(C) G. Sankary

A few years ago when we were first centering Yankee Group’s research on ubiquitous connectivity, or what we now call Anywhere, I said something that I now see was wrong. I claimed that the expansion of connectivity around the world would ultimately redefine good vacation experiences not as those that include free WiFi, but those that promise the absence of the opportunity to connect. Meaning we’d be so exhausted from our connected lives that the best vacation would be one in which we would be prevented from connecting — and happy about it.

Hah.

I have been on a family road trip for the past week. Writing today from Richmond, Virginia, I am here to tell you that the best way to vacation in 2010, at least in the U.S., requires the following:

1. A Sprint Overdrive: this slick little hockey puck turns either 3G or 4G cellular signals into WiFi, creating a hot spot for up to 5 laptops, WiFi enabled cellphones, etc. In the car, we toss it into the armrest where it silently creates a traveling WiFi cloud around us. In the hotel, it replaces the usually glacial in-room WiFi. With 4G service via Clear now available in over 40 cities in the U.S., we’ve been pleasantly surprised how often we see the ’4G’ indicator pop up on the display. Once the cry goes out, the pile-on to take advantage of what my daughter calls ‘real broadband’ is unleashed.
2. An Apple iPad. Even as a longtime Apple fan (if you’re nice, sometime I’ll tell you about the Mac software company I started with friends 25 years ago) I was unsure about the role the iPad might play in my life — but had to give it a try. I’m an instant convert; that’s probably another post. I have the 3G-enabled model, but given the availability of 4G in many of the cities we’ve hit on this trip, we’ve been much better off using the Overdrive’s WiFi instead of AT&T’s 3G network.
3. An HTC EVO phone. Its speedy performance, its access to the rapidly expanding Android app universe, its huge screen and its unique support for 4G means that, in the three-way tussle among our traveling group for the use of the iPad, the EVO makes a damn good consolation prize. Leaving my trusted Blackberry behind to ensure I spend enough time away from office email, I find the EVO is also a great mobile phone, one I’d be happy to make my regular handset.

Once you have these three elements (and of course, sadly, the attendant chargers and cords; the EVO in particular requires a lot of attention to battery management), here’s what happens:

• You ditch all other means of navigation. I’ve been reminiscing on this drive about family road trips decades ago, with my mother unfolding the next map in our AAA Triptik package to guide my father into the next state. So dated… but now we’re already ignoring our car’s own GPS system, whose screen suddenly seems so much harder to read, doesn’t zoom as fast, isn’t as current, doesn’t let you type names… it’s only three years old, but already seems so flawed. We’re not using anything fancy in its place, just the iPad’s pre-installed Maps app; but that app is so good and so easy that I wouldn’t be surprised to see the dog offering to ride shotgun soon.
• You have a richer view of the changing world around you. I’ve traveled a lot in France and always enjoyed the brown signs on the autoroute that alert you to an upcoming castle, cathedral, or Roman ruin. But again, 4G with intuitive multimedia devices creates a intergalactic change. See something along the road of interest? Instantaneous answers via our mobile WiFi cocoon. At a strange ballpark and don’t know the players? The EVO enriches the game experience and guides you to better food nearby.
• You skip the hotel room Spectravision. In a shocking turn of events, the TV remote has sat untended on the bureau, because no one wants to watch TV. Besides four fave movies we pre-loaded on the iPad, we have e-books, newspapers, music, and more, all in one place. One key nuisance, though: Apple’s stubborn stupidity about Flash support.

I’m sure there are two or three more aspects to how different our road trip feels, but I’ve already spent too much time away from the vacation itself. The key is true mobile broadband with great access devices. Won’t travel again without either if I can avoid it!

The event, hosted by v2 and Atlas Ventures, was a celebration of innovation in the Massachusetts tech hub, and highlighted our book ANYWHERE as an example of Boston’s thought leadership in the technology space. She included some really great shots from the night, taken by Improper Bostonian photographer Katie Noble.

To kick off the night, I was joined by a panel of three of our book contributors to discuss the impact of mobility around the globe and in different industries. A special thanks to our guests for taking the time to speak and celebrate with us: Hamish Fraser, Director of Telemedicine, Partners in Health; David Rose, founder and CEO, Vitality; and Hilmi Ozguc, founder and former CEO, Maven Networks.

Panelists and book contributors Hamish Fraser, David Rose, and Hilmi Ozguc

Mass tech hub innovators: Colin South, Novogy; Adam Berrey, General Catalyst Partners; Will Richmond, VideoNuze

The turn-out was amazing, with some of Boston’s best and brightest: entrepreneurs, execs, investors, technologists, press and more. Axel Bichara, a general partner at Atlas Ventures, spoke for many of us when he enthused about the rich environment the  Boston area provides to inspire and support entrepreneurs.

Dr. Hamish Fraser and a colleague from Partners in Health

I was grateful that Dr. Hamish Fraser, director of telemedicine at Partners in Health, was back in town temporarily from directing some of the organization’s relief efforts following the disaster in Haiti.  He provided some background on PIH’s tremendous work delivering innovative healthcare in developing regions around the world — all fostered by the expansion of global connectivity.

