Last Thursday, Alcatel Lucent was holding its Innovation Days 2008 in Paris. This is, as the name suggests, an annual event which gives Bell Labs the opportunity to present to Alcatel Lucent customers, employees, analysts and the press a set of technologies, applications or service concepts that it thinks are the most promising.

As an analyst, part of your job is to anticipate future trends, but it’s not always easy because few vendors and/or telcos are as open about their own approach to the future as you’d like. To me, this was a nearly unique opportunity (as far as I know, none of Alcatel Lucent’s competitors hold similar events) to actually see and form an opinion on what may shape the telecom landscape of tomorrow.

Over the course of one morning, I was subjected to dozens of demos or concepts, and it was as exciting as it was brain-frying. I’m not going to go through the whole list of them, but just highlight those which I thought were promising, exciting, or thought provoking. The floor was organised in eight sections. Four of these were applications put in a usage context, namely home usage, mobile usage, enterprise usage and green Alcatel Lucent. The other four sections were more “under the hood” approaches to traffic management (control), communications, data speed and quality (bytes) and services.

The environment that I was most interested in was the home, but I didn’t find there an answer (or parts of answers) to my big question which is: which are the services that are going to drive the demand for next-generation access. They did have a 3D TV there, which unfortunately is something I can’t quite enjoy since I only see from one eye. But apart from that the mock home environment was not all that impressive.

On the mobile side though, there was some really cool stuff on display:

• the most impressive and immediately applicable was the Mobile Embedded Laser Video Projector. Bell Labs is not quite there yet, but had a working demo of a projector the size of a mobile phone and showed us how small the laser component to be embedded in a mobile was. Ranked really high on the “I want it now” factor!
• the other really cool app that they had was Tikitag, an RFID system where actions on a PC are associated with a tag. The reader is plugged into your PC and you decide what the PC does when a given tag is passed on the reader. One of the examples shown was how a tag stuck on a teddy bear’s leg would start children music and the tag on the other leg stop it. The tags were everywhere in the floor, for us to request info on a given demo, exchange contacts, etc. This is commercially available already.

In the “Transforming the World” section we saw a couple of really interesting innovations, and perhaps more importantly a concept that Alcatel Lucent wants to supersede “Always On” which is “On When Needed”. Its not the first time I hear about this from a vendor, but that doesn’t make it less crucial. The idea is that the network has to become a lot more elastic, being able to accomodate instand needs of a lot of capacity but also to be able to switch off when not needed. More concrete applications were:

• 3D Heatsinks promise to reduce the energy needed to cool IT components by up to half. When you consider that cooling accounts for 30-50% of energy consumption in IT, the potential impact is huge.
• Bell Labs also works on Wind Powered Basestations. Full independance from the electrical grid is not quite achieved yet, but improvements in wind power efficiency and in energy requirements for base stations make this a promising proposition.

The rest of the floor was devoted to various demos, all very different in nature. Here are three that jumped at me:

• Encrypted Traffic Identification is an interesting alternative to DPI. It uses statistical flow analysis to define a behaviour of a certain type of traffic (P2P, http, voice, etc.) and can identify the nature of a flow with a 2% error without deep packet inspeaction. I think a non-intrusive alternative to DPI is an interesting consideration from a privacy point of view. Of course, if you object to any form of traffic shaping, this is not going to be please you anyway!
• I expected not to be particularly interested in the Personal Content Manager, based on the name alone, but actually I found it one of the more promising services on the floor. I wrote recently about how the trend in telco replication of over the top services baffled me. Personal Content Manager could be a way out of that conundrum: what this does is to aggregate all the content available on all of a user’s content storage areas (whether in the cloud, on the PC or on other connected devices) and make it taggable and searchable. The clever bit is that this aggregation role is actually a lot more legitimate for a telco than for an over the top player…
• I also thought that Contact Me My Way was a really interesting app. Essentially, what it allows a user to do is to embed a clickable communication button in any document online or offline and associate a communication method to it. Say that I give a presentation at a conference and include such a button. I decide that it allows people to call me. When someone clicks on the button, the call is established and I know before I answer that the call was established based on that presentation at that particular conference. And if I don’t want to be bothered anymore, I can just deactivate the button or change the communication method to email. You can find more about this here.

