Insights - How mass-market services degenerate to commodities.

How mass-market services degenerate to commodities.

by Dr. Thomas Papanikolaou on May 25, 2014

Looking back in history, and with the benefit of hindsight, it is relatively easy to see why the telecommunications industry has been pushed to accept a commodity role. In fact, one can argue that the context telecommunication companies (Telcos) have been operating within, made it inevitable that telecommunications would be forced downwards to a commoditised position in the value chain.

Anecdotically, some will say the reason for commoditisation were the Internet players, who took a free ride on the expensively-built telecommunications infrastructures, offering similar services “for free”. Others will claim that telecommunication providers have been over-protective of, and have excessively monetised communications: a resource that should be equally available to everyone (a discussion closely related to Net Neutrality)

The actual reason is, uncharacteristically, not somewhere in between. Let us explain this, by contrasting and comparing telecommunications operators, to Google and Facebook. The comparison easily extends to Twitter and the Internet of Things (IoT), but for the sake of simplicity we will use Google and Facebook.

COMPARISON  
TELCO
GOOGLE
FACEBOOK
LARGE-SCALE INFRASTRUCTURE
Telco: yes
Google: yes
Facebook: yes
MASS-MARKET SERVICE
Telco: yes
Google: yes
Facebook: yes
SERVES A BASIC NEED
Telco: communication and connectivity
Google: information access and communication
Facebook: social networking and communication
SELLS
Telco: data
Google: analytics data
Facebook: relationships data
CHARGES ON VOLUME
Telco: number of megabytes
Google: number of impressions
Facebook: number of impressions
BUSINESS MODEL BEST CASE
Telco: client always uses less than they paid for
Google: everyone/thing is searchable
Facebook: every private info has been shared
REGULATED
Telco: yes
Google: no
Facebook: no

What the above table illustrates is that Telcos, Google and Facebook are not as different to each other as they would like to portray themselves. Telcos, Google and Facebook are all in mass-market, volume-type of business. Telcos represent Web 1.0 and Google and Facebook Web 2.0 (see Walled Garden 2.0). If there are any conclusions to draw from this type of comparison those are:

  1. Google and Facebook are extending into communications i.e. aim to serve the basic need Telcos have been serving up to now (see for example Facebook’s WhatsApp acquisition). Telcos, on the other hand, try to extend into connectivity and, more and more, analytics and big data.
  2. Google and Facebook are not regulated to the (extreme) extend Telcos are.

With extended market reach (billions of users), Google and Facebook should, however, expect increased scrutiny from the regulator. This is already happening and several policy-driven regulatory actions around privacy exist, the latest being Google being forced by the European Union to amend links to information on request . Also recently, Facebook had to respond to calls for changes in its default privacy settings that put users at risk of accidentally over-sharing content.

How far such regulatory action can and will go in the future depends on several factors. However, as Google and Facebook get nearer to becoming synonyms for "being able to find information" and "being able to connect socially", they approach a de facto monopoly status that has historically raised regulatory interest. In particular in the US.

One could claim that, unlike Telcos who charge for communication, Google and Facebook do not charge for information access and social networking. How can something that is provided “for free” be a monopoly or be further commoditised? The answer is that the commoditisation we are referring to is not one of price. It is one of Google and Facebook services becoming synonymous to “having electricity” or “having running water”. It is about their services becoming so fundamental (as in human rights), that Google and Facebook will have to start complying with Net Neutrality 2.0. “Net” being here Google and Facebook infrastructure, data centers, core services, offering “neutrality” towards new, Web 3.0 Over-The-Top players. Think Google and Facebook evolving to bit-pipes for Web 3.0 companies.

Ironically, Google and Facebook extending into communication only accelerates the broader adoption of their services as basic needs and their future as a bit-pipe for Web 3.0. The more voice, video, messaging and free internet access Google and Facebook offer, the more similar they become to total communication providers, and the faster they lose service differentiation. With a demographic evolution that sees digital technology reaching out to a younger generation of users (e.g. school kids) this process will only speed up.

In summary, serving a basic need successfully for a mass-market is a sure road to becoming a commodity. Regulation takes care of that. This is not good or bad. It is natural evolution.

CREDITS & REFERENCES

For the avoidance of doubt, Neos Chronos are not affiliated with, and have no financial interest in any of the companies mentioned in this article. All names and trademarks mentioned herein are the property of their respective owners. Please observe the Neos Chronos Terms of Use.

  1. The Guardian: EU court backs ‘right to be forgotten’: Google must amend results on request .
  2. The Guardian: Facebook bows to pressure on privacy settings for new users .
  3. Google: Google website.
  4. Facebook: Facebook website, WhatsApp acquisition.
  5. Twitter: Twitter website.
  6. Wikipedia: Internet of Things (IoT), Machine-To-Machine (M2M).

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