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IBM Global Business Services                                 Telecommunications
Executive Report




IBM Institute for Business Value




The changing face of communication
Social networking’s growing influence on telecom providers
IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value, develops
fact-based strategic insights for senior executives around critical public and private
sector issues. This executive report is based on an in-depth study by the Institute’s
research team. It is part of an ongoing commitment by IBM Global Business Services
to provide analysis and viewpoints that help companies realize business value. You may
contact the authors or send an e-mail to iibv@us.ibm.com for more information.
Additional studies from the IBM Institute for Business Value can be found at
ibm.com/iibv
Introduction




By Rob van den Dam, Ekow Nelson and Zygmunt Lozinski



People are communicating more things to
more people than ever before, and not just by phone anymore. Internet-enabled
communication models are gaining audience, attention and market share at the
expense of traditional telecommunication providers (Telcos). Can Telcos fight back
and find new growth opportunities in this rapidly changing ecosystem? The challenge
is not just in understanding the technology, but also the unfolding fundamental shifts
in human communication behavior.

The face of communication has changed dramatically over the       The widespread social networking phenomenon reflects shifts
past few years. Traditional Telcos, which have historically       in two long-term communication trends. First, there is a shift
dominated two-way interpersonal conversations, are increas-       in communication patterns – from point-to-point, two-way
ingly being challenged by new market entrants that use open       conversations to many-to-many, collaborative communications.
platforms to meet diverse and rapidly changing user wants and     Second, control of the communication environment is transitioning
needs.                                                            from Telcos to open Internet platform providers, enabled by
                                                                  better and cheaper technology, open standards, greater
Social networking Web sites and services, such as Facebook,       penetration of broadband services and wireless communication
MySpace and Cyworld, have become primary communication            networks.
media for a new generation of digitally aware consumers.
Driven by high broadband penetration, maturing “social            The combined effect of these trends is altering the competitive
software” and readily available, affordable Internet-enabled      landscape in communications and giving rise to emerging
multimedia devices, these sites and services are making inroads   business models that include:
with enthusiastic users and garnering the attention of adver-
tisers, consumer product companies and enterprises that are       •	 Open and Free – This model features companies that offer
using social media to reach their customers; build brand             one-to-one communication services, but through an open
loyalty; and communicate with geographically dispersed               Internet platform and at no – or very little – cost. These
employees, suppliers and partners.                                   services potentially threaten profitable traditional services,
                                                                     such as long-distance calling and mobile roaming.
2   The changing face of communication




•	 Gated Communities – Companies using this model focus on           Over the short to medium term, Telcos should focus on laying
   many-to-many communications, rather than point-to-point,          the foundation for a more open and collaborative future. They
   within telecom-controlled environments. They are, essen-          can begin by taking advantage of the window of opportunity in
   tially, a “walled-garden” for operator-led collaboration          mobile social networking and also bolster their capabilities to
   services and are likely to appeal to users and enterprises that   serve the evolving, broader communication needs of enter-
   desire secure and reliable communication environments.            prises. They should partner with, or acquire, existing players to
•	 Shared Social Spaces – This rapidly growing model facilitates     proactively develop the capabilities required for success or
   collaboration on the open Internet. Key players include           enable other participants in the value chain to benefit from
   social networking sites such as MySpace and Facebook.             distinctive telecom capabilities. Using network and computing
   These providers have the potential to become de facto             infrastructure optimization techniques, they can reduce the
   integrated communication platforms, bringing together             cost of delivering high-bandwidth content and potentially
   social networking, voice communication, e-mail, instant and       capture value from it. Over the long term, Telcos should
   text messaging, as well as content. They are drawing              embrace a broader definition of communication – one that
   attention away from traditional Telcos and contributing to        encompasses everything from two-way conversations to
   the fragmentation of the market. Beyond gaining audience          many-to-many communications – and align the organization
   share, these services pose an operational challenge to Telcos     with this reality. Also, Telcos are well positioned to enable a
   as they “piggyback” on the existing communications infra-         cross-platform, fully integrated experience across mobile, fixed
   structure, imposing network capacity issues and increased         and Internet Protocol television (IPTV) services.
   costs for the network providers.
                                                                     A new ecosystem is emerging from these long-term shifts in
In the short term, as the industry transitions to more open and      communication trends that will require bold, significant
collaborative communication models, the traditional model            changes by existing telecom providers. The option of doing
will likely remain dominant. Over the long term, however, the        nothing is not a luxury many providers can afford, as revenues
industry can expect a shift toward models that facilitate            from traditional services continue to decline and highly
collaboration and sharing, with Shared Social Spaces attracting      resourceful Internet information providers and IT companies
a more significant and impactful portion of people’s communi-        enter the communications space to claim a larger share of
cation time.                                                         communication time.
IBM Global Business Services   3




  The changing face of communication                                                                               social networking sites comprised half of the same list,
  A burgeoning market in social networking                                                                         displacing many traditional Internet “stars,” such as AOL (see
  Social networking, perhaps considered a “communication fad”                                                      Figure 1).
  in recent years, is transcending that phase and becoming an
  activity woven into the intrinsic fabric of the Internet.                                                        Overall, the number of unique monthly visitors to the top six
  Throughout the world, Internet users are turning en masse to                                                     social networking sites increased 95 percent between June
  such sites as Facebook, Blogger and Twitter to meet their                                                        2006 and June 2007 – and then another 50 percent from June
  communication needs. Consider, for example, that before 2005,                                                    2007 to June 2008.2 According to data from comScore, the
  not a single social media network was ranked among the                                                           global Internet information provider, unique visitors to social
  world’s top 20 English-language Web sites.1 By April 2010,                                                       networking sites in June 2008 represented approximately




                                    Rank                     Aug 2004                                    Aug 2006                                    April 2010
                                    1                        Yahoo!                                      Yahoo!                                      Google
                                    2                        MSN                                         MSN                                         Facebook
                                    3                        Google                                      Google                                      Youtube
                                    4                        Microsoft                                   My Space                                    Yahoo!
                                    5                        Passport                                    Live                                        Live
                                    6                        eBay                                        eBay                                        Blogger
                                    7                        Amazon                                      Youtube                                     MSN
                                    8                        Offeroptimizer                              Microsoft                                   Twitter
                                    9                        Fastclick                                   Amazon                                      Wordpress
                                    10                       Doubleclick                                 Orkut                                       MySpace
                                    11                       Go                                          Blogger                                     Google UK
                                    12                       Alibaba                                     Google UK                                   Microsoft
                                    13                       CNN                                         Passport                                    Amazon
                                    14                       BBC                                         BBC                                         Bing
                                    15                       165.254.12.202                              Craigslist                                  eBay
                                    16                       AOL                                         Go                                          Linkedin
                                    17                       Google UK                                   CNN                                         Flickr
                                    18                       Gator                                       Alibaba                                     Craigslist
                                    19                       eBay UK                                     Megaupload                                  Rapidshare
                                    20                       SearchScout                                 IMDB                                        Livejasmin

                               Social media sites


Note 1: The traffic rank is based on three months of aggregated historical traffic data and is a combined measure of page views and users (reach).
Note 2: Due to the way Alexa assigns “language,” multilingual Wikipedia, which is in global top 20, is not shown in this list.
Source: IBM Institute for Business Value analysis; Alexa Internet Web Search – top 20 English Language Web Sites.

Figure 1: Top 20 English language Web sites.
4    The changing face of communication




two-thirds of the world’s Internet audience.3 According to The                                     including such online portals as Google and Yahoo.9 This
Nielsen Company, people continue to spend more time on social                                      opens the door for potential revenue generation, as social
networking and blog sites than ever before, with total minutes                                     networks – like most online service providers – base their
increasing 82 percent year-over-year and the average time per                                      business models on trading page views for advertising dollars.
person increasing 67 percent year-over-year in May 2009.4
Facebook alone saw 484 million unique visitors worldwide in                                        Already, savvy marketers have begun to experiment more heavily
March 2010, while Twitter was the fastest-growing Web brand,                                       with this concept. They spent US$2.1 billion on social network
growing 1,928 percent from June 2008 to June 2009.5 In                                             advertising in 2008, almost double the US$1.2 billion spent in
addition, developing countries have become very conducive to                                       2007.10 By 2012, if the current trend continues, social
social networks. By far, the largest in Asia is China with its                                     networking ad revenues could reach $3.8 billion, provided the
QZone (run by Tencent) being the largest social networking site                                    right business model can be found.11
with over 300 million active members and still growing quickly.6
                                                                                                   The new online portal
In South Korea, considered by many to be the world’s most                                          Social networks have done more than attract users and ad
developed social networking nation, 90 percent of teens and 40                                     revenue away from traditional Internet sites. They have become
percent of the entire population are members of the social                                         a primary destination for online users and represent the next
networking site Cyworld.7 In the United States, 80 percent of                                      stage in the evolution of the online experience, serving as control
young adults, 60 percent of teens and 30 percent of adults use                                     points for managing and enriching a user’s digital lifestyle. They
social networks.8                                                                                  bring together user-generated and professional content, commu-
                                                                                                   nication tools and services, online connections, applications and
Not only are social networks generating a significant amount of                                    collaborative tools from blogs and podcasts to wikis and widgets
online traffic, visitors to leading social networking sites also view                              (see Figure 2).
more pages per visit than any other category of Internet site,


               Late 1990s                                                                                                      Network of user connections
             Portal aggregator                             Early 2000s
                                                                                                                                    and relationships
                 Browse                              Content search/discovery
                                                                                             Mid-late 2000s                       User A      User B
                                                            Search                           Social networks

                                                                                          Shared social spaces


                                                             Web
                                                            content
                Directories                                                                                    RSS                         User C
                                                                                                     Tagging         Mashups
                                                                                                             Widgets
                                                                          Podcasts
                                                                                     Blogs Wikis
                                                                          User-generated content        Meta data and tools
Source: IBM Institute for Business Value analysis.