Yankee Group research leaders Gene Signorini, Brian Partridge, and Josh Holbrook

Given that ANYWHERE was a team effort, it was great to have some of Yankee Group’s best and brightest on hand to share in the limelight and connect with guests.

V2 and Atlas really know how to put on a fabulous party. We can’t thank them enough for doing this for us!

The main party conspirators: Matt Burke from Atlas; Maura Fitzgerald and Jean Serra, co-founders of V2; Yankee Group’s VP Marketing Shirley Macbeth, and Axel Bichara, partner at Atlas Ventures

I joined the annual gathering of network executives focused on wholesale operations recently, International Telecoms Week in Washington, D.C.. There I saw first-hand the long-standing practice of wholesale “bilaterals”: simple tables set up in the basement of a large hotel (see below), where operators negotiate one-on-one (or, more typically, two-on-two) to insure their network reach and capacity. A bit weird if you haven’t seen it before, but it certainly doesn’t look like it’s any part of a cutting-edge change in the global network infrastructure.

Bilateral tables in the basement at ITW 2010

I’ve assumed for the last year or so that there aren’t that many interesting Anywhere issues within wholesale. But YG thought leaders Camille Mendler and Wally Swain have been telling me that Anywhere has big implications on wholesale. I was wrong, and they are right. Sally Davis at BT Wholesale first began to open my mind, as I mentioned in an earlier post. But here are two reasons, straight from ITW, why I now know she, Camille and Wally are all correct:

1. Wholesale execs have a new job to do.  I led a panel of wholesale network execs while I was at ITW. It meant that I got to fire off a bunch of questions to the CEOs and COOs of the wholesale operations of AT&T, Verizon, PCCW, Cable & Wireless, BICS (Belgacom), Deutsche Telekom, Orange, and Telefonica, including this one:  What changes lie ahead for wholesale operations? Their answers were scary in the aggregate: ‘The unrelenting expansion of the network.’ ‘Crushing demand: not just video, but HD video and 3D.’ ‘Consolidation of players.’ ‘More control at the edge of the network.’ ‘Many new business models for providing network resources.’

So I also asked, What do you have to do as a wholesaler to be successful? Answers included, ‘Move fast to IPv6.’ ‘Accelerate our investments.’ ‘Acquire more reach.’ ‘Customize our services’. ‘Learn what M2M service providers need from wholesalers.’  None of this sounds like business as usual — the bulk trading of indistinguishable bits — and in fact it all fits into the transformation imperative for network operators: to build the Anywhere Network of the future.

2. Commodification of bandwidth can automate capacity exchange. Wandering the booths at the event, I stopped at Nytex. Their big screens (below) looked like something from the floor of the NYSE or the Chicago Mercantile. In fact, that’s the big idea – making a public marketplace for trading wholesale network capacity, in the form of minutes. The firms bills itself as ‘the world’s first neutral international telecommunications commodity exchange’.

Nytex lets operators trade network capacity by referring to a standard quality

It works due to a core innovation in the Nytex system, because as co-founder George Metrakos says, “not all network minutes are alike.” Quality matters, and larger operators are less enthusiastic about buying capacity from smaller operators in emerging markets if/when their network quality is too low.

Nytex established the idea of a ‘reference minute’: a minute with a particular quality level. That serves as an index point; operators who want to buy or sell capacity can describe their appetites or assets in terms of quality, and adjust their bid and ask accordingly. The active trading is now one year old, and progressing nicely; one consequence is that it helps larger networks, such as European carriers, extend networks via deals with much smaller carriers in emerging markets that they might otherwise not be willing to risk business with; knowing the capacity and having the price adjusted for it de-risks their decisions.

But this is scary stuff, because acknowledging the need for a real-time exchange for network capacity means that in many ways, that product resembles commodities like oil, gas, and pork bellies.

So why is it a proof point that the Anywhere Network implies the reinvention of wholesale? It shows that technology advances are helping submerge the human-centric, inefficient and uncertain approach of the basement bilateral tables, making the bit-trading aspect of wholesale more efficient. Thus the CEOs who spoke so passionately on my panel about the huge changes flying at their teams, giving them big challenges to step up to, can actually hope to free up management capacity to make it happen.

Will they? Those are some of the very questions Yankee Group needs to be asking. One question for now: How long will the old-school bilateral tables last? Perhaps all gone by 2013? Any predictions out there?

The Money Talks Forum, a unique partnership between the Finnish VC community and Technopolis, a real estate developer with incubator-style office space in Finland, Estonia, and Russia, has been held twice a year for the last four years. Entrepreneurs apply to make pitches to VCs, filling a full day with group presentations and speed-dating-style one-on-one meetings. I was invited by the Finnish Mobile Association to share some ideas from ANYWHERE to the group — but came away with lots of new ideas from entrepreneurs eager to show how what they’re doing ties directly with Yankee Group’s Anywhere vision. Some cool things I saw:

• WiFi exchange? Notava wants to help mobile operators off-load demanding connections, such as streaming video, to locally available WiFi hot-spots that are willing to dynamically sell excess capacity. Operators can also register their own capacity. While it can take 2-30 seconds to provision one of these trades, customers should never see the transfer of their activity to the other network; rather they should just see better bandwidth, seamlessly. Might not be a new idea, but with crushing mobile data loads, perhaps its time has come.
• Epuuk founders point out that the way to best use mobile screens for media is to look at what kinds of content are the same size as a mobile screen in their current format. Their conclusion: comic strips. The firm’s content delivery platform makes it fun to look at comics on a mobile screen. Right now they’re working with King Features content;  Epuuk founder Lauri Gorski said, “Letting us play with their Finnish market content is low-risk for them.” I liked their Zits demo; if only I could have understood the Finnish punch line…
• Zokem joins the rising scrum in mobile data analytics, including the likes of Localytics, Flurry, Umber Systems, and more. This outfit uses client-resident software to track activity — but rather than just understanding what users are doing with their mobiles, the company wants to use the mobile as the pathway to better understanding consumers’ entire lifestyles. Since I met Ludovic in Helsinki, the firm recently landed 2M euros in additional funding.

Many of the entrepreneurs I met at the event share a common prior experience: working at Nokia. The firm has been a wellspring of innovation in the mobile sector, but is now struggling to regain leadership ceded in part to Apple. Is that the reason for the exodus of talent into new ventures? One of the event attendees said, “When big trees get trimmed, it creates more sunlight for new growth at their feet.”

So consider this pair of contradictions: “Technology changes everything” and “Technology can’t change anything.” They’re both true for the global networks many of us care so much about.

Technology changes everything: The advent of broadband and wireless communications is revolutionizing digital communications on a global scale in what I like to call the Anywhere revolution. Monolithic, monopolistic and single-purpose telecommunications systems are inexorably giving way to open, flexible networks serving disparate customers and their exploding, diversifying appetites. Exciting times, right?

Andy Grove: a model for Anywhere leadership?

And yet, technology can’t change anything: Technology is inanimate, devoid of a point of view or the ambition to do right or wrong, to make a profit or loss. It’s the people who deploy technology who are the ultimate agents of change in any technology revolution. Some of our Anywhere revolution’s change agents include: the academics who adopted the U.S. military’s TCP/IP protocol for inter-university file transfers; the rebels whose digital sharing websites cracked open the entire music industry; the passionate designers of powerful simplicity at Apple, who unlocked our appetites to use their creations. People are the agents of change in our networks… or not.

Case in point: the state of IT today within some network service providers. At the same time these carriers rail against the forces pushing them toward commoditization of their assets, and while they acknowledge the imperative for change to continue playing an important role in the lives of their customers, the real guts of their networks languish.

By guts, I don’t mean the cables in the ground, the equipment mounted in towers or the licenses authorizing use of precious spectrum. No, the real guts of the network are in the software that tracks, bills and manages network resources—that is where the true potential of the future Anywhere Network lies.

And what’s happening? Instead of revolution inside the network matching the pace of the revolution at its gates, I see slow, even glacial, evolution. Massive systems with components at their core that go back 30 years in some cases acquire new functionality only through agglutination and accretion. In fact, bringing new features on board within some network providers’ IT organizations means tackling almost unimaginable complexity in migration, backward compatibility and integration. But what’s needed to compete with the likes of Google and other more nimble upstarts in the Anywhere revolution is agility and simplicity. Think about it: The upstarts don’t have the same legacy baggage. How can carriers possibly compete when they have to drag theirs with them along the way?

Intel co-founder Andy Grove, author of several compelling books on management, tells a story about a tough episode many years ago during his tenure as the company’s CEO. A key division was a mess, and ongoing efforts to fix it failed to bear fruit. Grove recalled telling an associate that he expected the board to fire him soon, to bring in a new CEO who could see the big picture and do the right thing with the division. “So why not walk into your office tomorrow morning as the new CEO, and take that fresh look yourself?” asked the colleague. Grove reports that he did, and that effort—forcing himself to climb over the minutiae to ask what a new, unencumbered leader would do—was essential in getting the massive organization to move forward strategically.

I chatted recently with the CTO of a mid-size network operator with both fixed and mobile assets. His forward-looking perspective around the convergence of the two networks had also resulted in a decision by the company to bring the IT and network engineers under one organizational roof. “It’s early days, but it’s working great so far,” he said. “Now the network engineers can tell IT more directly what they need, and IT has to be more responsive.” After hearing for years that network engineers and IT teams are like chalk and cheese, as the Brits say, I observed that it was a great sign of a changed future for other networks. He was quick to demur. “I’m not sure it would be possible in larger carriers.”

But why not? After that conversation, I asked that very question of a half-dozen smart people. The best answer I got pertained to the prevailing organizational structure of large carriers: At a group level, they have a need to keep impositions on the country-level divisions light, so that those operations can make market decisions that work best for them. The unfortunate result is that little in the way of corporate IT mandates to consolidate billing, data warehouses or offer management ever gets realized. Instead, we see proliferating systems and the slow, drip-by-drip accretion of functionality. And Rome burns on.

While I’m complaining, though, it isn’t just network IT teams who fail to come to work in this changed age as the new captains of the ship, ready to turn the page and force dramatic change. The vendor community isn’t yet doing all it can to help, either. At a recent industry gathering for network software system vendors, I noted all the right messaging on display in the booths I visited: know your customers better, add new services, create new revenue streams. But the intensity was missing. Where was the table-pounding? The sturm und drang? With the level of anxiety and market pressures being felt around the industry, why was this consortium of people who could make or break the Anywhere Network so pleasant, so paced, so… modest? I rued the lack of passion.