All in all, this was a very interesting event to attend. I also felt that this heralded a change of approach to the market from Alcatel Lucent, another way of engaging their traditional telco customers which, perhaps, is the early result of the new management taking over. Alcatel Lucent is to announce its new strategic plan on Dec. 12th, which will undoubtedly give us a better feel for where they are going!

Spent a day with nice folks at Tekelec the other day.  I know them pretty well so there were no big surprises in terms of product strategy—they are signaling specialists on both the SS7 and IP side of the telco network and they have some ancillary products that build off of that position of strength.  They’ve been excelling in this area for years.   The question that always hounded them was, “what happens to Tekelec once when everything goes IP”??  Theoretically, with the SS7 footprint getting smaller and smaller, companies like Tekelec would be left out of the party without a drastic re-invention.  Its actually not true.

First of all, the idea that signaling issues go away with the introduction of layer 5 IP session control protocols like SIP is a pipe dream.  In fact, they may even be exacerbated given the fragmentation that we’ve witnessed in terms of proprietary SIP extensions softswitch and IMS vendor insist on for a number of reasons.  Tekelec removes all of this pain by sitting in the middle and playing quarterback, i.e. doing all of the necessary session and management control and even better, reducing capex and opex by increasing headroom on deployed equipment.  Check out there SSR product for more detail.

So, what did surprise me?  The discussion with the CFO.  Tekelec has been rewarded for its relevance in the center of the signaling network, or at least they haven’t been decimated like so many others.   Mr. Everett showed a great chart tracking the stock performance of several telco industry bellweathers for the past year including Acme Packet, Alcatel-Lucent, Sonus, Nortel, Ericsson, etc, etc.  TKLC beat them all, albeit with single digit price growth.  But they did GROW.  They’ve also got the type of balance sheet that affords their customers the sense of comfort that they’ll be around for a while.  This is especially important these days.  Lets see if they can keep it up.

Maybe you were a little shocked when you found out that your ISP was trying out some behavioral targeting technology. But more likely than not, your eyes glazed over at the whole discussion of online privacy. Surely, you want your online behavior to be private, but what’s private in this world anyway? And the kids. Yes. The kids. They’re different because of that whole Facebook thing.

So you can imagine the head-scratching that has gone into the online advertising industry’s softest launch so far. A few weeks ago, content delivery network, Akamai, purchased acerno and sneaked in an announcement of their Advertising Decision Solutions group. I don’t quite see how an online shopping network suddenly translates into a behavioral targeting platform, but the gratuitous Flash landing page at acerno.com announces quite subtly that “Akamai Acquires acerno and Gets Into Behavioral Targeting.”

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As I spent much of Boston’s rain soaked weekend inside recuperating from a terrible cold I was able to catch up on some television. After finishing my DVRed content I was forced back to endure the commercial laden landscape of live television. Naturally, most of the content was indistinguishable from the rest but one stood out, the “next phase” of post Jerry Seinfeld Microsoft commercials.

To be honest I wasn’t a fan of the Seinfeld commercials. I appreciated their quirkiness but I felt they failed to connect with the average viewer. One critique I read that rang most true was “If Microsoft is just now connecting with real users, how can their existing software meet the needs of the everyman?” A great point. Even Microsoft recognized this and decided to revamp, which seemed a good sign, but the new commercials fell even flatter.

Beginning with a “PC” from the Apple commercials, the narrator informs the viewer that he is a stereotype of a PC user but as we learn - many other people are PCs too. And this is where the whole campaign concept goes off track.

The problem is - Microsoft isn’t losing consumers to Apple because PC users are being pigeonholed as an unflattering stereotype. Consumers are smarter than that. Microsoft is ceding ground to Apple because Apple focuses exclusively on digital entertainment and Anywhereness, two increasingly important attributes for users.

According to Yankee Group’s Anywhere Segmentation - Actualized Anywheres, the early adopters that influence the mqarket are the prime constituents to be attracted to Apple’s ecosystem. They then pass this newfound behavior on to the masses behind them, which will yield further gains for Apple over the course of years.

The problem for Microsoft isn’t an inability to provide these services, but a failure to stitch together the components into a compelling  message. It’s nary to find an Apple product without an i in front of it, Microsoft has disparate product lines: Live, Xbox, Zune, Windows, Office, Home Server, etc. which fail to translate into an ecosystem.