Figure 2: Social networking sites are becoming online portals.
IBM Global Business Services   5




Communication and content distribution                            Expansion and extension
With numerous communication tools at their disposal, social       Traditional mainstream Internet sites and major consumer
networks are becoming integrated communication hubs. The          brands are beginning to recognize the value of social
integration of MySpace and Skype, for example, illustrates how    networking, not just for the potential advertising dollars it may
social networks and communication applications can converge       generate, but also for e-commerce and the built-in mechanisms
to benefit users. MySpace members can make Internet phone         it employs to communicate with customers.
calls using Skype’s telephony network and MySpace’s instant
messaging program.”12 And Twitter has become extremely            eBay, for example, has created more than 600 micro-social
popular. More than just a messaging platform, it has evolved      networks called eBay Neighborhoods, where members can
into a platform for unified communications where friends,         access blogs, guides, reviews and product searches and then
business partners and acquaintances can connect for conversa-     click to visit related auctions.15 And big-name brands, such as
tion. Instead of sending e-mails, sending texts or making phone   Coca-Cola, Victoria’s Secret and Webkinz, have ventured into
calls, many people choose to write short messages on Twitter      this newly charted arena by using social networks to generate
and publish them via a computer or mobile device.                 brand awareness and affinity.16 Depending on a brand’s goals,
                                                                  affiliating with a social network site – or possibly creating its
Social networks are also increasingly becoming channels for       own – can bring in an audience of customers, contain them and
digital content distribution, using their network of relation-    allow them a voice whenever appropriate.
ships to push information to users. In November 2007, for
instance, Bebo launched its “Open Media” platform that offers     Enterprises are also learning the value of a solution that
media companies such as BBC, MTV and BSkyB an additional          facilitates communication and collaboration among employees,
distribution outlet.13 And Apple is tapping into the popularity   partners and suppliers. Social networks provide the opportu-
of social networking sites by embedding its iTunes Internet       nity to bridge the gap in communication and collaboration
music download service into the Bebo Web site.14                  created by enterprise globalization. For example, General
                                                                  Motors uses social networking tools to facilitate communica-
                                                                  tion between executives and employees, as well as to give
                                                                  product experts the opportunity to present new designs to the
                                                                  employee community.17 Motorola’s “Intranet 2.0” initiative has
Enterprises are leveraging social network                         met with considerable success, with 70,000 people using it
applications to improve collaboration with                        every day, including partners.18 The company now has 4,400
customers, employees, partners and suppliers.                     blogs and 4,200 wiki pages. It uses, among other technologies,
                                                                  social networking, bookmarking and tagging.19
6   The changing face of communication




Telcos are getting in on the act
A number of Telcos are already responding to the challenges        Vodafone – Extending telecom capability to
and opportunities of social networking. Many have initiatives      open social networking
underway that range from simply enabling online social
                                                                   Vodafone 360 brings together a customer’s con-
networking sites, to extending their offerings to the mobile       tacts, status updates and messaging services
communication environment, to even building their own              from the mobile phone, social networks and other
proprietary social networks.                                       Internet accounts, enhancing the customer’s ex-
                                                                   perience and use of social media. Customers have
For example, SK Communications, a subsidiary of SK Telecom         integrated contacts, music, photos and mapping
in South Korea, acquired Cyworld in 2003 and is now gener-         services and can share their favorite music choic-
ating approximately US$200 million per year from selling           es – and even their physical location – how and
digital items and advertising.20 In 2005, the company started a    when they choose with chosen groups of friends.
joint venture with EarthLink to launch a mobile virtual            The service is automatically backed up and syn-
                                                                   chronized, regularly and wirelessly, between a us-
network operator called Helio, which merged into Virgin
                                                                   er’s mobile device and computer.
Mobile in July 2008.21 In early 2007, Vodafone struck a deal
                                                                   Source: “Vodafone announces Vodafone 360.”
with MySpace to enable MySpace users to access their profiles      Vodafone press release. September 24, 2009.
from Vodafone cell phones.22 Today, Vodafone has a similar
arrangement with Facebook.23 U.S. telecom operators Sprint,
Verizon, AT&T and Virgin Mobile provide applications that
allow users to access MySpace and Facebook on their mobile
devices.24

In 2009, Vodafone introduced Vodafone 360, a set of Internet
services for mobile devices and PCs that gathers a customer’s
friends, communities, Facebook status updates, entertainment
and personal favorites (such as music, games, photos and video)
in one place. It also offers the ability to chat through Windows
Live Messenger and Google Talk (see sidebar, Vodafone –
Extending telecom capability to open social networking).25
IBM Global Business Services   7




Trends in communication evolution                                   Traditional interpersonal communication, usually via the
The widespread social networking phenomenon is a reflection         telephone, allows expression but does not provide group or
of shifts in two long-term underlying trends in communication:      collaborative capabilities. As Professor Clay Shirky, a leading
                                                                    authority on the social and economic effects of the Internet at
1. Communication patterns are shifting from point-to-point,         New York University’s Interactive Telecommunication
   two-way conversations to many-to-many group communi-             Program observes, “The telephone, the technological revolu-
   cations and collaboration.                                       tion that put the most expressive power in the hands of the
                                                                    individual, didn’t create an audience; telephones were designed
2. Shift in communication control is transitioning from
                                                                    for conversation.”26 The availability and convergence of mobile
   provider-controlled environments to open Internet
                                                                    communication and the Internet are now creating a platform
   platform service providers with greater opportunities for
                                                                    that enables group communication encompassing many
   user participation.
                                                                    participants through shared spaces in virtually any geographic
Shifts in communication patterns                                    location.
Communication patterns are changing from personal and
conversational to sharing and collaborative, augmented with         The so-called “Net Generation,” composed of “digital natives”
links, videos, photos and other multimedia content that             who have grown up in a technology-enabled environment, is at
substantially enrich the communications experience. This is         the forefront of this phenomenon. According to Pew Research,
being enabled by greater global connectivity; the availability of   on average, a typical 21-year-old in the United States entering
affordable, high-quality content and communication devices;         the workforce today has played video games for 5,000 hours;
and the rise of social software.                                    exchanged 250,000 e-mails, instant messages and phone text
                                                                    messages; logged 10,000 hours of cell phone use; and spent
                                                                    3,500 hours online.27

                                                                    The new generation of digital natives is far more likely than
 “Communications overall is shifting from                           their parents to own a digital music player; to have posted
                                                                    writing, pictures or video on the Internet; to have created a
‘point-to-point’ to ‘many-to-many,’ in order                        blog or profile on a social networking site; to have downloaded
to socialize and enjoy an experience more                           digital content such as songs, games, movies, or software; to
deeply – people consuming content together                          have shared a remix or “mashup” creation with friends; and to
                                                                    have snapped a photo or video with a cell phone.28
and interacting during that experience from
virtually anywhere in the world.”
– John Stankey, President and CEO, AT&T Operations
8    The changing face of communication




For many of this generation, social networking is even
supplanting e-mail as the preferred method of communication.
                                                                                                           Brought up in the connected and collaborative
But they also use social networking for more than communica-
tion and content sharing. They use it to develop their identi-                                             world of the Internet, the Net Generation is at
ties, meet friends or form relationships that become part of                                               the forefront of shifting social communication
their individual social graphs, which are becoming key                                                     patterns.
resources for harnessing collective wisdom or opinion from
“trusted” individuals.

But the shift away from traditional telecommunication to social
                                                                                                           Shift in communication control
networking is not limited to digital natives. A growing number
of adults now use technology to get what they need from each                                               Widespread availability and affordability of connectivity and
other, instead of from traditional media and institutions.                                                 communication tools/devices are also shifting control of
Nineteen percent of consumers in the 2007 IBM Digital                                                      communication media away from the domain of Telcos and
Consumer Survey said they spend more than six hours per day                                                toward a more open communication platform.
on personal Internet activities.29 Only 9 percent indicated they
                                                                                                           The majority of households, individuals and businesses in
watch the same amount – or more – of television.30
                                                                                                           developed nations have Internet access, and the number of
                                                                                                           Internet users in emerging economies is growing rapidly.31 In
As shown in Figure 3, social networks are used instrumentally
to reinforce social ties.                                                                                  September 2008, there were 452 million broadband subscribers
                                                                                                           worldwide (more than the total number of households in the
                                                                                                           United States, Britain, France, Japan, Korea and Germany),



                                                      Talk to friend/family a lot                                                                                 69%
                                              Talk to friend/family I rarely see                                                                                65%
                                 Look for old friends I have lost touch with                                                                 47%
                 Look at other peoples’ sites without leaving a message                                                              40%
                                   Talk to people who are friends of friends                                                    35%
                                       Listen to music/find out about bands                                              29%
                                                   Talk to people I don’t know                             17%
                                            Look at campaigns and petitions                    6%
                                                                              Other         4%

Source: IBM Institute for Business Value analysis; “Social Networking.” United Kingdom Office of Communications (Ofcom) 2008. http://www.ofcom.org.uk/advice/
media_literacy/medlitpub/medlitpubrss/socialnetworking/report.pdf

Figure 3: The most popular activities in social networking are communications/staying in touch.
IBM Global Business Services   9




and this number is expected to grow to 876 million by 2012.32                                                      Impact of shifts on the emerging
At the same time, data connectivity speeds have increased                                                          communication landscape
considerably – from 56 kilobits per second (Kbps) modem                                                            The combination of shifts in communication control and
connectivity speeds only a decade ago to 8-16 megabits per                                                         patterns is redefining the competitive landscape, giving rise to
second (Mbps) today.33 Some countries support bandwidth up                                                         new business models. In contrast with traditional communica-
to 90Mbps currently.34 The costs of connectivity and storage                                                       tion models, emerging models are based on open platforms
have also declined significantly, and the availability of Internet-                                                that support many-to many and/or collaborative communica-
enabled devices, with increasing user interface sophistication, is                                                 tion patterns (see Figure 4).
enabling richer, more immersive experiences.
                                                                                                                   Traditional communication
With better, cheaper technologies and greater use of                                                               The traditional model, characterized by two-way point-to-
broadband, the Internet and wireless networks, “Over the Top”                                                      point communication, is the domain of traditional Telco
(OTT) providers, such as social networking sites, are becoming                                                     providers. It is the largest segment in terms of revenue and
ever-more viable platforms for communication services – and                                                        subscribers, but it is showing signs of slow growth as other
consumers are responding eagerly.


                                                                                           Audience and attention migration
                               Collaborative
                                                                       Gated Communities                                    Shared Social Space
                                                                                                                                            Online SN active
                                                                                                     Mobile social
                                                                        2007                                                                   members
                                                                                                   networking users
                                                                        2012
                                       Communications pattern




                                                                                              2007-2012
                                                                                              CAGR 64%                                                   2007-2012
                                                                                                                                 SN unique visitors      CAGR 20%
                                                                                                                       on
                                                                                                                   cti          ±2/3 of Internet users
                                                                                                               ire
                                                                                                           etd
                                                                     Traditional Communication ark                             Open and Free
                                                                                              M
                                                                 Mobile subscribers                                  All types of VoIP in    IM accounts
                                                                                                                      2012: 1.2 billion

                                                                                      Fixed subscribers
                                                                                                                            Skype
                                                                                                                          2007-2012            2007-2012
                                  Two-way
                                                                                                                         CAGR 18.5%            CAGR 13%
                               conversational 2007-2012 CAGR 6.8%                      2007-2012 CAGR 3%


                                                           Communication                                                                                   Open Internet
                                                                                              Communications environment
                                                         provider controlled

Source: IBM Institute for Business Value analysis based on publicly available data from eMarketer, Datamonitor, Skype, ABI Research and The Radicati Group, Inc.


Figure 4: Shifts in communication control and patterns give rise to new business models.
10   The changing face of communication




models take hold. Wireline revenue is declining and, although       Gated Communities
according to Gartner Inc., global mobile services revenue is        This model is also the domain of traditional communication
forecast to grow 7.6 percent from 2007-2012, the mobile             service providers, but the focus is more on many-to-many
subscriber base has reached saturation in key developed             communications rather than point-to-point. This is essentially
markets.35                                                          a “walled-garden” approach in which operators facilitate
                                                                    collaboration services that will appeal to users and enterprises
Open and Free                                                       with a preference for the more secure and reliable communica-
This model offers alternatives to traditional point-to-point        tions environment traditionally provided by telecoms.
communication services on open Internet platforms.
Companies in this domain provide basic communication                Gated Communities include both fixed (online) and mobile
services such as VoIP for free or at very low cost. Many of         social networking. It is our view, however, that walled-garden
these services threaten profitable traditional services such as     social networking sites are unlikely to be successful as the
long-distance calling and mobile roaming.                           majority of consumers have demonstrated a preference for
                                                                    open social networking sites. Telecom companies do have a
Providers in this space include VoIP provider Skype, Google         window of opportunity in this model, however, by enabling
with GoogleTalk and Microsoft with Windows Live                     mobile social networking on existing mobile network architec-
Messenger, which offer PC-to-PC voice services along with           tures, which, for the most part, remain closed platforms. Devel-
instant messaging and chat.36 With over 560 million registered      opments in smartphones and the mobile Internet, however, will
users worldwide, Skype has, in a matter of seven years, come        gradually blur the advantage of mobile exclusivity. Forecasters
close to creating a truly global telecom service.37 While Skype’s   estimate that by 2012, mobile social networking will represent
level of growth is impressive, there remains some skepticism        a market opportunity of between US$22.5 and US$52
about the ability of these types of new entrants to provide the     billion.39
high quality of service required to support professional,
error-free business communications.