Let’s all close the door tonight on today’s semi-evolved, work-in-progress networks full of history, pomp and circumstance. Let’s come to work tomorrow morning as the architects of a new network—one that can dynamically adjust capacity, provision new services quickly, meaningfully segment customers based on network behavior and nimbly respond to market forces as its first priority. Take nothing for granted. Turn up the heat. Push teams together. Insist on speed. Explain that complexity is out of fashion. Leave some baggage at the side of the road, take only what you can afford to carry and hustle further down the path.

Technology won’t change our networks. We will.

Yes, it’s for real, and while some of you enjoy giggling at some of my other connected device finds, thinking them too marginal to add real economic value, this creative application of extended connectivity quickly turned into incremental dollars to the business that installed it.

A restauranteur in suburban Atlanta has introduced connectivity to a Wall of Beer, incorporating connected flow meters on the beer taps and a pair of NFC card readers next to the taps. You can see what the setup looks like in the photo here: pretty normal except for the card reader.

It’s fairly simple:  sensors added to the taps detect the flow of product, its pressure, as well as temperature and (optionally) CO2. That data goes to an on-site server. RFID card readers track members of the restaurant’s beer club. When a member goes to the beer wall, they can log into the system with a card, then dispense their own beer. The system notes which beer and how much was dispensed, and charges the member account accordingly.

What’s the point?  There are two reasons to do it, both of which affect the restaurant’s bottom line very quickly:

1. Customers like the self-service-but-premium experience. Guests can try small, 2-ounce tastes of beer without buying an entire mug… and they can do it themselves. The beer wall area in the restaurant is set up as a special VIP space, creating a feel of exclusivity. The unique experience, including congenial encounters with other patrons at the beer wall, has driven beer sales at the venue up steadily since its introduction. More beer drives more food… increasing total store revenue.
2. Tracking each ounce of beer from a keg dramatically reduces product loss. Over the years, restaurants have come to terms with turning just 75% of the contents of a beer keg into revenue. The remainder goes to spillage, over-serving, or theft (bartender giveaways). With tracking of every ounce dispensed, it’s nearly impossible for employees to cheat the system, and customers don’t over-serve themselves when they know they’re paying by the ounce. The result at this restaurant: keg utilization has shot up from 75% to an amazing 90%+. That’s a straight increase in profit per keg purchased.

The technology won’t be applicable in exactly this setup everywhere; there are 16 states in the U.S. that currently don’t allow self-service alcohol. But the flow sensors in beer taps can still be used to track behind-the-bar dispensing to reduce loss per keg.

In case you missed the lessons here, pushing connectivity — in the form of wired and wireless sensors plus NFC readers — further out into the business of this restaurant has increased both top-line revenues and bottom-line profit. Costs included an up-front installation fee and a variable monthly expense for the SaaS-based system. Payback took about 14 months.

The big point: extending the network in your business can reduce its inefficiencies, because the network brings detailed, real-time information about activity at the edge of the business to wherever the right decisions about it can be made. An Anywhere restaurant is a more profitable one.

Thanks to Jerry Bucher at Draftserve for walking me through the solution. He says the restauranteurs they show this to are starting to understand that the entire industry could be revolutionized by what his firm calls “point-of-pour’ technology.  I’m going to call it Anywhere Beer. And I like it.

(Want to know more? Get in touch with him at jerry.bucher@draftserv.com.)

What does the recent debut of the iPad mean for dedicated e-readers as a category, and the potential proliferation of more kinds of connected devices? Last week in California I asked Phil Lubell, Sony Electronics VP for Digital Reading, how the Sony Daily Reader has been doing since its debut last fall. “The holiday season was a great breakout for the product category in general, and Sony’s e-readers played a big role in that. We saw sales volumes about four times as high as the same period in 2008,” he said.

Is he worried about the iPad’s impact on his opportunity to sell more e-readers? Not in public, at least: “More players in an early market is a good thing. And the biggest obstacle to more sales isn’t competition — it’s content. Availability of content is the most compelling factor in buying one of these devices. The device plays just a part in the overall experience.”

What’s the Sony party line on the multi-media and app-happy iPad versus e-readers, intended to do one thing reasonably well? “You could think of the iPad as the Swiss Army knife of these devices. But we know from some users that they want a single-purpose device. They want these things so they can escape from a lot of other things in their lives for a time. They say, ‘I like how I can’t do anything but read on my e-reader.’ ” Yes, but… the nearest recent model for how that will play out might be the new role of digital cameras, in a world where most consumers have a decent camera function on their mobile phone. Some of us, for many instances, will still prefer a dedicated device for the task. Overall the total market for single-purpose devices will be real — but diminished.

Sony's Dash: a 'personal internet viewer'

On the same trip I met with the always thoughtful Steve Tomlin, founder and CEO of chumby industries*. What’s new at chumby? Actually, what’s new with chumby is what’s new with Sony — the Sony Dash, just released this week. The Dash uses chumby’s media streaming capabilities to offer functionality similar to the chumby, but in a slightly larger form factor with a gorgeous screen big enough to show more than one widget at a time. And I want one. See a video about it on the Sony site here.

