Computing Models Have Business Model Implications
The Open System Interconnect model (and the incompletely compliant internet protocol) is a reference model for the way modern computing works, and illustrates why the global telecom industry faces some common problems.
For starters, OSI was developed because modern computing requires communications across disparate systems. That heterogeneity is one key foundation of modern computing. As computing no longer is monolithic, so telecom no longer is monolithic.
As modern computing assumes (in principle) that “any authorized app” can be used by “anybody who is authorized” on “any authorized device,” so the structure of telecom now makes similar assumptions.
That is far different from yesterday’s world, where “my authorized apps” can be used by “any of my authorized users” on “any of my authorized devices.”
That dramatically changes customer lock-in and therefore supplier power. So all access providers now are “less powerful” than they used to be. Look at the market capitalization of the world’s leading apps, compared to the market capitalization and multiples of telecom and access providers and you will see how “value” translates into valuation. As early as 2011, app providers had leapt to market values far higher than the largest telcos, creating what some have called valuation envy on the part of access providers.
But the OSI model (and Internet Protocol) also explains why access providers have lost value in the ecosystem. By creating logical separation of computing functions, business role separation also was enabled.
By definition, it is possible for apps to be created and accessed irrespective of the ownership of access facilities or the actual applications themselves. That is the fundamental opposite of the old model, where applications and network ownership were vertically integrated.
That takes profit margin out of the access business at the same time it enables product substitution that does not require network ownership. Apps now are effectively virtualized and abstracted from access and transport functions and ownership.
Wi-Fi provided an early example of how even access has become more virtualized, allowing users to connect over networks not owned by their “service providers.” More examples of that are coming.
And though some have argued that over the top apps do not compete with telco and access provider revenue, only control of the value chain, one might now argue that is only partly true. OTT providers essentially destroy the former access provider markets (look at voice, messaging, now video).