Many of the players in the “open and free” space, such as
Microsoft and Google, have considerable resources and leave
little room for a commercially viable response from Telcos
                                                                    Mobile social networking provides a
beyond repackaging existing services into “convenience              short-term opportunity to increase use of
bundles.” Some Telcos, however, seemingly have embraced the         SMS, MMS and even voice traffic.
model and are partnering with disruptive new entrants. The
mobile operator 3 in the United Kingdom and Italy, for
example, has partnered with Skype to launch the 3 Skype-
phone, which enables 3 subscribers to make free calls and send
free Skype instant messages from their 3G mobile phones to
other Skype users.38 As first movers, these partners have the
potential to attract and retain customers. However, while the
benefits to Skype are obvious, it is too early to assess the true
commercial value to 3.
IBM Global Business Services   11




Recent studies have revealed that more than 40 percent of                               networking to help transform their organizations by achieving
iPhone users in the United States, Germany, France and the                              greater coordination and communication with their customers,
United Kingdom are visiting social networking sites.40 In                               employees and partners (see Figure 5).
South Korea, a mobile user visits Cyworld on average 11 times
per day.41 The mobile service of the Japanese social network                            While traditional telecom companies are often perceived as
Mixi, which started as an online site, has turned out to be                             conduits of information, the opportunity exists for them to
hugely successful with mobile page views already outnum-                                serve enterprises – and governments – with a broader set of
bering online page views.42                                                             innovative communication solutions that encompass collabora-
                                                                                        tion in a secure, reliable environment with agreed service-level
A number of traditional communication service providers have                            guarantees.
formed partnerships with open social networking providers to
incorporate such services into their telecom environments.                              Shared Social Spaces
For example, in October 2008, Telefonica signed a global                                Shared Social Spaces facilitate collaboration on the open
agreement with Facebook allowing it to integrate access to                              Internet. The main providers in this space are OTT applica-
Facebook’s mobile service and applications from all of Tele-                            tions such as MySpace, Bebo, YouTube and Facebook. But also
fonica’s mobile portals.43                                                              virtual worlds such as Second Life belong to this domain and
                                                                                        have integrated voice and text-based communication capabili-
Enterprise-level collaboration has significant potential in this                        ties to connect to friends, even from mobile phones.44
“Gated Communities” space. Many governments and corpora-
tions are redefining their communication needs beyond voice                             A number of key players in the “Open and Free” model are
telephony and e-mail and are looking to productively employ                             also offering services in this space, such as Google with its
Web-based collaboration tools such as blogs, wikis and social                           social network Buzz.45 Other companies entering the fray



                                                     Increase collaboration                                               69%
                                   Raise awareness of “what we know”                                            56%
                                          Increase agility/responsiveness                                        56%
                                                     Faster communication                                       55%
                      Increase innovation and reduce time to market                                 39%
                                                      Reduction of IT costs                       36%
                                           Accelerate brokering of people               21%


Source: “Enterprise 2.0: Agile, Emergent and Integrated.” AIIM Market IQ. March 2008.

Figure 5: Businesses and organizations are leveraging social network applications to improve collaboration with customers, employees
and partners.
12    The changing face of communication




include Microsoft, with investments in Facebook, and Nokia,                           communications regulator Ofcom estimates these types of
with its OVI/Share platform.46 As many of these players                               OTT services will impose an additional £830m (US$1.4
integrate telephony services, they have the potential to become                       billion) in bandwidth costs on U.K. Internet service providers
fully integrated, end-to-end communication platforms.                                 (see sidebar, Free OTT services cost network providers).47

While there has been significant growth in social networking,                         It is projected that by 2012, the sum of all forms of online
we believe the revenue model remains unproven. Regardless,                            video, including TV, video on demand, Internet and peer-to-
these media are drawing attention away from traditional                               peer (P2P), will account for nearly 90 percent of all consumer
communication service providers and are contributing to their                         Internet traffic, a large portion of which will flow through
slowing growth. Over the long run, they have the potential to                         OTT applications (see Figure 6).48
generate reasonable revenue streams from advertising and
other sources as dollars begin to follow “eyeballs.”                                  The dramatic increase in OTT traffic alters the equation for
                                                                                      telecom operators and will likely force them to develop new
Still, telecom providers need to care about Shared Social                             business and revenue models. However, the massive investment
Spaces and, especially, OTT applications that put additional                          required to satisfy consumer appetites for rich content is likely
strain on already-burdened network infrastructure, particularly                       to exacerbate the tension between network providers and OTT
with the rapid increase in video content sharing and distribu-                        providers.
tion. According to a BBC News report, the United Kingdom



                                                                                                                                   CAGR
                                                                                                                                 2007-2012
                                            20,000                                                          Internet video to TV   104%



                                            16,000                                                          Internet video to PC   57%
                                                                                                            VoIP                   24%
                           Petabyte/month




                                                                                                            Video communicaions 44%
                                            10,000                                                          Gaming                 30%
                                                                                                            P2P                    31%

                                             6,000

                                                                                                            Web//data              34%

                                                0
                                                     2006     2007   2008   2009   2010    2011      2012

Source: Global consumer Internet traffic forecast, 2006 - 2012.


Figure 6: Global consumer Internet traffic forecast, 2006-2012.
IBM Global Business Services   13




To deal with over-burdening OTT traffic, telecom operators
have options that include filtering or blocking OTT traffic, but
                                                                                              Free OTT services costly for network providers
this is unsustainable in many jurisdictions as it violates net-
neutrality principles. Another option is to use Content                                       The launch of BBC’s iPlayer Internet TV service in Decem-
Delivery Network (CDN) technology to relieve the load over                                    ber 2007, an OTT service based on a P2P architecture, cre-
                                                                                              ated a bandwidth capacity crunch for a number of Internet
the backbone and the Telcos’ servers. By caching replicas of
                                                                                              service providers (ISPs). For the U.K. ISP PlusNet, there
content and applications at multiple locations in the network,
                                                                                              was a 72 percent increase in the number of customers us-
the CDN allows telecom operators to distribute content and
                                                                                              ing more than 250 megabytes of streaming video per month
applications closer to the end user and to realize more effective                             and 100 percent growth in those using more than 1 giga-
P2P traffic routing. This overcomes issues such as network                                    byte.49 The cost for PlusNet to carry this OTT service in-
bandwidth availability and congestion during peak usage                                       creased by more than 200 percent per month and was not
periods and reduces the need for increasing core network                                      recoverable from customers.50
capacity. Telecom operators can pass the cost of CDN invest-
ments on to customers through higher or differentiated
broadband fees and/or reaching agreements with CDN
providers to jointly fund these additional costs (see Figure 7).


                                                                                                                         End customer
                                                                           Telco/ISP access                     Subscriptions      Pay per use
                       AT&T
                   Limelight net-                                                                                          Access
                      works                                        $                                                  Wireless and fixed
                      Akamai                                                                                           Internet access
                     CDN                                                                                                  providers
                                         $                                                    Typically no charge
                                                                                                                                                 Peering charges for
                                                      Telco                                                                                       access to content
                                                   environment                                                            Peering/CoLo
                                                                                                     CDN              charges to shift con-        Internet core
                                                        Facebook
                                                        youTube
                                                                       $                       Large network and        tent around CDN            Global networks
                                                                                              cache of a variety of                             transporting Internet
                                                        myspace                                     content                                            traffic
                                                         iTunes
                                                                                              Charges for amount                                 Possibly charges for
                                                                                                of data cached                                     bandwidth used
                                                                                                                       OTT providers
                                                                                                                      Content, media and
                                                                                                                         applications

                                                                       Internet core      Variety of transactions/                            Per click or basic
                                    OTT providers                                                 models                                         ad revenue
                                                                                                              End customer          Advertisers
            Source: IBM Institute for Business Value.

Figure 7: New business models to capture value from OTT traffic.
14                       The changing face of communication




   Toward an open and collaborative future                                                      In France, for example, while volume of call minutes across
   Emerging communication models are fragmenting audiences                                      fixed and mobile has increased by 9 percent – from nearly 190
   and shifting customers away from traditional telecom                                         billion minutes in 2005 to 207 billion in 2010 – OTT commu-
   providers. While traditional providers continue to claim the                                 nications over the same period, including VoIP, P2P and
   largest number of subscribers, it is the users of social                                     instant messaging, has increased by 211 percent, from 303
   networking sites and open Internet communication services                                    billion to 942 billion minutes (see Figure 8).52
   that are growing at significantly faster rates, even as take-up of
   traditional services accelerates in emerging economies.                                      At the same time, U.K. adults spend an average of 3 hours a
   YouTube and Facebook, for example, claim the third- and                                      week on social networks, with 6 percent of the population
   fourth-highest share of global online minutes respectively.51                                engaging for 11 hours. 53 Not surprisingly, teenagers are


                           1200

                                                                                                                      P2P VoIP

                           1000
                                                                                                                      IM

                                                                                                                                         •	 Increased share of
                            800                                                                                                             communication services
Millions of call minutes




                                                                                                                                            by Internet communication
                                                                                                                                            services providers
                            600                                                                                                          •	 Services are not easily
                                                                                                                      E-mail                monetized through
                                                                                                                      (excluding spam)      traditional pricing models

                            400



                            200                                                                                       SMS/MMS
                                                                                                                      Mobile              •	 Stable use of traditional
                                                                                                                                             communications services
                                                                                                                      Wireline
                              0
                                      2005                 2006   2007                   2008    2009          2010

   Note: An e-mail or SMS/MMS is considered as a 30 second call.
   Source: Montagne, Roland. “Telco’s views of openness.” IDATE DigiWorld Summit 2009.