What was chumby’s role in the Sony product? “We worked with Sony in the conception of the Dash, as well as the software design and execution. Specifically, chumby industries provided our Flash-based presentation layer for content, along with access to a set of chumby industries’ applications. And we ported to the Dash of a number of other parts of the overall chumby technology platform,” Steve explained.

“The question I ask about things like the iPad is, ‘What is this device to me when I’m not using it?’”, he continued. The iPad is an awesome digital picture frame in passive mode… but I take his point; it could do more, which is where he sees opportunity. “I think the iPad has awakened CE manufacturers, but just a bit. Now there’s a lot of feverish thinking about Android tablets. They’re still in pretty narrow silos.”

And there, precisely, is my big bitch about the beginnings of the connected device explosion — which we predicted in our book ANYWHERE. We appear to be falling victim as an industry to interpolation in our product thinking. And it’s dangerously myopic — both for consumers who’ll struggle to figure out where more of these things fit in their lives, and for the manufacturers, who risk scarce capital on new products with razor-thin margins and fleeting life cycles.

Interpolation means defining a new point somewhere on a line between two endpoints. In the case of connected consumer electronics, product development seems to be following a path defined by this linear interpolation challenge: With the TV at one end of a product spectrum, and the mobile phone at the other end, what are the intermediate points along that line that represent distinct mass-market connected screen product opportunities? The netbook? The tablet? The dedicated e-reader? The ‘personal internet viewer’? Exactly how many viable points can the industry cram onto that line?

That might be one way to ideate new products, but it ain’t the only way. And if we depend on just that approach, we’ll all miss out. Why? Step back and think about time-telling — the technology for which has become as widespread as connected computing technology will soon be. With the town clock tower at one end, and the wristwatch at the other, what are the intermediate points along that line that represent valid mass-market time-telling products? You can easily identify actual product categories that appeared along that spectrum: we created grandfather clocks, mantel clocks, alarm clocks, all of which might suggest that an “interpolation theory” about product conceptualization can fit the facts.

No interpolation of time-telling products would produce this innovation

But what that theory doesn’t account for in the case of time-telling are all the places where time-telling has been added to other products and activities: coffee pots, automobile dashboards, and of course mobile phones… where it is now so central to those devices that my daughter and most of her cohort may never regularly wear a wristwatch, and hotels can stop putting alarm clocks by our beds. In other words, diminishing the opportunity for a single-purpose time-telling device.

If time-telling tech product guys had maintained such a myopic view of their world — wherein everything they made or helped to make had to look, ultimately, like a clock at its core — these would have been missed opportunities in any thought process that capped creation at either end of some two-dimensional line.

Two ways to conceive new connected devices

Instead, diffusion might be the image we need to imagine the true potential breadth of connected consumer electronics products. Pairing the core concept of connectivity with well-known current-day things in our lives as a series of thought experiments might help us define entire new product categories. We could call this approach diffusion pairing.

What do you get when you combine picture-taking with connectivity? A camera that automatically uploads photos to the web. What do you get when you combine microwaving with connectivity? A microwave that reads the UPC tag on packaged foods to ask the network how long to cook them. Presto, a new model of microwave.

No guarantees that these new features, if attractive to consumers, won’t someday become table-stakes, as in my search recently for a new coffee pot. All the candidates came with the nifty timer function to get my java going before I get up in the morning.

But I hope consumer electronics firms leave the linear lemming thinking behind and begin thinking omnidirectionally.

*A note about chumby: My public enthusiasm about the innovative chumby has led to a recurring question which I’ll answer here as well: I have no commercial stake whatsoever in that firm’s success.

On the plus side, it’s all good, because the wireless network operators must commit to M2M. While that industry has been full of dedicated evangelists tirelessly (and correctly) touting the benefits of bringing connectivity to all a business’s assets to reduce labor and latency in its activities, the wireless industry contributed more lip service than actual effort to that vision in the past decade. But just in the last few quarters, M2M suddenly represents a critical solution to a common problem many wireless networks face: continued revenue growth. The explosion of mobile data consumption by smartphones is directly linked to a pricing strategy that doesn’t give them linear growth in revenue from current mobile subscribers. And the flat-lining of the growth in mobile subscribers in maturing markets means trouble ahead, and soon. So: connect not just people, but things, too.

Welcome aboard. As wireless operators get serious about the fact that a greater diversity of connected devices in the world can benefit from their network infrastructure, it will actually help spawn that diversity. The operators create divisions with skilled, committed leaders like AT&T’s Glenn Lurie and Sprint’s Danny Bowman chartered to drive revenue from these new sources. These execs force their firms to create offers that are more appropriate for devices other than phones, and develop partnerships with other tech firms that can add to their networks’ IQ in supporting M2M applications.

But–I see some risks ahead.

