The Future of ecommerce in Communications:
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- Vivien Sparks
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1 The Future of ecommerce in Communications: Buying and Selling Infrastructure Services Online
2 ecommerce in Communications ecommerce is most often associated with brands like Alibaba, Amazon, ASOS and ebay but it is only defined as commercial transactions conducted electronically on the internet. While there is a lot to learn from these consumer brands, ecommerce is not limited to specific markets. It has the power to influence the growth, development and efficiency of whatever market has the ability to transact online. Its scope and potential is only limited by the buyers and sellers that are willing to participate. For communications service providers, ecommerce is about using the advantages that ecommerce has already offered other sectors to buy and sell international capacity, colocation, last mile access and a range of other services. This means taking the utility of buying and selling online and applying it in a market that ironically enables ecommerce to be transacted on their networks and infrastructure but has yet to take advantage of it themselves. Communications service providers can benefit from typical advantages that ecommerce provides: No Geographical Limitations Global Markets Ease of Use and Speed of Transaction - Efficiency Elimination of Travel Time and Costs New Potential Customers Increased Product or Service Transparency and Comparisons Greater information and Intelligence Each of these six elements has been powerful enough to make B2C ecommerce worth more than $1.2 trillion in 2013, according to emarketer, and has the potential to refresh the B2B communications services market and show it a new open, accessible and efficient way forward. The Future of ecommerce in Communications 2
3 From to eprocurement In the almost completely offline world of buying international capacity, relationships are developed in person in face-to-face meetings. These meetings are then followed by weeks of exchanging pricing spreadsheets via . Service providers that do business this way have the luxury of travelling to meet in person as well as timeframes that permit several weeks of negotiations. In a market that must move quickly and with customers like content and cloud providers that are used to instant scalability, this way of doing business is becoming increasingly obsolete. In a commoditised market like IP transit or point-to-point capacity, these negotiations do not require long explanations or demonstrations of capabilities. Much of the dialogue revolves around price and delivery time. Minimal opportunity exists to refine or improve the basic product to help it command a better price. What needs to change is the efficiency with which the sale is conducted. In an era where global IT infrastructure can be bought from Amazon Web Services with a credit card using a similar user interface that you would use to buy a book, communications service providers need a better model. Relationships are important but when inefficiencies remain something has to change. Making It Work To make an ecommerce work in the communications market requires some of the basics of the business model: Buyers and Sellers An Online Portal Pricing A Delivery Mechanism Inventory Billing and Revenue Sharing There are an abundance of buyers and sellers globally with new entrants growing the overall market. When it comes to the other elements, the move to an all-ip world and new network intelligence is changing what can be done online. Both standardisation of services and end-to-end quality of service offered by IPX means inventory can be dependable or offered as a class of service. In terms of pricing, it is reliant on the openness of the sellers as well as a platform that can take into account real-time changes in price. Billing and revenue sharing can be ensured by a reliable intermediary that acts as an enabler for the market. When these elements are in place a service provider can put their entire product portfolio online. The customer will then be able to log in and click on the routes and pricing options they want and procure services in real-time. The delivery and confirmation process will be automated. More importantly than the features and functionalities of an ecommerce platform there needs to be an understanding across the industry that new models can offer better ways to conduct business. The role of brick and mortar shops in the consumer market has diminished because they lack utility. They are not the best way to get the things you want with the price you want to pay. The Future of ecommerce in Communications 3
4 Benefits for Both Buyers and Sellers ecommerce is of benefit to the whole supply chain. With inventory online, there is transparency into how much capacity is available at any point on the network. All parties can see what is available and at what price, instantly. Before the buyer clicks to complete the transaction, the system has already performed a capacity check, enabling the deal to be completed in the shortest possible period of time. A purchase takes that capacity off the network inventory, so that the next buyer can see that it is sold. Power is put in the hands of the buyer and unnecessary responsibility taken from the seller. The seller gains new efficiency. They can employ fewer people to manage repetitive sales and post sales tasks. Employees are free instead to focus on more productive and rewarding work. Account managers spend time developing new prospects, and product teams can concentrate on creating new services. Typical Approach ecommerce With the sale made, both buyers and sellers gain from a fulfilment process that is fully transparent. Both have visibility of the delivery of the capacity by logging in to see where an order is, just as is currently possible where a parcel is being delivered by FedEx.This checking process, requiring only a browser and login details, can be done from anywhere. Pushback While ecommerce is a win-win for all parties, there are still some sceptics. There is a lingering belief that ecommerce will lead inexorably to even faster price erosion than the industry has already seen. Service providers must embrace the notion that ecommerce is a way for them to actually grow their business, and secure its future. The idea is gaining ground that ecommerce allows participants to offer a wider range of services, and extend their