   Figure 8: Overview of total communications market for France.
IBM Global Business Services   15




                                                                   Over the short to medium term, telecom providers should
                                                                   focus on the following to lay the foundation for a more open
Over the long term, the largest share of                           and collaborative future:
incremental communication time will trend
toward new providers and models.                                   1. Exploit opportunities in the Gated Communities by
                                                                      enabling mobile social networking in current “closed”
                                                                      networks to capture a share of potential revenues, which are
                                                                      forecast to reach between US$22 billion and US$52 billion
                                                                      by 2012.55
spending significantly more hours on social networking than
other segments of the population. 54 As many more people use       2. Partner with or acquire existing social networking players to
social networking – and for potentially increasing periods of         proactively develop the capabilities required for success,
time – traditional providers’ share of overall communication          including experimenting with new revenue-generating
minutes will continue to decline and long-term revenues are           services. For example, Vodafone’s acquisition of Zyb – the
likely to fall as a result of increased competition and greater       social networking and online management tool for backing
availability of lower-cost alternatives.                              up and sharing contact and calendar information – demon-
                                                                      strates how a mobile operator can extend social networking
Although there is a substantial migration from the traditional        from PCs to the mobile device with a view toward increasing
communication model to the alternative Shared Social Spaces           data services revenue while delivering a much richer and
model, in the short term, all four models will co-exist. Tradi-       unified communication experience.56
tional models will continue to be attractive to those who place    3. Enable other participants in the value chain – including
a premium on reliability and quality of service, including            advertisers, virtual operators and application developers – to
corporations and enterprises. But, over the long term, the            benefit from telecom capabilities such as location, presence,
largest share of incremental communication time will trend            text/multimedia messaging services and conference calling,
toward new providers and models.                                      while providing access to customer analytics to help enhance
                                                                      services and offerings.
Recommendations and next steps                                     4. Bolster capability to deliver fully integrated enterprise
The social networking phenomenon arose from significant               communication services that combine voice, Internet-based
shifts in communication, driven by the widespread growth of           communication and collaborative communication models.
Internet connectivity and the emergence of interactive online         Enterprise spending on Web 2.0 collaboration technologies
communication tools. These shifts have been redefining a              is forecast to grow to US$4.6 billion globally by 2013, with
century-old industry and, as a result, the advantages enjoyed by      social networking as the top spending category.57 Partner-
traditional communication service providers are beginning to          ships with enterprise communication providers, software
wane. Telcos can, however, remain relevant in the face of             vendors and/or system integrators can provide an efficient
changing user sentiments and demands if they take bold steps          path to delivering these services.
to adapt to this evolving marketplace.
16   The changing face of communication




5. Work more closely with CDN and/or OTT providers to              The nature and medium of communications are being rapidly
   reduce the cost of delivering high-bandwidth content (e.g.,     altered by the movement of users to environments that offer
   video, music) in response to increasing demands for such        less expensive – but more expressive – capabilities to facilitate
   services. This can be achieved through network and              both one-to-one and group communications with more people
   computing infrastructure optimization techniques such as        than ever before. These shifts are creating a new communica-
   traffic shaping, use of faster-than-realtime progressive        tion services ecosystem that will require significant and bold
   downloads in place of realtime streaming, and caching of        changes by existing providers if they wish to remain an integral
   content close to the edge of the network using CDNs.58          part of a changing landscape. The journey will not be without
   Such approaches can potentially lead to new business models     risks, but the option of doing nothing is a luxury few can
   that capture more value from this increasing OTT traffic,       afford. Revenues from traditional services continue to decline,
   enabling an enhanced user experience through improved           and highly resourceful Internet information providers and IT
   quality of service and innovative service partnerships that     companies are entering this space to accommodate the
   take advantage of this optimized environment.                   collaborative, many-to-many services that are claiming a
                                                                   significantly larger share of the overall communications
Over the long term, as communications transition to Shared         marketplace.
Social Spaces, telecom providers should:

1. Broaden the scope of their traditional telecommunications
   business to more actively encompass both point-to-point
   communications and many-to-many collaborative commu-
   nication models, and align their organizations and industry
   partnerships accordingly. This has strategic and transforma-
   tional implications for the business, impacting areas such as
   product and services offerings, skills, platforms, revenue
   models and markets, among others.
2. Create more compelling Gated Communities by delivering
   a cross-platform, fully integrated communication and
   collaboration experience across mobile, fixed and IPTV
   services. This will enable Telcos to stem their loss-of-share
   of communication time, as well as reduce churn, by offering
   a differentiated, premium-value service that promises
   greater flexibility, ease-of-use and a consistent experience
   on any communication platform – anytime, anywhere.
IBM Global Business Services   17




About the authors                                                  Zygmunt Lozinski is the IBM technical leader for the telecom
Rob van den Dam is the global telecommunications leader at         industry in Europe. His focus is on the application of software
the IBM Institute for Business Value. In this role, he develops    technology to the next generation network, the definition of
industry outlooks and business value realization studies for the   open APIs for the network, implementation of open APIs using
telecom sector. He has more than 15 years’ experience working      Web services and Java in service delivery platforms, and the use
in telecommunications. Rob has written or co-written               of Web 2.0, including linking mobile networks to Facebook
numerous papers and articles on telecommunications and             and Second Life. His most recent work is on the implications
media, including “How Social Media is redefining Broad-            of cloud computing for telecom providers. He can be contacted
casting,” “Fighting for Viewers – IPTV versus Internet TV,” “A     at zygmunt_lozinski@uk.ibm.com.
Future in Content(ion),” “Cash, Credit, or Phone” and “Mobile
Advertising, Ads on the Move.” He can be contacted at              Executive sponsors and contributing
rob_vandendam@nl.ibm.com.                                          editors
                                                                   Chris Pearson, Senior Partner, Telecommunications Industry,
Ekow Nelson leads strategic thought leadership for telecom-        IBM Global Business Services
munications, media & entertainment and utilities at the IBM
                                                                   Nick Gurney, Partner and Global Telecom Industry Leader,
Institute for Business Value. A management and information
                                                                   IBM Global Business Services
technology consultant for over 20 years, Ekow has worked in a
range of advisory and implementation roles, from strategy and      Scott T. Stainken, General Manager, Global Telecommunica-
business development to systems integration and project            tions Industry, IBM Corporation
management for major telecommunications and media                  Mario Cavestany, Vice President, Southwest Europe Telecom
organizations. He is author of numerous papers and articles in     and Media Lead, IBM Corporation
telecommunications including “Telecom switches emphasis,”
“A Future in Content(ion)” and “The Innovation Paradox in
                                                                   Contributors
the Telecom Industry,” published both by IBM and external
                                                                   We would like to thank all those who provided, guidance and
publications including The Annual Review of Communications
                                                                   assistance in the development of this paper, in particular
and the Journal of Telecommunications Management. He can be
                                                                   Joseph Ziskin, Stephen Chey, Thomas Ross, Paul Reilly,
contacted at ekow.nelson@uk.ibm.com.
                                                                   Matthew Stankey, Andreas Neus and Karen Feldman, as well
                                                                   as the executives of companies who agreed to be interviewed
                                                                   for this paper.
18   The changing face of communication




The right partner for a changing world                             References
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   and usage.” eMarketer. December 2007; “eMarketer lowers         20 “Chinese Social Network site QQ.com beats Facebook
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12 Brown, Erika. “MySpace Says: Skype Me.” Forbes. http://
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15 “Neighborhoods.” eBay. http://neighborhoods.ebay.com/           23 Ibid.
16 “Promoting a thirst for Sprite in teenage cellphone users.”     24 IBM Institute for Business Value analysis.
   The New York Times. June 7, 2007; “Pink Victoria’s Secret.”
   Facebook; “Webkinz, Come in and Play.” Webkinz. http://         25 “Vodafone Announces Vodafone 360.” Vodafone. September
   www.webkinz.com/us_en/                                             24, 2009. http://www.vodafone.com/start/media_relations/
                                                                      news/group_press_releases/2009/360.html
17 Holtz, Shel. “GMnext: A preview of corporate communica-
   tions in the social media era.” January 3, 2008. http://blog.   26 Shirky, Clay. Here Comes Everybody: The Power of Organizing
   holtz.com/index.php/gmnext_a_preview_of_corporate_                 Without Organizations. Penguin Press. February 28, 2008.
   communications_in_the_social_media_era/                         27 Rainie, Lee. “Digital Natives Invade the Workplace.”
                                                                      PewResearchCenter Publications. September 28, 2006.
20   The changing face of communication




28 Boyd, Danah. “Socializing digitally.” Thinker’s corner.        38 “3 Skypephone Delivers Free Skype to Skype Mobile Calls
   http://www.danah.org/papers/VodafoneReceiver.pdf.                 and Instant Messages at the Touch of a Button.” Skype.com.
                                                                     October 29, 2007. http://about.skype.com/2007/10/3_
29 “IBM Consumer Survey shows decline of TV as primary
                                                                     skypephone_delivers_free_sky.html
   media device.” August 22, 2007. IBM Institute for Business
   Value.                                                         39 “Mobile Social Networking Revenues Could Reach US$52
                                                                     Billion by 2012.” Cellular-news. February 11, 2008;
30 Ibid.
                                                                     “Mobile Web 2.0 revenues to reach $22.4bn by 2013,
31 IBM Institute for Business Value analysis; “Entertainment         driven by User Generated Content and Social
   and Media Outlook 2008 – 2012.” Pricewaterhouse-                  Networking.” Juniper Research press release. May 14, 2008.
   Coopers. 2008; Broadband Penetration. Organisation for            http://juniperresearch.com/shop/viewpressrelease.
   Economic Co-operation and Development. http://www.                php?pr=91
   oecd.org/sti/ict/broadband
                                                                  40 “iPhone hype holds up.” M:Metrics. March 2008. http://
32 “World Broadband Subscriber Forecast.” In-Stat. October           www.mmetrics.com/press/PressRelease.
   2008. http://www.instat.com/catalog/Ccatalogue.                   aspx?article=20080318-iphonehype
   asp?id=288
                                                                  41 Mobile-korea.blogspot.com. November 14, 2007.
33 “Average advertised broadband download speed, by country,
                                                                  42 “FY 2007 Fourth Quarter (January-March 2008) and
   Mbit/s, Oct. 2007.” Organisation for Economic Co-opera-
                                                                     Full-Year (April 2007-March 2008) Earning Results
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                                                                     Briefing Session.” Mixi, Inc. May 12, 2008. http://eir.eol.
   broadband
                                                                     co.jp/EIR/View.aspx?template=ir_
34 Ibid                                                              material&sid=1095&code=2121
35 Hahn, William L. and Nhat Pham. “Dataquest Insight:            43 “Telefonica, Facebook strike global partnership deal.”
   Global Telecommunications Market Take.” Gartner, Inc.             Telecom Paper. October 6, 2008. http://www.telecompaper.
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37 “Skype By the Numbers: It’s Really Big.” GigaOM. April         45 “Google’s social side hopes to catch some Buzz.” CNET
   20, 2010. http://gigaom.com/2010/04/20/skype-q4-2009-             News. February 9, 2010. http://news.cnet.com/8301-
   number/                                                           30684_3-10449662-265.html
                                                                  46 Stone, Brad. “Microsoft to Pay $240 million for Stake in
                                                                     Facebook.” The New York Times. October 25, 2007. http://
                                                                     www.nytimes.com/2007/10/25/technology/24cnd-face-
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                                                                     com/news/euronews.asp?id=7123
IBM Global Business Services   21




47 Wakefield, Jane. “BBC and ISPs clash over iPlayer.” BBC      56 “Vodafone: ZYB acquisition facilitates more mobile social
   News. April 9, 2008. http://news.bbc.co.uk/1/hi/tech-           networking.” Datamonitor. May 2008. http://www.
   nology/7336940.stm                                              datamonitor.com/industries/news/article/?pid=6A58957F-
48 “Cisco Visual Networking Index: Forecast and Method-            4BB1-42CD-A1EE-62D53B810155&type=CommentWire
   ology, 2007-2012.” Cisco. June 16, 2008. http://www.cisco.   57 “Enterprise Web 2.0 worth $4.6 billion in 2013.” search-
   com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/         views. April 21, 2008. http://www.searchviews.com/index.
   ns827/white_paper_c11-481360_ns827_Networking_                  php/archives/2008/04/enterprise-web-20-worth-46-billion-
   Solutions_White_Paper.html.                                     in-2013.php
49 “iPlayer usage effect – a bandwidth explosion.” Plusnet.     58 Odlyzko, Andrew. “The delusions of net neutrality.” School
   February 2008. http://community.plus.net/                       of Mathematics, University of Minnesota. August 31, 2008.
   blog/2008/02/08/iplayer-usage-effect-a-bandwidth-explo-         http://www.dtc.umn.edu/~odlyzko/doc/net.neutrality.
   sion/                                                           delusions.pdf
50 Ibid.
51 “Technology Top 50 Global Tech Stocks: The Ones You
   Care Most About…Plus a Few More.” Morgan Stanley.
   2008
52 Montagne, Roland. “Telcos’ views of openess.” IDATE
   DigiWorld Summit. 2009; IBM Institute for Business Value
   analysis.
53 “UK’s MySpace and Facebook addicts.” Channel 4 News.
   July 20, 2007. http://www.channel4.com/news/articles/
   science_technology/uks+myspace+and+facebook+addicts/6
   13077
54 Allen, David. “Kids spend twenty hours online a week.”
   Tech Watch. http://www.techwatch.co.uk/2008/03/25/
   kids-spend-twenty-hours-online-a-week/
55 “Mobile Social Networking Revenues Could Reach US$52
   Billion by 2012.” Cellular-news. February 11, 2008;
   “Mobile Web 2.0 revenues to reach $22.4bn by 2013,
   driven by User Generated Content and Social
   Networking.” Juniper Research press release. May 14, 2008.
   http://juniperresearch.com/shop/viewpressrelease.
   php?pr=91
© Copyright IBM Corporation 2010

IBM Global Services
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Somers, NY 10589
U.S.A.

