Despite their larger resources they also seem to nearly always try to develop new brands which leverage their old ones – despite their old ones having overwhelmingly negative baggage.

It seems like such a small point, but considering how timing can be critical when launching to niches in the long-tail, any time spent unnecessarily wrestling inevitable (and seemingly unexpected) negative brand baggage (from leveraging a brand they thought would help) can get the whole thing off on the wrong footing. In my view that’s a strong opportunity for the smaller player to be making their inroads into the market from a clean slate.

Where the Telcos have pulled-off the switch to (or addition of) services more successfully there seems almost always a fiercely independent brand being built to support it.

I guess this is a thought in response to your comments around the constraints of the ‘old culture’.

@rik agree with your comments re “next generation dial tone” which is really what I was saying in my post – but what is to stop the web properties from aggregating this new dial tone on their own network. sure infrastructure costs money but google doesn’t shy away from spending $ on hardware (and neither does amazon or ms for that matter)

@ff correct – so instead i should have said “traditional telcos” vs “new telco/web companies”

Yes, incumbent telcos have grown used to supernormal profits in recent years, mainly due to running essentially the same service they’ve been running for decades (PSTN voice). This service may be running on infrastructure which was paid off years ago, hence the (now) high profit margin.

The last few years have seen strong challenges to this profit due to so-called “over the top” services, such as Skype. These challengers can easily enter the market with very little infrastructure investment, due to the local connectivity part having been built by the telco, and the arrival of a workable Internet infrastructure (transit, peering, etc.). The challenger services can therefore jump in to an existing market, with minimal capital expenditure or ongoing operational overheads, and undercut the existing players. Skype is a great example, using few central servers and a peer-to-peer service architecture in order to scale effectively.

Given the proliferation of broadband, people have spotted a bargain and are willing to accept occasionally lower-quality or “best effort” service, over the traditional standard offered by the incumbent telco. In many ways, the arrival of lower quality mobile voice and poor UI SMS text messaging has done a great deal to reduce the consumer’s expectations of communication services!

When it comes to emerging SaaS, however, these are most often services which the telco does not currently provide, which does put them in the role of “pipe provider”. One view may be that as the telcos begin to better understand how these emerging services fit together in to a coherent set of communication, consumer, and business, tools/services, that the equivalent of a “next-generation dialtone” will emerge. This may be with reliable services, performance guaranteed, but a possibly higher-cost. In video terms, this may be the difference between YouTube and an on-net streaming VoD High-Def IPTV service (to use a current example). Of course, this opens the argument of net neutrality.

1. Someone has to stump up a bunch of serious cash for the network bit . Conceptually possible but there’s no avoiding that you are talking $B in an NZ context at least

2. The equation of

Total cost = (Network Cost + Web Service Cost) * Margin

should in theory work both ways right? Wouldn’t the telcos see this coming and just play this game? Then they are there first. But obviously THAT hasn’t happened. Why is that? Probably more to do with business culture than anything.

As it is, global trends around the world show that Telcos are being disintermediated, their businesses are being broken up into retail and wholesale arms, retail becomes lower margin therefore web services look attractive. Net result is the additive equation not the multiplicative one.

Oh and I love the way that the link to taking on Skype is seen as a plot as opposed to a business response. Some telcos are actively using Skype already – three being the lead player.

Disclaimer: Yeah – I still work at a Telco