Recently in eComm2008 Category

At the start of 2008 I had the pleasure of doing a pre-conference interview with good friend Martin Geddes. We had sat down together for a 15 minute chat. But before we knew it, we had chatted away for over an hour, which we were only forced to terminate only because the batteries of the recorder died. Due to time constraints, only part of the interview was ever published. But since the content quality was so high I put it on my to do list to publish it in full at a later date. I'm glad to say I finally got around to have a new and full transcription done!

(Note: other "Martin media" was his appearance twice on video during the 2008 conference, once for his keynote and once for the wireless innovation panel)

The full audio of the transcript below is also now also available for download here (96kbps, 114meg, MP3).

In the huge transcript below, I've blockquoted Martin to distinguish the pair of us from each other.

So tell me about your Telco 2.0 initiative? What is the Telco 2.0 initiative?

The telecom industry is in a state of flux and it's following a path that other industries have followed in the past. If you look at the physical logistics industry, containership came along and it broke apart the vertical integrated break box system. Instead you got this big steel packet that's been moved around; it became very modular horizontalized industry. The financial services use to be very vertically integrated. The same company that you went to, to go buy a mortgage from, you spent the next twenty years paying that same company and they had a loan on their books. That was it. Now, the moment you've taken out your mortgage, they go and resell that debt on the mortgage market. There are all kinds of specialists who package up and resell it. Telco 2.0 is about moving to a world where vertical integration in the telecommunications industry is coming to an end. You're seeing new industry structures emerge. It's how to remain profitable and alive in that environment.

When you say vertically integrated, my mind instantly jumps to applications. Are you saying that telephony and SMS, these are what I understand to be vertical products, are you meaning by vertical the industry as a whole in some kind of business fashion, or are you meaning applications when you spoke there?

There are many parts of this puzzle. So you are right; there is a question like the macro organization of the industries. Once upon a time AT&T also had Bell Labs. AT&T controlled local and long distance and the technology side.

There's also the vertical integration in what we call the applications stack. Between the application itself, the session control or whatever goes underneath the application to enable it; what pages you have, HTTP; you know they are separate things on the web. Then you have the core transport, the protocols like TCP and IP. Then you have the low level stuff like Ethernet and physical infrastructure. There's a question of integration in that.

There's also a separate question of virtual integration. That was kind of the technology integration. Did the application at the top have to care about what kind of network it was running over?  Is there stuff in the middle hiding that away from it? 

There's also a separate thing which is the commercial integrations. You mentioned telephony and SMS. What's interesting about them is that when you make a phone call or send a text message, it isn't just what goes over some dedicated network specifically for telephony or text messaging. Also, the money flows in the counter direction.

When you send a text message, you go and get charged 10p for sending that message. It's the combination of technical vertical integration and commercial vertical integration that makes different patterns for different types of system for distributing data to users. Let me give you some examples of that.

Take something like a content delivery network that your iTunes, Apple - you want to go and deliver movies over the Internet to end users. The end users will then download it over their standard Internet connection. It's a very low amount of technical integration between the movie and the ISP client. They don't need to know about each other.

But there's a content delivery network somewhere in the middle that Apple is paying that content delivery provider to cache and deliver that movie. So there's money flowing back and forth. It's based on the volume of movies. There's some degree of commercial integration. So you can move the levers back and forth and look at different parts of the puzzle of delivering voice and video and other forms of data. You can get varying degrees of technical and commercial integration.

It seems somewhat complex to say the absolute least. Would you agree with this?

It is complex [laughter], but what's interesting about it is that we currently have this utter total fixation on the broadband ISP product, which is one where the applications have access to no means of transferring money based on who's going to pay for delivering this movie. There's no API for payments to an ISP. I'm happy to go and get the user to download this movie from this website and please, I'll pay for its delivery. Don't count these bytes against the user's monthly usage cap. This is what the application provider would like.

So you've got this total fixation with the broadband ISP product, which has the benefit of separating the applications from their delivery, but also loses in that process the commercial richness of the telephony and the SMS. That's a problem. Although it's complex, the model of different kinds of vertical integration be it technical or commercial, it's very important because the future of the Internet and the future of broadband is largely about putting back into it some of the rich commercial models from other delivery distribution systems like the PSTN fixed telephony system, but without all the technical limitations of old legacy systems.

Surely, if you pay for connectivity, you decide how many Gigs you want, what speed you want, you purchase connectivity as a product, surely it should not be bound in any way to the application. An application you may pay for, you may not pay for, but these are separate things?

There are a number of subtleties to that question. One of which is basic connectivity, what do we really mean?  There are really two parts to that. One of which is getting the pure access part, which is how do I get from my mobile device to the cell tower, or from my device in my home up to the central office?  It's renting that copper pair or that co-axe cable, the fiber that gets me to the place where telco things start to happen.

Then separately from that there's a question of getting the data across the world to where ever it needs to go. What we're seeing is that the access component is relatively steady over time.

Steady in what fashion?

In terms of how people are going to pay for this. Here in the UK, you pay 12 pounds a month to BT for your line rental. That's the access component and separately you pay for an ISP plan; for 17.99 pounds a month you go and get Tesco Broadband [a no frills service]. Now for you the broadband service is at the top.

So, what we're going to see is that the users don't like having to think about how many megabytes and megabits they need. So if you want to go and access the new BBC iPlayer online, and you're on Tesco value broadband, you've only got a one Gigabyte usage limit in the month. The average user is not going to want to start thinking about the bit rate to this streaming video. All they want to know is "Either I'm buying some product, which comes postage and packing included, or it's some ad funded thing from YouTube and Google is paying for the whole delivery of this thing."  What they don't want to do is have to think about megabytes and megabits themselves.

Also, they don't want to have to provision a new set of access every place they go to. So when you go to your parents at Christmas and you spend all Christmas trying to recover from the turkey and pie in the bedroom; to surf the web [laughter] rather than interrupt the relatives, you don't really want all your usage at your parents house to be counted against your parent's ISP plan because they might be on Tesco value broadband and not on the super business class version that you prefer.

So we have to work out how to go and package the access, the data service itself, and the application devices in new and different ways to sell the user exactly the thing they value and no more or no less.

I think one of the best example at the moment is Amazon's Kindle product. You buy this device. It's got EVDO or whatever it is, built in as a network access. It does exactly what it says on the tin; this device will deliver your ebooks. You don't have to think about megabytes and megabits. You don't have to think about where it's provisioned. You don't have to think about hot spots and "Gee, I get the WiFi here and only have cellular there."   It just does it. It's been packaged up perfectly.

So bundling connectivity with a device, a specific device, I can see how it has value. Look at SMS. It's something which is bound to a device and connectivity and it just works. Do you know what the value of the SMS market was last year?

It's about one hundred billion dollars a year.  The figures obviously for 2007 aren't all out yet, but it was pushing one hundred billion dollars, which is bigger than movies and music and the game software industry all put together. There's something special about it, clearly. For the few gigabytes worth of traffic that all the SMS adds up to be, it's a relatively small amount, the users are paying very, very large amounts of money; only if you view that purely from our technical viewpoint. What it's telling us is a couple of things.

One of them is that when you break apart a product into smaller pieces and sell it, by the sachet rather than buy the big bulk bottle, you get much higher margins. When you buy something wholesale, it's generally bought in huge amounts at very low margins. By the time you're selling it in a tiny sachet, the margins go up.

Another thing is that SMS is a distribution system for messages and data. Each of these distribution systems has a large number of attributes, one or two of which are what kind of technical data can it carry and how can you make payments through it? But it has a whole lot of other attributes as well. For example, the difference between SMS and the Internet is that SMS is based on phone numbers; phone numbers are attached to countries. So if you are running the Eurovision song contest and you want people to vote for songs, but they can't vote for the song from their own country, with SMS it's easy to filter out those votes; if Germans vote for the German entries, ignore it.

With Internet you can't, with high certainty, know which country or jurisdiction an IP address is attached to. It's easy to fake it as well. So there is tons of cheating, if you try to do Internet voting for the Eurovision song contest. So it's only by understanding the full suite of attributes that these distribution systems have and their cultural context and their expectations? 

Like Telex, it has particular laws. It has legal force in the way that other forms of communication maybe don't. You have fax and it became a legal form of communication ten or fifteen years ago, even though it existed for longer. You have to look at the whole context of each of these systems.

The clever thing you can do as a telco application provider is to blend together these different systems, to create in effect, new communications media. I think an impressive example at the moment is something like The Sky Anytime box, where it downloads ...

You just mentioned Sky but that is British only?

Sky is a multinational satellite broadcaster but I don't know if this box is available outside of the UK market. This box is their way a telly takes content from the satellite; it caches it on the hard drive inside the box. You can also plug into broadband and download content over broadband. It's a clever little box, they can push down to you what you might want to watch. It merges together broadcast and broadband. Of course, you can have your DVD player underneath the telly as well. There are multiple ways of delivering bits to the user. Sky has blended together the best of several different distribution systems into a new one.

To passive consumers, this is an interactive thing [the Internet]. I am getting slightly scared in case we end up with glorified CD players hanging off the end of networks.

What's the lesson from that Sky example? Or Netflicks. Netflicks is using the Internet as a signalling mechanism and the postal service as the bearer. The postal service is a very efficient way of transferring tens of hundreds of gigabytes worth of data.

I think the important lesson is when you take this to where the cash is; the money is in voice, there's been this fixation with Voice Over IP for a number of years and actually maybe - this is heresy - but maybe the good old-fashioned phone system is really good at transferring voice [laughter]. Time-division multiplexing?  It does constant bit rate voice very well. You have to throw an awful lot of technology at a problem that doesn't exist to try to persuade anyone to move over to Voice Over IP.

Anyone understanding the full context and capabilities of each of these systems should start to think, "Hey, actually maybe what the Internet is good at is allowing new forms of signalling to evolve faster than SS7 or whatever might otherwise allow. Even those things in principle could evolve."

Well it allows niche signalling systems instead some large monolithic controlled block.

Why don't we focus on enabling the IP parts to the thing it does well, which is, "Hey how do we enable the rendezvous in front of this phone call?  How do we send signals and presence data and the picture of where I'm at or vacation information wherever it might be, to help people make phone calls at the right time, is getting it to both of them. " 

Then, stop worrying about trying to do Voice Over IP until the technology is upper duper mature and people decide that we can't possibly afford to maintain two networks, which is quite a long way away still. Let the phone network do what it does well, which is phone calls.

So, for 2008, you're promoting TDM? [laughter]

Oh, yes. [laughter] TDM ... the future is in...

In TDM. We bypassed it and now we realize we should have just stuck on it. [laughter]

Embrace, extend, extinquish - yes - as Bill Gates would tell you.

I cannot help, and there's so many topics you've cast up and so many things I want to ask as usual, but immediately on that point what do you feel will be of BT21CN then?  Because with British Telecom's 21st century network they are going to switch off their TDM in say 2011.

21CN is a really big thing. There are lots of different parts to that project. If we're just focusing on the voice network part itself, I'm not privy to how they start paying their suppliers for the TDM equipment, and what the situation would have been with end of life-ing support for their equipment and the like and spare parts.

Well, BT is on record as saying they're going to be saving one billion a year in OPEX.

So by spending a large number of billions you have CAPEX you get OPEX savings. I am not privy to the figures. But, what I would be tempted to do was look at how long it's been from inception to delivery for 21CN.