Produced in the United States of America
June 2010
All Rights Reserved

IBM, the IBM logo and ibm.com are trademarks or registered trademarks
of International Business Machines Corporation in the United States, other
countries, or both. If these and other IBM trademarked terms are marked
on their first occurrence in this information with a trademark symbol (® or
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owned by IBM at the time this information was published. Such trademarks
may also be registered or common law trademarks in other countries. A
current list of IBM trademarks is available on the Web at “Copyright and
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References in this publication to IBM products and services do not
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Social Networking Sites are Changing the Face of Communcation

  • 1. IBM Global Business Services Telecommunications Executive Report IBM Institute for Business Value The changing face of communication Social networking’s growing influence on telecom providers
  • 2. IBM Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior executives around critical public and private sector issues. This executive report is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to iibv@us.ibm.com for more information. Additional studies from the IBM Institute for Business Value can be found at ibm.com/iibv
  • 3. Introduction By Rob van den Dam, Ekow Nelson and Zygmunt Lozinski People are communicating more things to more people than ever before, and not just by phone anymore. Internet-enabled communication models are gaining audience, attention and market share at the expense of traditional telecommunication providers (Telcos). Can Telcos fight back and find new growth opportunities in this rapidly changing ecosystem? The challenge is not just in understanding the technology, but also the unfolding fundamental shifts in human communication behavior. The face of communication has changed dramatically over the The widespread social networking phenomenon reflects shifts past few years. Traditional Telcos, which have historically in two long-term communication trends. First, there is a shift dominated two-way interpersonal conversations, are increas- in communication patterns – from point-to-point, two-way ingly being challenged by new market entrants that use open conversations to many-to-many, collaborative communications. platforms to meet diverse and rapidly changing user wants and Second, control of the communication environment is transitioning needs. from Telcos to open Internet platform providers, enabled by better and cheaper technology, open standards, greater Social networking Web sites and services, such as Facebook, penetration of broadband services and wireless communication MySpace and Cyworld, have become primary communication networks. media for a new generation of digitally aware consumers. Driven by high broadband penetration, maturing “social The combined effect of these trends is altering the competitive software” and readily available, affordable Internet-enabled landscape in communications and giving rise to emerging multimedia devices, these sites and services are making inroads business models that include: with enthusiastic users and garnering the attention of adver- tisers, consumer product companies and enterprises that are • Open and Free – This model features companies that offer using social media to reach their customers; build brand one-to-one communication services, but through an open loyalty; and communicate with geographically dispersed Internet platform and at no – or very little – cost. These employees, suppliers and partners. services potentially threaten profitable traditional services, such as long-distance calling and mobile roaming.
  • 4. 2 The changing face of communication • Gated Communities – Companies using this model focus on Over the short to medium term, Telcos should focus on laying many-to-many communications, rather than point-to-point, the foundation for a more open and collaborative future. They within telecom-controlled environments. They are, essen- can begin by taking advantage of the window of opportunity in tially, a “walled-garden” for operator-led collaboration mobile social networking and also bolster their capabilities to services and are likely to appeal to users and enterprises that serve the evolving, broader communication needs of enter- desire secure and reliable communication environments. prises. They should partner with, or acquire, existing players to • Shared Social Spaces – This rapidly growing model facilitates proactively develop the capabilities required for success or collaboration on the open Internet. Key players include enable other participants in the value chain to benefit from social networking sites such as MySpace and Facebook. distinctive telecom capabilities. Using network and computing These providers have the potential to become de facto infrastructure optimization techniques, they can reduce the integrated communication platforms, bringing together cost of delivering high-bandwidth content and potentially social networking, voice communication, e-mail, instant and capture value from it. Over the long term, Telcos should text messaging, as well as content. They are drawing embrace a broader definition of communication – one that attention away from traditional Telcos and contributing to encompasses everything from two-way conversations to the fragmentation of the market. Beyond gaining audience many-to-many communications – and align the organization share, these services pose an operational challenge to Telcos with this reality. Also, Telcos are well positioned to enable a as they “piggyback” on the existing communications infra- cross-platform, fully integrated experience across mobile, fixed structure, imposing network capacity issues and increased and Internet Protocol television (IPTV) services. costs for the network providers. A new ecosystem is emerging from these long-term shifts in In the short term, as the industry transitions to more open and communication trends that will require bold, significant collaborative communication models, the traditional model changes by existing telecom providers. The option of doing will likely remain dominant. Over the long term, however, the nothing is not a luxury many providers can afford, as revenues industry can expect a shift toward models that facilitate from traditional services continue to decline and highly collaboration and sharing, with Shared Social Spaces attracting resourceful Internet information providers and IT companies a more significant and impactful portion of people’s communi- enter the communications space to claim a larger share of cation time. communication time.
  • 5. IBM Global Business Services 3 The changing face of communication social networking sites comprised half of the same list, A burgeoning market in social networking displacing many traditional Internet “stars,” such as AOL (see Social networking, perhaps considered a “communication fad” Figure 1). in recent years, is transcending that phase and becoming an activity woven into the intrinsic fabric of the Internet. Overall, the number of unique monthly visitors to the top six Throughout the world, Internet users are turning en masse to social networking sites increased 95 percent between June such sites as Facebook, Blogger and Twitter to meet their 2006 and June 2007 – and then another 50 percent from June communication needs. Consider, for example, that before 2005, 2007 to June 2008.2 According to data from comScore, the not a single social media network was ranked among the global Internet information provider, unique visitors to social world’s top 20 English-language Web sites.1 By April 2010, networking sites in June 2008 represented approximately Rank Aug 2004 Aug 2006 April 2010 1 Yahoo! Yahoo! Google 2 MSN MSN Facebook 3 Google Google Youtube 4 Microsoft My Space Yahoo! 5 Passport Live Live 6 eBay eBay Blogger 7 Amazon Youtube MSN 8 Offeroptimizer Microsoft Twitter 9 Fastclick Amazon Wordpress 10 Doubleclick Orkut MySpace 11 Go Blogger Google UK 12 Alibaba Google UK Microsoft 13 CNN Passport Amazon 14 BBC BBC Bing 15 165.254.12.202 Craigslist eBay 16 AOL Go Linkedin 17 Google UK CNN Flickr 18 Gator Alibaba Craigslist 19 eBay UK Megaupload Rapidshare 20 SearchScout IMDB Livejasmin Social media sites Note 1: The traffic rank is based on three months of aggregated historical traffic data and is a combined measure of page views and users (reach). Note 2: Due to the way Alexa assigns “language,” multilingual Wikipedia, which is in global top 20, is not shown in this list. Source: IBM Institute for Business Value analysis; Alexa Internet Web Search – top 20 English Language Web Sites. Figure 1: Top 20 English language Web sites.
  • 6. 4 The changing face of communication two-thirds of the world’s Internet audience.3 According to The including such online portals as Google and Yahoo.9 This Nielsen Company, people continue to spend more time on social opens the door for potential revenue generation, as social networking and blog sites than ever before, with total minutes networks – like most online service providers – base their increasing 82 percent year-over-year and the average time per business models on trading page views for advertising dollars. person increasing 67 percent year-over-year in May 2009.4 Facebook alone saw 484 million unique visitors worldwide in Already, savvy marketers have begun to experiment more heavily March 2010, while Twitter was the fastest-growing Web brand, with this concept. They spent US$2.1 billion on social network growing 1,928 percent from June 2008 to June 2009.5 In advertising in 2008, almost double the US$1.2 billion spent in addition, developing countries have become very conducive to 2007.10 By 2012, if the current trend continues, social social networks. By far, the largest in Asia is China with its networking ad revenues could reach $3.8 billion, provided the QZone (run by Tencent) being the largest social networking site right business model can be found.11 with over 300 million active members and still growing quickly.6 The new online portal In South Korea, considered by many to be the world’s most Social networks have done more than attract users and ad developed social networking nation, 90 percent of teens and 40 revenue away from traditional Internet sites. They have become percent of the entire population are members of the social a primary destination for online users and represent the next networking site Cyworld.7 In the United States, 80 percent of stage in the evolution of the online experience, serving as control young adults, 60 percent of teens and 30 percent of adults use points for managing and enriching a user’s digital lifestyle. They social networks.8 bring together user-generated and professional content, commu- nication tools and services, online connections, applications and Not only are social networks generating a significant amount of collaborative tools from blogs and podcasts to wikis and widgets online traffic, visitors to leading social networking sites also view (see Figure 2). more pages per visit than any other category of Internet site, Late 1990s Network of user connections Portal aggregator Early 2000s and relationships Browse Content search/discovery Mid-late 2000s User A User B Search Social networks Shared social spaces Web content Directories RSS User C Tagging Mashups Widgets Podcasts Blogs Wikis User-generated content Meta data and tools Source: IBM Institute for Business Value analysis. Figure 2: Social networking sites are becoming online portals.
  • 7. IBM Global Business Services 5 Communication and content distribution Expansion and extension With numerous communication tools at their disposal, social Traditional mainstream Internet sites and major consumer networks are becoming integrated communication hubs. The brands are beginning to recognize the value of social integration of MySpace and Skype, for example, illustrates how networking, not just for the potential advertising dollars it may social networks and communication applications can converge generate, but also for e-commerce and the built-in mechanisms to benefit users. MySpace members can make Internet phone it employs to communicate with customers. calls using Skype’s telephony network and MySpace’s instant messaging program.”12 And Twitter has become extremely eBay, for example, has created more than 600 micro-social popular. More than just a messaging platform, it has evolved networks called eBay Neighborhoods, where members can into a platform for unified communications where friends, access blogs, guides, reviews and product searches and then business partners and acquaintances can connect for conversa- click to visit related auctions.15 And big-name brands, such as tion. Instead of sending e-mails, sending texts or making phone Coca-Cola, Victoria’s Secret and Webkinz, have ventured into calls, many people choose to write short messages on Twitter this newly charted arena by using social networks to generate and publish them via a computer or mobile device. brand awareness and affinity.16 Depending on a brand’s goals, affiliating with a social network site – or possibly creating its Social networks are also increasingly becoming channels for own – can bring in an audience of customers, contain them and digital content distribution, using their network of relation- allow them a voice whenever appropriate. ships to push information to users. In November 2007, for instance, Bebo launched its “Open Media” platform that offers Enterprises are also learning the value of a solution that media companies such as BBC, MTV and BSkyB an additional facilitates communication and collaboration among employees, distribution outlet.13 And Apple is tapping into the popularity partners and suppliers. Social networks provide the opportu- of social networking sites by embedding its iTunes Internet nity to bridge the gap in communication and collaboration music download service into the Bebo Web site.14 created by enterprise globalization. For example, General Motors uses social networking tools to facilitate communica- tion between executives and employees, as well as to give product experts the opportunity to present new designs to the employee community.17 Motorola’s “Intranet 2.0” initiative has Enterprises are leveraging social network met with considerable success, with 70,000 people using it applications to improve collaboration with every day, including partners.18 The company now has 4,400 customers, employees, partners and suppliers. blogs and 4,200 wiki pages. It uses, among other technologies, social networking, bookmarking and tagging.19
