing and distribution. Cisco forecasts that by 2012, the sum of all forms of online video, including TV, VoD, internet and peer-to-peer, will account for nearly 90% of all consumer internet traffic, a large portion of which will flow through OTT applications. According to Ofcom these types of OTT services will impose additional ‾30 million ($1.4 billion) in bandwidth costs on UK internet service providers, without a corresponding revenue model.
To deal with over-burdening OTT traffic, operators have options that include filtering or blocking OTT traffic, but this is unsustainable in many jurisdictions as it violates net-neutrality principles. Instead of protesting about the OTT bandwidth demand, telcos should embrace the demand. Network and computing infrastructure optimization techniques such as traffic shaping and content delivery network (CDN) technology can reduce the cost of delivering high bandwidth content and potentially lead to new business models that capture more value from this increasing OTT traffic.
Telcos, however, can remain relevant in the face of changing user sentiments and demands if they take bold steps to adapt to this evolving marketplace.
Telcos can begin by taking advantage of the window of opportunity in mobile social networking, and also bolster their capabilities to serve the evolving, broader communication needs of enterprises.
They should partner with, or acquire, existing players to proactively develop the capabilities required for success, or enable other participants in the value chain to benefit from distinctive telecom capabilities. Using network and computing infrastructure optimization techniques they can reduce the cost of delivering high bandwidth content, and potentially capture value from it.
Over the long term, telcos should embrace a broader definition of communication - one that encompasses everything from two-way conversations to many-to-many communications - and align the organisation with this reality. Also, telcos are the entities best positioned to enable a cross-platform, fully integrated experience across mobile, fixed and IPTV services.
This article is an excerpt of 'The changing face of communication', a publication of IBM's Institute for Business value and available at www.ibm.com/iibv.
Nick Gurney is communications sector leader Asia Pacific, IBM Global Business Services. Rob van den Dam is EMEA telecoms sector leader at the IBM Institute for Business Value