Dave Burstein at DSL Prime reports that Ivan Seidenberg effectively says the the wireline voice telecom business is dying:

“we have to pivot and make a shift from the voice business to the data business and eventually to the video business. … we must really position ourselves to be an extremely potent video-centric asset.”  He further states, “The issue there is perhaps it is like the dog chasing the bus a little bit. So what I need to do is get ourselves focused around the following idea, that video is going to be the core product in the fixed line business. … I shed myself of the burden of chasing the inflection point in access lines and say I don’t care about that anymore.”

Despite Seidenberg having been one of the few telecom industry visionaries to truly embrace data/video as the future of the industry as long as 10 years ago, it still sounds strange (heretical, in fact) to hear a telecom CEO say “I don’t care about that [access lines] anymore.”  On the other hand, I believe Seidenberg is correct in focusing Verizon’s strategy on the combined communications capabilities of its wired and wireless footprints.

Googling for further insights from Seidenberg’s comments at Goldman Sachs Communicopia Conference, I found this statement, made a week earlier at SuperComm:

“But here is what is happening in our view,” Seidenberg said. “The Internet, the PC and the TV are integrating at the fastest rate you can possibly imagine. So this is not a matter of only putting video on mobile; that will happen. We are also talking about turning the TV into an interactive device. And the experience we have had with that is just off the charts. So we have this Widget Bazaar on FiOS, which is kind of like our apps store. And so in addition to getting the weather and the news and that kind of stuff, traffic, now you can do your Twitter, your Facebook, your YouTube, you’ve got a Kodak Gallery, you have got fantasy football, you have got the RedZone ticket and there probably are 50 other things we have in negotiations right now to take the interactive capability of the TV and turn it into a hilarious issue.”

Next up, Seidenberg said, is the likelihood that a mobile smartphone interacts with the TV, as part of the convergence process. That’s why, he said, Verizon is focused on having fewer total access lines but hosting them on a “much higher potency platform to take to the customer.”

Unlike Ed Whitaker and Duane Ackerman, Seidenberg truly grasps the converged future of communication networks, and more importantly, is willing to act upon that vision.  In addition to developing the platform to focus on the common interactive experiences to be encountered on mobile, video and computer devices, Seidenberg is also focused on the operating efficiencies to be found in the flat architecture of the fiber network.  According to the New York Times in its article titled “Verizon Hangs Up on Landline Phone Business”:

By converting most of its landline operation to FiOS, Mr. Seidenberg said Verizon had a new opportunity to cut costs sharply. FiOS uses the decentralized structure of the Internet rather than the traditional design of phone systems, which route all traffic through a tree of regional, then local offices.

“We don’t look any different than Google,” he said. “We can begin to look at eliminating central offices, call centers and garages.”

Mr. Seidenberg said that he was just beginning to work through the implications of this and that he planned to reorganize the company in order to emphasize this strategy. He told investors it may take a year or two for the financial impact to be apparent.

Plant and operations in the legacy telco network is insanely complex, labor intensive and consequently expensive.  An all optical network will prove much cheaper to operate.  One of Seidenberg’s challenges probably has been and may continue to be overcoming the copper voice-centric Luddites within his own organization.  My guess is that when you see Seidenberg publicly announce the cost savings to be realized via the replacement of the copper with fiber, you will know for certain that he succeeded in that endeavor.  Unfortunately, that will mean a lot more people looking for new jobs and careers.  Given that many of those are members of the CWA and IBEW, you can also bet those unions will seek to delay that process as long as possible, just as they are also doing in attempting to impede Verizon’s sale of unprofitable rural operations.

Some talk about buying/selling advertising in terms of the current industry participants like Fox News. Although Rupert does get it regarding broadband Internet, very few organizations with the size and longevity of any of the existing broadcasting/media companies are ever able to make transformative changes to their business models. See Clayton Christensen, The Innovators Dilemna, for hard proof. The companies that break standard price points will have a different view of the economics/business model, just as Bill Gross (Idealabs) did when he invented the pay-per-click Internet advertising business model that Google has leveraged into a $150 billion market cap. Remember, Google did not even begin to sell search advertising until the 2001-2002 timeframe.

