5G and Edge Computing - Recommended Reading

I recommend the reading of this report, especially if you are in telecom and trying to understand the business model for 5G and the relationship between 5G and Edge Computing.

What is Good?

This is the first report I have seen to address the fact that edge computing is not an optional activity when deploying 5G. Edge computing becomes the optimization for delivering existing customer experience to existing customers. As traffic grows and experience immediacy intensifies it will become increasingly difficult to scale delivery with time to market and the necessary efficiency of economics.

From this perspective, edge computing is a supply chain optimization for the existing business. If the competition can either deliver a better reliable experience or deliver the same experience for cheaper then we will see a market shift and churn appear. Edge computing is the democratization of customer experience delivery over the long tail as customer desire further lifts to being satisfied by 3rd parties. In the most extreme market cases, we see a similar motion as new entrants such as Reliance Jio and soon to be Rakuten, change the supply cost and thus the possible/viable business models.

Through systematic engineering, apt business model transformation, and ruthless execution, Jio was able to redefine the economics of the business. We have seen similar impacts from Facebook, Google, Amazon, Tencent, Paytm, Airbnb, Uber, and others. Often times, disruption is driven by the change in economics. What if we could change the “network delivery economics” by a factor of 10 or 100, then, suddenly, the value-chains will be reorganized for efficiency and innovation. The applications and services that were bogged down by the burden of cost will feel liberated by delivery economics. 

We have seen how hard it is to compete against such a force if not adequately prepared and aligned with similar capabilities.

What is remaining?

The paper estimate that by 2030, the Edge Internet economy will be over $4.1 Trillion worldwide. What it does not state is how much of economy will be captured by the telecom industry in terms of new service revenue. That estimate lies somewhere between $0 and $4.1 Trillion. What are the pre-requisites that lead to new service revenue being possible on telecom investments, in the rollout of 5G?

The focus on 5G as a magic bullet is misguided. 5G is a technology that has certain characteristics. The focus on edge computing as a magic bullet is also misguided. Edge computing is as valuable as the people who use it. The danger in 5G is that telecom does build the world's largest and most distributed edge but the only customer it serves is itself. If this is the case, it does not even take care of managing customer experience since that also is delivered primarily by 3rd party apps. How much of the new service revenue and business model does telecom take today from the app economy? By and large very little. There is fringe innovation and examples but if cloud had been positioned as an enabler for LTE applications in 2008 rather than telecom focusing on enterprise cloud, the world might look very different. In 2007 consolidation around X86 architectures led to the possibility of the cloud. Today consolidation around containers/Kubernetes is leading to the possibility of edge.

The focus needs to be on the process and enablement of value creation, from an operational, business and technology point of view. This is all designed behind a software exposure that has easy accessibility to the "future creators" - software developers and new device makers. There needs to be the creation of 2 complementary business models and go to market. This needs to be discovered starting now and will grow in significance with time.

1. "Existing business" - connectivity enablement as mentioned above

This is the existing connectivity/ARPU business where the traditional competition lies and will remain. This is driven by the metrics of market share if positive and churn if negative. Success is defined by reducing the cost of delivery, pricing plans, and ultimately customer experience. Exclusive business deals can be done that are purposely not repeatable by local market competition. This is where telecom has a direct go to market either retail or wholesale.

2. "New business" - enabling others to deliver their promise

These are the software developers and new device makers. They speak in terms of DevOps, APIs and SDKs. They talk cloud but want to talk edge. Their problem - how do they do that in a way that familiar to how they talk cloud and is possible to operationalize with similar economics and business models. Whereas they deploy imperatively to cloud today they know they have to deploy declaratively with edge. With cloud there are low numbers of availability zones they manage. With edge they understand there are thousands.

This new business is the complete opposite of the existing business. This business is as repeatable as possible across all telecom operators. This business should be seen as the 21st century equivalent to what has fed telecom in the existing business - the interoperability of voice, messaging and data. Whereas the three existing services are hard-coded in the industry implementation, the long tail services need to be decoupled and run as cloud applications. And in doing so a market the size of the existing can be formed. Just as with voice, messaging, data, this does not rule out business exclusivity in specific markets. Poke-Mon-Go is a good example today of specific operator business deals to differentiate. However, Poke-Mon-Go does not benefit from the presence of local infrastructure beyond connectivity today, despite wanting to.

Looking Forward

The short term business case for 5G and edge computing is the enablement of a new network economic to deliver ever scaling new experiences and planning for risk mitigation of disruptive economics from others, where customer experience is driven by 3rd party experiences for the largest part.

For new revenues, these will not be significant compared to the core business initially. They never are. Telecom would be best served following a model similar to the iPhone and Appstore when first introduced. The purpose of the Appstore was to drive engagement and stickiness on the core platform underneath. In Apple's case, it was the iPhone. In telecom, it is the core connectivity. 10 years ago, the initial goal of the AppStore was to run at break even. During the last 10 years, Apple has developed services and engagement that now deliver multi-billion dollar returns both for them and the developers

"A year ago, Apple said that iOS developers had received a total of $86 billion, which would put the amount of money developers received in 2018 at $34 billion. That figure is 28% higher than the $26.5 billion Apple said it shared with developers in 2017, which in turn was more than 30% higher than the 2016 figure.", ["Developer’s $34 Billion Earnings from Apple’s App Store Rose 28% in 2018" - Forbes]

MobiledgeX has been established by telecom to drive the same market approach. As part of this we are starting an initiative to discover the best understanding of market understanding and need, in the form of a uniform view of use cases across all potential edges (device, on-premise, network and internet) and understanding why use cases should work where and which use cases are leading and which are following. We are opening up the initiative to the whole market, on behalf of telecom, and contributing all of our insights.

We call this approach Seamster and if interested, please leave your email here, to learn more. On September 12th we will discuss this more on a webinar with our friends at STL.

In telecom, the future is as good as the changes we start making today.