How it was sitting now, I went to the BT website and it said 21CN will be turned on at this road in Edinburgh in 2011. It's the beginning of 2008 and in my book, that's an awful long time to be planning a technology project over in this environment.

You could have built a wrapper around the existing voice network, offering web services and other capabilities, and started to enable lots of the quote "advanced services" that the 21CN would offer years earlier if you had wanted to.

Maybe this [BT21CN] is a longer term approach. Maybe it [not doing BT21CN] would have given you incremental services whereas with BT21CN it is going to give you something which is going to be suitable longer term. You can do more with it because it's an entirely new network, a very fast network.

You can see the allure of moving to an all IP network, but you also have to understand the high risk of having any project that has a five to ten year implementation timescales. Because remember that whatever protocol and architecture that you are choosing at the outset might be obsolete by the time you get to the end. Look at SIP, which was the obvious clear winner out of all the IP signal protocols, even that has its problems. It's got it's architectural mistakes.  It's got incompatibilities. It's been an absolute nightmare to get everyone to have the same understanding of what this particular SIP message...

You mean it's not the session initiation protocol, but the subject to interpretation protocol?

Yes, absolutely [laughter]. And as a result, the chances of SIP itself being exposed to the application developer and being in the interoperability layer, probably isn't going to happen.

Then how do you expose it to the application developers?

I think that these things, if not IMS is all about 'they're good at certain things' and you need to understand what they're good at. What is SIP or IMS good at?  Well, it's good at provisioning, doing signalling to say, "Hey, Tom over here has paid a certain amount of money to have a certain kind of traffic be hauled over this network", over some kind of virtual overlay or whatever they are going to do on top of it. It could be a full capacity reserve pipe we're going to pretend runs over this network. Or, it's going to be something that's prioritized; it's going to be best effort or whatever. It's [IMS] good at managing that, provisioning of virtual circuit.

What it isn't necessarily good at is trying to have a common understanding of what some presence message might mean in the future, because it's all contextual to the user. You go on-hook or off-hook even. Even something as trivial as that, having a common understanding of that would be, you might say, if people have speakerphones, or they go three-way calling;  you add these new features in and suddenly what does that old message mean in this new context?  It might not mean the same thing as it used to. Even if technically you get these networks to inter-operate, it doesn't necessarily mean they're inter-operating it in the users mind.

So let the signalling protocols do what they're good at which is help the telco be a logistics provider; a personalized logistics provider for data. That's what telcos are. They haul data around from point 'A' to point 'B', but they do it using a number of means so it could be broadband, could be content delivery network, or edge caching which is where you broadcast something out like Sky, cache it at the edge of the network and then you can redistribute it to other people who on the edge of the network.

You can do this with Sky?

Whether the Sky box has peer-to-peer redistribution, I'll need to go and have a look, but certainly edge caching is a capability that some of these set top boxes have.

What the telco does, just like a logistics provider for atoms blends together rail, sea, land and air transport, telco blends together all these different types of delivery. In voice you have prioritized networks versus best effort versus full circuit switched and packages them up with the application and the device, but it doesn't get involved in the applications themselves.

All they are doing is helping these people get the data from 'A' to 'B', which isn't being just a dumb pipe. It's a lot more complicated than being a dumb pipe. Because you have to slice and dice up that pipe, enable competing and contending uses of the pipe to be prioritized against each other to be able to have much finer grained provisioning of the pipe.

For example, when you're at home and you're accessing your employer's internal sites over VPN, surely your employer should be paying to have all that VPN traffic being hauled. You shouldn't be saying, "Well, I'm paying 20 pounds a month for my broadband. Maybe I'll expense 5 pounds a month to my employer." No, they should be paying for it, even if you haven't got broadband at home at all, as a retail ISP for yourself, you should have to have access to your employer's stuff [via broadband].

Is this not like beginning to say that if you buy a kettle, that somebody else should be paying for the electricity that goes into the kettle and maybe somebody should pay for the electricity going into the washing machine?  Shouldn't connectivity, the ability to haul bits - bandwidth - into the home, shouldn't that be treat just as electricity coming into the home?

It's interesting.

We're falling into the net neutrality thing here.

There are some specific things about the power industry and electricity distribution, which are interesting. This contrasts with the postal system. When you have something delivered over postal system, you can either buy a stamp or you can go and get a prepaid envelope or you can just put it in the postal system and have it run off and not pay postage at all and somebody else then has to go and pay penalty postage at the other end. There are all kinds of different ways of deciding who pays for the thing being posted. It could be the person at either end.

Electricity distribution, a bit like broadband, doesn't offer these different payment mechanisms. There are good reasons for this. It could be tied to technological issues. It could the history of the medium itself. In some ways it could be a good thing that appliance has to account for its own usage.

I'm thinking accounting for CO2 production or something. If some old appliance that you have in the house is rated to use 1kWh a month and suddenly it's using three because its fuse is burning out or something, and de-provisions itself from the network, that would be a good.

But, there are actually good reasons why the power network doesn't have this capability. If you take a slightly different example, like the great blackout in the Northern US a few years ago, that was partly caused because they were trying to move to a more horizontal industry structure. They forgot that power distribution was vertically integrated for a really good reason, which was that no matter what you're abstraction was in terms of energy trading, the reality was that you had currents flowing through wires. When you have too much current going through wire it gets hot and it starts to sag. If it sags too far it touches the wire below and they short out and your power system fails. That's what happened. The power line network literally melted because too much power started to go in the induction loop pattern and it all went wrong.

So, you needed someone end to end to be able to manage the whole vertically integrated distributed system. There are historical reasons, not technical reasons why some of these networks don't develop sort of modular layered interfaces.

Sounds to me like you would like to apply a signalling system to the electrical system, by analogy and have our kettles and so forth signal their usage etcetera, and put toll booths in there.

What we're leaning towards, the whole network neutrality debate. Should your power company be able to say "Well, you're British, you live off tea. Without tea you'd perish. So, we're going to charge you lots of money for kettles. But perhaps this house heating, well the Brits are pretty used to living in the cold and damp. They won't notice much if their houses are still cold and damp. We won't charge them very much for heating the house by electrical power." 

If you only had a choice of one supplier, then that would be a bad thing. Because it would allow them to price discriminate amongst all the different uses you have and basically reclaim all the value of electricity for themselves. In a competitive market, it would be a good thing. Now it seems utterly bizarre to think of having to provision a device before you plug it into the power socket, but if you really wanted to manage your power usage better, or be able to go and compare a Bosch refrigerator. On the refrigerator there's the little EU mandated power efficiency chart. It turns out that basically all the refrigerators in the row all say "A", because in the six years since they started or ten years that they started to scheme, refrigerators have all got much more efficient. They all got to the top of the scale. There's nothing best on list tells me, really. . .

But they may never have got there had they not put this A-to-F label on there...

Imagine for a moment, I could go and buy a refrigerator and it came with twenty years of service and electricity included. I could see the full price, the lifetime price of that appliance there in front of me. I don't need to go and say, "That one is 700 pounds but it uses 22 kWh a year and this one..."  The whole thing would be bundled there in front of me.

It would be a good thing and a bad thing in the white goods appliance market, you could argue. But at least have the option. If the power socket was able to say, "Ah, the power going for this device is provisioned to this other account."

But for that to happen you have to have a very rich wholesale market in electricity for the refrigerator maker, to have a refrigerator work regardless of which power company you happen to have chosen as your retail provider for power, so you'd have to various intermediaries and a new market structure.

So then how do you stop them reclaiming all the value?

As long as there's competition at the retail end, so you have a choice...

But that's a major thing; "as long as there's competition."  Most of my American buddies are claiming there isn't competition, there's a duolopy in the US.

And they are right. There's a duolopy in the US. There are some pros and cons of that model. You ask the people who are in the lucky areas where Verizon FIOS has been deployed because the Verizon model said this is a zip code with a nice high income of people who pay their bills and would quite like to have lots of premium direct TV. Well it works to some degree. But unfortunately I think that it will also greatly inhibit the growth of the necessary economic models that will be needed in the future; particularly growth of rich wholesale markets in access and connectivity.

What will inhibit it?

The vertical industry structure you see in the USA; where AT&T and Verizon and a few other companies, dominate the market and you have very limited retails choice; you have choice of either one or two broadband ISP's.

Now the UK market has a thriving, vibrant wholesale market, France has a thriving wholesale market, as a foundation from which to grow new wholesale products, which would enable new kinds of connected appliance to be offered.

So you go out and you buy the Apple TV box and plug it in, you don't have to think about which broadband plan you're on, is it the right broadband plan and fast enough and enough megabytes and gigabytes per month?  It's Apple and it's the iTunes service that has to worry about getting the content onto the box and paying for it.

As long as you don't have a bottleneck in that little access loop stopping retail competition, then the network neutrality debate, this whole bogeyman is like a shadow on the floor. But, the shadow is actually something you want, which is a rich wholesale market.

The idea that Google will be charged extra for delivering YouTube videos, here's the secret, it's a good thing when Google could offer YouTube videos and you could sit there and watch them all day, every day in standard definition, high definition resolution or whatever you want, and Google is footing the bill for you. Today this isn't the case.

Martin, these things you mentioned in the start, sound to me are a double-edged sword. What could happen, excuse my instant pessimism, is that you'll get the same Google video quality but the telco will charge you 5 pence or 10 cents every time you watch a video.

The worst bogeyman fear with network neutrality is Google charging you; your ISP will be charging you to go into something you value highly. That isn't going to happen, it's not going to happen.

Why are you so sure please?

If there's going to be any charges, the charges are going to be to those upstream parties like Google [as opposed to downstream to the consumer]. It's going to be to the people like Microsoft for delivering your ...

It may just give you what you have today, that is the fear; that's where the anger, the sentiment is, which you may even be detecting from me.

But, it's [network neutrality] trying to treat the symptoms caused by a lack of competition in the access bottleneck. You can't cure cancer by giving people more morphine. It doesn't work that way. It seems to take the pain away, but you'll still die. 

In the US market, you need to understand the infrastructure is not part of the telecom industry, basically. The infrastructure is part of a multi-utility access business. Their job is to synchronize up the replacement of the gas pipe with a length of new fiber; all the replacement of older street lamps and the digging up of the road with deployment of the new fiber down the road and you do drops off the side. It's to take the cost out of the thing.

It's advertised over a twenty, thirty or whatever years. The plastic pipe itself might be there for 100 years. It's financed differently, maybe under different ownership structures that are designed to create open access and neutrality. If you want neutrality, neutrality needs to be a different layer [laughter]. It's not the IP layer. It's not layer three. Neutrality has to happen at layer zero and one. When you've got the rights of way and the conduits and the access ducts and maybe the physical fiber or copper, that's where the neutrality needs to occur. They picked the wrong place to go fight a battle. The good news is that if you started initiating network neutrality legislation, I don't think anyone could actually write anything down that would be meaningful and enforceable. So it's largely hot air.

Network neutrality means to me to sell me something called Internet, let me shunt bits backwards and forwards, and don't discriminate those bits in terms of pricing. Is that not something simple?

Let us understand this right. You'd have broadband service providers, people who are selling access to a broadband pipe, and within that today, most of their money comes from offering the Internet product through ISP. Now, within that product, there's clearly a problem today, which is that some or many users have been misled as to what they're being sold. They've been told unlimited, asterisk. What the asterisk says is not unlimited. They've been told Internet access and in practice they're finding that certain protocols and certain destinations are being throttled. It's the mismatch between what the consumers been told and what the reality is, that's the problem; not that less traffic should have been going on.