The short version of the peril is this: recent conversations I’ve had with a number of wireless networks suggest they are approaching their it’s-2010-now-we’re-serious commitments to M2M with a similar general strategy, in which these dedicated divisions immediately organize their resources and focus by industry. A team to develop, market, and support M2M solutions for transportation, another team to develop, market, and support M2M solutions in healthcare, yet another for the applications in consumer electronics like the Kindle and its e-reader brethren. Their plans look something like this: 

Instant M2M for wireless networks

There’s certainly a logic to this, as well as an elegance. The sense of it stems from the incredible diversity in M2M applications, so much diversity that the term itself is hardly meaningful because it spans such a breadth of activities and technologies. Is reading an e-book on a Sony Daily Reader an M2M application? Is tracking the location of a lost IV pump across a multi-building hospital campus an M2M application? To be able to collect such diversity under one organizational roof at a network, it stands to reason that you’d quickly want to get some focus on the unique challenges in healthcare (including a thicket of regulations, union rules, and extraordinarily sensitive and expensive devices to connect) versus those in consumer electronics (unit scale in the millions, rapid product lifecycles, and virtually zero attention span in end-consumers of those products for any complexity in their connectivity).

And the elegance of the vertical approach to operator M2M strategy is in the very simplicity of the org charts it induces. Want to add another vertical to your burgeoning M2M division? Just add water, plus the requisite number of industry specialist salespeople, system engineers, and third-party partnerships. Presto: the division’s business plan produces another line-item of revenue from a whole new swath of customers. Call Wall Street — this stock is hot.

The problem brewing here, though, is this: It’s too soon for this leap. Even as the M2M industry labored for the past decade to develop technologically and economically viable applications to win its first pioneering Anywhere Enterprises, encouraging other firms eventually to cross that chasm themselves, it’s just too soon to be landing on this cookie-cutter approach at the wireless operators to spawn rapid growth in network revenues from M2M’s maturation.

It’s as if, having just seen the first working internal combustion engines, Ford and his cohorts decide to build a bus factory, a car factory, a boat factory, and an aircraft factory, all in rapid succession. Just add water, and the right engineers to adapt the engine to the type of vehicle it’s going to be inserted into. But the actual technology required decades to mature and spawn appropriate variations to be successfully applied in such a wide variety of products.

And I’ve seen this movie before. The last time I heard network operators talk with enthusiasm about exciting new sources of revenue beyond their mature operations, it was the early days of the consumer love affair with on-line services and the open Internet. AT&T, among others, devised a plan that in Powerpoint form looked eerily like the M2M vertical org charts I’m seeing today. The accompanying script went like this: “We see the on-line world hosting a diversity of consumer activities, from financial services, to travel, to health information, and much more. So we’re going to build an online financial services experience, an on-line health information experience, an on-line travel center, and more. Today, of course, we’re just announcing the on-line travel offering, but we expect to be rolling out these additional verticals at a rate of about one or two per year. And it’s only with the tremendous resources of a global network operator that a firm can imagine the diversified revenue opportunities that will ensue from an expansion of this magnitude…”  OK, maybe those aren’t the exact words I heard in 1996, but it’s pretty damn close.

And we know how that movie ended. AT&T and the other network operators, notwithstanding their size, resources, and diversification imperatives, were ill-positioned to rapidly develop a broad set of vertical silos for new online revenues. For almost too many reasons to count, but several that matter to our M2M thinking today: the network itself wasn’t sufficiently mature, the time required to build out credible offerings was longer than anticipated, and the network’s customers weren’t ready for completely silo’d offerings; they were still exploring in unpredictable and heterogeneous ways.

Let’s take that last point — because it’s the one that is most often cited by the wireless operators today as the very reason they must focus by sector: their customers need it. Do they? Do they need the comfort of talking to a sales exec very knowledgeable about healthcare — or do they need the comfort of talking to a sales exec who is very knowledgeable about how connectivity added to important enterprise assets saves labor expense in a very cost-conscious operation?

At a recent M2M conference hosted by Axeda, a partner to several wireless operators that provides middleware to ease the development of applications across verticals, an exciting variety of businesses gathered to examine why and how to extend connectivity in their enterprises to reach more of their assets and activities.

If the customer-needs-it rationale to vertical operator M2M strategies was correct, you’d have expected to only see healthcare sector attendees in the Abbott Labs presentation, and only financial services sector professionals in the discussion by Diebold of its mission to equip its ATM product family with remote diagnostics. But in talking about the challenges and the solutions they each experienced in adding connectivity to their products, both presenters talked about the same core issues. How to assemble a comprehensive solution from the elements the connectivity sector has on offer today. How not to bite off more than your team can chew. How to measure ROI, what metrics matter. How to deal with the assault of exponentially larger quantities of data coming at them with the remote instrumentation of equipment. And the topic that might have garnered the most energy in both presentations: how to organize internally to win the support of other divisions to expand the activity after the first pilot successes.

The people that swarmed these speakers after their presentations weren’t looking for industry-specific lessons, but advice and insight that span virtually every sector in which I have yet seen M2M concepts successfully applied. The Anywhere evangelists emerging within enterprises today, who must be supported by wireless operators and their partners to drive connectivity further into their organizations for mutual benefit, don’t yet require highly differentiated solutions. There’s a lot of commonality yet to build, and exploit, before the set-’em-up, knock-’em-down approach of vertical M2M strategies at the operators can be wildly effective.

