In this episode of the Futurum Tech Webcast, Interview Series, I’m joined by Chad Andrews, the Global Leader for Telecom, Media and Entertainment at the IBM Institute for Business Value. Our conversation today focuses on the changes 5G and edge computing will bring to our digital economy, and we also take a look at IBM Institute for Business Value’s recent study The End of Communications Services as We Know Them?
That is a bold survey headline, but for those of us in the industry, we know the impact that 5G and edge computing will have on the digital economy moving forward will be disruptive to say the least. And I know that sentiment was echoed in IBM’s findings in the survey.
The End of Communications Services as We Know Them? digs deeper into a trend we’ve all been seeing – which is that communication service providers will miss out on the value that 5G and edge computing can provide unless they adapt today.
The IBM study surveyed 500 global telecommunications executives in 21 countries — so it’s a decent sample set that gives some insight into where the industry is headed. Chad and I discussed some of the findings of the report. These include:
- For CSPs to find true value in 5G and edge computing, they must adopt cloud native digital services, applications, and solutions.
- Along with cloud native platforms and applications, CSPs will need to make strategic operational decisions in order to compete long-term against cloud native companies.
- Platforms that are already established at scale will super the hypergrowth of the decade.
We also discussed some of the reasons the IBM Institute for Business Value is predicting the global digital economy will grow two to three times this decade, as well as the implications this will have on businesses across different sectors. The graphic below is from The End of Communications Services as We Know Them? study —
Image Credit: IBM Institute for Business Value
Chad and I also explored the challenges that CSPs face today including where most see themselves over the next decade. Here’s a look at what survey respondents shared —
Image Credit: IBM Institute for Business Value
Why does all of this matter? Chad and I explored the dangers facing the telcos and discussed the potential disruption threats they might face in the coming decade. On that front, we talked about these data points from IBM’s study and what that means —
- 59% of high performers today and 43% of other CSPs are considering 5G
- Only 56% of high performers today can see themselves piloting 5G in 5 years
- 3% of high performers think they will be optimizing 5G in 5 years
The opportunity for disruption is ripe. On the other hand, there are very real benefits to early adoption here and smart telcos are going to take advantage of that. Chad dove into some other findings from the study noting that high performers are expected to financially outperform in a fairly short period of time.
This is where CSPs come in and leveraging their strengths and developing cloud native competencies is key to succeeding. CSPs who value the strategic importance of digital platforms, automation, emerging partner ecosystems and hybrid cloud will have a decided advantage.
Moving Forward
It’s incredibly clear that while the global economy will boom over the next decade due in large part to these emerging technologies, CSPs have a lot of catching up to do in order to capitalize on growth opportunities. How can these organizations make the most of the ecosystem? Will strategic partnerships help them move forward? Will traditional roles give way to a new kind of expansion? What value, and dangers, does working with hyperscalers present? And what role will cloud native technologies play in all of this? You’ll have to tune into our conversation to hear those answers.
You can grab the video of the interview here (and subscribe to our YouTube channel if you’ve not yet done so)
You can also listen below or stream the audio on your favorite podcast platform — and if you’ve not yet subscribed, let’s fix that!
The conversation with Chad Andrews was fascinating, as is The End of Communications Services as We Know Them?, which you’ll definitely want to download and read. If you want to know what is coming in the next decade, this is one conversation you don’t want to miss. Oh, and go find Chad and connect with him over on LinkedIn while you’re at it. And if you and I aren’t yet connected there, you’ll find me on LinkedIn here.
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Transcript:
Shelly Kramer: Hello and welcome to this episode of The Future of Tech Webcast. Today, I’m joined by Chad Andrews from IBM where he’s the global leader for telecom, media and entertainment at the IBM Institute for Business Value.
Today, we’re going to talk about 5G and edge computing and how those things will help redefine who wins in the booming digital economy. Chad, welcome, it’s terrific to have you.
Chad Andrews: Thank you so much for having me. I appreciate it.
Shelly Kramer: Absolutely. I know you and I have talked before and we’ve talked about this topic before. To our listening and viewing audience, nerd alert because we’re both really into this topic and I think that you’re really going to love the conversation as well.
Before we get started, Chad, tell me a little bit about yourself, about your background.
Chad Andrews: Well, one is any conversation with me needs the nerd alert signal given right upfront. My name is Chad Andrews. I’m located in Austin, Texas. There’s an AD/BC thing with my career. Before IBM, I co-founded a post-production services company, ran that in Los Angeles. It was bicoastal. We also had some international offices.
