Wednesday, June 21, 2006

Strategies In The Changing Era: Blurring Line Between Telecom And IT?

Micrpsoft's "hungry eyes" look at buying stake in AOL should give us food for thought. This shows the rise of the new wave that is merging the two industries, Telecom and IT. What stategies are foreseen in the future, with this kind of a trend setting up pace?

What kind of changes will be seen in the business models of IT companies in this respect?

I wouldn't read too much into Microsoft's interest in buying AOL. The lines between IT and telephony have always been blurred, going back at least to the 70's and probably before. Trying to forecast technology "trends" on one or two events is like trying to forecast the stock market based on one week of performance.

If we look at technology over a longer time frame, we see that convergence has occurred and died several times over the past 50 years to one degree or another in both hardware and services. Examples include X.25, terminal services, and ISDN. VoIP is simply the latest in a long line of merged communications, and is unique only in that the convergence is built on the data rather than the voice infrastructure.

The trend that I see is towards less local computing and more core services. If you consider how you use the Internet today, you may agree. Rather than using the compute capability on the PC, most of the use seems to be in communications. The browser accesses a wealth of information in a presentation format that is not local computing intensive. Email can be Web hosted, and IM is primarily text based. On line collaboration is more efficient from a user perspective than collaboration requiring files to be moved about. Most number manipulation is simple math supportable by an online calculator function. The key online piece missing is the spell checker function. Common office applications can be hosted and shared.

Now add to this 3G capabilities on cellular phones, and where does that leave a company whose whole market strategy is to sell OS and applications to individual computers with ongoing upgrades? I think Microsoft is positioning itself for this change, and that it has been trying to do so as a long term strategy for the past decade. A pay for use strategy provides a long term revenue stream, while the current pay once strategy is approaching its market cap and beginning to see competition.

The key change in business strategy for telecom companies will be to expand "IT" services. The key change in business strategy for IT companies will be to offer communications so they can sell their services like the telecom companies. In both cases, mergers will provide the shortest path to achieving the goal, so I expect more of the AOL-Microsoft type actions.

The key change in business strategy for user hardware providers will be two fold. First will be the lower cost and lower capacity general purpose device - the combined telephone and smart terminal. Focus will be on marketing - looks, weight, basic ergonomics. Second will be more specialized devices - the desk top photo printer, for example. The custom computer for the architect, or artist, or media producer are additional examples. There will be no significant change in the infrastructure provider strategy. Functions will continue to be combined, and operational capabilities will continue to strive towards as little human intervention as possible.

I don't think VoIP will have the impact overall that some expect. While talking is preferred to text for close friends and family, and simple business dealings, most commerce will continue to be text and graphic content. The simply reasons are the need for a permanent record, the need to carefully consider what is presented, and the need for understanding. Even as English becomes the universal language, we all retain our regional variations that can make conversations difficult. This has a much lower impact when we exchange text than when we speak. Video services will probably play a minor role in all of this for a couple of reasons. For the mobile user, video works against personal mobility. For the stationary user (home user), consolidating the service bill is more important than consolidating the service delivery. Just as many US homes get a single water and sewage bill but thankfully get these services through separate systems.

Of course, this is only my opinion.

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