Understanding telecom complexity through visual analysis
In an August article in Telecom Asia, Lorien Pratt and Mark Zangari explained why operators need a deep understanding of the many moving parts of the complex systems in which they compete. They showed that a mobile ecosystem -- like any platform business model -- can produce a “virtuous cycle”, where more and better applications attract more subscribers, which in turn makes the platform more attractive to developers to build more applications. Over time, this cycle can produce the kind of explosive growth characteristic of the more successful app stores.
Complexity is a recurring theme across telecoms. It comes from many sources: new competition, exploding service catalogs, the movement from single- to quad-play services, and more. Telecom Asia group editor Joseph Waring asks Pratt and Zangari about how their visual modeling findings can be used by telcos to make decisions that allow them to dominate their markets.
TA: Why is a visual analysis needed to understand complex telecom systems? Text, spreadsheets, and conversation seem to be effective.
There are a few answers. Telecom management is considerably more complex than a decade ago, yet we’re still using the same decision-making approaches.
When faced with complexity, telecom decision makers tend to use spreadsheets, data analysis, and dashboards. Yet they don’t let these tools make the decisions for them. Rather, decision makers study these sources, then set them aside and add their own judgment. So really, the role of decision support tools is to drive intuition: to communicate the situation to the decision maker and to align understanding amongst multiple stakeholders.
Some situations are too hard to understand by analyzing a large spreadsheet. These tools are good at organizing information, but not at supporting complex decision making. This is especially true with the compressed time frames faced by telecoms today—decisions must be made in days instead of weeks or months. Here, decision makers end up taking short cuts: only considering a single outcome, only one investment option, ignoring changes over time. Which leads to our answer to your question: a visual representation of a complex system is essential to align the otherwise invisible views of a complex system into a shared, explicit, map.
But this is nothing new, really. We’ve had PowerPoint and data visualizations like pie charts and bar graphs forever. And executive dashboards are widely used.Data visualization is valuable, but we’re talking about something more: a visualization of the complex system that creates that data. Telecoms need to understand the cause-and-effect structure of a telecom environment, along with how it changes over time, the flow of money as well as other sources of value.
Can you give an example?
We’ll start with a simple distinction. In a one-sided model, the wholesale supplier does not have a direct relationship with the customer, and is only paid by the vendor. In the two-sided model, the vendor—now called a “platform company”—receives money from two sources: the traditional customers but also a developer community that builds new services or applications on top of the platform, and which can be more aware of customer needs.
Figure 1: A traditional one-sided supply chain
Figure 2: In a two-sided business model, the platform company draws revenues from both the traditional customer but also potentially a developer community
That’s fine as a start, but how can this analysis lead me to a better understanding of how to manage—and dominate—a mobile ecosystem?
As we mentioned above, there is a feedback loop in this system that can lead to considerable growth. Operators who know how to create—and then profit from—the growth of a platform business model can be very successful.
Figure 3: Less well understood are the feedback dynamics over time in a two-sided business model, which lead to surprising results
But operators are not platform companies, are they? In most mobile ecosystems, the platform is the handset/operating system: Blackberry, HTC, Apple, Microsoft. Each has fostered a significant development community that increases the value of the platform by developing applications independent of the original vendor. What part does the operator play here?
You’re right. For instance, developers have extended the iPhone considerably, but it is the iPhone itself that is the platform, not the carrier to whose network the iPhone connects. However, carriers absolutely do participate in increased ARPU from the data services generated by a handset that encourages users to consume a greater amount of telecommunications services.
In an important new development, some operators are also participating directly in platform models. Case in point: Sprint, which has maintained a developer network for years, and which offers its developer community access to platform services like billing, location, and data services.
Figure 4: An operator may offer both its own platform and also partner with a handset company, which offers its own development platform, adding further complexity to the business model
That sounds attractive: now operators can be in the “open ecosystem” game, not acting just as a bit pipe, but collecting revenues from both developers and subscribers.
Yes, but here is a trap for the unwary. It turns out a successful developer business model is a critical ingredient. If the operator does not understand the developer’s business, and charges too much, then the feedback loop never begins.
So what about the operator platform? What makes one platform more successful than others?
A superficial analysis of the model shown above has led many operators to ask “what assets do I have that might be of value to developers?” The better question is: “What are developers building – and rebuilding again – that if I built that once, and offered it for zero or low cost, it would allow developers to build much more with much less?”
Figure 5: An operator platform should be continually enhanced with functionality that would otherwise be duplicated by developers, providing maximum value to this community. This pattern is a familiar one from operating systems over the years, along with other platforms.
Over time, much as handset manufacturers are in an “arms race” for new features, operators will enter a similar race to offer the most useful API set to their developers, time and time again. To do this, their platforms must be agile and extendable – not an easy thing to do! The operators who continually evolve their platform to meet the needs of subscribers and developers alike – and who effectively partner with other platform providers - will be the ones that dominate tomorrow’s telecom ecosystem.
Dr. Lorien Pratt and Mark Zangari are co-founders of global consulting and software company Quantellia, which offers 3D, interactive, multitouch models of complex telecom business models. (www.quantellia.com).