Then we sold that, I relocated to Austin, and I’ve been with IBM for about nine years. Within the IBM career, I started in services and my main client was an independent software vendor that produced advertising software. After doing that for a few years, I was given some global responsibilities for solutions in the media and entertainment practice at IBM. I was the global solutions leader for cloud video and then advertising and then spent a couple years building what was one of the largest blockchain projects for advertising.
Shelly Kramer: Oh, wow. Very cool. Kind of a diverse background there. Now I’d love what you’re doing at the IBM Institute for Business Values. Talk with us a little bit about what that is and what you’re doing there.
Chad Andrews: Sure. I’ve been in this role for about a year. IBM is organized by industries, by 13 major industries. I have colleagues within the Institute for Business Value, and what we are is an independent think tank that provides advice for how to get business value out of technology to C level executives at our clients.
Shelly Kramer: Kind of important.
Chad Andrews: Yeah.
Shelly Kramer: Kind of important.
Chad Andrews: What distinguishes us is we do our own primary research. We have a very deep analytics capability, as I think one would imagine with IBM. We collect data, primarily through surveys and then we do a lot of very deep analysis on it to see what jumps out and what insights we can derive from our own research.
Shelly Kramer: Awesome. You and your team at the institute published a report this month called the End of Communications Services As We Know Them. I always love titles that are designed to get attention, right? That’s the marketing strategist in me.
This is really all about 5G and edge computing and how what we will see a dramatic shift in is the teleco industry and how they operate. Tell us a little bit about this bold statement about the end of communication services as we know them. I’d love to know more about that.
Chad Andrews: Yeah. As you can imagine, the default is conservative at IBM but we really thought this topic warranted the bold, provocative line that we took. It’s not something we normally would do. We weren’t just looking for attention. We really believed that we’re at an inflection point within the evolution of the teleco industry. To an extent, because of the data that we’ve collected, I should precursor this by we did a survey of 500 global executives on the topics of 5G and edge computing.
The data we got back really led us to the conclusions that there has to be a wake-up call for the telecos in how they’re pivoting in order to compete in the next chapter of the business.
Shelly Kramer: Absolutely. Absolutely. Well, we’ve done a ton of research and writing on that very topic. There’s so much opportunity for communications services, providers, otherwise known as CSPs out there. So much opportunity ahead but it really is all about understanding what’s disrupting the industry, what will disrupt the industry, and what to do strategically to be able to leverage that and take advantage of it.
Chad Andrews: Absolutely. It’s really interesting. Again, nerd alert, I get really jazzed about this where we are in history of digital generally right now. I happen to believe that some extraordinarily profound things are going to happen in the next three to five years. In fact, I believe that the period between about 2024 to 2028 will be the largest period of economic wealth creation and transference in the history of mankind and it’s not even going to be close.
Of course, that’s all happening. One of the findings we had in our paper, we followed some bread crumbs from third-party research, that suggest that the overall global digital economy is somewhere around 20% of the overall world economy today.
But by 2025, to go back. End of 2018, there was $7 trillion of GDP that was tied to digital platforms. By 2025, that’s going to be $60 trillion, which is a third of all commerce. When you look at the projections for any analyst out there, the projections for growth of 5G and edge computing, the GDP incremental, most of it is happening from 2025 to 2030.
Shelly Kramer: Right.
Chad Andrews: If you net that out, it’s very likely that by the end of this decade, nine years left, the digital economy is going to be larger than the terrestrial economy, over 51%. That’s a two to three X growth, overall, in the digital economy. If you think of everything that’s happened today through the PC wave, through cloud computing, it was only the appetizer to the main course that we’re about to have, which is, by the way, an economic expansion that is natively built on telecom networks.
Shelly Kramer: Yeah. Absolutely. I mean, that’s kind of overwhelming. For a lot of people, I think when you hear predictions like that, based on the data that you’re seeing, I think for the average person it’s just like, “Holy moly. I know I need to embrace digital transformation as it relates to my business. I know my customers have different needs.” I think sometimes people get bogged down in the every day business, “I’ve got to take care of this, this, and this and I’ll think about that another time” or whatever. Maybe it’s like planning for retirement. “I don’t know. I’ll think about this another time.” Unfortunately, many people do that.
I do think that you’re 100% right, we are at the very beginning of what are substantial changes ahead so specific to communication services providers, let’s talk a little bit about what their current lie is and some of the challenges that they have.
Chad Andrews: Yeah. Well, it’s a double entendre with the word lie.
Shelly Kramer: Right?
Chad Andrews: Some of them are lying to themselves I think. I think let’s stay with this assumption that, we can be off a bit on the actual size of the growth but we’re about to go through a profound digital economic expansion, well, a lot of that. You have to understand that in cloud computing, we ended up with a centralized compute model. Resources are in large data centers, predominantly controlled by hyper-scalers, and now we’re seeing a change with 5G in order to take advantage of those capabilities of reduced latency, higher speed, communications, and so on, that the compute is going to get pushed out to the edge of the network.
