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Carrier Services
Commentary
Dear Jerry: Some suggestions for Yahoo
Founder crosses one hurdle, but others remain
by Tom Nolle
Well, Jerry, your quarter of discontent seems past. Your deal with Icahn
has ended the drama you might have faced at your shareholders’
meeting, and your quarter wasn’t as bad as some on Wall Street had
expected. I’m sure you realize, though, that this is faint praise. I’m also
sure you realize that even if the regulators let the Google deal go
through, establishing Yahoo as a permanent satellite for Google is no
way to build shareholder value. Mr. Icahn isn’t gone; he’s now on your
board with a couple of allies.
So what does Yahoo do now? One thing that’s clear is that while search
is a nice business to jump off from, it’s not going to keep the lights on.
The question is what Yahoo might jump off to. Some think the answer is
video search or video ads. Some think it’s mobile. I think it’s both, and
neither.
You’ve picked the wrong ally, Jerry. Google doesn’t do deals that help
the other guy, but you already have a casual relationship with a whole
class of people who are eager to deal with you on good terms. To make
matters even better, these guys are so big that the smallest of them
makes Google look like chump change. Who are they? They are the Tier
1 service providers.
The Internet has created a big problem for the network operators. Their
revenue per bit is declining — no, let’s be honest, it’s plummeting. That
means that at best, more Internet traffic is going to do little more than
pay for the equipment to carry it. At worst it won’t even do that.
Eventually something has to give, and every single Tier 1 I’ve ever
talked to will admit that freely. They feel “disinter-mediated” and they
want to be “intermediated” again. These guys don’t have to be sold a
story; they’re eager buyers of one, and who better than one of the
premier over-the-top players (that’s you, Jerry).
Sure, the Tier 1 providers were the bastions of the walled garden,
which doesn’t sound very cooperative, but they’ve changed. I was on a
panel at NXTcomm with a couple of them and they were all about open
handsets and open APIs. They want to create partnerships where they’ll
build and expose features beyond simple bit-pushing and people like you
will exploit those features to bring new services to market. Sure, they’ll
charge for their features, but you’ll make a good profit yourself.
Yahoo has a developer program, APIs, links to Web 2.0, and all of the
stuff that creates a glossy relationship with users that can be
monetized. The Tier 1s have location services, identity services, and
even a couple of neat demographic and ad targeting capabilities that
they can bring to the table. They have presence, they have QoS, and
they have billing and customer care and service automation. All of these
things are stuff Yahoo could build, of course, but look at the Return on
Investment (ROI) on these areas? It’s likely to be barely into double
digits, and you don’t want your margins sinking more than they did in the
last quarter. Remember Mr. Icahn?
Then there’s Google, or to be more direct, there’s “not-Google”.
Why “not”? Because if there is a company on the planet that is less
likely to strike a deal with Tier 1 carriers than Google, I don’t know
who it would be. Google has touted itself as the champion of Net
Neutrality. Google, the sponsor of open spectrum. Google, the kissing
cousin of a big RBOC or EU or Asian tier one service provider? All the
Silicon Valley elites would shatter their white wine glasses at the
thought!
Google has too much market muscle to take on. Letting them into your
tent with ad placements wasn’t the answer, but direct confrontation
isn’t either. You can turn the ad deal into something positive if you see it
as a way to make your search process work better without investing in
it, while you invest instead in the creation of Tier 1 partnerships that
Google will forswear until it’s too late.
You want content advertising and search? Who better to partner with
than the biggest new players on the content block, with their telco TV
offerings? Mobile advertising? The big mobile operators are already eager
to do ad trials with somebody who has something innovative to offer. I’ll
bet you have a hundred people there that would be able to whip a
couple of ideas together in a week or so once you’ve understood the
problem. Meet with some Tier 1s and find out what that problem is.
Every single Tier 1 has either got a developer program and a set of
APIs in place to expose service features to vertical partners, or wants
one. I’ve yet to see a pitch from one of these carriers that didn’t include
a picture of the program and a hopeful image of a set of Internet players
on top of the stack using the interfaces they’ve exposed. You’re usually
one of those players.
The future is going to be a game of ecosystems, not parasitism. Pure
over-the-top bandwidth exploitation isn’t going much further, and in
most of the directions it will go, Google is already there and throwing
money around. But there are hundreds of service features that require
more investment, tighter network integration, and more operational
skills — and at less ROI than over-the-top players can tolerate. These
areas may be bad for high-flying Internet companies, but the ROI in
these feature spaces would be stellar for companies that used to be
public utilities. They can build, but they can’t exploit their investment
without somebody with agility in the crazy Internet market … somebody
like you.
Forget Google, Jerry. Forget dashing after some “hot” new social or anti-
social online concept. Make an investment in the future with the people
who have invested for the future for a hundred years, and are still here
today.
You can still win this. Have your people call their people — while you’ve
still got people to make the call.
Tom Nolle is a regular Telecommunications columnist and is president and CEO of CIMI Corp.
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