This isn’t to say that Microsoft is positioned to become the next great digital lifestyle company - more acquisitions will be needed for that to happen. In addition, Microsoft must better leverage the productivity piece as a lifestyle solution, not just an entertainment solution. Not just entertainment or productivity but both.

One failure of Microsoft is different user interfaces and experiences on all its devices while its competitors continue to consolidate experiences to make transitioning from one device to another easier. Microsoft must follow suit.

For Microsoft to effectively compete in the Anywhere world they must find a way to better tie together its product lines, consolidate experiences, and message the ecosystem to the user. Perhaps choosing the Xbox moniker for all its entertainment products would help Microsoft accomplish this. The Xbox Music Player, the Xbox Game Console, the Xbox photo editing quite. OK, maybe Xbox doesn’t work but the concept is an important one. Then use the brand to find hooks into the productivity piece to create a perception seperation between work and play while building a knowledge base that Microsoft can meet all a users needs.

Apple has done an amazing job of creating an ecosystem, and Google is gaining steam as well. Now Microsoft must do the same. Tie together the pieces to help elucidate the image of a Microsoft world. Focus on the choice consumers get by bragging about the hundreds of form factors available. Talk about openness of the platform. Share how all the pieces fit together. But don’t focus on who uses the device. People already know that.

Evolution was a blow to the T. Rex, the dodo and the quagga. It won’t be less painful for traditional telcos.

If new interconnect models play out, nothing less than extinction is the fate of those who can’t or won’t evolve.

Take the GSM Association’s proposed IP Exchange model (IPX). IPX was designed to address technical and commercial needs in all-IP, media rich communications environments.

The specific aim is to secure and monetize multimedia interactions across mobile and fixed networks. Key concepts include a system of cascading payments in the supply chain, transactional transparency, measured QOS and tough service level agreements.

It’s vastly different from the traditional voice model of floating minutes, arbitrage, transit and settlement. In fact, it kills it stone dead.

Does IPX represent creationism - an intelligent design imposed on the market - or a manifestation of natural selection - an inevitable evolutionary step?

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Football, glorious football has once again started and with it comes the cajoling of yet another fantasy season. While fantasy football may on the surface not appear to be particularly Anywhere today’s fantasy football owner has many choices of technology to use to maintain and keep updated on their team.

• The Phone. The most basic of communication tools allows the desperate fantasy owner to call a friend, have them log in and make last minute lineup changes for them.
• The PC. Stat tracking software allows users to keep up to date with real time scoring but demands they be in front of a PC to effectively use it.
• The Handset. Still untapped for mobile applications but data plans and multimedia handsets provide an ad hoc solution for getting updates and making changes.
• The TV. Today, DirecTV and others allows users to track their fantasy players via live updates on the TV.

While much technology is available today, many of the above components are disparate from each other. These various components beg to be converged into more useful applications. In the future layered services will take advantage of distribution, devices, and media to provide an all encompassing experience while providing additional value for the consumer.

The most likely to benefit from such convergence is service providers. Today, DirecTV has exclusive rights to all NFL games (which can be purchased under their Sunday Ticket banner). So, while DirecTV has these rights they have the ability to create a truly converged offering.

Currently fantasy owners you can input their lineup on your STB and get periodic updates. But this isn’t truly sufficient for the rabid fantasy fan. Zealots want to know how they are faring against the competition, they want video, and they want it personalized. Therefore, DirecTV could partner with Yahoo, CBS, or ESPN to provide instant access to your league instead of requiring you to input you team through your STB reflecting lineup changes.

With access to all the games DirecTV could display big plays by your team by directing you to their online Superfan video streaming service, downloading the clip to your DVR, or synching up with a broadband connection to show it directly on your TV. Social networking can also become a component adding value to fantasy owners who all have the same service provider. Utilizing universal search a program guide could find any program being broadcast, on VOD, online, or on your DVR that mentions players on your team (which will require more advanced metadata).

Components of the service could easily be translated to portable devices such as a laptop or a handset (similar to major league baseball’s iPhone application). These services would bring value to bundles beyond one bill by requiring users to sign up for additional services such as broadband or mobile phone service.