The evidence of that is that there are ISP's like PlusNet in the UK, who are brutally honest with their customers. They have whole web pages dedicated to saying, "Here's how we're going about shaping our traffic today."  They publish all their current traffic stats on their website day by day. They tell you when you buy the thing, "Hey, we traffic shape and we love it."

If the user buys it, they have their eyes open. They know what's happening; where is the problem? It's between consenting adults?  The problem occurs, much in the market. People's ISP contracts have this clause that "we can do whatever we like whenever we like without telling you about it."  That's wrong.

There's a consumer protection issue there. That was like Michael Powell's "Fourth Freedom", freedom to know what's in the plan. That isn't currently being enforced. You could call it net neutrality, the neutrality of the network, but can you have a very un-neutral ISP plan if you want to, like PlusNet's. It's absolutely fine as long as the user knows about it; is told about it before they buy it.

What it also ignores is that outside of the ISP product, you look at all the other products that the broadband service provider could be offering, all these other wholesale products to say, "We will give you universal access to all government self-service websites..."

Also, if a doctor goes to any person's house and plugs in a different little modem into the phone socket, they will be provisioned to have broadband access while they're at that patient's house, regardless of whether grandma has actually got broadband herself.

So there could be all kinds of other products and services that the broadband service provider offers, which the neutrality thing is irrelevant to. The government or the National Health Service goes out and buys these business-to-business products. Where's the problem? You have professionals buying off professionals. They should know exactly what they're buying and know how to buy it.

You informed me that you've recently published under STL Partners; - I think is the best place to look for the STL Partners work, am I right there?  You've recently published a future of broadband report?

We've just finished a six month study on the future of broadband, the future business models of broadband. To do that we did an online survey, which over eight-hundred people responded. We've talked to dozens and dozens of people. We did a lot of in-depth research. We have been comparing the broadband industry to other industries like container shipping, and the power distribution industry. We've been trying to learn the lessons, what we can, from these other industries and answer what does it mean for broadband?

Our conclusions are very much what I've been describing, that is, broadband is part of a multi-network, data logistics business. It doesn't exist in isolation. You have to be able blend together multiple different distribution systems. If you're offering an IPTV, for example some kind of enhanced TV service, you ought to have voting. Then that voting might be done by SMS and actually, if in your little set up box you captured a person's mobile phone number, and authenticate it, they may not even necessarily need to send the message directly from their mobile phone. There are all kinds of different ways of blending together these different systems.

Does that not mean that you're saying broadband providers should start going out and buying postal offices and courier vans and jiffy bags?

Yes, it's the digital equivalent to these. What they need to have is they need to get involved in content delivery networks so there is bulk content, that is not time sensitive. It needs to be cached somewhere in the network. Today, companies like Akamai put their caches in a more centralized locations, but you don't find these caches inside of every DSLAM inside every central office. They cache stuff at the edge of the networks, on your PC, in the set up box, in the home hub, and these go on to bridge different systems so it would be able to have BT Vision box where you can take freeview broadcast TV and cache that. You would be able to take broadband and broadcast and these other systems and be able to meld them together into new things.

They also need to deal with we may call the customs aspect of being a logistics provider. So when shipping sea containers around the world, you have these weight bills and manifests and you have to pay customs dues and stuff like that. The digital equivalent of that is being able to deal with authentication and provisioning for all these different networks and connectivity.

Another part of it is you take the postal analogies. You walk to the post office and at the back of the post office are all the counters where you go and post things. But normally, there are racks and racks or wrapping paper and letters and pens and all kinds of other things you need associated to the postal delivery. That's the value of the services. So on top of the basic logistics business, there are a number of value added services.

In the physical world you have insurance as an example of a value added service. In the digital world examples of value added services would be advert insertion, or quick checking;  so the telco knows where you live because they have a copper cable that goes to the front door, they have been receiving payment from you for a certain period and they know if it good debt or bad debt. Recently the biggest credit checking company in the UK is BT; they did more credit checks than anyone else. Yet, if you're running an application over a BT DSL line, you have no means at the moment of interacting with that very private and personal data.

So there are all these value added services - location, presence and other examples where the telco or broadband service provider is a supplier to people who are building these applications at the top of the network. They are doing things which are natural by products of running the network, a logistics business. They're not toll keepers getting in the way of people actually trying to build their application and deliver it. They're suppliers of the things that these people voluntarily draw on and pay for because they add value to their business, not because the telco's getting in the way.

So is it your position on net neutrality that it's a moot point?  Is that my understanding? 

Pretty much yes, because I've never managed to see a really meaningful definition of net neutrality. I've seen lots of high level superficial definitions, but when it comes to applying those ideas in practice, they're far too woolly and vague. It's just a name for a fear, not a name for a viable policy that any one regulation can adopt.

Have any networks ever been neutral? So when you download something over the Internet from Korea, some piece of content you want to download, and you think, "My goodness, it seems to be going down really fast." You download from outer Mongolia, you think, "Gee, it's going down really slowly." That's because of the really big fat pipe that goes to Korea and the really thin pipe that goes into outer Mongolia. That reflects the relative demand for those areas. You could then say, "It doesn't seem very neutral."  We're discriminating against the outer Mongolians. Well what is your the duty?  What is neutral?  What experience is supposed to be neutral that you're delivering to everyone?

If YouTube suddenly explodes in popularity and it is generating tons of transit costs to ISP's, are they suddenly under obligation to maintain a certain ping time and bandwidth through to YouTube when I go to the website?  What is this neutral thing [laughter], tell me?  Do we have to have regulators imbedded every router on the Internet saying, "I'm very sorry, but you can't route that that packet that way. The ping time is too long. It's not neutral." [laughter] The World of Warcraft players won't be happy.

The fear is being very well defined, the net neutrality fear; if you go to a website which isn't on your telco content partners, like their video partner or their news partner, if you go to a news site that isn't on their partner list, you're going to be charged for reading the news on that site. Is this not a well-placed fear?

If you lived in a market where there absolutely no choice as to which ISP you had, or there was very little choice such as the US, I guess it's possible that the Internet super highway man might then come along and rob you of your valuables as you go past and insist on an extra charge to let you pass.

But actually, what we want to see emerge is a rich wholesale market where Google could come along and say, "Hey, you want to watch YouTube or watch YouTube all day in standard or high definition without any charges and you don't have to worry about going over your fair usage limit or your set cap limit. It's all on us [laughter], keep on watching those adverts, keep on clicking on those little contextual ads. Here's the problem. The current ISP model tries to charge everyone the same amount for a very broad spread of actual usage. But you can't remedy that by going back to metered usage because people hate having a clock put on, and they don't understand megabytes and megabits stuff. You can't traffic shape your way around the problem because the users don't really understand advanced network policy enforcement; obviously there are a small segment of users who do. Some gaming users might be more than happy to be on an ISP that tries to prioritize certain real time flows or holds back peer to peer because they want to have priority in the network for the games.

But by and large, none of those things work out. So, the way to solve it is to take the voice and video traffic, take it out of the ISP product but to do it in a way that is beneficial to the user. The user actually wants it to happen. An example would be that you could watch YouTube videos until your eyeballs fall out because you know that it isn't costing you a dime. You can make phone calls from your mobile device to your work colleagues through your exchange server, to your prospective date through and all these separate voice enabled applications just work and it's all charged back to the appropriate person; back to your employer or back to

Net neutrality fear is that a bogeymen will come a long a rob you. But the bogeyman really is just a shadow of something we actually want, which is a rich wholesale market.

You said at the start, that there isn't such a rich market in the United States. So their net neutrality fear is therefore very real then?

It's real in that there is a gap between what's being sold at retail by an ISP and what you're actually getting, that Comcast could suddenly come and decide that "we don't want to have this peer-to-peer traffic even though we sold you Internet access." But the solution to that is to restructure the industry so that users have retail competition. They have lots less people trying to compete for their business and if one of them turns out to be a two-faced liar, then you just don't renew with them, you go with somebody else.

That's not going to happen within the current US industry structure. The consequence is that probably the US will fall behind as an industry leader.

Have you given any consideration to open wirelessm, in the 700 MHz type stuff? 

It's very hard to make a call on some of these things because there are certain benefits to vertical integration. It helps to pull more money into the infrastructure layer. You cross-subsidize infrastructure from your overpriced application services because you can control what runs over the network. The problem is then you end up with a very stagnant set of services in the network because everything is gate-keepered by telco. Telco's idea of progress is not the same as everyone else's idea of progress.

So, superficially, open access is pretty attractive. But, it's really unclear how this tension between the commons of the network and the need for innovation and the need to be able to ration out a fixed amount of space is going be worked out. I'm really keen to see the experiment and I think the experiment should be well-run; there should be enough spectrum given enough open access rules. There are a number of different models, potentially. Something like WiFi, which was a bit of a free for as long as the power levels not too high, some were it's open access bits or wholesale; business to business types of transactions going on.

Lets see the experiment run because I don't think anyone is sufficiently clever to understand all the variables involved and how it will work out. Let's see the experiment run many times over in different places and learn from it. At the moment nobody really knows what the outcome will be.

I noticed that you were the only keynote speaker who still hasn't put a final title on his keynote [for 2008]. You haven't submitted any talk text. What are you going to speak about?  You hinted it was different distribution models?

What we've studying is how telecoms is just one of many distribution systems of data and how telco's can turn themselves into being logistic service providers for data. I've been doing a six month study on that.

I was procrastinating about what to talk about because I've also been thinking about the future of telephony, voice and personal messaging. Another option, which I won't talk about, was just how telephony and phone calls are just one layer in a nice, rich, thick five layer sandwich. The sandwich, the pyramid of these things, goes from the top where you have communities. There are a small number of communities which are made up of relationships, which are people. Below relationships you have conversations going on. You don't talk to someone for twenty years if you really don't have a relationship with them.

Yeah, communications are required to have a relationship, right.

The conversation is made up of things like phone calls. I think below phone calls is an interesting extra layer - rendezvous. Although some phone calls are being used to try and help organize the real phone call. There we find the real conversation. Not all the conversation occurs through telephony. Some of it occurs face to face. Some of it occurs through other media like email.

People are often phoning up to say, "I'll be there in five minutes, I'm just running a little bit late. I'm on the train."  There are all kinds of manual transfers of location and presence data, which are being done through telephony, but they aren't phone conversations in that sense. Today's telephony product is very broken in terms of helping people to meet up at convenient times. If I want a call with you, I can't just send through into your requested call list, like your missed calls on your mobile, "Martin would like to have a call with you. At your convenient time, call Martin back."  If I'm unavailable the message temporarily disappears on your phone. If you're on another call, it doesn't try to invite you to call me at the same time.

There's an opportunity to fix the whole rendezvous process. There's an option to fix the conversational process as well. For example, dictating your name, address and credit card number and security code during a conversation with a call center is very inconvenient and painful, whereas, you'd like to just press "1" to release that information.

I think there's a lot of opportunity in terms of money to be made in fixing the problems of telephony. But, in a fifteen minute keynote you couldn't talk about so much. I think I ought to focus on what the phone company becomes which is the logistics service provider for enabling the transport of personal communications data and generally get out of the way of running the phone business.

