North American Network Operators Group Date Prev | Date Next | Date Index | Thread Index | Author Index | Historical Re: The Paradox of Commoditization
Isenberg writes along similar lines: Rise of the Stupid Network http://www.isen.com/stupid.html Chairman Power, Let 'em Fail Fast http://netparadox.com/ Paradox of the Best Network http://www.netparadox.com/netparadox.html How to Monopolize the New Network http://www.isen.com/archives/030304.html Pete. On Wed, 9 Apr 2003, Gordon Cook wrote: > Date: Wed, 09 Apr 2003 23:53:19 -0400 > From: Gordon Cook <[email protected]> > To: [email protected] > Subject: The Paradox of Commoditization > > > The Paradox Of Commoditization > > Trying To Save What Is Inevitably Lost, We Lose What Could Otherwise Be Gained > > Introduction > > The monopoly control of customers by Legacy networks is destroying > the economic benefits that could be obtained from the on going > pervasive and inexorable commoditization of telecom and information > technology. We face a paradox. While we have eyes, we cannot see. > > We act as though we could wish away what is happening to new products > and prices. But the fact is that the on-going commoditization of > technology cannot be undone. Products will continue to get better but > they will also continue to fall in price. In the face of these > dynamics jobs will melt away. The only growth in the industry will be > come from a variety of education, customer support, strategic > evaluation and consulting positions. The only additional growth can > come from use of the technologies in an open architecture that > preserves the freedom to innovate. > > If we adopt the mind set that commoditized telecom and IT is basic > infrastructure, we can struggle to keep the infrastructure open. In > doing so we shall also keep open a seedbed of new economic > development and new creativity and technology. In addition to a > foundation for new business, this course will also support > opportunity for further growth in customer support and education. > But, if, as seems currently more likely, we follow the course of > permitting the legacy industry a closed monopoly in order to save > itself, we prolong the current agony and forego what economic > development and growth could flourish in an open environment. > > The Commoditization of Everything > > We are witnessing the commoditization of the entire industry. It is > not just telecom. It is telecom and all of information technologies. > Both industries are finally maturing across the board. While new > products are appearing, they cost less and do more. They bring a > different kind of economic value. We are no longer likely to see the > creation of any new industry giant like a Cisco or Microsoft. Open in > architecture and cheap to produce, the new products are staggering > the industry precisely because they are one or more orders of > magnitude less expensive than the closed and proprietary systems they > replace. > > While most new products are still designed in North America, Japan, > or Europe, the majority of their components are made and assembled in > Asia. There RAM is a commodity endlessly replicated in multi billion > dollar "fabs." Around the 'corner' in Taiwan and other areas, > commodity disk drives are mass-produced. A terabyte in the pocket is > not far off. Commodity open source Linux and open source web services > stand ready to do battle against Microsoft's closed systems. > > When new software is needed, it may be designed in North America or > Europe. But the code is written in Bangalore, or Moscow, or Shanghai. > Hua wei is sued by Cisco for doing what is in effect a commodity > knock off. Back 'home" a handful of folk do the integration, first of > the software, and then of the firmware and prototype hardware. They > ship the result back to Bangkok or Kuala Lumpur for replication and > assembly. Container ships bring the boxes back to ports like > Yokahama, Newark, or Antwerp for sale on the shelves of Best Buy and > Comp USA and other warehouse retailers. Prices are driven inexorably > downward. > > This new, cheap and powerful hardware and software is being installed > in networks with fiber cores terminating in monopoly controlled > copper local loops. If the network is the Stupid network, in other > words if it is an open access end-to-end Internet, boxes running > commodity Ethernet can switch and route packetized information as > appropriate. With the addition of a VoIP gateway card, the same > devices can achieve vast cost savings by turning voice telephony into > an application that rides alongside other digitized and commoditized > applications such as email, web services, and television. > > But most networks are not open Internets. They are copper based > networks with last miles subject to a monopoly controlled, content > centric approach. They are bastions of legacy technology using an > infrastructure far more complex and 10 to 100 times more expensive > than that of the Stupid network. The legacy telco network is one > where the monopoly must cut its own throat to try to compete with > open architecture Internet upstarts that would take away its more > profitable business customers. In other words, while the prices it > receives for its services plummet, it must write down the value of > its plant and equipment to a level where, given its smaller income, > it cannot maintain its current cost and employment structure and > sustain the ability to pay its debt. > > When voice no longer rides on the TDM transport that was especially > designed to carry it and is just a packet-encapsulated application on > an IP network, the new central office is no longer a building housing > five million dollars worth of