A final point about change in content/advertising markets – the Internet evidences and enables statistical distributions commonly known as the Pareto principle (80/20 rule). Chris Andersen of Wired wrote the signature piece on this phenomenon which he dubbed The Long Tail (link to his website, which links to article, book, Wikipedia, etc.) Andersen’s point is that for digitazable products/services, the changes wrought by the growth in interconnected and ever mor powerful communication/computational processing devices will enable the exploitation of demand that was previously unexploitable due to the lack of sufficient market scope to spread the fixed costs of production and distribution over. The fixed costs are now already incurred, in terms of the infrastructure of the Internet, and the marginal costs of distribution are virtually nonexistent. An Amazon employee described the Long Tail as follows: "We sold more books today that didn’t sell at all yesterday than we sold today of all the books that did sell yesterday."

Excerpt from Andy Kessler’s series of blog posts on Media 2.0 (Kessler is a money manager, investment banker & vc/hedge fund operator who also writes books (latest titled Running Money) and articles published by Forbes, Wired, LA Times, Am Spectator, Weekly Standard & WSJ)

So what is a Media Mogul to do? They control pipes in a world of zero margin costs. It costs virtually zero to sell one more digital song, or run one more digital ad or post one more digital classified. As chips and bandwidth get cheap, digital distribution crumbles the quaint old days.

The time and the tools are ripe for this GO WIDE approach. Especially on the Web, which is nothing but layers and layers of functionality.

Bill Gates

This process will be hastened, he believes, as more and more television content moves online. “Internet TV and the move to the digital approach is quite revolutionary,” he says. “TV has historically has been a broadcast medium with everybody picking from a very finite number of channels. If you want content that is a local sports thing or a hobby that you are interested in, that’s not available to you. The use of the internet to deliver those video signals and the idea of seeing what you are interested in, and having the ads targeted to you, is becoming the standard way that video is delivered. Over the course of this next decade that will be very common.”

Internet advertising, aimed at niche audiences and more creatively ambitious, will provide a way round the increasing problem for advertisers of television viewers fast-forwarding through commercial breaks in shows that they have recorded. “It will be possible to target the ads and it will be important to have ads that the consumer doesn’t skip over, incorporated in the right way.”

Om Malik’s posts – Google… the OS for Advertising and The Web Money Machine – Beyond Adwords (author of Broadbandits: Inside the $750 Billion Telecom Heist, writer for Red Herring, Business 2.0, Forbes, WSJ and now founder/executive editor for GigaOm.com)

excerpts:

Google’s core competency is to use technology in a manner that devalues and deflates4 traditional industries by extracting inefficiencies in existing processes. And the long-term strategic implications of this “Google effect” is much more disruptive than simple market realignment… rather, it’s an issue of rendering old core (human) competencies obsolete and replacing them with new ones reliant on automated, scalable technologies (much like what Wal-Mart did to retailing and what Craigslist is in the process of doing to classifieds). For instance, the only way for traditional media companies to leverage the core competencies they have today in order to compete with Google’s Ad/OS, in the long run, is to start breeding ad salespeople who will have the expertise and capability to sell across all media platforms. Sure, that’s feasible… when pigs can fly.

The media industry is in the middle of a massive change, thanks to the ubiquitous presence of broadband everywhere. Fast pipes are enabling niche networks, venture capitalists are investing in new media properties. The online video market resembles an old fashioned bubble, and companies are sprouting up like mushrooms after a fresh monsoon. All of this is predicated on one business model: advertising. Google bet $1.65 billion in chips on YouTube, betting that it can profit from this shift to online video. Their confidence is understandable: Google now accounts for 25% of all online advertising dollars.

But the job of a business development executive is changing. You have to be more product focused, more technical, and focus on making deals where there is already user level integration happening.

 In a previous post, Fred described how the public api’s published by Web 2.0 companies not only allow them to effectively partner without all the overhead of a business/legal deal, but also to do so much more quickly.  Nevertheless, as a commenter on that post observed:

The BD guy has always been the guy who sees how two companies can play together. Today’s smart (good) BD guy simply works more with his in-house API guru and less with his Rolodex.

So, what’s the message? Really, it’s quite simple. Marketplace
enablers can be defined by the breadth f goods on offer, and the depth
of support for the transaction they offer. The picture shows how eBay,
Amazon and Google are currently positioned, and how Skype might be
positioned in future. The edges are “clipped” because not all
transactions go to the maximum depth; e.g. not all eBay auctions are
settled via Paypal, and Amazon sometimes hands off fulfillment to 3rd
parties. (The eBay region is made translucent — I hope it’s still
obvious which bits are eBay despite the colour transition.)