sales channel to parts of the world where they have not been active before. A regional Asian service provider can take advantage of the streamlining of the sales process to sell services in Latin America. Opportunities exist for gaining competitive advantage over those not connected to an ecommerce platform, for example through the speedy provisioning of services and the ability to gain an instant overview of pricing options. A quite different objection to ecommerce in wholesale telecoms is that it was attempted 14 years ago in the form of bandwidth trading, as practised by companies like Enron, and did not deliver. This early attempt at ecommerce rose and fell at a time when pricing and margins were still high, and when the commoditisation of bandwidth could therefore be denied as if it weren t happening. Carriers could still afford to send teams of sales people to meetings to negotiate deals. This human interaction can no longer be justified in a world where one point-to-point connection between London and Frankfurt is the same as any other. Differentiation between services and between the physical equipment that services run on is tenuous. It is not logical or necessary to spend 40 man-hours negotiating a basic connection that now costs 500 a month. The traditional business model limits return on investment for a matter of months. The Future of ecommerce in Communications 4
5 Why Bandwidth Trading Didn t Work In the late 1990s, it was widely believed in the global telecoms market that bandwidth trading in the wholesale environment was a huge business opportunity. Models were developed to facilitate structured finance deals, in addition to options and futures trading. Bandwidth trading departments were established in many large telco companies. Not everybody agreed that the model was sound or workable. Infrastructure-heavy telcos were concerned that it would swiftly commoditise them out of the market. In the event, the short-lived bandwidth trading bubble burst in So why did this primitive version of ecommerce fail? Quality and Composition At the time, bandwidth did not lend itself to being traded like any other commodity. It was not a dynamic market with liquidity or volatility, and it lacked common standards for quality and composition. Unconnected Back in 2001, the world s communications infrastructure was not sufficiently interconnected for the fast and seamless delivery of bandwidth services. Limited fibre infrastructure made it expensive to connect between major hub cities. Inefficient Physical delivery of connectivity was expensive, time consuming and open to error, and the cost of provisioning did not allow for short term contracts nor provide the ability to transact quickly. There was also no strong base of buyers and suppliers that might have led to the success of the market. Process The contractual process moreover could take months to complete, dependent on a lengthy legal process as well a network of personal relationships The Future of ecommerce in Communications 5
6 Bandwidth on Demand The basic ecommerce business model is already a significant benefit for both buyers and sellers participating but as the model grows in acceptance new features and benefits will develop. It can be expected that buyers of bandwidth will soon be able to fully provision their own requirements. The ecommerce platforms of the future will allow them to manage network resources just as hough they owned them. The availability of bandwidth on demand will make it feasible to buy 1Gb of capacity for an hour or two a month, or as a one off to solve a short term need. Capacity can then by deployed for occasional tasks like data back up, making it unnecessary to go to the expense of paying for a circuit for 12 months at a flat rate. The industry will see the growth of new types of application that are currently rendered too expensive because of infrastructure costs. For example it will become possible to swiftly provision a high-qos video connection between two ipads in different parts of the world, by the hour. This might cost $10, which is obviously preferable to a video conferencing service, which costs $3,000 a month. 1Gb QoS While the buyer gets flexibility, the capacity owner gains the ability to sell small increments without overreaching their network. Making more money from on-demand than fixed price services and opening new market opportunities. Next Steps Service providers operate in a difficult and fast changing industry where old certainties no longer apply. The new landscape of global communications means that they must be prepared to accept new business models and to seek greater agility. They will need to embrace new types of customer, from OTTs and application developers to cloud service providers. Ease of doing business will be a fundamental requirement in this new world. Deals based around paperwork and meetings will no longer provide the most utility. Already, those wanting to order cross-connects from a data centre operator have no choice but to purchase online. The communications market has not been at the forefront of ecommerce so far, but there is no reason why this cannot change. The industry must now embrace innovative business models and play its part in a future of efficiency through ecommerce. The Future of ecommerce in Communications 6
7 About Epsilon Global Communications Group Epsilon is an award-winning enabler of connectivity services to communications service providers around the world. They operate the world s largest Global Network Exchange with 500+ network operators pre-connected and ready for their networks to be used to create tailor-made solutions for service providers globally. Their services portfolio includes managed networks, co-location, system integration, first line maintenance and access solutions for voice service aggregation. As a carrier neutral infrastructure provider, they operate and source the highest quality networks and services in more than 170 countries and build flexible network solutions for national, regional and international communications companies. trading. Bandwidth trading departments were established in many large telco companies. Not everybody agreed that the model was sound or workable. Infrastructure-heavy telcos were concerned that it would swiftly commoditise them out of the market. General Contact Details: London Office: Singapore Tel: Hong Kong Tel: Info@Epsilontel.com The Future of ecommerce in Communications 7
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