But you try to milk the existing phone business for all it's worth and help integrate it with all these other revenue generating businesses like ecommerce or vcommerce.

So, why are you coming to the inaugural Emerging Communications 2008 Conference, eComm, March 12-14, 2008, at the Computer History Museum, Mountain View, California?  Why are you coming along?  Why are you putting your ass on a plane in order to do a long haul flight to go over there?

I'll tell you, it isn't for the frequent flyer miles. It's because there's been quite a lot of talk recently about how VoIP has become boring and dull, there's no money in voice and voice is going to be free. That's rubbish and nonsense. It's a complete misunderstanding of the size of the opportunity and how voice and telephony and personal communications are the anchor in which the whole of the telecommunications industry revolves. Despite the fixation on media and entertainment, which seems to drag people off to false alleys all the time.

There's actually a huge amount of opportunity for telcos to turn themselves into platforms that are suppliers of personalization and rendezvous and authentication and payment, credit checking and all kinds of other data than enable conversations to occur. There would be a lot of money in doing this. It's part of the big picture of being the logistics service provider, which would help actually deliver stuff, but don't get in the way of whatever is in the packet.

It's also to share some ideas that we've had within the Telco 2.0 space and our understanding of two-sided business models and some of the key issues and concepts around that.

Plus, look at the speaker line-up. It's such a concentration of the top people in the industry. It was just irresistible to come.

When you said that voice or VoIP is not exciting, why do you say this?

That's what many of people are saying. I think it's because they've got trapped in the idea that the value is all in the media itself. It's in the Voice Over IP. Actually, the value is somewhere else. The value is in avoiding wasted phone calls, people making phone calls and getting to voice mail when they shouldn't get into voicemail.

They've [VoIP crowd]  focused on competing with the existing telephony system on the thing it does best, which is transferring media and not the things it does really badly, which is location, presence, all these other things.

I think voice is going to be an integral part of almost every online application in the future. There will always be other people to talk to. There will always be support and service to talk to. It's a massive opportunity.

Are you saying that voice will become an adjunct to other things of value?

Yes, but it will be done different ways. Not everything will be synchronise voice. There will be a lot more voice messaging going on. People want personal touch. They want to have a sense of the other person they are communicating with, because they hear their voice. But, people won't always necessarily want to have synchronise voice.

But today's voice mail, which is completely disjoined from all the other online activities you engage in, isn't the answer. If I want to send you a voice message without your phone ringing, and do it with and instant online application, how do I set it up so that it delivers at the right time?  If you are off on holiday half way around the world, it doesn't arrive at 3:00 a.m. and wake you up saying, "Beep, beep", and you open your phone, when it's not something urgent. 

I think voice will be a story of the evolution of the web in the next ten years. It probably isn't so much around semantic web all this other geek-friendly stuff. It's around the touchy-feely side of how do you label relationships, conversations, and human touch?  There ought to be a lot more of a woman's touch around some of these conferences; understanding the less logistic side of communications.

When you spoke of that pyramid with communications at the top, actually communities at the top, and relationships underneath and communications underneath that; can you relate that pyramid to social networking sites and telecommunications companies?

Social networking sites are the top three layers of the pyramid then there are communities, they are formed of relationships, and then there are conversations. You can find people, get model groups of people and you can send messages to people.

Phone companies are the bottom three layers of the pyramid, which overlap. They enable conversations. They enable calls, and they enable rendezvous. The rendezvous is that you're setting up a mutually convenient time. I text message you and say, "Call me when you're ready."  It's part of enabling the rendezvous.

These two people over lap, but they aren't necessarily conflicts. So should Facebook spend lots of money enabling voice in their applications? No because we already have mobile phones and desk phones and voice capabilities. The PC is a terrible telephone. Why make it into a telephone?  It's not. So how do you capture someone's mobile number or some other identifier for them and integrate their mobile voicemail with the Facebook voice messaging?  That's the problem it's going to solve.

How do you enable someone to make a phone call within Facebook to somebody else in a way that they can see that the other person is available and wants to talk at the moment and is in a certain context and location?

So in summary where do you see the opportunity in voice?

There is a number of parts. One of which is simply enabling new forms of minutes; new applications which will carry voice and don't necessarily do it using phone numbers or traditional means of telephony. Another one we might call vcommerce which is all the ways consumers interact with enterprises; so it's communications enabling business processes like delivering a parcel to your house and making sure the guy only comes when you are home. Some of it is around vcommerce type activities where you register your credit card number with your phone company or bank details and when you interact with the call center, there is non of this "Habla espanol?"  They know I speak English. It's in my telephony profile.

There is plenty money in enabling these experiences, there is plenty money in eliminating the waste in today's telephony.  Every time I spend minutes looking up someone's number, dialing them and finding it's voice mail, a minute of my time is worth more than the ten pence it cost me to make that call. Actually, a minute of my time, during the day, at billable rates is a lot more than the 10 pence call. If you can save me wasting that minute, trying to phone someone who isn't there, that's worth a lot more than the phone call is worth.

It seems that many people are still living off the ten-year old VoIP as an exciting thing when we don't care so much about the cost per minute of your call anymore, especially with a crash of TDM prices. You seem to be saying let's stop worrying or thinking it's an evolution to try and drive cost of calls down. The electrical path, the physical connectivity costs are nothing. It's really the cost at the social level. The cost of human time and attention seems to be where you're saying the cost is. This is where communications must aim at solving these wastages of human time and attention?

the rendezvous layer, the driver has been the increasing cost of human labor and time, compared to the cost of the phone call. Above the phone call layer, there is the conversation layer. It's mostly enabling better conversations between users and merchants.

I like this very much. You're saying it's not five nines of reliability that matter, unless you're calling emergency services. When you call to say, "I'm at the supermarket; do you want ketchup," you don't really care about five-nines of circuits, I assume is what you're saying?  What you care about is five-nines of successful communications, which mean you don't want to wake your baby up when you call about ketchup. Is this what you're saying?

Yes, at the moment my kids are off with my in-laws. They're two hours ahead of us. I'm not quite sure exactly when the kids are having their afternoon nap. They might still be on British time or on Eastern European time. The last thing I want to do is phone up my wife on the mobile when she's just trying to put one of the kids down to bed for their afternoon nap. What I do want to do is ask her to call me at some point in next half hour because I'm free now. I don't send a text message because that will make the phone go "beep, beep" and will suddenly make the child who is trying to fall asleep go, "What was that noise?" 

So I want better telephony. I want the phone company to help me realize that. To let me have spy holes as to what's going on at the other end of this line, before I press the green button, to make a phone call.

What is the opportunity space?  Is this a large financial opportunity space that you see?

Yes - have I modeled exactly how you do it?  If I had worked out exactly how to make money from it, I wouldn't tell you [laughter]. I'm pretty sure that there is a lot of money in it. Because everyone has been looking under the wrong stone for the last ten years. They've all been looking at how do we arbitrage the metered-minute model. It's just irrelevant. Almost all of the voice 2.0 start-up companies have been centered around this, with a few notable exceptions. It's the exceptions that are the ones that are going to be the seeds in the new business model of save users time, give them convenience.

Who do you think is best leveraged to seize these opportunities, this new land-grab?  Do you think it's the likes of Google or do you feel telcos also are going to play a major role in achieving this land-grab of the financial opportunity space?

A few telcos that open up in terms of application platforms will be successful. They'll be successful because they've turned themselves into logistic service providers for everyone else, not because they can stand in the way [laughter] of people delivering applications they want to deliver. I don't think we've really seen yet, the new raft of communications companies of the future. There are a few I've seen that I've been impressed with, like VoiceSage, who help enable communication business processes, how to integrate telco capabilities with general business processes.

But for the most part, I think these companies have yet to come into existence. The current social networking sites are based around entrapment of the users and trying to capture their personal data, resell it, and do it in the ways that I don't think users will allow them to monetize, ultimately. I think we're still in the early phase.

Social change requires a user attitude change. The Internet mass-market phenomenon is twelve years old, thirteen years old. Despite all the hype, it's still early days. Things don't actually change that fast. People's behavious don't change that fast. I think we've yet to really see the communications companies of the future, but hey come to eComm to start finding them. 

On that note, and especially as you're looking so tired, after sitting here for an hour and a half, chatting with myself, which we all very much appreciate. It's always a nice time to speak with you, Martin. I very much look forward, and I'm sure other people do also, to the half an hour keynote at eComm. I very much look forward to seeing you in Mountain View, California, Martin. Thank you very much for your time.

Thank you, Lee.

(Martin is also on schedule for the 2009 event to give a keynote entitled 'Where is the Money in Voice 2.0?')

  • Speaker: Anders Carlius (TerraNet)
  • Materials: Slides

A high definition version is available here
Those reading via an RSS reader may need to open up the post in a browser to see the embedded video.

  • Speaker: Norman Lewis (Wireless Grids Corporation)
  • Materials: Slides

A high definition version will be made available; when available it will be announced on the blog and in the monthly newsletter.

Those reading via an RSS reader may need to open up the post in a browser to see the embedded video.

Last month at the inaugural eComm we decided not to print a programme guide but instead to issue a PDF on a freebie USB keyring. The welcome note read:

We're honored that you joined us at for the first eComm conference. In doing so you've joined history in the making.

This community finds itself --quite suddenly-- in a new world of more open opportunity. Open handsets, open networks and open telecom platforms lend themselves to innovation in the worlds garages and bedrooms. And the signs are promising. Within the last 12 months many important events have occurred. First Apple released the iPhone, a phone running their computer operating system; a high school kid then spent the summer cracking the platform, hacking iPhones went critical, and finally Apple itself was forced to "blink", resulting with the release of an SDK. The FCC stated that the next big block of spectrum would only be auctioned to an open network and Google announced first that it was willing to spend billions to create universal access through wireless spectrum. Then Google announced Android, a new open phone operating system; T-Mobile and Sprint joined the Open Handset Alliance; and even Verizon and AT&T made PR releases about becoming open networks.

We believe a new era requires a new kind of conference. Previous industry talking to the industry type events have yielded nothing save consensual hallucinations. The gap between what telecom operators are doing (or allowing) and what the innovation community COULD do, and where end users are taking us is widening fast.

Communications innovation is being democratized. The winners will be those who embrace it. So welcome to eComm 2008. Let's all create an Emerging Communications Community capable of rethinking the trillion dollar industry together!

Lee Dryburgh
Founder, eComm Media

  • Speaker: Shai Berger (Fonolo)
  • Materials: Slides

A high definition version will be made available; when available it will be announced on the blog and in the monthly newsletter.

  • Moderator: Brough Turner (NMS Communications)
  • Panelists (in left to right order): Martin Geddes (STL Partners), Stanley Chia (Vodafone), Sumit Agarwal, (Google), Jonathan Christensen (Skype), Christopher Allen (, Benoit Schillings, (Trolltech/Nokia)

A high definition version will be made available; when available it will be announced on the blog and in the monthly newsletter.

Chair:   The next person on is Michael Bauwens of peer-to-peer fame. Somebody who I really made a personal invite to come over here. As I said, he lives in the "Hills of Thailand". Is that correct? So it was quite an expedition to come over. So, please welcome Michael Bauwens of the Peer-to-Peer Foundation. Thank you, Michael.

