Uncommon Wisdom

Dec 18 2008   2:29PM GMT

Over-the-top players: A race to the bottom

Tom Nolle Tom Nolle Profile: Tom Nolle

One of the forgotten truths of the current economic crisis is that while telcos worldwide will certainly be deferring some projects and obsessing even more about monetization, their competitors are likely to be even more concerned.

The guys at the greatest risk, in fact, are the darlings of the last couple of years—the over-the-top players. Many of these are still struggling to define any revenue model at all, and with advertising slipping and VCs demanding break-even performance, a lot of startups will die, and public companies will slump, shrink, be acquired, or disappear. In a race to the bottom, the guy with the lowest internal rate of return always wins because he can keep investing past his competitors’ pain point.

The issue is whether the telcos can take advantage of their opportunity. The recent interest in service mashups by Cisco and Alcatel-Lucent has the potential to allow the network operator to take control of the partnership with the OTT guys while the latter are down and out. Will they seize on that opportunity? That, according to our research, depends on how well the vendors (particularly the two we named) do to create the right ecosystem.

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