At one extreme, Google has a very broad business base (any
commercial transaction that can have an unambiguous keyword associated
with it). But it doesn’t do much beyond that.

At the other extreme is Amazon, which will encase your goods in gift
wrap and even deliver them to you personally when it comes to certain
digital goods.

eBay falls in the middle. Its business model is narrower and
shallower than these extremes, but perhaps encompasses a greater
“commercial land area” as a result.

The purpose of the Skype-eBay deal is to push eBay into a broader
realm of things for sale. For instance, if you want legal advice today,
Google is the only place to go search for it. Want a reputable lawyer
nearby? Sorry, the eBay reputation system doesn’t help you — yet.

Interestingly, Geddes wrote about the potential strategic value of Skype to Google a few weeks before the Ebay transaction.  Here are a couple of excerpts from that post.

Putting together Skype and Google, whilst no match made in heaven, does have a lot of synergy.  The Skype client, or something very like it,
has the potential to re-invent telephony. (That, after all, is the
point of the Stupid Network, not disintermediating legacy voice toll
charges.) It just requires you to stop thinking of telephony as an
application, and instead just see it as a feature of a bigger
communications framework.

The e-commerce value chain

Google is competing in a long transaction value chain that looks something like this:

• Demand stimulation/market formation. Self-awareness of user need,
  awareness of market solution. The domain of traditional marketing.
• Capture attention. The user is presented with ads, and eventually
  sees a proposed solution to a problem the user has. In the user’s mind,
  the connection is ready to be made. In the olde world of directories,
  this is (i) finding the category of vendors who match your problem
  (often somehting that isn’t intuitive if you’re after something more
  complex than a taxi or flowers), and (ii) filtering on the
  locality/capability criteria you have. By the end of this stage the
  user feels “I am aware of a potentially relevant solution to my
  acknowledged problem”.
• Connection. The user clicks on a link. The connection is only
  one-way; the advertiser doesn’t know who the user is, or what they
  really want. An extended Yellow Pages advert is the analogue version of
  connection. The user is now engaged with a particular soltion provider and is paying attention to their message.
• Contact. The user and advertiser engage in bi-directional contact.
  The user presents some form of identity (e.g. gives a phone #, e-mail
  address, etc.). This is like calling the 800 number.
• Transact.  The user’s requirements are codified, and a non-repudiable contract is formed to deliver some good or service.
• Settle.  Payment is remitted.  A third party like a bank or Paypal is normally involved.
• Fulfillment.  The goods are despatched.
• Delivery.  The goods arrive.

Google’s competitors aren’t search engines per se. Google is competing
for transaction value chain slices against eBay, Amazon and even
vertical search like Craigslist.

….Google’s competitors aren’t search engines per se. Google is
competing for transaction value chain slices against eBay, Amazon and
even vertical search like Craigslist. Of course, chop off the search
engine leg today, and the Google animal as a one-trick pony falls over.
But Skype could equally be another leg on the Google animal.

….So Google = totally unstructured transactions with no integation of
user identity; eBay and Amazon = structured transactions, with limited
flexibility, and some user identity (but isolated within their commerce
island).

….Yahoo is a media company, and is unlikely to be the commerce bridge.
eBay is a real threat to Google, and eBay buying Skype would be a
setback for Google. It isn’t hard to see eBay aligning with, say, Ask
Jeeves and using all the Interactive Corp. properties as seeds for an
integrated search and transaction experience. Amazon is a similar
story. Microsoft has execution problems of its own, but knows what’s at
stake and has boundless cash and armies of developers to throw at it.
Google’s aura of invincibility is largely hubris. They need to
diversify up the transaction chain.

Damn good analysis and extraordinarily prescient and timely insights!

Point Solutions vs End to End Solutions

Data was the first and most logical component piece to be pulled out of applications and from that a giant industry was created, databases.  Later, client-server architectures broke applications into muliple pieces and separated applications functions, but they didn’t actually pull a lot of functionality out of compiled code.  With the birth of the web though, applications started to change dramatically.

The web browser changed applications forever by substituting a generic GUI front-end and structured text (in the form of HTML) for a compiled GUI.  In this way the browser became merely a generic execution engine.  It requested non-compiled text and then translated that text into a unique GUI according to a pre-existing industry standard.  By pulling out the presentation logic from compiled apps and making it open and accessible to not only other programmers but basically anyone who could view text, browsers launched the massive wave of innovation and creativity that in turn made the Internet a true “web”.  HTML “programmers” swapped HTML tricks and tips liberally.  They cut and pasted code from each other’s sites and as time progressed they began to use the power of HTML and HTTP to create composite sites that actually borrowed both content and styles from other sites.

