Web 2.0

Skype IPO could be worst-case for telcos

eBay will be spinning Skype off in an IPO in 2010 instead of selling it to its founders. As we had suggested, the founders could not meet the price eBay hoped for, due we’re told to the reluctance of private equity firms to back the transaction.

An IPO for Skype could create a kind of worst-case scenario for telcos and for IMS supporters by almost guaranteeing a flurry of OTT voice services that would force down pricing and margins, at a minimum. We’re of the view that the current central-administration PSTN-like model (including IMS) will be more difficult to sustain with OTT competition unless IMS can be expanded to provide better support for so-called Web 2.0 applications and unless it is opened to more developer innovation.

A number of vendors have committed to this, notably Alcatel-Lucent, but so far no one has completely delivered. Alcatel-Lucent’s Web Services Gateway is a step in the right direction but not a complete solution. Voice competition by Skype and others could also impact ROI of the telcos further, particularly in the mobile space where call costs are still relatively high, especially for roaming and international calls.

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

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.

Cisco and blade server plans

Cisco has not been shy in pushing the envelope of what a networking company does, and one extension that’s been rumored for quite a while has now appeared in public—though still as a rumor. Cisco is said to be working on a blade server product family, something that would extend the company’s reach into the service layer of the network. The move would, in our view, help Cisco with service providers whose focus increasingly is on servers and service delivery platforms (SDPs) and higher-layer features.

 It would also help in the enterprise to support hosted applications that are tightly coupled with the network, including unified communications (UC). One impact of this step would be to formalize Cisco’s entry into the IT space, something that’s been inevitable anyway as Cisco works to rise up the value chain.

 In all, we believe this rumor is absolutely true and a good thing for Cisco. It will put considerable pressure on Cisco’s competitors, especially Alcatel-Lucent and Juniper, to flesh out their own strategies. Alcatel-Lucent has already announced a strategic shift to the “online ecosystem” that links developers and telcos, but Juniper has not articulated a strategy here yet, though the company has spoken at conferences on the topic of open networks.

Alcatel-Lucent position could be game-changer

Alcatel-Lucent has posted a press release with more color on its new strategy, one that makes it clear just how dramatic its new position is. The company is now committed to a program of facilitation for the composition of services by partners as a primary strategic thrust, a position that is totally unique in the equipment vendor space and exactly what operators have been telling us they want to see.

Quoting from their release, “This strategy requires providing an open environment, which does not exist today, where all these trusted capabilities can be available between the network and “over-the-top” applications typical of Web 2.0. It is a challenge that Alcatel-Lucent is uniquely positioned to address, with its long-standing relationship with network-based service providers and thousands of enterprises worldwide, its capabilities in delivering fixed and mobile broadband, flat-IP networks and its end-to end integration capabilities around the globe.”

Vendor PR is never a sure sign of things to come (like any form of PR), but this has the potential to be a game-changer of a strategy in a market where monetization has become a singular obsession among buyers.

Cisco’s new broad, vague Web 2.0 program

Cisco announced a broad if somewhat vague program to bind the Elements of Web 2.0 applications into a cohesive whole. The details on this vision were extremely difficult to extract, and we could find no Cisco material online to offer more insight. But it appears to us that Cisco is proposing a broad concept of service-from-mashups where APIs used by various social networks, sites, and even operators could be combined in some centralized way to create new services.

What is even less clear is exactly what role Cisco proposes to play in this. Will it offer a product set, host a service, or both? All this said, we admit that it just might be that Cisco is looking at the area of reformulating service creation—a major focus of our own interest—and also the area of using social networking and similar Web evolutions as the basis for collaboration and communication, another thing we believe to be essential in shaping the next generation of services.

In short, Cisco may be on to something and we’ll try to figure out what exactly it is.

Telcos look at open source

Telcos are apparently working harder to make their APIs suitable for a broader range of web developers, providing more Web 2.0-like or “RESTfull” interfaces (an acronym for the normal interaction between web clients and servers). We believe that the move is positive in that it shows the operators are aware they can’t make their developer programs work with complex event-based APIs. But we also believe that simple web interfaces are only suitable for the limited set of services that can be projected from a telco API direct to an end user. While we’re clearly biased, we believe this is a validation our open source ExperiaSphere (www.experiasphere.wikispaces.com) approach.