Ultimately, this example is simply an indication of the power of converged experiences. Actualized Anywhere’s who crave connectivity and own many devices want a personalized experience that meets their needs. By combining multiple services that each offer a unique value service providers can offer much more and charge a premium for doing so. The future is convergence provided by the uniquitious connectivity of the anywhere network. Even for something as unexpected as fantasy football.

Switching service providers is a hassle. First you have to commit a weekend to watching the backlog of dreadful DVR content that you could not yet bring yourself to watch in six months but cannot forego watching now that your DVR must be returned. Then there is the phone call to your current SP breaking their heart while ignoring their pleas to stay. This is followed by the truck roll and hours long deployment that make you wonder why you did this, and finally the inevitable need to return your old equipment. Good times.

Recently I bit the bullet and switched to FiOS. I was interested in the service ever since seeing their approach to the program guide (dubbed the electronic media guide), their increase of HD offerings (on par with competitors), and the IP connection enabling advanced uses today and others I hope for down the road. And the service has only been out a few years.

Since signing up I have been hard at work to determine what I like best about the service thus far (as well as some of the disappointments which will follow in another blog post next week). Yes, I have finally found how to make watching TV part of my job.

1. Global Search. This is an excellent tool. No longer do I have to search through my DVR, VOD, or guide to find when Law and Order will be on (it turns out it is on every hour of every day on TNT). I simply conduct a search and the results are from all sources. Think how powerful this will be in the future when I sign up for Home Media Manager and have content on PCs which will also appear in the search. Or web video as they are now testing. Global search is much more fascinating than I initially expected it would be.

2. VOD. While the VOD presentation isn’t perfect (I haven’t yet been able to figure out if I can just sort by channel instead of History and World or Pop Culture) it is better than what I have experienced in the past. The side by side navigation in lieu of drilling into menus makes navigating smoother and I find it a bit more intuitive.

3. Home Media Manager. I don’t have this service yet - mostly because you cannot stream HD from the initial STB to another HD-DVR but when they day comes I can shutter my second HD-DVR and my Apple TV I will be a happy man. I think this will be my favorite feature one year from now. As I (and others in my household) amass more content both personally created and profesionally purchased accessing all my content through one interface and via one device will provide tremendous value. Plus being able to watch content recorded one place in another place is a fascinating use case - especially if/when you can move that second location to somewhere beyond the home.

Ultimately, Verizon (and AT&T) has positioned itself for success because FiOS does not exist independent of the home network. Instead the devices and service are a part of the network and as such can bring together otherwise disparate elements. This is evident from Verizon’s decision to support MoCa and its Media Manager product. While we are still at the beginning of this transition of pay TV as a channel to only proprietary content into a channel for all content (including propreiatry broadcast content) companies that understand the need to interface with other devices will be well positioned. As I have written and continue to write in my research - it’s all about the network now. The device is becoming secondary.

Today, these advanced services appeal to techie folks like myself but eventually when it becomes even more simple (and perhaps social networking is factored in - such as automatically providing access to photos of your grandkids that your child who also subscribes to FiOS uploaded via home media manager to your STB) the desire for such services will spread. Those that can enable these services quickly will be well positioned while others will be more challenged to change course. Enough writing - back to my research… watching TV.

As the Olympics Games soldier through their second week, we’ve already heard the complaints about NBC tape-delaying the coverage, ESPN’s aspirations to get the rights for future games and to do the coverage properly, and NBC ad revenues surpassing $1 billion for the 2008 games.

But we continue to miss the point about these modern, digital Olympics — which is how the games play out for the vast majority of viewers. I’m probably not the best example, but I’m willing to bet that I’m not alone in my disappointment in how inaccessible the coverage really is.

No TV

I’ll set the stage by saying that I own a television set, but it isn’t connected to anything such as a pay TV service or even rabbit ears. As a matter of fact, it’s sitting in a closet, unplugged and gathering dust.

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The Pay TV market has never had greater opportunity. Despite the intense competition brought on by new players there are myriad upsell opportunities. Subscribers can opt for DVR, HD-DVR, slow broadband, medium broadband, blazing fast broadband, HDTV, SDTV, Premium channels, VOD, etc. The opportunity increased this week as Cablevision won an important victory and others announced their quarterly earnings.