What’s the right wireless operator M2M strategy? That’s something that requires more than a blog posting. But at the very least it’s one that allows the richness and uncertainty in the current M2M space to inform all its industry offerings — one that accretes experiences, solutions, insight, relationships across its early customers before identifying where the real need for specialization comes in their efforts. It might look more like this:

Delaying vertical focus to wireless M2M strategies

The advantages of delaying the specialization of an M2M operation by vertical could included more cross-fertilization by account teams of successful client applications, earlier insights on the additional substrate that the network requires to be valuable across sectors, and lower costs in sales and marketing stemming from a more leveraged investment in M2M offers.

In the end, I want to see the operators’ M2M efforts succeed as much as they do. I just hope I don’t end up seeing a repeat of the Internet silo strategies of the late ’90s.

Yesterday was a big day for the Anywhere Network. Why, you ask? Perhaps you think it’s because U.S. courts may be shortening the FCC’s leash on network neutrality. Reasonable people can disagree, but personally I do believe that the potential threat of the U.S. government creating regulation or legislation to proactively ensure neutrality in the network has supressed near-term network investment. So a fence limiting the FCC’s reach could indeed be a good thing for the network in this part of the world.

Or perhaps you think I’m excited because AT&T announced a $1 billion commitment for network expansion. That’s certainly good — more network capacity is part of our premise around these parts. I love Bob Metcalfe’s term — he says we need ‘squanderable abundance’.

But no, the correct answer is neither. Yesterday was a big day because Yankee Group gets to double down on our focus on the Anywhere Network. OK, so our numbers aren’t as big as AT&T’s. But we’re ramping up our own commitment, to ensure that we’re doing everything we can to understand the nature of the Anywhere Revolution — particularly for those firms with the most immediate threats and opportunities.

Tom Leighton at Akamai told a group here in Boston last week that he expects Internet traffic to grow by over 500 times by 2015.  The story of the network, past and present, really is a numbers game. So we’ll focus on getting to the rest of the numbers behind these issues. The work is underway already; watch this space for our first specific product expansion announcement, coming soon. Following that, we’re working on new offerings related to the emergence of 4G networks and towards better understanding the nature of network user demand.

[These new activities will require an expansion of staffing here; if you know energetic, positive people who are super-smart and could jump into these topics with us, let us know. Some openings are posted already; others to come.]

Want to tell us where we should be aiming? Look for an opportunity to do so on our website shortly; in the meantime, feel free to email me directly or respond to this post.

Onwards and upwards!

That’s the case with my entry today. Back in January I finally had a chance to talk with  someone I’d wanted to interview last year for ANYWHERE, our book on the expansion of global connectivity: Jeff Epstein, the CEO of satellite venture Terrestar. The firm has been on an aggressive timetable towards commercial launch later this year of a combined satellite/mobile communications service in partnership with AT&T.

I know what you’re thinking: the last twenty years of communications has been littered with failed satellite ventures.  I wanted to get Jeff’s thoughts on whether satellite communications might play a bigger role in the expansion of digital connectivity going forward. But just as I was wrapping up the manuscript, he was a little busy… getting their first bird up in the air from French Guyana.

Jeff and I finally talked in January. But I didn’t get my notes organized before the book launch and everything else hit my schedule. Then this week an interesting announcement appeared, mostly about a competitor of Terrestar, that caught my eye and forced me to bring the stalled blog post back up to the top of my to-do list.

So here’s a two-part blog post: first, some of my interview with Jeff in January, and second, some thoughts on the implications of this week’s announcements by competitor SkyTerra.

What’s life been like since your satellite launch last year?

Terrestar's first satellite before launch

You found us at a very interesting time six months ago. We spent many years and millions of dollars to get to that point on July 1, planning to launch the world’s largest communications satellite. We got it launched, which was nerve-wracking…but that really started the most-nerve-wracking  part. Obviously the satellite is an integral part of our offer, but there are many other pieces that have to make all this work. We have been in test mode on numerous events ever since in order to get to commercial readiness later this year.

You’ve since perfected the spectrum, and landed an important partnership with AT&T.

Right. The first piece of our AT&T relationship was for reciprocal roaming – agreeing that our subscribers could roam on their 3G network, and their subs could roam on our satellite network. Then we added a distribution agreement with AT&T, which is extremely significant because it spells out our first customers and the  go-to-market strategy to win them.

We decided with AT&T that we’d phase our acquisition of customers. Our first focus in partnership with them will be on government and small businesses; not consumer-focused just yet. Right now, first quarter, it’s first responders and businesses. We’re calling the converged offering SAM, or “Satellite Augmented Mobility.”  We anticipate we’ll see first customers with AT&T this quarter. We’re making progress on the network integration work — and we also announced our first handset, one that combines satellite and 3G wireless network radios in one unit.

Terrestar's Genus handset

It doesn’t look like a sat phone at all. It looks like a BlackBerry.

Exactly. It means that with one device, a subscriber can have secure coverage anywhere in North America. The phone is unsubsidized; the pricing is $799, plus $24.99 month to add the satellite roaming service, plus 65 cents minute for satellite time and $5/MByte for data.  It will provide a significant cost savings, about a 50% reduction over other satellite solutions. With the lower cost and a competitively sized and featured handset, it’s a big breakthrough.

What’s the biggest reason that your satellite is different from those that have gone — and failed — before?