Thus, in just 10 years, the presentation layer of the web has become an incredible laboratory for innovation and creativity with people using the power of HTML’s accessibility and portability to create radical new services, many of which people simply had not thought possible beforehand.

PrimeRevenue is the key to a financially optimized supply chain.  For Buyers and Suppliers.

Our program is an innovative and unparalleled solution that brings the benefits of information technology to the financial supply chain.  Our services deliver greater working capital efficiency, cost savings, and revenue growth opportunities for both Buyers and Suppliers.

With our program, Buyers provide Suppliers with transaction visibility and payment certainty around trade payables to their Suppliers, reducing the amount of cash tied up in the order-to-cash cycle.  Our services streamline AR/AP processes, link the flow of funds to the flow of transaction data and, by creating visibility into future cash flows, give corporations access to a variety of transaction level financing options at very attractive rates.

Simply stated, PrimeRevenue helps companies do more business with less working capital.

Although apparently not a new concept (there’s a link on their website
to a fairly sophisticated vision of it in an article written in 2000),
the integrated communications and software infrastructure for implementing it are
only now reaching the maturation to support it.

On another Web sojourn, I encountered Wells Fargo’s Commercial Electronic Office (CEO), a proprietary financial portal that claims to provide "cash management, credit, international, and trust and investment services all in once place with a single sign on".  Maybe so, but my experience with banks suggest that would be something of a stretch.  (Wells had even applied bankers’ bureaucratese to the term e-commerce, turning a concise word into a mouthful of multi-syllabic mush.)  My instincts and experience with online media content tell me that a proprietary business model will not stand.  For the same underlying economic reasons that it would make no sense for Yahoo, MSN or AOL to limit their available market to that of one communications company (as in cable or telco), it would make no sense for a true financial portal to limit its market to the available market of a given depository institution (even if owned by that institution). 

This is worthy of futher "focused" Web wanderings, thought and conversation.

That was Blogging 1.0.  We knew back then that the web was a great platform for personal expression.  All three businesses still exist.  Two of them exist inside of web portals and About.com apparently is going to get sold soon, apparently to the New York Times Company.

Blogging 1.0 paved the way for Blogging 2.0.  I see four fundamental improvements that differentiate Blogging 1.0 from Blogging 2.0.

The first is the notion of the post as the central piece of content.  About.com had some of this in its DNA, but Geocities and Tripod did not. Posts drive freshness, frequency, and syndication and make Blogging 2.0 much more exciting than Bloggin 1.0 was.

The second is related to the first.  Permalinks have changed the game fundamentally.  Linking to content was not really possible until permalinks came along.  Now each piece of content is a persistent object that has a unique identifier.  This is a huge deal and this concept did not exist in Blogging 1.0.

The third is RSS. Blogging 1.0 was a web experience.  Blogging 2.0 is a everywhere experience. Content was a solid in Blogging 1.0 and its a fluid in Blogging 2.0.

The fourth is CPC and contextual ad networks.  In Blogging 1.0, the only way to monetize the business was with banners.  And brand advertisers were not thrilled with paying high CPMs to advertise on "amateur content".  With the arrival of CPC and contextual ad networks, this is no longer the case.  Wherever advertisers can get clicks, they’ll place their ads. The result is a huge increase in the potential revenues.

"the message is pretty clear to me: eventually, and probably sooner than later, someone is going to pull together all these diverse angles on telecom/internet/media/hardware/applications/chips, incorporate some hard financial and technical analysis, and build a cross-sector investment research platform incorporating realtime tools (I mean blogging, IM, video conferencing and collaboration) rather than .pdfs and spam.

There is a business model here, and whether it’s the financial media who seize upon it (Reuters and Bloomberg have the infrastructure and a lot of data, but are trapped in a walled garden mentality and put their journalists in the same sector-coverage silos that the brokers do), or the brokers (I’m skeptical, because I think they tend to be dismissive of alternative points of view, risk-averse, organized in sector and region silos, and anyway are focused on trying to kill one another), or a newcomer (CNET or something that doesn’t currently exist), I feel certain that it is going to happen."

Makes sense to me.  Furthermore, if true, it would seem to follow that almost any research-intensive business would be open to similar disruption.  Wonder if Gardener, Forrester, Yankee, et al. have thought of that?