Shelly Kramer: Right.
Chad Andrews: Right now, most of the networks that have been deployed are non-standalone networks, which are 4G Core with 5G Radio. We saw data from our survey that the standalone networks are going to really hit mainstream in about two to three years, which are cloud native networks. In order to really get those capabilities out to the end users of the use cases, there needs to be a change in the radio infrastructure. There have to be shorter wavelengths in order to actually be able to reach those end users.
What we’re going to see is this really dramatic densification of traffic and we’re also going to see a fusion of intelligence cloud network functions that are inherently interwoven with network functions. The intelligence cloud generation use cases were the enterprise and the consumer are going to be pushed out to highly diverse networks.
Shelly Kramer: Okay. What challenges do communications services providers have? Do they understand these changes ahead? Are they preparing for them? What are we seeing in the market?
Chad Andrews: Well, I don’t know that they fully do. All this technology is going to get pushed out to the edge, which is massive investments that are being shouldered by the CSPs and yet when you look at where the revenue growth is is at the application and services solutions. That’s where the money is being spent. We did another paper last year, I did a quick analysis and looked at the CapEx of 2019 spent by the world’s top 10 web companies relative to the CapEx spend by the world’s top CSPs by [inaudible], and what we found was that the CSPs were spending two X on CapEx and this was before a lot of investments for 5G and edge and yet the market cap of the web companies was six X.
What you’re seeing is that the CSPs are putting all this investment and yet the money is flowing into the cloud native companies that are providing the things that people are using digitally, largely on local.
The CSPs have to really sort of understand that this next wave of use cases, let’s take autonomous vehicles, I don’t know what’s going to happen, if it’s going to be later in the decade, but that use case alone is projected to have 40 times the data traffic of the current global networks. Just in that use case alone.
Magnify that times orders of magnitude. I think a lot of the use cases are coming. We can’t really envision yet because [inaudible] get through a few of these doors to know but we’re going to have massive growth in the need for data traffic, technology capability located in the edge.
The economics of that are such that you’re taking, the analogy I gave in the paper was that if today’s networks are like your palms full of golf balls, the networks that are coming, the disaggregated networks are like hands over flowing with sand in terms of their density.
Shelly Kramer: Right.
Chad Andrews: That’s what’s coming but think economically, in order to support the level of investment CSPs need to shoulder, the economics of the entire industry have to change for [inaudible] like they did in the cloud computing era where you had spec function increases in capability or performance and spec function decreases of cost. That has to happen. We’re transitioning out of cloud computing or the torch is being handed over, which is a whole new era that has to support the economics.
That being said, if you think about it, only the providers that are capable of providing those step function enhancements are actually going to be able to scale from their networks. What do those networks look like? Standalone networks are inherently cloud native. They’re built and deployed and managed and orchestrated on a cloud.
One of the findings in our paper was that when the hyper-expansion comes around the decade, probably only providers that have digital platforms that are flexing network effects, are actually going to be the source of almost all of that growth.
Shelly Kramer: If you snooze, you might well lose.
Chad Andrews: Yeah. I think it’s actually sort of worse than that, to an extent. Let me unpack that. Again, you have to be preparing now. There’s a once in a generation shift in technology architectures and operating models and cultures that has to happen now. Are they doing that? Are the CSPs actually, are they treating it with the urgency that it warrants? I would argue, again, data that we got from our survey, no.
We’ve found that CSPs generally, a small minority of them are of actually identified use cases for the consume enterprise. What they’re doing, we also asked a question that identified where the CSPs would be in a set of stages from conceiving of use cases to optimizing them. What we found is very, very few, like single digits of the CSPs were planning to be in market with mature solutions even in five years.
Shelly Kramer: I have to say here, in today’s world, Chad, I don’t care what business you’re in, five years is an eternity.
Chad Andrews: Yes.
Shelly Kramer: It is.
Chad Andrews: I totally 100% agree. The problems get compounded, though. What’s happening? What’s happening with the CSPs is they’re taking a business case approach. They’re waiting for the demand to be present before they make meaningful investments. Well, that’s not what the hyper-scalers are doing.
Shelly Kramer: Right.
Chad Andrews: The hyper-scalers look at edge as being an opportunity to take their currently consolidated, centralized cloud model and push it out onto the edge on carrier networks to increase their share and, importantly, to extend their advantages with network effects.
Shelly Kramer: Right.
Chad Andrews: The network effects and in the paper, we really define three, we call the platform economics advantage, platform economic advantage, and really the way we describe that is three interlocking network effects that have a combinatorial effect on providing advantages to the companies that operate them.