Michel:   Thank you. The slide that you see there is basically an overview of what we cover. As you will see, I am not sure you can read it but the green things are the deep changes that we are going through today. You will see that there are changes in ways of knowing, there are the changes in the way you are feeling. I just read a book about young generations in Dutch which says that said sharing is a default mentality amongst the digital natives [the book is called the 'Einstein Generation']. This is one example of how the value systems are changing. Actually, what I want to talk about today is really the changes that are taking place when there is a new mode of production emerging in our society. Basically, what I am saying is that there is a new way of producing value which I call peer production. It is basically the self-aggregation of people through social relationships. If you are familiar with Benkler's book, The Wealth of Networks, you will know what I am talking about.   

I was just talking about a friend I met in the Amsterdam called James Burke. He is with a project called Roomware. This is just a bunch of young people. When they go to a party, they basically want to point their mobile phone and share music and pictures during the party using a randomizer so that everybody can share in the fun and share in constructing the party. There are thousands of projects of young people doing things, inventing things, having social innovation that is happening outside of the boundaries of the corporations. I can guarantee you that this group of young people will be faster with their innovation than 200 paid engineers in Philips. This kind of dynamic is something that we are seeing more and more.

Basically, we are inventing new ways of doing things. What I want to focus on really is on the business models that are involved. I talked for about five minutes briefly yesterday, I think. I said I believe in something called the law of asymmetrical  competition. Basically, what it says is that when a company producing a closed proprietary knowledge refuses any participation from its users and does not create any common value, when it is facing a for-benefit institution like the Mozilla Foundation or the Wikimedia Foundation which is linked to a community producing common value like the Wikipedia or the Linux, that eventually, there will always be a point where that community will make a better product than the corporation.   

If you derive from that the second law which is, two for-profit companies competing with each other with one opening up to participation using open licenses and producing some form of common value, it will be more competitive than the company not doing it. If you believe that is true, then what you get is a little bit of what you see on this slide which is that basically we are moving to an economy where I think, in the United States, only 23% of the people are involved in material production and producing material stuff, so we are clearly the dominant on the immaterial field. If in this immaterial field the place of for benefit production is augmenting, then we can see a good case for growth of peer production.   

Most people think that peer production will be limited to knowledge production to content to free software. But, basically, I think that is a mistake because everything that needs to be produced physically needs to be designed first. Designing a car is essentially not so different from collaborating on free software. One of the pages, if you go to, is called P2P design. It is basically about open design for physical production.   

For example, let us talk about the car. Most people probably know the Oscar Project which, I think is not going well. Last year in Amsterdam, there was an open-sourced car concept model shown at the automobile exhibition, called the Common. One of my associates talked with those people and they said they were very close to negotiating a deal for the production of their design and that they expected production to take place in 2011.   

The thing about peer production is that, as a company, and I can say that as I've have been an entrepreneur for 20 years and I was a strategy director in a large telco, you always innovate relatively, to be better as the competition but, if you do that as a community, let us say the Firefox community, you are always innovating for absolute quality. You want to make the best possible browser. Instead of a product which you freeze at some point, especially if you have no competition, you have a permanent process of innovation. That means that whenever you have an open design community starting a process, and it can take 5,10, or maybe 15 years but, there will always be a point where the open source fridge that they produce will be better, more environmental friendly, more modular, more longer lasting than any design that can be produced by a private company.   

This is a slide that tries to explain the business model. We can do two things. We can define open and closed as a proprietary format, and we can define free and paid. That gives you four quadrants which you can see there. Basically, what everybody knows here is the paid and closed, right? You make something, you have a patent or copyright on it, and then you sell it. This is the classic business model. This is the one that is most on the mind by contemporary developments. In the age where information, knowledge can be copied infinitely at a very low marginal cost, it will be increasingly difficult to protect that information, to protect your designs, to protect your patents. We can see that with free software. We can see that with music, whether they use the law or technology as the DRM, it will be increasingly difficult to stop the undermining of proprietary knowledge.   

Think about the middle ages. Some of the first inventors of the textile machine were killed. But, it was inevitable. Eventually, the textile machinery became an important model because it was more efficient and more productive. Basically, this model is facing two main competitors. The one is closed and free. That is what the book of Chris Anderson is about. It just came out. I have not read it yet. But basically, whenever you are dealing with knowledge, you are competing with somebody. If that other party decides to give its primary commodity to knowledge for free, they will undermine your proprietary  business model. What you do then is you are forced to free up your primary commodity and build a portfolio of secondary services around it. That is something very familiar in the publishing field and in the media field.   

The other competition that you will face is people using open proprietary codes. The same effect is actually free if you like. Free as in free speech and also free as in free beer. These people, of course as the Linux model, will build secondary practices around the free open content. The third one, but it is also competing with you, is the totally open and free alternatives. Think about Some people call it the adventure economy. Couch surfing, I do not know if you have kids who use it, is basically a way to find lodging in the whole world. You want to go to Chiang Mai, if you type it in, you will find about 20 people offering free lodging. You can read their reputation. You can write to them and ask them if you can have lodging and they will look at your reputation. All of this process is entirely without money. It is an exchange. It is a civil exchange of value by civil society which is of course also, in some sectors, counting as a competing modality.   

Basically, if you look at this model, what I am saying is the upper right quadrant is what we have now the most precarious in the future. We will have to look this as a business, the two on the upper left and down right, if you want to make a business. I also make a difference, which I explained very shortly yesterday, and I want to explain it again in a little more detail now. There are three major economic streams that are coming out of peer production and the first is a sharing economy. Look at YouTube. Look at Google. Those companies are no longer producing value by themselves. What they are doing is enabling and empowering sharing to occur, sharing documents in case of Google, and sharing videos in case of YouTube. The motivational people writing documents that you can find in Google, 98% of the documents on Google are not institutional documents. They are written by civil society,a very large percentage of users generate  the content. Most of these people are not doing it for sale. They are producing not for the exchange value. They are producing use value. The model of the sharing economy is that of third party propriety platforms enabling the sharing and lifting of the tension.   

Second example of a business model is a commons model, whereby a community-driven process is creating value, the common value. Think about Wikipedia and Linux as the main examples. Around that, is created  an ecology of businesses adding value. The reason behind that is you cannot sell abundance. The market is about tension between supply and demand. Therefore, if you have something which you can copy for free, it is not going to create the market. But, it is creating a vast opportunity to create added value around the commons. The model we have in the commons economy is not a double model between community and company. It is a triple model.    We have on the one hand the community mostly self-managing it's production of value. We have a new set of institutions which I call for-benefit institutions. Think about the WikiMedia Foundation, the Apache Foundation, Etc., the Mozilla Foundation. These are not for-profit companies. As you see, for example, Wikipedia could make billions of dollars selling advertisements. They are not going to do it. It is not in their interest. Craig's List refuses advertising. The Mozilla Foundation is the same but it is a little different. The Mozilla Foundation makes money by selling the space to Google search, which funds their for benefit infrastructure. Basically, the community of producers at large is not in there for profit. So, we have three players. We have the community. We have the for-benefit institution managing the infrastructure. And, we have ecology of businesses around it.   

I think the key problem for business is how we manage openness and closedness. The basic idea here is that openness creates value but it does not capture it. In order to have market value, you need to capture some form of added value of scarce value. That is the whole thing. You can see that in the competition between MySpace and FaceBook. When MySpace got taken over by Murdoch, whole new kind of measures were introduced to stop the sharing on MySpace and you saw that the growth curve was diminishing. When FaceBook opened up, you saw the fantastic growth of FaceBook happening. Apple, the epitome of the closed company, under pressure of the hacking community, is opening up partially its development to API's. That is the kind of tension that every company is going to face.   

Another problem is what do you do with the dynamic of the community? Profit sharing usually does not work. If the community is there, from a wide variety of motivations and not primarily for profit motivation, paying some people and not others, usually creates what we call crowding out. In other words, if I see that you are getting money for voluntary effort and I am not getting money, then I stop volunteering. Most companies, and I think I mentioned that, like IBM when I spoke with somebody at the company they told me they saved 90% of the software infrastructure costs using Linux. 10% of that savings are sent back to the Linux community but not as profit sharing, as benefit sharing. In other words, it is a general support for the infrastructure of sharing in the commons rather than sharing money with individuals. That preserves the voluntary dynamic in the community.   

This is happening more and more. For example, when I say that peer production is also very important for physical production, I would say two things. One thing is that, typically, you would say capitalism is about entrepreneurship. But, capitalism and entrepreneurship are diverging more and more. The example you could use is the BitTorrent. Bram Cohen had no money. He used a series of credit cards and he produced the most important, most valuable software that we use today for multimedia distribution on the Internet. So what happens, and we can see that in the Web 2.0, is that you do not need capital to start because that is a design process. It is just brains working together with other brains. Capital only comes in, not in the beginning but, at the end. It is when you have success. It is when the users are breaking down your servers, that you need capital. More and more we see entrepreneurs that are creating value by self-aggregating capital.   

I actually already said that. This is a business model. This is another important element. This is the kind of modeling that is done by a man called Xavier Comtesse. He is Swiss. He shows that the evolution is from a corporation towards increased participation. You have passive consumption and you go self-service or do-it-yourself. Co-design up to co-creation. Something is missing there. Basically, what I think is missing is the power of the community. So what I am proposing is to enrich his model by a model of community involvement. What you see there, and I will not have time to go into it but, there is a whole variety of new business models that are emerging not on the side of the polarity of the institution, but on the polarity of the community. It is very important because I think that this is what the new business models are about.   

Classic business is about, I am an institution or corporation, I see atomized individuals organized as a 'mass', and I would practice mass marketing to sell to those consumers. I think the new model is recognizing that the users and consumers are always already connected in various peer groups that they are doing all kinds of self-aggregated activities and value production amongst themselves. Therefore, I will position myself on the side of these communities and see what they need.   

For example, in China, we have these group-buying companies that are very powerful there. As far as I understand it, they are not going to a company and ask what they are selling and then looking for consumers. But, what they are doing is they change the polarity around. They are talking to the consumers and saying "what do you need?" then, with that knowledge, they go negotiate with companies and asking them for discounts for the community. Basically, the model I think will be a model whereby a tribal economy is emerging, whereby businesses are emerging that know from inside-out the needs of a particular community and that creates services around that.    I just want to say a little about the relation between peer-to-peer and the market. It is a pretty clear that peer production can only exist when there is a surplus and abundance in the existing world. In other words, peer-to-peer is depending on the market. There is no doubt about it. But on the other hand, the market is increasingly depending on peer-to-peer or on peer production. Remember, you are all in this business. I had a web company in 2000. The crisis happened. Everybody was saying it is the end of the Internet. There will be no more innovation for a few years. What happened? The opposite, the innovation did not stop without the companies but it increased and it accelerated. That shows that, actually, the results are reversed.   

In other words, innovation is more and more social. It is an emerging property of the network. This is a form of innovation which is more and more prevalent that it is the communites, the exchanges and the sharing within communities that lead to innovation, which are then captured. In the book from Eric Von Hippel, The Democratization of Innovation, he mentions Gatorade, the sports bra, the mountain bike. He describes the sports industry, kite surfing, as all industries where the community lead user innovation is primary and captured by commercial companies after the fact.   