equipment. It fits on a desktop using > SIP, SIP proxy servers, and ENUM databases. It costs well under five > thousand dollars and delivers an entire range of services not > possible to derive from now obsolete TDM hardware costing a thousand > times more. > > Commoditization Makes More Job Losses Inevitable > > If telecom in the United States has lost 500,000 jobs in the past > three years, with the inevitable demise of the LECs, it will lose > another 500,000. Attrition in computer hardware and software should > cause 500,000 more positions to evaporate. What is left will be > administrative, financial product planning and marketing. > Unfortunately, in this brave new world the marketers will be figuring > out how sell $100 products in Best Buys rather than $100,000 systems > to enterprises. > > As a result of this upheaval, customers will be left even more on > their own. They will need help to figure out how to put the products > together and assess what combination of products most effectively > meets their needs. Until everything is truly plug-and-play and > automatically-configured when attached to the network, education of > the customer on product capability and system integration is the > remaining critical area of competition. It is also the only bright > spot for future industry employment. > > Commoditization dictates competition. But now that the companies are > in trouble, competition on the part of the legacy, monopoly-owned, > circuit-switched side of the telecom business is being allowed to > disappear. Until the legacy companies go bankrupt and swap out their > obsolete equipment, there can be no benefit to anyone from > commoditization. > > The innovation and cost performance benefits of commoditization are > all on the side of the open access, end-to-end, packet-based > inter-networks. So far such networks in competition with each other > for market share cannot make a profit. > > The mind-set of the political and regulatory system cannot comprehend > the resulting paradox where the most productive and advanced networks > cannot make money because, founded on commodity technology, they can > be cheaply cloned with cookie cutter reliability. Staring into the > headlights of the onrushing train wreck, it is blinded by fear of the > destruction of shareholder equity and putting people out of work. It > is seduced by the complaints of the incumbents who are selling the > false premise: "Give us monopoly and we will have incentive to > build." Determined to protect legacy interests, it consequently tilts > the playing field in the US against the commodity players and against > innovation. > > The truth is that, even with monopoly, will they not build. They will > instead die, unless somehow, they managed to get use of the > packet-switched, commodity-based technology successfully outlawed. > > To our great misfortune we do not yet understand that Commoditization > has turned telecom and information technology into a basic enabling > infrastructure like the electric, the water, the sewer and the > highway grids. This new commoditized, powerful, and cheap technology > can be used to deliver value and new jobs through preserving for > everyone the ability to tinker and to innovate. Commoditization has > removed the incentive for value creation from the monopoly network > and left it with only the incentive to squeeze every penny of return > for as long as it can prevent encroachment. > > The Legacy networks can and do use the new IP, commodity technology. > But they are prevented by their debt obligations from being able to > acquire enough of it. Furthermore, even if they could implement it > extensively, their business model assumes a monopoly over access to > transport. Because they must do it all, they are paradoxically denied > its fullest advantage. The find themselves with no choice but to use > packet switching and VoIP in an effort to sustain their traditional > way of doing things. Protecting what they have, they lose what gains > the new inexpensive equipment could offer. > > For example they would seek to offer international VoIP over their > own dedicated network while a new competitor can dispense with the > sunk cost of maintaining a physical network by simply renting access > to an Internet that others maintain. Since the competition has only > to rent access to transport and run voice as an application on that > transport, it can offer service that is unencumbered by legacy costs. > The business model of control of both applications and customers > prevents productive investment. > > The paradox of commoditization leaves us with our uninhibited > creativity as our only new source of economic development and growth. > If all we do is drive prices down while maintaining the old > structures, all we do is drive more people out of work. Failure to > understand this leaves the legacy networks in power and able to > preserve their obsolete assets by killing creativity, innovation, and > experimentation. > > The backyard tinkerer has for the past century been the principal > source of wealth in the United States. In the inexorable transition > to a new commodity-based world, given current policy, we are > exporting the freedom to be a tinkerer to Canada, Sweden, Japan and > Korea. Having to compete in a global economy, we are sacrificing the > viability of our resulting economic infrastructure in a foolish > attempt to shore up legacy networks that can no longer serve as > adequate means of competition. > > These are the lessons we carried home from Spring 2003 Voice on the > Network where most were upbeat and pitching in to spread the new > application > > April 7, 2003 > > >
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