A good example of what we’re talking about, think of like a YouTube or a Facebook, plenty of ways to make money as a partner or a developer within those ecosystems but none that are outside of the control of Google and Facebook.
Shelly Kramer: Right.
Chad Andrews: The three advantages are, one is the data network effect, which is pretty obvious. We provide data about ourselves. That gets mined into intelligence, which provides us some type of advantage. In YouTube and Facebook, it’s obvious in terms of the curation of our experience. That provides loyalty. We share more data. It gets that flywheel going and pretty soon the scale of the data being collected in most walled gardens is enormous.
Then we have the cloud network effect, which is we’re the sheer scale you have of the deployments globally, the costs end up falling precipitously. I worked for another vendor prior to IBM who produced hardware. These companies are often spearheading these open source initiatives to really drive down those costs. Often, they’re making the decisions on behalf of the collective or the ecosystems on standards initiatives. The cost structures and the balance sheets of these companies end up getting weaponized to a degree where it’s very, very hard to compete with them. You saw how CSPs tried to create data center businesses too late and exited. It’s knives to guns fights. You just can’t do it.
Shelly Kramer: Yeah.
Chad Andrews: Then the third network effect is what we call platform control points. What this essentially means is it’s the rules, tools, and conventions by which developers and ecosystem partners convene around an environment. Again, think of YouTube and Facebook as the interfaces with those environments are the tools that are provided to the community. When you combine those network effects, what you’re seeing is what you see in the dominance of the hyper-scales. It becomes essentially impossible to compete with.
Just to net out the impact of this, because the economics have to change by orders of magnitude, relatively quickly, a generational shift in the next three to five years, if you don’t have network effects, the platform economic advantage, you will not be the source of the hyper-growth. In order for that hyper-growth to be consumed by you, as an operator, you need to be able to provide both capability and economics well beyond your competitors.
When you look at CSPs and you ask honestly are they on pace to evolve and transform to be able to provide that level of capability and economic advantage and I would say for most of them, no.
Shelly Kramer: Right. By and large, our research on this shows that the answer is no. I want to touch on the economics of this. We’re not, I think the point of this conversation, certainly, is not to beat up on CSPs. I think if anything, this is a really important time. If you’re not thinking strategically, maybe conversations like this will help you do that and research like you and your team were doing, research like we’re doing, will help you do that.
When it comes to the digital transformation of telecos, there are huge advantages to early adoption and smart CSPs are going to take advantage of that. I looked at your research and one of the things that stood out to me is that high performers are expected to out-perform financially from 5G-enabled edge computing, no doubt, right?
Here’s the numbers. 45%, like high performers, people who are seeing this coming, who are making the right moves, who are making the right investments, who are putting things in motion now, 45% are expected to financially out-perform in two years. That’s a lot.
Chad Andrews: Yeah. There are a couple things I want to unpack here. First of all, the report is end of communication services as we know them, so this is not a death knell.
Shelly Kramer: No, no, no. It’s sort of a rebirth, right?
Chad Andrews: It’s a rebirth. Yeah. Certainly. It’s a call to arms is really what I would say. There is a lot of advantages that CSPs can have. One of the things we’ve found as well, when you mentioned high performers, let me explain that.
We surveyed 500 global executives, half from the business side, half from the technology side of the house, and we found 14%. We had a question that asked the operators to define how their organization performed over the last three years on revenue, profit, and innovation.
We’ve found when we looked at the group that identified that they excelled or exceeded their competition on each of those three metrics, we also saw that they had profound differences in their expectations or how they were going to perform on 5G and edge. Again, we have a very strong data capability. We’ve found that that cohort just really stood out for the lessons that it could instruct other CSPs and one of the things, as you mentioned, is we saw that 14% of high performers expect, 91% of them expect to outperform their current financial expectations within five years about double, roughly double in three years and five years, the high performers had expectations of success beyond the herd.
Then when you started looking at other things that stood out from that cohort, you saw by and large they had much more of an emphasis on the strategic important of digital platforms and of ecosystems, of taking an active role in providing technology into partner ecosystems and that took the form of infrastructure, software, middleware, analytics, AI and machine learning.
Then you also saw that that cohort of high performers was much further along in their preparation to be able to deploy cloud native themes like dev ops, and then also be able to deploy virtualization, containers, and data-driven management of the life cycle on cloud infrastructure.
Shelly Kramer: Yeah. We talk about digital transformation a lot and this is not specific only to the telco industry, right? It really is the importance of digital platforms and partner ecosystems and hybrid cloud and cloud native capabilities and automation and all of those things, I mean, those are all fundamental underpinnings of businesses today. Very much fundamental underpinnings if you’re in the telco business.