We have dialectic between both. I think there is a problem, which I call the crisis of value which is a following. We are producing more and more use value as communities and as citizens. But, only a marginal part of that use value is captured by monetization. If I had a slide for that, I wouldshow the following. The growth of use value on YouTube is 100 million per day, growing exponentially. But, the growth of the advertising is like this, growing only linearly, and the gap between the creation of use value and the monetization of it is increasing every day. More and more young people choose for passionate production. If you talk to young people, which I regularly do when I go to Amsterdam, "yes, they work." They work for Microsoft, they work for different companies. But, what they really want to do is have a meaningful activity.   

They usually work around projects. In between projects, they want to do their passionate production. This is increasingly so. They define their identity through their engagements in their common projects. They do not say "I work for Microsoft." They say "I work on RoomWare" which is the free software project they are working on. I think this creates a precarity in our society. A precariousness because we do not have a mechanism for funding this common value production even though the market increasingly profits from it. This creates a serious problem.       

In Europe, we have a partial answer for that which is what we call transitional labor market theory. Basically, what we are doing in Europe is creating all kinds of mechanisms that make it easier for people to transit from job to job. Because now, by the time you are 35, you have I think 13 jobs in average. They are trying to smooth out the transitions. What I am saying is that it is actually between the transitions that we are most productive. It is in between the jobs that we actually do the most innovative work.   

I said we are talking about conflicts. So this is a slide I did not produce it. I have the source of it on my slide show. Basically, this shows a new dynamic which is exists between communities and institutions. Again, they are different in YouTube, for example, in the sharing communities where the people who share on YouTube are individual-oriented. They want to share their creative expression. They do not have strong links with each other and, therefore, they are depending on a third party. That does not mean they have no power because the power eventually is the power to leave. And the companies are struggling between the openness that creates value and the closing down that captures the value. But if they close down too much, the user community will be tempted to change and to opt out. We either have a user revolt, which we had in Digg, FaceBook, or we have what we call a forking which is a departure of the user population from that particular site to another one.   

There is a price to pay, however, since people invest in this social network, they put their pictures there and their friends. So, if you are really invested in YouTube or any other social network site, you have a price to pay. This creates a particular social tension between community and corporation. We could call the class struggle of the knowledge society. There are differential interests there. The community wants total openness. We want the social graph. We want to be able to own our identity, to control it, to control our privacy, to move from one network to another. The problem for a company is that if they allow total openness, they are afraid that they lose the control over the scarcity and cannot have a business model because, of course, if you open up totally, then any other competitor can take that value and market it as well. This is a difficult tension that we have in this sharing economy.   

An answer, and this is something that we are working on with the P2P Foundation, is that some people within the sharing community will take a commons-oriented approach and actually produce their own infrastructures. One of the things we do is we monitor all of the communities which decide, for example, "Why do we not make our own video sharing communities and why instead of a centralized server part, why do we not use a distributed even server-less system?" because, basically, what creates the need for proprietary  platforms and the need for capital is the fact that you need a centralized service.   

Can we design around that and actually create true peer-to-peer infrastructures that do not need propriety or platforms? It really depends on each case that we are working on. Most people, if they are happy with a proprietary platform, will not want to make the effort to create an alternative. Basically, this new situation, this new dynamic, creates all kinds of social tensions around different things like who owns the platform, how open and free is it, how much sharing is possible? This is an important issue. Where is the power in a distributed network? In other words, you cannot see it. But, it is usually in the invisible architectures. Why can we not remix in YouTube? It is in the design. Therefore, it is very important to have value-conscious design where the value's diversity and autonomy are actually included in the design itself.   

Another example is ownership of the content. I am not sure it is still that way, but it used to be when you entered your video on YouTube you basically signed away all your rights. I think they have changed it somehow, but I am not sure about the details. This is a kind of recurring problem that when you enter a proprietary site, you lose your rights to your content. Revenue sharing is another issue. How do you solve that? It is not easy. For example, YouTube made 2 billion dollars. It did not give any money back to the millions of people who have created the value. As I said, profit sharing is, obviously, not the good solution because that might actually harm the sharing that takes place. So, how do that?   

I am not sure how much time I still have, but I will conclude with a more political statement which is the following: there is undoubtedly, not just the business aspect of peer-to-peer, but also a political aspect. Here is my five cents worth  of analysis of what is wrong with the world, it is very simple. We have a world today which combines the worst of both worlds. We live in pseudo-abundance, false abundance. We think that we have infinite nature. Therefore, we have an infinite growth machine functioning within a finite environment. I personally do not think that will last very long.   

The second thing we do is we think we need to create artificial scarcities in the immaterial world so that we can create a market in it. Basically, the proposition, of course is just to turn that around. Let us have an economy which recognizes natural limits and let us have an immaterial field of sharing in culture and knowledge where the natural flow, the infinite flow, and the infinite replicability of information and culture are recognized. This political aspect is not my invention.   

If you would look at, we basically recognize three emerging paradigms, three emerging social movements in the world. They are growing everywhere, from spirituality to business to politics and to the following: open and free. It is easy to explain because if you want to peer-produce, if you want to create value through self-aggregation, through sharing and cooperation, what do you need? You need raw material. If that raw material is not open and free, you cannot work together. This creates, in almost every field, free software, open source, open access publishing, open education text books, open reiki, open yoga, open [inaudible]. It creates a wide variety of social initiatives in every field, stressing the need for open and free raw material. The second aspect is participation, which is basically "how can we design social systems?" And the third one would have been commons-oriented output. That is it.   

Chair:    I really want to ask you some questions. I will probably need to limit myself to one because that is just so incredibly important and needs so much reflection. Can you relate what you said to the telecom's industry? I know it is an exceptionally hard question. I believe you can do it.

Michel:    Actually, Lee asked me some questions about the telecom. I used to be the e-business strategy manager or Belgacom five years ago. I told him that I was no longer the expert he thought I was. But, my answer would be the following: the basic problem is about abundance and scarcity. You cannot have a market when you have abundance, therefore, the telcos will never build fiber because they can make money only once while they are building it. Once you have it, there is such an overflow and such an abundance that you cannot market it after that. I think one of the answers I gave you is you cannot absolutely expect the telcos to ever build a fiber infrastructure. They will never do it. It is just totally counter the institutional and commercial interest that they have.   

So how do you do that? I think Brough Turner, I am not sure I pronounced the name right, gave kind of an answer to that. We have three models of production now. It is very important to know that. We have the private way, companies building and selling. We have the public way, centralized planning, public provisioning. But, we also have the direct social aggregation, the peer production, way. The wireless commons is an example of civil society taking up itself the task of building bottom-up through distributed capital this kind of task.

Chair:   We need to do lunch tomorrow. Please thank Michael Bauwens.
Transcript below from Mark's keynote at the inagural eComm 2008. The corresponding slides can be found here.

Chair:   We are now moving off the lightning talks and we're moving to a 20-minute key note. We are moving to a trio of talks based around design. We have Frog Design, we have Bug Labs, we have Yuvee and we have Mark Rolston, who is the Chief Creative Officer of the legendary Frog Design. And I think that Mark is going to be speaking about what problems that we are here to solve, what the value proposition is for consumers and what the drivers are. So please welcome Mark.

Mark Rolston:
   Thank you. So, I think that I am going to slow things down a little bit at least. I got 20 minutes to burn here and I probably do not have 20 minutes material. [Laughing]  I was telling Lee [Dryburgh] I feel like a little bit like a fish out of water with some of these topics [previous talks]. What I bring is more of a message from a user experience perspective in a little less industry specific look at things. But perhaps that's something important today.

First of all, rule of thumb in what I have to say. Change is inevitable and it is an important idea to us and that is the business we are in. We are either an enabler, a catalyst or at times, a provocateur on this basic idea with industries. The two important parts of this idea are changed in what largely I hear everyone talking about today is in terms of making things better. But there is another kind of change which is different. I want to talk a little bit about that. And the way to frame that story up a little bit is to first talk about maybe the life of the product or "it". This is the singularity that I am referring to. And this mental model that is so critical in a product's success and the life span of a product.

So, if we start in the beginning of a product's life, there are some sort of inspiration. Something gets it going. It comes from nothing and becomes something. We are not sure what it is, what is "it."  I want to dwell on this word "it" because I think that that is a critical idea in the minds of consumers.

A new model emerges when we have that. We may not know quite what it is at that point. The author of that may give it a name but the public does not know quite what to think about it. And over time, it becomes "it", a way that a single word might express the common understanding of what this thing is in an industry. Even then, it may undergo some evolution. It may change course. It may actually bifurcate. It may become multiple things. And even better, it may come in collision with another market with its own perception of what it is. What is interesting about that is quite often, more often than not, this product in many of these industries, I am going to come around with this industry, is still beholden to that original mental model, that original "it."  The way the world thinks of it and it ends up being a box. It ends up of being a limiting conceptual boundary for what it is. So change becomes beholden to this singularity. Almost likely, the astrophysical phenomenon, it is sucking in every attempt to escape out of that reality.

I will give you an example. I will try to be a little bit more concrete here. The car. Do not take me to task for the genealogy here. I took some exceptions. But the automobile, it starts with a basic model hundred years ago or more than that. Even through all of the innovation, what we call innovation with the automobile, it still is basically, even with a number of iterations, and this is just one manufacturer,  the number of iterations that we have created still basically is the same thing. The way we buy it, the way we use it, the value proposition and the way that people understand this product is still the same thing. So, that leaves me to this industry. Sublime statement here. We unfortunately, are trying to apply that kind of thinking to a model like this.

I want to introduce this idea and where this might be going. We have the telephone. I am going to focus on the handset itself. I know that a lot of folks have been talking about the services behind it but I want to talk about what the users gets and the way they focus their attention on what "it" is. And, that is often through the device that they hold in their hands. The physical and functional expressive reality and not all of the business behind that.

That telephone, while simple in its initial incarnation is actually beholden to a lot of functions. We sort of plugged in all these different things; all of a sudden "it" is now challenged by a lot of different players and a lot of different mental models. Those things are born out of other realities or other sources for what these mental models, you might say interface, the market approach, the technical realities, the boundaries. Just the thinking that defines these products. And all of the sudden, the phone is incredibly challenged. And those things all come from different corners of the world that you might say. And again, you could look at these six ways to a hundred but hopefully this gets the basic idea across.

In the end with this happening, the phone ceases to be a phone. It ceases to be the "it" that it was originally born with. Why is that?  What we are facing here is that software is allowing for the product's ever shifting identity. That original product, the thing that we hold becomes almost a non-object to this dynamic reality that sits within that. It is almost just like a hole in the world, a portal that allows something dynamic to come through. "It" can essentially be anything you want it to be. And that, in a way that we normally think about products is really challenging. We want to design something with a sort of singular identity where everybody says that this is what it is supposed to be and what happens when "it" becomes some anything that you want it to be?

So, we move from a literal, from a design perspective, from a product creation challenge. Something where the form, and function, the story is easy to tell, it is literal. You can almost look at something as an alien from another planet and over some exercise,grok what it was suppose to be doing for that culture, for those people, to a more abstract relationship between form and function.

The physical object of course looses its functional identity. What it is instead, as I said is a portal. The physical object does not become meaningless, it takes on new roles. Here, it is fashion and it is self-identity. Like what people have been talking about portals, this physical object becomes another part of my outfit or my dress but it is not what it was. In that, it was at one point an expressive way of identifying what it does. At this point, it is not, it is instead something that is just part of my outfit. What it does is a dynamic reality beneath that. So, what are the drivers of this change?  Technology easily,democratization of these tools, these types of platforms allow folks like us in a direct idea relationship and folks like you to move more quickly from idea to execution for the concept itself is that much closer to the execution. And therefore, the opportunity to make a radical change to escape that sort of singularity is much easier.