  • 8. 6 The changing face of communication Telcos are getting in on the act A number of Telcos are already responding to the challenges Vodafone – Extending telecom capability to and opportunities of social networking. Many have initiatives open social networking underway that range from simply enabling online social Vodafone 360 brings together a customer’s con- networking sites, to extending their offerings to the mobile tacts, status updates and messaging services communication environment, to even building their own from the mobile phone, social networks and other proprietary social networks. Internet accounts, enhancing the customer’s ex- perience and use of social media. Customers have For example, SK Communications, a subsidiary of SK Telecom integrated contacts, music, photos and mapping in South Korea, acquired Cyworld in 2003 and is now gener- services and can share their favorite music choic- ating approximately US$200 million per year from selling es – and even their physical location – how and digital items and advertising.20 In 2005, the company started a when they choose with chosen groups of friends. joint venture with EarthLink to launch a mobile virtual The service is automatically backed up and syn- chronized, regularly and wirelessly, between a us- network operator called Helio, which merged into Virgin er’s mobile device and computer. Mobile in July 2008.21 In early 2007, Vodafone struck a deal Source: “Vodafone announces Vodafone 360.” with MySpace to enable MySpace users to access their profiles Vodafone press release. September 24, 2009. from Vodafone cell phones.22 Today, Vodafone has a similar arrangement with Facebook.23 U.S. telecom operators Sprint, Verizon, AT&T and Virgin Mobile provide applications that allow users to access MySpace and Facebook on their mobile devices.24 In 2009, Vodafone introduced Vodafone 360, a set of Internet services for mobile devices and PCs that gathers a customer’s friends, communities, Facebook status updates, entertainment and personal favorites (such as music, games, photos and video) in one place. It also offers the ability to chat through Windows Live Messenger and Google Talk (see sidebar, Vodafone – Extending telecom capability to open social networking).25
  • 9. IBM Global Business Services 7 Trends in communication evolution Traditional interpersonal communication, usually via the The widespread social networking phenomenon is a reflection telephone, allows expression but does not provide group or of shifts in two long-term underlying trends in communication: collaborative capabilities. As Professor Clay Shirky, a leading authority on the social and economic effects of the Internet at 1. Communication patterns are shifting from point-to-point, New York University’s Interactive Telecommunication two-way conversations to many-to-many group communi- Program observes, “The telephone, the technological revolu- cations and collaboration. tion that put the most expressive power in the hands of the individual, didn’t create an audience; telephones were designed 2. Shift in communication control is transitioning from for conversation.”26 The availability and convergence of mobile provider-controlled environments to open Internet communication and the Internet are now creating a platform platform service providers with greater opportunities for that enables group communication encompassing many user participation. participants through shared spaces in virtually any geographic Shifts in communication patterns location. Communication patterns are changing from personal and conversational to sharing and collaborative, augmented with The so-called “Net Generation,” composed of “digital natives” links, videos, photos and other multimedia content that who have grown up in a technology-enabled environment, is at substantially enrich the communications experience. This is the forefront of this phenomenon. According to Pew Research, being enabled by greater global connectivity; the availability of on average, a typical 21-year-old in the United States entering affordable, high-quality content and communication devices; the workforce today has played video games for 5,000 hours; and the rise of social software. exchanged 250,000 e-mails, instant messages and phone text messages; logged 10,000 hours of cell phone use; and spent 3,500 hours online.27 The new generation of digital natives is far more likely than “Communications overall is shifting from their parents to own a digital music player; to have posted writing, pictures or video on the Internet; to have created a ‘point-to-point’ to ‘many-to-many,’ in order blog or profile on a social networking site; to have downloaded to socialize and enjoy an experience more digital content such as songs, games, movies, or software; to deeply – people consuming content together have shared a remix or “mashup” creation with friends; and to have snapped a photo or video with a cell phone.28 and interacting during that experience from virtually anywhere in the world.” – John Stankey, President and CEO, AT&T Operations
  • 10. 8 The changing face of communication For many of this generation, social networking is even supplanting e-mail as the preferred method of communication. Brought up in the connected and collaborative But they also use social networking for more than communica- tion and content sharing. They use it to develop their identi- world of the Internet, the Net Generation is at ties, meet friends or form relationships that become part of the forefront of shifting social communication their individual social graphs, which are becoming key patterns. resources for harnessing collective wisdom or opinion from “trusted” individuals. But the shift away from traditional telecommunication to social Shift in communication control networking is not limited to digital natives. A growing number of adults now use technology to get what they need from each Widespread availability and affordability of connectivity and other, instead of from traditional media and institutions. communication tools/devices are also shifting control of Nineteen percent of consumers in the 2007 IBM Digital communication media away from the domain of Telcos and Consumer Survey said they spend more than six hours per day toward a more open communication platform. on personal Internet activities.29 Only 9 percent indicated they The majority of households, individuals and businesses in watch the same amount – or more – of television.30 developed nations have Internet access, and the number of Internet users in emerging economies is growing rapidly.31 In As shown in Figure 3, social networks are used instrumentally to reinforce social ties. September 2008, there were 452 million broadband subscribers worldwide (more than the total number of households in the United States, Britain, France, Japan, Korea and Germany), Talk to friend/family a lot 69% Talk to friend/family I rarely see 65% Look for old friends I have lost touch with 47% Look at other peoples’ sites without leaving a message 40% Talk to people who are friends of friends 35% Listen to music/find out about bands 29% Talk to people I don’t know 17% Look at campaigns and petitions 6% Other 4% Source: IBM Institute for Business Value analysis; “Social Networking.” United Kingdom Office of Communications (Ofcom) 2008. http://www.ofcom.org.uk/advice/ media_literacy/medlitpub/medlitpubrss/socialnetworking/report.pdf Figure 3: The most popular activities in social networking are communications/staying in touch.
  • 11. IBM Global Business Services 9 and this number is expected to grow to 876 million by 2012.32 Impact of shifts on the emerging At the same time, data connectivity speeds have increased communication landscape considerably – from 56 kilobits per second (Kbps) modem The combination of shifts in communication control and connectivity speeds only a decade ago to 8-16 megabits per patterns is redefining the competitive landscape, giving rise to second (Mbps) today.33 Some countries support bandwidth up new business models. In contrast with traditional communica- to 90Mbps currently.34 The costs of connectivity and storage tion models, emerging models are based on open platforms have also declined significantly, and the availability of Internet- that support many-to many and/or collaborative communica- enabled devices, with increasing user interface sophistication, is tion patterns (see Figure 4). enabling richer, more immersive experiences. Traditional communication With better, cheaper technologies and greater use of The traditional model, characterized by two-way point-to- broadband, the Internet and wireless networks, “Over the Top” point communication, is the domain of traditional Telco (OTT) providers, such as social networking sites, are becoming providers. It is the largest segment in terms of revenue and ever-more viable platforms for communication services – and subscribers, but it is showing signs of slow growth as other consumers are responding eagerly. Audience and attention migration Collaborative Gated Communities Shared Social Space Online SN active Mobile social 2007 members networking users 2012 Communications pattern 2007-2012 CAGR 64% 2007-2012 SN unique visitors CAGR 20% on cti ±2/3 of Internet users ire etd Traditional Communication ark Open and Free M Mobile subscribers All types of VoIP in IM accounts 2012: 1.2 billion Fixed subscribers Skype 2007-2012 2007-2012 Two-way CAGR 18.5% CAGR 13% conversational 2007-2012 CAGR 6.8% 2007-2012 CAGR 3% Communication Open Internet Communications environment provider controlled Source: IBM Institute for Business Value analysis based on publicly available data from eMarketer, Datamonitor, Skype, ABI Research and The Radicati Group, Inc. Figure 4: Shifts in communication control and patterns give rise to new business models.
  • 12. 10 The changing face of communication models take hold. Wireline revenue is declining and, although Gated Communities according to Gartner Inc., global mobile services revenue is This model is also the domain of traditional communication forecast to grow 7.6 percent from 2007-2012, the mobile service providers, but the focus is more on many-to-many subscriber base has reached saturation in key developed communications rather than point-to-point. This is essentially markets.35 a “walled-garden” approach in which operators facilitate collaboration services that will appeal to users and enterprises Open and Free with a preference for the more secure and reliable communica- This model offers alternatives to traditional point-to-point tions environment traditionally provided by telecoms. communication services on open Internet platforms. Companies in this domain provide basic communication Gated Communities include both fixed (online) and mobile services such as VoIP for free or at very low cost. Many of social networking. It is our view, however, that walled-garden these services threaten profitable traditional services such as social networking sites are unlikely to be successful as the long-distance calling and mobile roaming. majority of consumers have demonstrated a preference for open social networking sites. Telecom companies do have a Providers in this space include VoIP provider Skype, Google window of opportunity in this model, however, by enabling with GoogleTalk and Microsoft with Windows Live mobile social networking on existing mobile network architec- Messenger, which offer PC-to-PC voice services along with tures, which, for the most part, remain closed platforms. Devel- instant messaging and chat.36 With over 560 million registered opments in smartphones and the mobile Internet, however, will users worldwide, Skype has, in a matter of seven years, come gradually blur the advantage of mobile exclusivity. Forecasters close to creating a truly global telecom service.37 While Skype’s estimate that by 2012, mobile social networking will represent level of growth is impressive, there remains some skepticism a market opportunity of between US$22.5 and US$52 about the ability of these types of new entrants to provide the billion.39 high quality of service required to support professional, error-free business communications. Many of the players in the “open and free” space, such as Microsoft and Google, have considerable resources and leave little room for a commercially viable response from Telcos Mobile social networking provides a beyond repackaging existing services into “convenience short-term opportunity to increase use of bundles.” Some Telcos, however, seemingly have embraced the SMS, MMS and even voice traffic. model and are partnering with disruptive new entrants. The mobile operator 3 in the United Kingdom and Italy, for example, has partnered with Skype to launch the 3 Skype- phone, which enables 3 subscribers to make free calls and send free Skype instant messages from their 3G mobile phones to other Skype users.38 As first movers, these partners have the potential to attract and retain customers. However, while the benefits to Skype are obvious, it is too early to assess the true commercial value to 3.