We talked a little bit about a lot of telcos have entered into partnerships with hyper-scale cloud companies. You know, what are the benefits of, I feel like there’s some immediate benefits but there’s some very big risks. Talk with us just a little bit more about that if you would.
Chad Andrews: Yeah. Let’s just be explicit and call it out by name. There was a big debate that’s on the top of the mind of CSP executives, are hyper-scalers friends or foes? Just being honest about it. Right?
I would say, first of all, huge respect to the hyper-scalers. Amazing companies. They’ve achieved these network effects, huge credit to them. They’re also incredible innovators and they make great product and they adapt very agilely. Their operations are insanely good. They’re formidable but they’re also appealing to end users, whether it’s consumers or enterprisers.
I will note as well, one of the things we quoted from ABI Research in the paper is that in 4G, typically, 12% to 15% of services revenues were needed to recoup capex. With 5G, predominantly, because you’re building all this capability out to the edge and that’s just inherently expensive and hundreds of billions of dollars of radio infrastructure, that will go up to about 40%.
Shelly Kramer: Right.
Chad Andrews: It’s going to put CSPs under tremendous financial strength. It’s a very convenient and understandable strategy to say, “Hey, we’re going to partner with the hyper-scalers which allow us to get to market quickly with really, really good products that our customers want. Oh, hey, by the way, they can help to offset some of the build-out of the capability to manage the balance sheet while ending up with really good stuff on their network that people want to buy.
I think that’s great. Again, I want to give a parallel, by the way. This isn’t the first time we’ve seen the short-term thinking [inaudible]. I point back to streaming and Hollywood. Just a few years ago, there are these new revenue streams. I can license my television shows or my movies to the streaming.
Shelly Kramer: This little outfit called Netflix.
Chad Andrews: Yeah. This little Netflix. I’m going to make double my bonus this year, this is fantastic. Then only within a couple of years, I remember the first headline, if you remember back, was around House of Cards and how they had taken data back from the users and understood that they loved David Fincher and they loved political dramas and they loved Kevin Spacey and so they put it together and said, “This data has allowed us to create this show”
Shelly Kramer: Absolutely.
Chad Andrews: But it was a little bit more than that, if you’re thinking about the industry and what’s occurred since then, which is now Netflix has data in scale. They don’t need to rely on the incumbents like they did. They can start to produce their own programming and now it’s several billion dollars a year in original programming. Of course, it sparked an arm’s race because no longer are the predominant business models of the industry theatrical ticket scales or linear advertising or, certainly, physical media. It’s streaming, predominantly, market streaming. It’s streaming subscriptions and digital advertising and, to a degree, it’s e-commerce, if you look at Amazon, and, to a degree, it’s driving device sales, if you look at an Apple or a Samsung.
What you saw was a complete fundamental shift in the entire industry that was brought upon by really two things. One, the obvious is, “Hey, we sought the near-term revenue and what we did was we created this giant” but the other is something that CSPs really need to understand is coming their way, and they’ve seen it before, which if you look at WhatsApp, in 2014, WhatsApp took a, I don’t want to misquote it. I think it was about, it was tens of billions of dollars were taken away from S&S revenue, that would have been S&S revenue for the CSPs because, essentially, WhatsApp took texting and created an abstracted services over commodity data centers and so we saw what happened.
Same thing happened with video streaming over the last decade. Again, I mentioned I came from media and entertainment technology from post-production. I harken back to a project I did in Australia where it took four days to send something like 30 gigabytes from Australia to LA back in the year 2000.
It used to be extraordinarily expensive to do [crosstalk] high quality video, prohibitively expensive. You needed these massive purpose-built appliances. Sound familiar? Massive purpose-built appliances like a CSP network.
But then what happened is the services, the video services were abstracted, those processes were abstracted and they were put on commodity hardware by the hyper-scalers. Then you saw the … Again, the theme, orders of magnitude, step function decreases in cost, that were continuous over generations and increasing capabilities and that would include automation like being able to work with CDNs and push high quality video out efficiently to the edge.
What you saw was this combinatorial effect and it’s really important to understand what we’re seeing in the evolution of technology now and it’s coming to this intelligent connectivity for CSP networks is multiple exponential technologies in confluence combining their … They’re each going through exponential increases in their performance and decreases in price and they’re combining to create a sum of the parts that’s greater than the whole.
Shelly Kramer: I do think it’s fascinating and we talked about the Netflix example, we can use the Amazon example and not even related to Amazon’s cloud services, which is a huge part of its company but today, you … If you are selling something, you can sell something in a bricks and mortar location. You need to be able to sell something online. Generally speaking, you also need to consider being able to sell that in the Amazon marketplace but the challenge there and we’ve done this with clients before is that you have to market your presence in the Amazon ecosystem, which is incredibly expensive to do, and you have to market your presence elsewhere, online, offline.