The ecosystem is driving that. In other words, a product does not exist in isolation anymore. We have a lot of discussions about this today. This I think is one of the most fascinating things and as a design consultancy, one of the most difficult aspects. There is less and less opportunity to create that sort of singular statement that almost a mixture of political, emotional, fashion statement in this one gesture. Folks, we have been around since 1969 and we very practiced to that. But the new reality in making products is a much more systemic challenge.

Form and input, I think that for whatever reason, there has been a culmination of these radical ideas that for many years just floated around in Power Points in the back rooms of large companies and small. They were tossed around inside the design firms but they never went anywhere. But one or two products managed to escape and that leads to the next two points.

Competitive landscape, just at the time that that was hitting critical mass, you have some players getting weaker and some new players are entering the market namely this one.

This is a shot of the opening sales day in New York for the iPhone. And when customers demonstrate a willingness to accept these new models in the industry dog piles, then you have this opportunity to truly move from the current model or the current singularity to something new. And that is the opportunity in front of us. "It" is changing. "It" is becoming something else. This industry has an opportunity to seize that moment and to define something new.

Chair:   Any questions?

  So, when you are looking something like the iPhone which has grown tremendously, what is "it"? What do you see the "it" is?

Mark Rolston:   I think that if we over simply the story, it is the new computer, you might say. "The PC is dead, long live the PC" or you could throw in "The phone is dead, long live the phone."  But the two were colliding. Apple's essentially, if you watched to SDK release last week, they essentially pulled - some of our folks inside called the Windows '95 moment. They unified this development platform, they have opened it up and I think that the iPhone, you are going to quickly see, is going to move away from being phone to being sort of ubiquitous, mobile portal into your life. Telephony may actually be a very minor feature in sort of the net use that occurs on the phone. I might even say that it might even end up sub 10% if you measure across the customers. They are going to be doing everything that they do on PCs today. And what has been so beautiful about the PC is that it is agnostic. It does not give a crap on what you do with it. You do what you want to do on that. An invention, a need and even random or just whimsical desire can be expressed on that device and there is no business model to get in the way. And I think that the iPhone just jumped into that pond and we are going to see a lot of interesting invention.

Chair:   Mark, were you here when I opened up today?

Mark Rolston:   No.

Chair:   Because, you have actually echoed what I said about the telephone is dead. You have echoed many things. So that was cool. Can you comment on Android?  Any general comments on Android?

Mark Rolston:   Android takes what one company is doing as a provocateur and makes it wide. Android is the antidote of what Apple has presented. Apple is going to go off and do that on their own but the whole world cannot get behind that model. The last time that they did that, we had Microsoft becoming a giant gorilla and Apple actually I think will be a lot less friendly as a Gorilla than even Microsoft. And so, I think that Android is a fantastic antidote to end up. We are actually doing a lot of development with android so we are incredibly behind it.

To add, what is really fascinating about that and I cannot name people, but a lot of players who have no business in this industry, they are not about communications and not about telephony but they are just about consumer features and consumer products in a broad sense are using that and some normalization of platforms to jump in and make products that are going to fly right in the face of people like Samsung, Motorola and the carriers. It is a fantastic time. You are going to see that real soon.

Chair:   So, it means that the phone is no longer a phone and the television is no longer a television. That is just a terrible battle. We talk about convergence but that is where we do not know what the damn thing is or what it wants to be because it can be potentially everything and voice becomes secondary anyway.

It is a computer, the iPhone anyway. So we are still calling a phone. Do you think that in twenty years time we will be talking about telephones?

Mark Rolston:
   We might use the word but the word would have ceased to become what it meant. We may use it just to describe it in its form factor.

Chair:   What if you spend most of your time shopping on or looking up information and the only place of telephony...
Mark Rolston:   Again, the word becomes sort of a meaningless carrier to that. We may come up with another word. That actually is a brand challenge and that the [inaudible] to how that is accepted. I do not think that it is something you plan on or can talk about with any accuracy. It is like fashion.

Audience:   A question from the back since you are talking about fashion. We are still talking about "it," right?  There is just this thing that I have got in my pocket or the guy  [James Body] has got and all these things that he is going to security with.

What do you see as the future of wearable computers and everyone's got this bluetooth thing. When are we going to become borgs to some extent because everyone got this little bluetooth devices in their pockets. It seems to me that people at some point are going to stop wanting to carry these things and just wear clothing or something that even more of a statement, I guess.

Mark Rolston:
   I think that is easily true. But that is far enough out there. That would be a talk with the futurist rather than a designer and I am what you call a near futurist, you might say. So, I am focused on what we can actually accomplish within a reasonable amount of time. I think absolutely that a lot of sociological change has to happen. We still identify with a point of contact even with devices just like with humans. So holding something in our hands, is very meaningful even if its meaning that I try to imply is actually being driven by lots of outside forces and outside systems. There is an infliction point there, that singularity that we like to have in our hands and we will define as a single thing even though it represents many things.

Audience:   I am from UK and the average number of mobile devices and subscriptions per person is 1.6. That is an interesting number because it is going up. And I think that in Italy, the number I think is above 2. Most people I see with iPhones have at least one other phone as well. And I am so quite interested in what you are thinking about. The fact that people will have multiple devices, in my belief is because they are cheap, they are differentiated and so you might have an iPhone but you will have a phone as well perhaps.

Mark Rolston:   Sure, I think that two ways to answer that is, one, iPhone is a baby. It is not what it will become and I am not here to defend the iPhone. I think that the point is that looking at the phone as just phone is what is about to change or what is about to blow up. So people may own multiples but each of those may represent different modulations of that dynamic reality. That sort of hole and space that is possible or they may actually intentionally from a fashionable perspective and I say fashion in a broad way, narrow their functionality. If you look at what Apple did with the iPod, sorry about that Apple again example, but they narrowed the offering there to tell a simpler story. And that in essence is sort of a fashionable way of addressing the product's identity. It is not a technically bound thing or it is not a market thing but it is the way of crystallizing the value that they want to define in that product. And I think that people having multiple handsets is a similar type of phenomenon.

Audience:   I guess the question over here to your left. Could Nokia pull this off?  Nokia having 40% of whatever or the market.

Mark Rolston:   Nokia certainly could pull it off. But I think Nokia with their platforms is a little too subscribed to an agnostic take on value. And, that is not how you give birth to a market that is how you follow-up. And so, the market is too young right now and what you need is a lot of high value and highly contextual applications that say, "This is the way to go" and what I have seen so far in the touch platform that they are developing and the existing platform is that the experience is shabby. It is kind of cobbled together and the market is growing out of that. It looks like the technology underneath and it should not. This is too late for that. Those things will be challenged.

The agnosticism is a great growth stage but you cannot end up there so Nokia needs to grow out of that. I think that they have the capacity to but they are also slaved to the success of that early platform. All the developers are going to bitch and whine if they try and move the direction that I am suggesting.

Microsoft faces that, right?  That many PC platforms, that many variations of the PC, that many application developers, it is hard for Microsoft to make a bold escape from their own destiny. Nokia is a smaller version of that, easily.

Chair:   Thank you very much Mark.

Introduction: Hello and Welcome - Transcript

| | Comments (0) | TrackBacks (0)
In the transcript of Jonathan's talk which was put up yesterday, Jonathan made reference to my introduction twice. Now that two people have asked what I said, I thought for the sake of transparency I'd put up a transcript.

My introduction was written in the car on the way to the venue that morning (only a four mile trip) so it is far from polished, but the gist is certainly correct.

   Good Morning and Welcome. I am glad that so many of you could all make it. It seems we have a full house. Which is not a bad start to a new event.

It's a special day. It's a day when a line is put in the sand. And we say. We've had enough. We've had enough lack of innovation.

The telecom innovation space has been stagnant for at least a decade and the opportunities during this time have grown so great, that we need forum, a community.

What we want to do is to gather like-minded people. People who are interested in enabling, expanding, and pushing forwards innovation around the field of communications.

We've already had the VoIP revolution. It's done, now it is time to move on. VoIP brought us the tools to democratize voice. But it is only that - a tool. Alone it is neither profitable nor exciting. And don't take my words for it; look at how consumer traction has been so poor. And that is for a reason - quite simply it does not meet any new user needs.

We need to build something far more changing - Something further reaching - Something far more transformative.

The telephone itself is dead long term. What replaces it - is a device -  which combines content, information access, entertainment, ecommerce as well as ever expanding modalities of communications. Voice probably takes a secondary position in that multi-modality suite. So we are talking about a device which is clearly not a phone.

I'm not sure of what words we will use to describe this new platform. I've got a non-sexy description, that I use - a "relationship lifecycle management" device. I don't think marketing will like that. Relationships going forwards become the number one foci. You can kind of see it this way - the WWW has been about connecting pages. The future is in connecting people, not pages.

So I repeat the telephone is dead. That was a hard wired application. It makes no sense today. It's very primitive, distractive, cumbersome. Rather the replacement is something that understands your social life. It looks out for your best interests. But that is a long term vision. A socially aware, small form factor (or wearable) piece of networked computing equipment - which is used to discover, search, share and transact across the planes of what we now call information, content, ecommerce and communications.

I said what we call now - because they will become so fused, that it gets hard to distinguish one from the other. When information, content, ecommerce and communications fuse on the device, we are in a new world, entirely. It's exceptionally exciting and there is so much opportunity there.

But we're not there yet. The last 12 months have shown promising direction though. The iPhone was released and it was tightly locked. But a high school kid spent the summer cracking it. Hacking iPhones went critical and Apple was forced to open it up and release an SDK. We're talking about a phone that runs a computer operating system.

The FCC stated that the next block of radio spectrum would only be allocated to an open network. Google announced first that it was willing to spend billions towards such open spectrum. And we're talking about a search company.

Google also released Android, a new open mobile phone operating system. Another 30+ companies joined the Open Handset Alliance including T-Mobile and Sprint. Even Verizon, and AT&T made PR noise about becoming open networks.

So quite clearly the landscape is shifting. The power of innovation is shifting towards the edges. Operators are loosing control of innovation. Their centralised model does not work any longer. What they need to do is to facilitate edge innovation. To build winning ecosystems around it.

This conference, has gathered those interested in innovating around communications. We want to move it out of the stagnant space and we want to prosper from the opportunities.

On that note, I wish to introduce my co-chair, Dr Norman Lewis who was the former Director of Technology Research for Orange-France Telecom until 2007. He is now the Chief Strategic Officer of a new startup, called Wireless Grids Corporation.

eComm2008_Norman_Lewis2.jpgNorman:   Good morning everybody and a very warm welcome. Thank you Lee. I'm not going to take a lot of time, I just wanted to make one simple point and it is this. I thought this morning when I got up why go to another bloody conference?

There are so many of these damn things and we all traipse around the world. I think the reason why we are here is because of who is here. It's not just the speakers it's the audience.

What I am interested in during the next three days is networking with all of you. To really talk about innovation, about how we can take this enormous opportunity that we have in front of us, how we can translate this into real new applications, products, businesses, entrepreneurship, Etc.

I think that is what this conference is about. It's about really making a difference in the real world, really seeing the opportunities, exploring the opportunities that now exist in how we can reinvent voice, how we can reinvent telephony  and communications.

If that is your objective I think it will be a very productive three days.

