In the midst of the second quarter earnings season last month, I had an opportunity to grab some time with a Wall Street analyst. The expected topics came up: The ups, the downs, the impact of component shortages on network infrastructure earnings. My circa 1985, 4G Chevy Blazer. Then, he made a comment that stuck with me. "Why can't the network infrastructure vendors be more like Apple?"
The point was clear. Crystal. If the network guys could follow Apple's strategies, they would generate more value, be less susceptible to economic shifts and improve their market capitalizations. Everyone would be happier, particularly the Wall Street people with lots of exposure to them. I've been putting some thought into the comment. It seems to work on a number of different levels. On others, however, it just doesn't make sense. As much as people can hold out Apple as a paragon of how to innovate and meet customer demands--just check the business section of your local bookshop--you can't just carry over all of its strategies to the network side of things.
(Disclaimer: I am not a handset analyst. My understanding of the company is, generally, that of a dispassionate outsider. Heck, I don't even own an iPhone).
- Simplicity. "Apple Products just work." How many times have you heard that? Forgetting that this isn't always true, we see this same strategy when vendors roll out new network management tools, SON for LTE or even multi-standard access gear that supports a transition to new technologies. Of course, where product claims get exaggerated by misleading performance claims or unrealistic traffic models, the "it just works" story is sabotaged.
- Tell Consumer What They Want: Products. "Think Different" is more than an ad slogan for Apple. It stretches to selling people things they didn't even know they needed or wanted: tablets, all-in-one PCs, rechargeable batteries... OK, you can probably nix that last one. Apple has enough of a track record to convince people it's going to be right. At a few hundred dollars, the risk isn't that high if Apple is wrong. Now, apply that strategy to telecom network vendors. With new technology investments easily running into the billions (when you include sales and marketing efforts), the odds are stacked against them; many don't have the luxury of taking the proverbial "see what sticks" approach to new applications and/or feature support rollouts. This doesn't mean that telecom vendors don't do their share of hyping the next best thing. With examples that includes push-to-talk over cellular, IMS, femtocells, content charging and mobile broadcast video their credibility in this department has suffered.
- Tell Consumer What they Want: Features. A large part of Apple's ability to keep things simple stems from its policy of telling consumers what they want. It purportedly identifies the most common product use cases and then ignores the rest. You think you want Flash on your iPad? Sorry. You think you want ports on your iPad? Sorry. Access to applications we find objectionable? Sorry. Some of this follows on the simplicity issue, working to keep product line decisions simple and avoiding feature overlap, while helping Apple avoid cannibalization in the process. The strategy has worked very well. Operators, however, don't feel as if they can compromise when it comes to competing for customers. They want today's features, legacy features and support for tomorrow's features. They want multiple form factors, whether or not they need them today. If they can't get them from you, they'll go somewhere else.
- Customer Lock. Apple has managed to build a solid degree of end-user stickiness thanks to iTunes and its App Store. Given the size and timing around operator network deployments, simply penetrating a service provider delivers some degree of lock-in for a network vendor; this is why everyone pays so close attention to initial LTE contracts or AT&T's Domain Vendor designations. It takes a long time to turn a big ship, or a big network. Long-term managed services contracts help with lock-in as well, forcing an operator to rely on the vendor (though not, necessarily, to buy its gear). However, where Apple's proprietary solutions limits competition, operator demands around open standards, best-of-breed solutions and partnering mandate hyper-competition among equipment vendors. Consider the statement AT&T made when picking its first Fixed Access Domain Vendor (Ericsson), followed by the suggestion that it would be integrating equipment from another vendor (ADTRAN).
- The Apple Premium. Let's play a game of word association: When I say "fanboy" you think what? Apple is an obvious answer. It has a legion of passionate users--what some people would call "iCustomers"--who will buy nearly anything it makes. Combined with the simplicity of its products and the lock obtained from its software platforms, it can charge a premium for its products. Just ask anyone who has bought a Mac peripheral after coming from a PC environment. As the battles for wireless network share in India proved a few years back, few network infrastructure vendors can get away with this. Why? Combine what we said about Customer Lock-in with the fact that operators aren't moved as much by image when choosing their network vendors.
To avoid too much backlash, let me go on the record as saying that I have nothing against Apple. I'm not a fanboy, but I'm not a detractor either. By my own account, I'm not even hip enough to work in an Apple Store. That said, too many people seem to want to make Apple to apples comparisons, when there's a lot more fruit in the orchard. Maybe I should be grateful--after all, it kinda helps keep me in a job.
Peter Jarich is the Service Director leading Current Analysis telecom infrastructure practice. Follow him on Twitter: @pnjarich.