It becomes part of this equation but the thing that’s really tricky about the reality of the necessity of having a presence in the marketplace like Amazon is that they have your data, they know who your customers are, so every person who buys from this partner ecosystem, you don’t really know. You get the benefit of the revenue, it costs you a lot to get that revenue, but you don’t know anything about those customers and that’s really where the challenge is and from a business strategy standpoint, understanding what our customers need today, what they’re going to need tomorrow, and not five years from now, truly within the next 12 months, within the next 24 months, where are they going to look for that? How are they going to get that? How are we going to provide that? That’s really the kind of strategic business thinking …
By the way, I’m not inventing any wheels here. This isn’t new or revelatory in any way but it really is we have to move beyond thinking of this is how business as usual is down in the CPS space and really be thinking about how do we get out in front of this and [crosstalk]. Is it going to cost us money? Absolutely. Is it going to cost us the time, strategically, and finding the right partners to work with and all that stuff? Absolutely.
But is it necessary for business continuity and business survival? I would say that’s a resounding yes.
Chad Andrews: I couldn’t agree more. Everything you just said, hallelujah. I would say be a Bob Iger. I watched one masterclass episode a day, I’m a big fan, and I recently watched the Bob Iger one. When Bob Iger took over as CEO, he basically had two major dimensions that he managed the company by. One was premium content. You saw the major acquisitions they did.
Shelly Kramer: Right.
Chad Andrews: Building the brand. The other was technology. It was essentially understanding that the future of distribution and the relationship with the customer and data were the future of the company.
Huge tip of the hat to them that during COVID, where essentially, you have a business that’s founded on theme parks, that they actually were able to weather that to the extent that they did because they had made that pivot to a technology platform center.
Again, it’s not just the data, although, the data is extraordinarily important, that you as a provider need to be able to have transparency into as much of the data about your customer as possible but it’s also the end user relationship. It’s the ability to nurture that relationship across ever-changing and expanding channels.
In our report, we gave a use case of somebody who I think is really doing a good job of getting it right with their edge computing platform and that’s Verizon. Verizon has partnerships with Microsoft, they have partnerships with Amazon. Again, they’re able to harness those amazing capabilities of these amazing companies and send it through to their end users but they also have a flexible platform that they’ve built where they can build their own products, their own services on top of it but they also control the catalog, they control that front end relationship with the customer, and they can adapt it and change it. They’re not selling through the front end of a partner. What they’re doing is they’re building a broad portfolio of very impressive capabilities with data under the hood. It’s connecting the ecosystem.
I mentioned before so this is not, by any means, a death knell. It’s a wake-up call.
Shelly Kramer: Absolutely.
Chad Andrews: There’s some amazing advantages that CSPs have as the industry shifts to more of an ecosystem digital platform approach, with network effects. The points of presence represent trillions of dollars of investments that would be virtually impossible to replicate without them. They’re in a bit of a power position if they choose to actually work strategically and avoid some of the short-term traps.
They’re trusted, so generally, especially as data providers, their customers trust them to a much higher degree than other companies. They have unique data, subscriber data, geolocation data, and, again, they also have the existing relationships and sales capabilities to be able to knit this stuff together into, knit the use cases together to be able to drive sustainable growth.
One other thing that I think is really, really important. I mentioned that third network effect, the control point. The control point sort of implies strict, almost monopolistic control. That’s not the only way forward. There are ways in order to create value to the end user in the community that are open source, based on open standards, and so that is an advantage that the CSPs can have against some of these walled gardens.
Another thing, again, I try to be more of a presentist than a futurist by law but I’m really fascinated by, it’s a big statement that I said we’re going to have the biggest period of economic growth and wealth transparency in history and I think part of that is going to be web 3.0, which has identity and geolocation built into it but it’s also going to be in decentralized architectures, which are blockchain-based, in some cases, not all cases, crypto-based.
What you’re about to see is a complete paradigm shift in how transactions work, transactions of data, transactions of money, and so, again, what we’re talking about are tens of trillions of dollars of new wealth that are traversing global CSP networks.
That’s a huge opportunity for them to actually be responsible for optimizing the exchange of value across those networks, that requires them to actually take an active hand in building and managing these ecosystems and avoiding giving the keys to the future to the hyper-scalers and, again, I’m on another rant but I want to unpack it and that’s very bad for the CSPs.
