Global accessible services is the future
IDG writes today an article about the problem with IPTV (a name for the TV distribution service that is bundled with the Internet access). I think Ulf Borbos in his comments are completely correct. The bundling of services in packages are hard to regulate against, they are perfect for the consumer, but they are bad for the smaller players.
What is happening today on the Internet is a struggle for power, for access to the consumer that put more and more money on digitized services. Everyone try to get a fraction of the transactions in the future. And it seems what I and some others call The Perfect Storm is coming closer and closer.
The problem is that the architecture of the Internet in reality consists of three layers:
- Service
- Internet
- Transport
If one buy one layer from one provider one does not have to buy other layers from the same provider. If one buy Internet from one ISP, then one can buy email from some other organisation. This people already know as they access services from Google, CNN etc. But providers still push for things like triple-play where voice, video and data is packaged as one package. And “data” is Internet Access. When in reality Internet access can be used to buy voice or video from whoever provide that service.
Already from the dawn of the Internet, it was normal for the ISP to bundle email and web hosting with the Internet access. Today more services are taken for granted, and what the article point out is that the more complicated the service is (technically and administratively), like TV and VoIP, the less chance it is that a small player can provide the service cheap enough to still make money.
The only ability to make money is to have many customers, or by selling some value add. If the price to launch a service is high, the harder for someone to launch the service. If one want to be a VoIP provider, or even harder, TV provider, then the base fees for licenses and such are enormous. If these costs (that are in many cases fixed) can not be shared between many customers, then the price per customer is too high.
As Geoff Houston says, over the top services has already won, and with that he mean that the providers of services that gather customers from all over the world (like Google) will always be able to get many more customers than the (geographically) local service providers, and because of that, the production price per customer will be lower.
What is now happening, specifically in Sweden, is that the bundling is more a norm than anything else. Consumers take for granted they can buy Internet, email, web, VoIP and TV from the same provider. But only the large providers can sell such packages. Smaller ones that make (enough) money on just moving IP packets can not compete.
But why can they not do that? Well, this is simple. The large providers that provide TV, VoIP etc of course do limit their service so one can not access it if one is not an Internet customer of theirs. That way, if you buy Internet from someone else, you can not buy the TV service from the large provider. This of course also imply that if a customer to the large provider travel then the customer can not access the same services as at home, but not enough customers are nomadic so that it makes a difference for the large player.
This is one of the reasons I have personally for many years pushed something we in Sweden call “colorcoding of services”. The intention is to ensure that the products on the market have a clear description so that the following questions are answered:
- For Internet access, what is it optimized for? Specifically, are there any limitations (port blocking etc)?
- For broadband access, what limitations are there on what services one can buy? Only certain services, only from certain certified service providers or anyone on the Internet?
- For services, are they accessible from anywhere on the Internet, or are there some limitations?
The goal and hope is that consumers will be (and are) interested in first of all high quality Internet access that matches their needs. Secondly that the services they buy are accessible from all over the Internet. If the market require such services, then the bundling will in reality not work on the market.
But we still have the problem with the small ISP that only want to sell a good Internet access (or good broadband access even). If the large players that can do bundling are allowed to play their game for too long time, the market will die, and due to high barriers of entry only few (large) players will remain. Similar to the model in Japan (that I now hear forces that want to break it down). It would be very sad if Sweden that is a country that should know better today due to lack of action by the regulator, government, competition agencies (in some combination) or whoever get a result at the end game that is not good.
The solution is not bundling. The solution is to ensure that there is a separation between the horisontal layers as the tie between them have such an impact on competition and innovation (and is as Ulf says) a huge barrier to entry for new providers on the market. I hope the future are specialized players that can give for a cheap price the consumer what they want. But the players will be very specialized (email, VoIP, TV etc) part from some large ones (Google etc) that have streamlined services that do not have enough features for the specialists that require them. The large players that today survive due to bundling should understand only if their VoIP service when exposed to every Internet user in the world survives (business wise), it should stay as a product. Else it survies due to artificial protection due to the bundling. And that will not last for many years.
Over the top players have already won. But, the fight is not over, and it will not be nice. The perfect storm is approaching.