The big thing that’s different with our initiative is the size and makeup of the devices on the ground. With such a large, powerful satellite as ours, you flip the physics. You don’t need a large user terminal to reach the satellite, since the satellite itself is so powerful: you can have a much, much smaller handset that uses it.  When people think of it now, they think of a guy on a mountaintop holding a suitcase phone. But we are proving with our very first handset that 2-way communications with our satellite doesn’t require a lot of real estate in the access device. And you can dumb that down and make a data-only satellite module that requires less space and power than the handset does. It becomes very small and you can put it anywhere.

So beyond the first applications for what you call satellite-augmented mobility, what else do you think is an opportunity for the satellite?

Given our higher power, and the smaller size and power requirements on the device,  we can do things differently than what’s out there currently. In the machine-to-machine space (M2M), there are a whole host of apps and services that could use the satellite pipe now that the access point can be so lightweight. A lot of players already see satellite as a valuable path for critical communications – it can be redundant, resilient, and still offers them the data speeds they need.

You’ve come along way, but you’re not out of the woods. What remaining challenges are ahead?

We want to see the chipsets that support the satellite band come out in volumes. We’re continuing to work on capital. The major capital intensiveness is behind us; we’ve raised $1.2B already. But it cost us $150M to launch the satellite, and we had to pay to have a second backup satellite as well as part of our license requirements. Those are done, and they are big items that are entry barriers for other companies. Really our costs going forward are chipset development, satellite maintenance, things like that. We have a very lean operation, just 100 employees who are mostly overworked and underpaid. A goal in next month or two is to get some more funding.

What worries you at this stage?

One thing I’ve learned in the satellite industry is that someone else’s anomaly today could be mine tomorrow. Lots of interesting things happen when you put something 22,000 miles up in space.  How do you know, for instance, that an asteroid is not going to hit your satellite? (The simple answer is, space is a very big place.)

For sure, the communications satellite industry doesn’t have the best history. So there are lots of naysayers. Now they’re saying we’ll never get 10,000 subscribers, let alone a million. That’s probably one of my bigger fears.  One of the other things we joke about is, what happens if it takes off? I worry about our QoS [quality of service]: it has to be like cellular.

You could argue that’s a low bar…

Talk a little about the ancillary wireless spectrum you were awarded as part of your license from the FCC.

It’s called ATC — the Ancillary Terrestrial Component.  That’s our land-based wireless license.  We have 20 Mhz of ubiquitous pristine 2.0 Ghz spectrum. Initially our vision was that Terrestar would build the satellite network as well as a companion terrestrial 4G network to go with it. That’s what the ATC award was for. Then the economic crisis hit, making it tough to fund that additional buildout ourselves.  Instead, we secured AT&T as our roaming partner to provide our terrestrial network.

But there is a tremendous opportunity now with the ATC wireless spectrum. In just the past 6 months, existing wireless network constraints and the explosion of mobile data demand mean that existing mobile operators desperately need spectrum in some places. They are in crisis, and they and the FCC are both scrambling to satisfy demand. Written into our license from the FCC  was permission to use the ATC spectrum on the ground if we satisfy certain criteria. We can use our spectrum to satisfy our satellite business, but can also re-use on the ground in other applications.

That’s huge. Could the re-use of the ATC spectrum could be a bigger business for Terrestar than the satellite opportunity?

We have the best of both worlds. The ATC components are extremely valuable. We have perfected the satellite spectrum and we have done what we need to do to keep it. That’s been a very expensive endeavor. The big return for investors may be the ATC piece of it. We can make a business out of it, and we will be looking to monetize that.

————–

Me again. Last week’s announcement by Harbinger Capital, the new owners of Terrestar’s competitor SkyTerra, is a interesting story in the context of Jeff’s comments about Terrestar’s ATC. Harbinger plans to invest their own capital (i.e., that of their investors) in the buildout of a 4G LTE network using SkyTerra’s equivalent companion wireless spectrum. Harbinger is also a part owner of Terrestar as well, and there was some inference that some Terrestar spectrum will be included in this 4G buildout. The idea is to create a wholesale 4G network — one whose capacity could be provide to other operators who need it.

Can Harbinger, or anyone else, raise the enormous capital required for an endeavor of this size? Many of the comments in reaction to the story so far have followed that line of thinking, debating both the amount of capital that would be required ($5 billion? $15 billion) and whether it could be found.  And if Terrestar, with a more contemporary satellite technology than SkyTerra, and just as juicy ground-based wireless spectrum to offer up, has capital challenges, why would Harbinger’s experience be different?

Another way to look at this announcement is that we now have a fourth public commitment to a 4G network in the US: starting with Clearwire launching in 2009, Verizon committed to launching its LTE network beginning in late 2010, AT&T talking 2011/2012. As long as the FCC appears ready to allow this use of the spectrum, and there is any viable possibility that the funds could be found, it will minimally serve to keep Verizon and AT&T on their current pace.

And there’s some evidence to suggest this will in fact do the trick — as one of the immediate reactions of the two largest wireless network operators in the U.S. was to complain to the FCC, since their ability to use that capacity will be constrained to just a fraction of what could be available. Meaning that they can’t count on solving their current capacity problems with someone else’s network than their own.

Score two more points for the evolution of the Anywhere Network — one for the looming potential of truly seamless satellite/mobile integration, and a second for forcing the forward movement of the entire mobile sector towards expanded, IP-based bandwidth.