  • 13. IBM Global Business Services 11 Recent studies have revealed that more than 40 percent of networking to help transform their organizations by achieving iPhone users in the United States, Germany, France and the greater coordination and communication with their customers, United Kingdom are visiting social networking sites.40 In employees and partners (see Figure 5). South Korea, a mobile user visits Cyworld on average 11 times per day.41 The mobile service of the Japanese social network While traditional telecom companies are often perceived as Mixi, which started as an online site, has turned out to be conduits of information, the opportunity exists for them to hugely successful with mobile page views already outnum- serve enterprises – and governments – with a broader set of bering online page views.42 innovative communication solutions that encompass collabora- tion in a secure, reliable environment with agreed service-level A number of traditional communication service providers have guarantees. formed partnerships with open social networking providers to incorporate such services into their telecom environments. Shared Social Spaces For example, in October 2008, Telefonica signed a global Shared Social Spaces facilitate collaboration on the open agreement with Facebook allowing it to integrate access to Internet. The main providers in this space are OTT applica- Facebook’s mobile service and applications from all of Tele- tions such as MySpace, Bebo, YouTube and Facebook. But also fonica’s mobile portals.43 virtual worlds such as Second Life belong to this domain and have integrated voice and text-based communication capabili- Enterprise-level collaboration has significant potential in this ties to connect to friends, even from mobile phones.44 “Gated Communities” space. Many governments and corpora- tions are redefining their communication needs beyond voice A number of key players in the “Open and Free” model are telephony and e-mail and are looking to productively employ also offering services in this space, such as Google with its Web-based collaboration tools such as blogs, wikis and social social network Buzz.45 Other companies entering the fray Increase collaboration 69% Raise awareness of “what we know” 56% Increase agility/responsiveness 56% Faster communication 55% Increase innovation and reduce time to market 39% Reduction of IT costs 36% Accelerate brokering of people 21% Source: “Enterprise 2.0: Agile, Emergent and Integrated.” AIIM Market IQ. March 2008. Figure 5: Businesses and organizations are leveraging social network applications to improve collaboration with customers, employees and partners.
  • 14. 12 The changing face of communication include Microsoft, with investments in Facebook, and Nokia, communications regulator Ofcom estimates these types of with its OVI/Share platform.46 As many of these players OTT services will impose an additional £830m (US$1.4 integrate telephony services, they have the potential to become billion) in bandwidth costs on U.K. Internet service providers fully integrated, end-to-end communication platforms. (see sidebar, Free OTT services cost network providers).47 While there has been significant growth in social networking, It is projected that by 2012, the sum of all forms of online we believe the revenue model remains unproven. Regardless, video, including TV, video on demand, Internet and peer-to- these media are drawing attention away from traditional peer (P2P), will account for nearly 90 percent of all consumer communication service providers and are contributing to their Internet traffic, a large portion of which will flow through slowing growth. Over the long run, they have the potential to OTT applications (see Figure 6).48 generate reasonable revenue streams from advertising and other sources as dollars begin to follow “eyeballs.” The dramatic increase in OTT traffic alters the equation for telecom operators and will likely force them to develop new Still, telecom providers need to care about Shared Social business and revenue models. However, the massive investment Spaces and, especially, OTT applications that put additional required to satisfy consumer appetites for rich content is likely strain on already-burdened network infrastructure, particularly to exacerbate the tension between network providers and OTT with the rapid increase in video content sharing and distribu- providers. tion. According to a BBC News report, the United Kingdom CAGR 2007-2012 20,000 Internet video to TV 104% 16,000 Internet video to PC 57% VoIP 24% Petabyte/month Video communicaions 44% 10,000 Gaming 30% P2P 31% 6,000 Web//data 34% 0 2006 2007 2008 2009 2010 2011 2012 Source: Global consumer Internet traffic forecast, 2006 - 2012. Figure 6: Global consumer Internet traffic forecast, 2006-2012.
  • 15. IBM Global Business Services 13 To deal with over-burdening OTT traffic, telecom operators have options that include filtering or blocking OTT traffic, but Free OTT services costly for network providers this is unsustainable in many jurisdictions as it violates net- neutrality principles. Another option is to use Content The launch of BBC’s iPlayer Internet TV service in Decem- Delivery Network (CDN) technology to relieve the load over ber 2007, an OTT service based on a P2P architecture, cre- ated a bandwidth capacity crunch for a number of Internet the backbone and the Telcos’ servers. By caching replicas of service providers (ISPs). For the U.K. ISP PlusNet, there content and applications at multiple locations in the network, was a 72 percent increase in the number of customers us- the CDN allows telecom operators to distribute content and ing more than 250 megabytes of streaming video per month applications closer to the end user and to realize more effective and 100 percent growth in those using more than 1 giga- P2P traffic routing. This overcomes issues such as network byte.49 The cost for PlusNet to carry this OTT service in- bandwidth availability and congestion during peak usage creased by more than 200 percent per month and was not periods and reduces the need for increasing core network recoverable from customers.50 capacity. Telecom operators can pass the cost of CDN invest- ments on to customers through higher or differentiated broadband fees and/or reaching agreements with CDN providers to jointly fund these additional costs (see Figure 7). End customer Telco/ISP access Subscriptions Pay per use AT&T Limelight net- Access works $ Wireless and fixed Akamai Internet access CDN providers $ Typically no charge Peering charges for Telco access to content environment Peering/CoLo CDN charges to shift con- Internet core Facebook youTube $ Large network and tent around CDN Global networks cache of a variety of transporting Internet myspace content traffic iTunes Charges for amount Possibly charges for of data cached bandwidth used OTT providers Content, media and applications Internet core Variety of transactions/ Per click or basic OTT providers models ad revenue End customer Advertisers Source: IBM Institute for Business Value. Figure 7: New business models to capture value from OTT traffic.
  • 16. 14 The changing face of communication Toward an open and collaborative future In France, for example, while volume of call minutes across Emerging communication models are fragmenting audiences fixed and mobile has increased by 9 percent – from nearly 190 and shifting customers away from traditional telecom billion minutes in 2005 to 207 billion in 2010 – OTT commu- providers. While traditional providers continue to claim the nications over the same period, including VoIP, P2P and largest number of subscribers, it is the users of social instant messaging, has increased by 211 percent, from 303 networking sites and open Internet communication services billion to 942 billion minutes (see Figure 8).52 that are growing at significantly faster rates, even as take-up of traditional services accelerates in emerging economies. At the same time, U.K. adults spend an average of 3 hours a YouTube and Facebook, for example, claim the third- and week on social networks, with 6 percent of the population fourth-highest share of global online minutes respectively.51 engaging for 11 hours. 53 Not surprisingly, teenagers are 1200 P2P VoIP 1000 IM • Increased share of 800 communication services Millions of call minutes by Internet communication services providers 600 • Services are not easily E-mail monetized through (excluding spam) traditional pricing models 400 200 SMS/MMS Mobile • Stable use of traditional communications services Wireline 0 2005 2006 2007 2008 2009 2010 Note: An e-mail or SMS/MMS is considered as a 30 second call. Source: Montagne, Roland. “Telco’s views of openness.” IDATE DigiWorld Summit 2009. Figure 8: Overview of total communications market for France.
  • 17. IBM Global Business Services 15 Over the short to medium term, telecom providers should focus on the following to lay the foundation for a more open Over the long term, the largest share of and collaborative future: incremental communication time will trend toward new providers and models. 1. Exploit opportunities in the Gated Communities by enabling mobile social networking in current “closed” networks to capture a share of potential revenues, which are forecast to reach between US$22 billion and US$52 billion by 2012.55 spending significantly more hours on social networking than other segments of the population. 54 As many more people use 2. Partner with or acquire existing social networking players to social networking – and for potentially increasing periods of proactively develop the capabilities required for success, time – traditional providers’ share of overall communication including experimenting with new revenue-generating minutes will continue to decline and long-term revenues are services. For example, Vodafone’s acquisition of Zyb – the likely to fall as a result of increased competition and greater social networking and online management tool for backing availability of lower-cost alternatives. up and sharing contact and calendar information – demon- strates how a mobile operator can extend social networking Although there is a substantial migration from the traditional from PCs to the mobile device with a view toward increasing communication model to the alternative Shared Social Spaces data services revenue while delivering a much richer and model, in the short term, all four models will co-exist. Tradi- unified communication experience.56 tional models will continue to be attractive to those who place 3. Enable other participants in the value chain – including a premium on reliability and quality of service, including advertisers, virtual operators and application developers – to corporations and enterprises. But, over the long term, the benefit from telecom capabilities such as location, presence, largest share of incremental communication time will trend text/multimedia messaging services and conference calling, toward new providers and models. while providing access to customer analytics to help enhance services and offerings. Recommendations and next steps 4. Bolster capability to deliver fully integrated enterprise The social networking phenomenon arose from significant communication services that combine voice, Internet-based shifts in communication, driven by the widespread growth of communication and collaborative communication models. Internet connectivity and the emergence of interactive online Enterprise spending on Web 2.0 collaboration technologies communication tools. These shifts have been redefining a is forecast to grow to US$4.6 billion globally by 2013, with century-old industry and, as a result, the advantages enjoyed by social networking as the top spending category.57 Partner- traditional communication service providers are beginning to ships with enterprise communication providers, software wane. Telcos can, however, remain relevant in the face of vendors and/or system integrators can provide an efficient changing user sentiments and demands if they take bold steps path to delivering these services. to adapt to this evolving marketplace.