Shelly Kramer: I agree. Well, I think it’s tremendously tempting. You know? There’s so many examples of this. It’s tremendously tempting to hand the keys over to somebody else because it’s easier, faster, seems like I just don’t, there’s so much to unpack here. There’s so much to do or whatever. It is a dangerous move. It really is.
Chad Andrews: If I’m not Verizon and I don’t own the platform and I don’t own the system relationships on the front end, and I cede that to a cloud native company, which creates the service, the application, and the solution … Well, at the same time, standalone networks are inherently, by standards and design, cloud native, eventually, they’ll be provisioned and deployed through APIs and micro services. Essentially, the application provider goes and configures the network on the backend. Even the CSP, which they will, has capabilities for network slicing and for really customizing those networks, in which, again, there will be pockets of high margin growth within that. There will be some salad days on the ride up for that.
Eventually, the control goes to the cloud native company that just shakes and bakes it into the actual service. It ultimately has a commoditizing effect on the CSP.
Shelly Kramer: Yeah. You know, I do want to talk about IBM and cloud native and hyper cloud here in a second but one point that I want to make that I think is really important, and my team and I talk a ton about strategic partnerships, and every day, if you’re paying attention, you see strategic partnerships one after the other, sometimes with big tech companies, sometimes with a big tech company and a small company.
Strategic partnerships are the path forward. Finding those trusted partners, those trusted vendor partners, being able to have somebody help with the heavy lifting. You don’t have to hand the keys to the business over. You can find the right strategic partner and have help doing this along the way.
I think that for CSPs who might be thinking about this path and who might be feeling overwhelmed, I think that’s really, really important to keep top of mind is that I truly believe that the path forward, certainly, as it relates to this, is finding the right strategic partner or partners and working together to get where you need to be.
Chad Andrews: 100%. Within this story, things are going to change and the scale is going to change, really at a pace that’s historic, and there are a set of things that enterprises need to do, CSPs need to do for their core applications and services to evolve them and innovate them and adapt them efficiently on technology. There is clearly a shift that’s happening from legacy engineering to IT from [inaudible] engineering to integration. That’s happening. How do you ride the business forward?
But also we have consolidation, M&A is going to be a huge portion of this as well, which creates complexity and silos so there’s the de-siloing that has to happen and the cultural shifts that need to happen and then there is the operations and the enterprise story. How are we actually building and modernizing our platforms? Modernizing our application infrastructures? Building new applications and deploying them efficiently on cloud?
Now you have the sort of tertiary how do we knit all of these things together in order to be able to gain sustainable business advantage? You need some partners here. I mean, you need some people that are helping you with generational change [inaudible] generational shift in thinking and generational shifts in thinking require action.
Shelly Kramer: I think too the way to think about this is when you work with a vendor partner who plays a role in this digital transformation for companies across the board, different industries, different focuses, different customer bases, all those different things, what you’re getting is the benefit of all of the learning along the way. You don’t have to reinvent the wheel. You don’t have to figure everything out for yourself. I think when you work with the right vendor partner or partners, you’re getting the benefit of everything that they’ve learned along the way, what to do, what not to do. That sort of thing. I think that’s tremendously valuable.
Chad Andrews: By the way, and the ecosystem that’s being brought to bear that’s pre-integrated as well. That’s growing as well. Again, everything you said is bang on. There’s really a need for evolved partnerships here. Also, keep in mind that … Another case study we did in our paper was with Vodafone Idea, which is creating a universal cloud. What they’re doing is looking to consolidate their operations and their technology architectures across the consumer network, business to business, and IT into a total cost of ownership model.
They’re shifting the cost structure so that they get as much efficiency as possible to be able to virtualize and manage all the way out from the centralized cloud to the radio infrastructure. Again, that model of shifting from legacy siloed to engineering into a more integrated partnership-driven approach is something that requires a real multi-year evolved strategy and as we know, the devil is in the details and the devil is in the execution and, ultimately, the winners are going to be the ones that are going to intelligibly and patiently be able to make it.
Shelly Kramer: Absolutely. I could not agree more. I do want to finish up by talking just briefly about IBM and cloud native and hybrid cloud. IBM is a cloud technology company. Talk with me just a bit about what’s the role of cloud native technologies in all of this.
Chad Andrews: Well, you mentioned automation. One of the most interesting pieces of data that we got was we mentioned that we had this high performer segment and that they differed in terms of their future expectations for 5G and edge.
The most profound difference we had with them in the study was on automation of front, middle, and back office functions. Essentially, you saw that if you can interpret, high performers are much more technology integrated companies. They’re much more IT-centric and they’re much more driven on cloud.
Shelly Kramer: Right.
Chad Andrews: Again, cloud being, you’re seeing non-standalone networks are still largely driven by the legacy [inaudible] infrastructure and relationships but standalone networks are inherently cloud native. Again, we saw data that shows that a high percentage of overall CSPs are going to be deploying standalone networks in three or four years.
