Telepocalypse

OPINION://Phoney teleconomics

Presence data is important. So important, it's the central economic driver of any future telephony service.

In the old world of telephony, you were forced to rent connectivity and service in a tightly coupled bundle. Economic activity begins when the phone call begins, and continues at a steady rate until the call ends.

In the new world, this model in inverted. As a result of technological progress, connectivity becomes very cheap to the point of being supplied on an all-you-can-eat basis at low prices. Its supply is highly fragmented (i.e. you will roam across multiple cellular, Wi-Fi and fixed networks during the day). Once a phone call is initiated, there is no "service" being delivered at the application layer that cannot be done in the peers themselves. The marginal cost of data transport for a thin audio stream is (effectively) zero. Thus when the call starts, economic activity ends.

But here's the kicker. There is a great deal of economic activity before, during and after the call. In particular, the immediate period before the initiation of the call requires the exchange of presence data so that the caller and callee rendezvous at a mutually convenient time via an appropriate medium or channel. Most of the economic value in any future "telephony service" will come from the brokering of presence data between multiple sources and sinks.

Customers have voted with their wallets -- they like to talk. The quickest way to create more value is to enable more successful conversations. Presence helps curtail playing phone-tag and voicemail ping-pong. Vendors and operators who fail to align their products with what the customers value are less likely to prosper. Unfortunately, that appears to count in most of the industry.

Here's a picture of the new world, as I see it:

Don't take the scaling on this diagram too seriously -- it's just a brain-fart done in public. Here's a guide to what I'm thinking:

• In the "before" diagram, we see money changing hands mostly during the phone call. Some of that money is used to subsidise the handset handware and software.
• In the "after" diagram we see three very different profiles for the connectivity, application services and hardware platform.
• The hardware one I'm least certain of; in the diagram it becomes more of a one-off purchase and cross-subsidy is weakened. This is because third parties claim an increasing proportion of the application revenue, or the application revenue just evaporates. I'm willing to accept that new forms of cross-subsidy may emerge here (e.g. think of Tivo as an example, where the hardware and service are coupled, but the connectivity isn't).
• The connectivity may involve some up-front expenditure by the user, either in hardware purchase (e.g. Wi-Fi access point at home; membership fee). There is then a steady trickle of all-you-can-eat money, augmented by occasional bursts of premium metered connectivity revenue (e.g. roaming abroad, on an airplane).
• The service revenue model is completely disrupted. Most of the money comes in the operation phase before the actual call; connecting people via social networking, directory services and presence. There is no service revenue from the phone call per se. (There are important exceptions, another essay.)
• There may be transactions during the call that are mediated via third parties, particularly on multi-modal devices. (Again, I'll elaborate in another essay, maybe perhaps.)
• There's some follow-up phase which I struggle to find a name for where successful phone calls feed back into future successful conversations and relationships. For example, if we talk for an hour, that says a lot about our social relationship. If we only talk during business hours, that tells us something new. There's gold in 'dem 'dar CDRs!

Ultimately, as I have previously argued, people demand successful conversations and relationships, not just reliable phone calls. Presence is a vital enabler. Deliver that, and you're onto a winner.

Posted by Martin Geddes at 12:44 PM

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