  • 18. 16 The changing face of communication 5. Work more closely with CDN and/or OTT providers to The nature and medium of communications are being rapidly reduce the cost of delivering high-bandwidth content (e.g., altered by the movement of users to environments that offer video, music) in response to increasing demands for such less expensive – but more expressive – capabilities to facilitate services. This can be achieved through network and both one-to-one and group communications with more people computing infrastructure optimization techniques such as than ever before. These shifts are creating a new communica- traffic shaping, use of faster-than-realtime progressive tion services ecosystem that will require significant and bold downloads in place of realtime streaming, and caching of changes by existing providers if they wish to remain an integral content close to the edge of the network using CDNs.58 part of a changing landscape. The journey will not be without Such approaches can potentially lead to new business models risks, but the option of doing nothing is a luxury few can that capture more value from this increasing OTT traffic, afford. Revenues from traditional services continue to decline, enabling an enhanced user experience through improved and highly resourceful Internet information providers and IT quality of service and innovative service partnerships that companies are entering this space to accommodate the take advantage of this optimized environment. collaborative, many-to-many services that are claiming a significantly larger share of the overall communications Over the long term, as communications transition to Shared marketplace. Social Spaces, telecom providers should: 1. Broaden the scope of their traditional telecommunications business to more actively encompass both point-to-point communications and many-to-many collaborative commu- nication models, and align their organizations and industry partnerships accordingly. This has strategic and transforma- tional implications for the business, impacting areas such as product and services offerings, skills, platforms, revenue models and markets, among others. 2. Create more compelling Gated Communities by delivering a cross-platform, fully integrated communication and collaboration experience across mobile, fixed and IPTV services. This will enable Telcos to stem their loss-of-share of communication time, as well as reduce churn, by offering a differentiated, premium-value service that promises greater flexibility, ease-of-use and a consistent experience on any communication platform – anytime, anywhere.
  • 19. IBM Global Business Services 17 About the authors Zygmunt Lozinski is the IBM technical leader for the telecom Rob van den Dam is the global telecommunications leader at industry in Europe. His focus is on the application of software the IBM Institute for Business Value. In this role, he develops technology to the next generation network, the definition of industry outlooks and business value realization studies for the open APIs for the network, implementation of open APIs using telecom sector. He has more than 15 years’ experience working Web services and Java in service delivery platforms, and the use in telecommunications. Rob has written or co-written of Web 2.0, including linking mobile networks to Facebook numerous papers and articles on telecommunications and and Second Life. His most recent work is on the implications media, including “How Social Media is redefining Broad- of cloud computing for telecom providers. He can be contacted casting,” “Fighting for Viewers – IPTV versus Internet TV,” “A at zygmunt_lozinski@uk.ibm.com. Future in Content(ion),” “Cash, Credit, or Phone” and “Mobile Advertising, Ads on the Move.” He can be contacted at Executive sponsors and contributing rob_vandendam@nl.ibm.com. editors Chris Pearson, Senior Partner, Telecommunications Industry, Ekow Nelson leads strategic thought leadership for telecom- IBM Global Business Services munications, media & entertainment and utilities at the IBM Nick Gurney, Partner and Global Telecom Industry Leader, Institute for Business Value. A management and information IBM Global Business Services technology consultant for over 20 years, Ekow has worked in a range of advisory and implementation roles, from strategy and Scott T. Stainken, General Manager, Global Telecommunica- business development to systems integration and project tions Industry, IBM Corporation management for major telecommunications and media Mario Cavestany, Vice President, Southwest Europe Telecom organizations. He is author of numerous papers and articles in and Media Lead, IBM Corporation telecommunications including “Telecom switches emphasis,” “A Future in Content(ion)” and “The Innovation Paradox in Contributors the Telecom Industry,” published both by IBM and external We would like to thank all those who provided, guidance and publications including The Annual Review of Communications assistance in the development of this paper, in particular and the Journal of Telecommunications Management. He can be Joseph Ziskin, Stephen Chey, Thomas Ross, Paul Reilly, contacted at ekow.nelson@uk.ibm.com. Matthew Stankey, Andreas Neus and Karen Feldman, as well as the executives of companies who agreed to be interviewed for this paper.
  • 20. 18 The changing face of communication The right partner for a changing world References At IBM, we collaborate with our clients, bringing together 1 IBM Institute for Business Value analysis based on informa- business insight, advanced research and technology to give tion from the Alexa, the Web Information Company, Web them a distinct advantage in today’s rapidly changing environ- site. http://www.alexa.com ment. Through our integrated approach to business design 2 Institute for Business Value analysis based on information and execution, we help turn strategies into action. And with from Comscore, the global Internet information provider. expertise in 17 industries and global capabilities that span 170 countries, we can help clients anticipate change and profit 3 “Social Networking Explodes Worldwide as Sites Increase from new opportunities. their Focus on Cultural Relevance.” comScore. August 12, 2008. http://www.comscore.com/press/release. asp?press=2396 4 “Twitter Grows 1,444% Over Last Year; Time on Site Up 175%.” Neilsenwire. June 22, 2009. http://blog.nielsen. com/nielsenwire/nielsen-news/twitter-grows-1444-over- last-year-time-on-site-up-175/ 5 “Facebook Closing In on 500 Million Visitors a Month.” Social Networking Watch. April 21, 2010. http://www. socialnetworkingwatch.com/2010/04/facebook-closing-in- on-500-million-visitors-a-month-.html; “Twitter’s 1928 percent growth and other notable social media facts.” July 16, 2009. Mashable. http://mashable.com/2009/07/16/ twitter-june-2009-growth/ 6 “The Next Billion – The Rise of Social Network Sites in Developing Countries.” Web2forDev. June 19, 2009. http:// www.web2fordev.net/component/content/article/1-latest- news/69-social-networks 7 Schonfeld, Erick. “Cyworld ready to attack MySpace.” Business 2.0 Magazine. CNN. July 27, 2006. http://money. cnn.com/2006/07/27/technology/cyworld0727.biz2/index. htm
  • 21. IBM Global Business Services 19 8 Li, Charlene. “How Consumers use Social Networks.” 18 Hoover, J. Nicholas. “Motorola’s IT Department Takes on Forrester Research, Inc. June 21, 2007. Enterprise 2.0.” Intelligent Enterprise. June 20, 2007. 9 IBM Institute for Business Value analysis based on informa- http://www.intelligententerprise.com/showArticle.jhtml;jse tion from comScore, the global Internet information ssionid=A3SDGIXSOTXI4QSNDLPSKHSCJUNN2JVN provider. June 2008. ?articleID=199905898 10 eMarketer: “Social Networking Marketing: Ad spending 19 Ibid. and usage.” eMarketer. December 2007; “eMarketer lowers 20 “Chinese Social Network site QQ.com beats Facebook Social Network ad spending estimate.” eMarketer. May 20, almost 4:1 revenue wise.” Watblog.com. March 28, 2008, 2008. http://www.emarketer.com/Article.aspx?id=1006321 http://www.watblog.com/2008/03/28/chinese-social- 11 Ibid. networking-site-qqcom-beats-facebook-almost-41-rev- enue-wise/ 12 Brown, Erika. “MySpace Says: Skype Me.” Forbes. http:// www.forbes.com/2007/10/16/skype-myspace-internet-tech- 21 “Earthlink mobile venture rename Helio.” cnet.com. nology-cz_eb_1016skype_print.html October 25, 2005. http://news.cnet.com/EarthLink- mobile-venture-renamed-Helio/2100-1039_3-5914186. 13 “Bebo launches ‘Open Media.’” Bebo in the News. http:// html www.bebo.com/Press.jsp?PressPageId=5037676804 22 Gray, Tim. “Vodafone, MySpace Team on Mobile Social 14 “Apple to sell music through Bebo network.” Financial Networking.” E-Commerce Times. February 7, 2007. http:// Times. June 12, 2007. http://www.ft.com/ www.ecommercetimes.com/story/55629. cms/s/2/104bad26-1925-11dc-a961-000b5df10621.html html?welcome=1211232337 15 “Neighborhoods.” eBay. http://neighborhoods.ebay.com/ 23 Ibid. 16 “Promoting a thirst for Sprite in teenage cellphone users.” 24 IBM Institute for Business Value analysis. The New York Times. June 7, 2007; “Pink Victoria’s Secret.” Facebook; “Webkinz, Come in and Play.” Webkinz. http:// 25 “Vodafone Announces Vodafone 360.” Vodafone. September www.webkinz.com/us_en/ 24, 2009. http://www.vodafone.com/start/media_relations/ news/group_press_releases/2009/360.html 17 Holtz, Shel. “GMnext: A preview of corporate communica- tions in the social media era.” January 3, 2008. http://blog. 26 Shirky, Clay. Here Comes Everybody: The Power of Organizing holtz.com/index.php/gmnext_a_preview_of_corporate_ Without Organizations. Penguin Press. February 28, 2008. communications_in_the_social_media_era/ 27 Rainie, Lee. “Digital Natives Invade the Workplace.” PewResearchCenter Publications. September 28, 2006.
  • 22. 20 The changing face of communication 28 Boyd, Danah. “Socializing digitally.” Thinker’s corner. 38 “3 Skypephone Delivers Free Skype to Skype Mobile Calls http://www.danah.org/papers/VodafoneReceiver.pdf. and Instant Messages at the Touch of a Button.” Skype.com. October 29, 2007. http://about.skype.com/2007/10/3_ 29 “IBM Consumer Survey shows decline of TV as primary skypephone_delivers_free_sky.html media device.” August 22, 2007. IBM Institute for Business Value. 39 “Mobile Social Networking Revenues Could Reach US$52 Billion by 2012.” Cellular-news. February 11, 2008; 30 Ibid. “Mobile Web 2.0 revenues to reach $22.4bn by 2013, 31 IBM Institute for Business Value analysis; “Entertainment driven by User Generated Content and Social and Media Outlook 2008 – 2012.” Pricewaterhouse- Networking.” Juniper Research press release. May 14, 2008. Coopers. 2008; Broadband Penetration. Organisation for http://juniperresearch.com/shop/viewpressrelease. Economic Co-operation and Development. http://www. php?pr=91 oecd.org/sti/ict/broadband 40 “iPhone hype holds up.” M:Metrics. March 2008. http:// 32 “World Broadband Subscriber Forecast.” In-Stat. October www.mmetrics.com/press/PressRelease. 2008. http://www.instat.com/catalog/Ccatalogue. aspx?article=20080318-iphonehype asp?id=288 41 Mobile-korea.blogspot.com. November 14, 2007. 33 “Average advertised broadband download speed, by country, 42 “FY 2007 Fourth Quarter (January-March 2008) and Mbit/s, Oct. 2007.” Organisation for Economic Co-opera- Full-Year (April 2007-March 2008) Earning Results tion and Development. http://www.oecd.org/sti/ict/ Briefing Session.” Mixi, Inc. May 12, 2008. http://eir.eol. broadband co.jp/EIR/View.aspx?template=ir_ 34 Ibid material&sid=1095&code=2121 35 Hahn, William L. and Nhat Pham. “Dataquest Insight: 43 “Telefonica, Facebook strike global partnership deal.” Global Telecommunications Market Take.” Gartner, Inc. Telecom Paper. October 6, 2008. http://www.telecompaper. July 22, 2008. com/news/article.aspx?cid=639352 36 “What’s New on Google Talk?” available at http://www. 44 Roush, Wade. “New Portal to Second Life: You’re Phone.” google.com/talk/whatsnew.html; Windows Live Messenger Technology Review. MIT. February 16, 2007. http://www. features available at http://get.live.com/messenger/features technologyreview.com/Infotech/18195/?a=f 37 “Skype By the Numbers: It’s Really Big.” GigaOM. April 45 “Google’s social side hopes to catch some Buzz.” CNET 20, 2010. http://gigaom.com/2010/04/20/skype-q4-2009- News. February 9, 2010. http://news.cnet.com/8301- number/ 30684_3-10449662-265.html 46 Stone, Brad. “Microsoft to Pay $240 million for Stake in Facebook.” The New York Times. October 25, 2007. http:// www.nytimes.com/2007/10/25/technology/24cnd-face- book.html; Zoller, Eden. “Nokia’s social media strategy: muddle or masterplan?” Ovum. 2008. http://www.ovum. com/news/euronews.asp?id=7123
  • 23. IBM Global Business Services 21 47 Wakefield, Jane. “BBC and ISPs clash over iPlayer.” BBC 56 “Vodafone: ZYB acquisition facilitates more mobile social News. April 9, 2008. http://news.bbc.co.uk/1/hi/tech- networking.” Datamonitor. May 2008. http://www. nology/7336940.stm datamonitor.com/industries/news/article/?pid=6A58957F- 48 “Cisco Visual Networking Index: Forecast and Method- 4BB1-42CD-A1EE-62D53B810155&type=CommentWire ology, 2007-2012.” Cisco. June 16, 2008. http://www.cisco. 57 “Enterprise Web 2.0 worth $4.6 billion in 2013.” search- com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ views. April 21, 2008. http://www.searchviews.com/index. ns827/white_paper_c11-481360_ns827_Networking_ php/archives/2008/04/enterprise-web-20-worth-46-billion- Solutions_White_Paper.html. in-2013.php 49 “iPlayer usage effect – a bandwidth explosion.” Plusnet. 58 Odlyzko, Andrew. “The delusions of net neutrality.” School February 2008. http://community.plus.net/ of Mathematics, University of Minnesota. August 31, 2008. blog/2008/02/08/iplayer-usage-effect-a-bandwidth-explo- http://www.dtc.umn.edu/~odlyzko/doc/net.neutrality. sion/ delusions.pdf 50 Ibid. 51 “Technology Top 50 Global Tech Stocks: The Ones You Care Most About…Plus a Few More.” Morgan Stanley. 2008 52 Montagne, Roland. “Telcos’ views of openess.” IDATE DigiWorld Summit. 2009; IBM Institute for Business Value analysis. 53 “UK’s MySpace and Facebook addicts.” Channel 4 News. July 20, 2007. http://www.channel4.com/news/articles/ science_technology/uks+myspace+and+facebook+addicts/6 13077 54 Allen, David. “Kids spend twenty hours online a week.” Tech Watch. http://www.techwatch.co.uk/2008/03/25/ kids-spend-twenty-hours-online-a-week/ 55 “Mobile Social Networking Revenues Could Reach US$52 Billion by 2012.” Cellular-news. February 11, 2008; “Mobile Web 2.0 revenues to reach $22.4bn by 2013, driven by User Generated Content and Social Networking.” Juniper Research press release. May 14, 2008. http://juniperresearch.com/shop/viewpressrelease. php?pr=91
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