The Postage and Packaging Problem

A number of conversations have recently converged on a single problem: how to match applications to network access. Let’s unpeel this issue.

Post and Telegraph 2.0

When I was Chief Analyst at Telco 2.0, we proposed there was a significant untapped market opportunity for network operators to bundle together access with content, applications or services. The revenue opportunity is to charge the providers of those services for delivering fit-for-purpose data at bulk wholesale prices. This is the “postage problem” – who pays for delivery of digital goods and services?

A way of viewing this is “freephone for data”, or the equivalent of pre-paid bulk mail in business. It’s the bread-and-butter of most distribution businesses, with large enterprises paying to get their goods to customers.

My colleague Dean Bubley has long pointed out a parallel issue, which we can call the “packaging problem”. This in a nutshell can be thought of “if a user embeds a YouTube video inside of a Facebook page, which enterprise picks up the tab?”. It’s hard to allocate traffic to paying parties once it has hit the network.

A physical envelope acts as packaging, and has two functions: keeping what you want sent inside and not spilling out, and keeping things outside from getting in. The same problem exists with networks: how to pay for only the data you should be liable for? You don’t want anyone else tunnelling their traffic via your app with you paying the bill.

Postage Problem

When application providers want to pay telcos for sender-pays data, they typically fall into one of two cases: they want premium assured quality service (e.g. home worker telepresence), or they want bulk low-cost low-quality service (e.g. video advert pre-caching).

As Dean has drolly noted on a number of occasions, there are two problems with this: enterprises don’t know how to buy it, and telcos don’t know sell it. The whole market is based on quantity, not quality.

In fact, it’s worse than this. The vendors who sell to telcos don’t even know how to make it. What they get telcos to implement is “quality of service”, or priority. However, what premium applications need is predictable, assured bounds on loss and delay, particularly infrequent “worst case” which users may perceive as an application failure. The type of quality on sale is next-to-useless, as it still has an unstable and unbounded loss and delay limits. Furthermore, the quality of lower-class traffic tiers has such poor and unstable loss and delay characteristics you can’t even begin to sell it.

Think of telcos like factories that take in raw milk. If they try to separate out the cream and whey, you find the cream is still sometimes milky and won’t whip, and the whey often goes rotten before it leaves the factory.

Packaging Problem

The other half of the problem is making a strong and secure packaging. Cream, yogurt, cheese, milk and curd all need different packaging. So do the different types of data, and that partly depends on where you need to deliver it.

There is a fundamental shift going on in the industry. We’ve seen the basic network end-point unit drop in size over the decades: a town had a town crier; then a neighbourhood had a telegraph office; a block a telephone booth; followed by telephones to houses and Internet down to single devices like PCs.

A common pattern is for each new generation to use some elements of the communication solution of the previous generation, before coming up with its own version. So telephones used telegraph wires, before coming up with twisted pairs. PCs used dial-up ISPs before broadband.

The next shift in delivery point is from PCs down to Apps. We’re at the phase where PC-level broadband is going to get the “dial-up ISP treatment”, and start to be broken down into smaller chunks. Apps are the missing Tyvek envelopes into which to put the data.

The initial need will not, however, be driven by sender-pays data. We will see simpler examples where corporates and schools want to ensure their employees and pupils can use approved apps in approved ways, without the host having to pay for the data costs of every app that crosses into the building.

What next?

Here is my thesis on what happens next.

We will see the beginnings of a solution to the Postage & Packaging problem in the context of enterprise use. Trends like Bring Your Own Device will force enterprises to turn their functions into managed apps. New business models will start to spring up. For example, a school may charge pupils a fee if they want to use non-educational apps on the school network since that drives a real cost of network upgrade and operation.

Over time, virtualisation technology and on-device management features will make the envelopes more robust. Apps will understand networks better. In parallel, new network enablers will solve more of the ‘postage problem’ offering a richer set of quantities and qualities than one-size-fits-all best-effort broadband. Aggregators will begin to bridge together the supply and demand sides.

Eventually, the current broadband ISP model may look as antiquated as dial-up ISP is today. The industry will polarise into two extremes: highly-packed experiences, like a ready-made meal. These come as part of a device or an e-commerce service. The other is totally unpackaged ‘grow and cook it yourself’, just like a home network today doesn’t need any kind of service provider.

Neither is intrinsically good or bad, but either way the system we currently think of as ‘the Internet’ will be tomorrow’s cold leftovers.

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