Shelly Kramer: Right.
Chad Andrews: That’s the window that they have to really evolve into the heart of their business being IT-centric and cloud-centric.
Shelly Kramer: Three or four years?
Chad Andrews: Three or four years. What I’m saying as well is when we … We put this in the report but there’s … If you look at any of the major projections for 5G, edge computing growth, whether it’s consumer, it’s ICT, information communication technology provider revenues, consumer revenues. It’s enterprise revenues. It’s all the same story, which is you go from … Depending on the projection, tens to hundreds of millions of dollars of growth between now and about 2024, and then from hundreds of billions to trillions of dollars of value so it’s this two sort of S-curves. You have this exponential growth but the absolute value in the second one from 2025 forward is just monumentally huge in terms of raw numbers.
It’s happening in these sort of stages. You have this startup cycle that we’re in now and then you’re going to ride that into this hyper-growth. When the hyper-growth happens, again, don’t discount that the scale that that needs to happen at is … Think about autonomous vehicles and all of the intelligence that needs to be located, the amount of economic might that has to be brought to bear will only be able to happen from digital platforms that are already established, already have user bases, already have infrastructure footprints, in three or four years.
Now there is exceptions to this rule. There are going to be plenty of CSPs that are regional niche, that are able to go do networking slicing and provide legacy connectivity but what you’re going to see with this economic paradigm shift that’s coming is that the network itself is going to commoditize at a rate faster than the technology expansion. We see evidence of that, it happened in cloud computing, it’s [inaudible] happens. If the idea is that you’re going to go, it’s a rising tide lifts all ships, I’m a CSP and I’m going to go out. There’s more connectivity means more revenue, it means shrinking margins, unless you’re actually adapting and have a platform strategy and execute it well over the next three to four years.
Shelly Kramer: Right. For our audience, three to four years.
Chad Andrews: One more thing, we also saw there’s been … I mentioned you have this first wave of digitization which was PCs and then it’s shifted to open innovation and software innovation commoditizing the hardware. That tradition gets carried into the cloud computing and now it’s being brought into the network and network cloud.
We’ve seen that sort of evolution of waves and each one of them, step function increases and capability decreases in cost but there’s also been previous waves of telecommunication transformation as well. There was the adoption of [inaudible] PIP, then there was the evolution to mobile, and now in concert with this evolution to network cloud, there’s a new model for telcos, which is a platform-driven, services-driven provisioning of services.
All of this is happening. It’s all building up to a crescendo for this three or four window to get it right.
Shelly Kramer: Yeah. Absolutely. Crescendo. I love that word. I don’t think it’s used enough, Chad.
Chad Andrews: I don’t either.
Shelly Kramer: I like it. I’m kind of a word nerd in addition to being a tech nerd. I just own the nerd crown all the time.
Chad Andrews: Chrysanthemum and crystal and I think there’s a few words that we need to bring into the lexicon more often.
Shelly Kramer: We need to use more. Yes. I agree. Well, I’m with you on that. Chad Andrews from the IBM Institute for Business Value. This has been a fascinating conversation. I really enjoyed not only the conversation but I really enjoyed diving into your report on how 5G and edge computing will completely help redefine who wins in the booming digital economy. We’re going to … We’ll link that report into our show notes here. I highly encourage you to download it and dive into it just like I have. I learned so much from it. I have learned so much from you. We’re pretty dialed into this industry but it’s really been fascinating Chad. I so appreciate you hanging out with me today.
Chad Andrews: Oh no. Thank you so much.
Shelly Kramer: Absolutely. Well, we’ll do it again soon. I’m sure.
Chad Andrews: Great.
Shelly Kramer: All right. Thanks, everyone for hanging out with us today.
Author Information
Shelly Kramer is a Principal Analyst and Founding Partner at Futurum Research. A serial entrepreneur with a technology centric focus, she has worked alongside some of the world’s largest brands to embrace disruption and spur innovation, understand and address the realities of the connected customer, and help navigate the process of digital transformation. She brings 20 years' experience as a brand strategist to her work at Futurum, and has deep experience helping global companies with marketing challenges, GTM strategies, messaging development, and driving strategy and digital transformation for B2B brands across multiple verticals. Shelly's coverage areas include Collaboration/CX/SaaS, platforms, ESG, and Cybersecurity, as well as topics and trends related to the Future of Work, the transformation of the workplace and how people and technology are driving that transformation. A transplanted New Yorker, she has learned to love life in the Midwest, and has firsthand experience that some of the most innovative minds and most successful companies in the world also happen to live in “flyover country.”