Earlier this week, Cablevision won its case - effectively arguing that a network DVR is the same as an in-home DVR. A logical argument that made sense to most beyond content owners. The victory for Cablevision could allow pay TV to become more anywhere. When content was locked on a STB it was not accessible on the go (unless you had a Slingbox or perhaps an Archos and Dish PMP). By moving content on to the network it becomes feasible for Cablevision to offer its own SlingBox solution - creating a PC set-top box ensuring security and providing streaming access to a subscriber of their important content - anywhere. Content owners will need to get on board, but this is a first step.

However it is important to note that while an important victory my colleague Vince Vittore has imparted on me the knowledge that a network DVR presents a challenge as much as an opportunity. The load on the network if all subscribers pull streamed content from the head-end a network DVR could be untenable as a solution for the mass market. Instead, focusing the network DVR on SD content to underserved households while more robust offerings still require a STB could mitigate the problem but would also hinder the anywhere opportunities the victory would enable.

DirecTV which has been focused on HD content as its primary differentiator since CES 2007 is reaping more rewards as well. The company was able to increase its ARPU 7% and lower its churn to a multi-year low. These numbers indicate the power of advanced offerings like HD. Consumers are enamored with taking advantage of their CE equipment as much as possible and the HD offerings of DirecTV allow subscribers to do that. Once they make the switch to advanced services it is near impossible to revert. With second HDTV buying picking up look for DirecTV to continue to show strength as subscribers sign up for additional HD service.

Verizon and AT&T also continued to add to their pay TV subscriber base.

The key lesson from the quarter is that the consumer appetite for advanced technology continues to grow. It will start with DVR and HD but will not stop there. As consumers desire more Anywhere behavior companies like Cablevision (and others) with its big victory are poised at the precipice of further growth by enabling subscribers to realize their anywhere desires. The future looks bright for all of pay TV.

It’s ironic. As an analyst you can advocate that certain path must be taken to make a product, technology, or company successful. In the confusing digital world, I have contended that a company offering an ecosystem could ensure consumers about interoperability and thus find success. For a long time Apple seemed to be one of the few companies to adhering to this philosophy (marrying devices, content, and ease of use) - and they were richly rewarded for doing so.

However,  ecosystem development seems to be happening in full force as companies extend beyond their traditional strengths to encroach on new areas. Dell is discussing launching its own entertainment suite while D-Link launched a digital photo frame and Belkin has launched a wireless HDMI technology. As I read these articles I began to wonder what multiple ecosystems would mean to the market. Would they help or hurt it? Would it usher in the connected home or hinder it further? In order to be successful, ecosystems must:

1.  Complement a companies existing strengths. D-Link has strength in home networking. While a digital photo frame does offer connectivity, can the company leverage its reputation as wireless experts to be considered experts in displays? If not how can it present the device as an adjunct to what they do best. Should they instead have focused on another device that would have better leveraged their strength?
2.  Improve upon what exists in the market. The connected home could already be a reality today. However home network speeds, poor user interfaces, draconian DRM rules, expensive devices, and many other factors conspire to thwart mass adoption. Therefore, an ecosystem must eliminate these obstacles or it too will fail.
3.  Offer enhanced connectivity. One reason for an ecosystem is to make interoperability easier but also to offer enhanced usability. A consumer gets no additional benefit when buying a Sony TV and a Sony DVD player, but in the digital world Sony could find ways to enhance the relationship between its connected TVs and connected Blu-ray players.  The ecosystems being developed today fail to offer such a benefit.

Overall, it is important for companies to test the water in new devices if it does not hurt their reputation as leaders in their core competitive areas. Retailers will be challenged to offer the plethora of competing products as categories get stuffed. Having sound retail relationships or a robust web presence will be key to success (aka distribution) as companies expand their product portfolios.

The final thing I wonder as I see Dell releasing quirky colored and shaped desktop PCs amidst the rumors of their grander CE play is - can a company change its reputation? Granted, Dell already has a strong retail/consumer presence but it does not represent entertainment. Will users, often use to seeing Dell as a productivity company be willing to accept it as an entertainment source? Is a sub-brand needed or can Dell find a way to change their reputation? Only time will tell but Dell and others will find out quickly.