I am not going to say anymore. You will hear more from me later today and throughout the rest of the conference. Very welcome, hope you enjoy it, thankyou.

Transcript below from Jonathan's opening keynote at the inagural eComm 2008. The corresponding slides can be found here. As a side note the complete comference video and audio is pretty much ready to go but a few minor niggles are holding it up.

Chair:    We are going to start this conference with Jonathan Christensen who is the general manager of audio and video at Skype. Jonathan is going to kindly warm this conference up by speaking about the history of IP communications over the past 10 years. So, I would like you to welcome Jonathan please.


Jonathan:    Thank you. So, I am going to try and give the 30-minute version of his 15-minute intro. I am Jonathan and I have been with Skype for about 2 years. I lead up our audio-video research and development that is spread across a couple of continents and a lot of time zones. I'm building world class software that we hope for next generation communications. I am just going to give a little bit of an overview to talk about the last 10 years from my perspective. The things that I have seen, the major inflection points in Voice over IP and then hopefully try to move in to the "what's next?" stuff'.

A lot of people get credit for the first VoIP instance. But I think that around the industry, most people give credit to VocalTec and their Internet phone for being the first usable network-based Voice over IP client and this was a desktop phenomenon. Then came a lot of people rushing into the market once the concept was proven, to build gateways. And, we are going to talk about these in a little bit. Then, there were some carriers that came along and they established the gateways and POPs and they connected it to the PSTN and they created a market for moving VoIP minutes around.

And along with that, there are a bunch of other lower level innovations that started happening. Companies like Global IP Sound building next generation Codecs that were Internet aware that offered wide band and that did interesting things like that, sort of changing the nature of the communications a little bit.

And some use cases started to gell, first there was this PC to PC, this kind of the ham radio users. Jeff Pulver, a name that is sort of synonymous with Voice over IP and the whole VoIP revolution was a ham radio operator in his youth. He clung on to this idea when he first saw it and he saw that there was something really interesting here.

The next use case that really drove the early days of VoIP was tandem trunking. I would go into some detail about tandem trunking and what is interesting and what is not so interesting about it.

Along with that a couple of mainstream apps emerged, you had Netmeeting from Microsoft - how many people in the audience ever used Netmeeting? How many people in the audience have ever used Skype? Well, Netmeeting was first introduced in the late 90's. It went through three revs and it was last updated in 1999. I was involved in that work at Microsoft. Amazingly, that application is still widely deployed and used especially inside large organizations today without a single update to the basic application in almost a decade.

The other use case that started to emerge was two-staged dialing. This is a notion that you call a number, usually an 800 number, you enter a pin and it gives you access to the network to make cheap calls. Most of that was built on top of VoIP infrastructure because at the middle of the call, we could use as tandem trunking and you could avoid a bunch of the cost. So how this worked in the early days is, if you are on the West Coast here and you wanted to make a call to the East Coast, your call would be connected to a class 5 switch or line side switch and that call would be routed to a tandem switch - and this is an over simplification of course - and the call would go over TDM, a traditional network to another tandem switch to class 5 switch and the phone on the East Coast would ring.

VoIP tandem switching replaced that center part with VoIP gateways. And the interesting thing about this is that it really was the death of physical distance. But much more than that, it became the death of the business model behind distance. You have some bandwidth efficency and that was kind of interesting. The local exchange carrier could avoid the LD carriers along haul lines and that was kind of interesting. The incumbent long distance player could then avoid the termination fees at the LEC because the call did not arrive over long distance or telephony service but it arrived over an information service that was unregulated and this is a sort of regulatory trick. And what we really saw was a whole era of arbitrage and many would say inferior service.

Suddenly, you are transcoding or re-encoding using the network that maybe was not suited for real time communications and all sorts of things like that. Vagarious of the network that were introducing inferior qualities.

Most of the time, these offerings were offered under alternative brands. Some of the big guys did not want to marginalize their brand. You could hear a pin drop or their brand had been around for a couple of decades and in some cases, 100 years. And, they did not want that to be associated with these services so they came up with wacky names and wacky marketing schemes and prepaid calling cards and what not. So, those services were marginally interesting if you were trying to save money and if you are a college kid or that kind of thing.

So moving on, the introduction of consumer VoIP really happened when Jeff Pulver and some other industry luminaries started getting together and thinking about what they could do here. In the early inspirations this "minex" thing that Jeff got together was the idea that minutes were commodities and they could be traded. He was a trader at Cantor Fitzgerald early in his career. He thought, "Hey! There is something here that we could build this trading desk for these minutes and we could get something going there." He met Jeffrey Citron in that process and he was also toying with a thing called Free World Dial-up. How many people are familiar with Free World Dial-up? Pretty much, that is remarkable. I was a user. I had a one-port gateway installed and people made calls over my Seattle local line and those calls were flat rate billed. So I did not get billed for them and other people out of LATA [Local Access and Transport Area] got free calls on my infrastructure. It is a pretty interesting little application but did not really scale. It was hard to set up and what not.

The Komodo was an interesting device, the first little ATA that enabled this Free World Dialup scenario. Jan Fandriato built this little company and I like to joke that it turned any perfectly good analog phone into an inferior IP handset. Cisco acquired Komodo and really did a lot to validate the market. Suddenly, people were like, "What just happened?" Out of this mix, out of this soup, Vonage was born and the Voice over Broadband revolution began.

Vonage really set the early pace. They had lots and lots of cash, they were extremely aggressive and they went to market direct to the consumer. The long distance players entered to get into local service markets with unregulated services. We saw offerings like this cropping up. And then the MSO's, the cable companies responded. Generally, all of the people who entered into this arena were the people who did not have anything to lose. They did not have something to cannibalize.

So what did we get out of all this? Well, we got these attractive pricing plans I guess, these bundles, great savings - maybe I am not sure. New features, well you have call log, voice mail and a whole bunch of stuff that I think does not have much to do with the fact that it was Voice over IP. And many of these features existed before these services were launched. Still, it is a question like, what really happened here? My hypothesis is that for and as Lee [Dryburgh] said, it is a sort of foregone conclusion that the phone is dead. This is another foot in the grave, another beginning to the end. So the incumbents of course come in and they matched the prices and they start up a price war and they do that on TDM and some mash up with some web stuff if you want it. The landline telephony game becomes cheap, boring, stagnant and at the same time losing the mobile.

A couple of years ago I called my mom. She has had the same phone number since I was little kid. I got the recording, "This phone has been disconnected." And I thought, "What happened?" We have had this phone number since I was a little kid. So I wrote her an email and she responded and said, "What do I need that for? The only phone I use anymore is my mobile phone." When your mom moves into that segment, things are changing for sure. I think that that is a good sign that the commoditization of that market is total and complete at this point. And I think that the other thing to look at is, where is the next wave of innovation is going to come from?

I will go into some more of that but one of the interesting things that came out of this, it was not really by design, was VoIP export networks that started to crop up. People would order a couple of Vonage sets or choose your provider. And they would put one in a box and they would send it overseas and those two sets would be set up with the same numbers. So suddenly, you have phones ringing in India on a Silicon Valley number, right? And, they could call their relatives and create these ad hoc networks within a community and essentially export the numbers.

This is important because this is really one of the final nails in the death of distance, right? Not only does it destroy distance with the Internet being the pipe that is carrying this traffic but it also totally fragments the numbers. The numbering plans have really been used by the operators to discriminate both on price, politically and geo-physically. All of those things are just part of the old world and the numbering plan is a big part of keeping it all together. This again is further deteriorating the traditional voice business.

In 2003, I was leaving Microsoft, I was standing on a piece of land in California that I was thinking about moving to and I got a call from Jeff Pulver. I had called him in a beautiful sunny afternoon. I totally remember it. And he said, "Hello Jonathan. What is up?" This is like June of 2003. I said, "Jeff, we have to build a client that is super lightweight and simple and just works. It gets over the NAT traversal issues. It just works. People can just download this thing and make it work." And Jeff said, "Well you know, Free World Dialup works and the clients are getting better all the time and there are third party providers who are billions." I said, "Jeff, Jeff, Jeff, look, it is way too hard to use. We just need to build the client that works."

A few weeks later, a friend of mine, Allan Duric who was working at Global IP Sound at that time got me an early beta account, pre-release account of Skype and the lights went on. And that was in the summer of 2003. By Fall VON, there were 500,000 registrations. I was in Boston and everybody was talking about Skype. And most people were pretty angry about it especially the "SIP die-hards". Skype had made some early noise about, "Oh well, we do not use SIP because we do not need to and that really ticked off people who have been working in this space for a while.

Let us switch gears a little bit and talk about IM as the foundation of this next wave. In 1999, I was in Helsinki or Stockholm or some place like that, I was working for Microsoft at the time, I was on the MSN network and I was talking to a customer on the East Coast and one of our support people in Redmond. I was chatting. It was the middle of the night and we are having this three-way conversation on multi-chat. And just at that moment, it dawned on me that aside from being funny, I Am therefore IP, IM is the run away next generation signaling infrastructure. We were all talking at that time about what is the next signaling infrastructure. Is it AIN [Advanced Intelligent Network]? From my job perspective at the time, how is Microsoft going to participate in that next generation? What are the softswitch guys are doing so on and so forth? But here, I was having a conversation with people all around the globe. I was having that through NATs and firewalls and it worked. I was having it in real time and it was widely deployed already.

At the intersection of VoIP and IM in 2003, Skype appeared. And adding to that voice and visual sharing and rich communications, pictures, all of the other things - web links all of the other things that you want to share in a real time session is really the foundation for next generation rich communications.

How did this all come together? Well, in the summer of 2003, the solution was really 99% complete. And I think that this is why people at the Fall VON show were upset when there was so much overwhelming hype about the introduction of Skype. Because they were all saying, "Hey Vocal Tech did this years ago and we have chat in our IM client and so on and so forth. There was a robust audio stack, multi-media PC's were well-penetrated, broadband penetration was on the rise and by that point, well penetrated enough around the world to be a platform for this.

The P2P file sharing network had introduced new paradigms for low cost infrastructure. The NAT traversal techniques were well-known at that point. Maybe not deployed, but well-known. For example, in most of the voice chat scenarios of the incumbent IM players, voice chat failed 30-40-50-60% of the time if there was a NAT in the picture. And so, people did not use it, right? If it fails 2% at the time, you are not going to try it again.

The IM networks were well deployed for sure. All that Skype did was that they closed the loop. They added the other 2% at the top and they made this thing work. One simple little application, good formula, the users really liked it as I said; the industry was sort of confounded and by fall of 2003, there were 500,000 downloads and this thing was on an incredible trajectory.

Today, 276 million registered users, 30 million of which were in the last quarter of 2007. We have global appeal in reach, reliable PSTN interconnect. We have lots and lots of devices supported. Things like PSP's and N800's and cordless phones and all sorts of devices and more on the works. We're profitable. And so, I would say that we have entered the era of rich PC based Internet communications. This is a time when we are finally seeing the vision of the original SIP founders of multimodal rich communications being deployed to user's desktop in a usable, cheap, most of the time free, way. This includes real time video, data, presence, text and wide band audio. Wide band audio today is more widely deployed than ever before and the majority of those minutes are happening on Skype.

We are also talking about a paradigm shift where the smart platform on the end point is what is driving innovation as Lee [Dryburgh] talked about versus things coming from the network or the provider in the core. So what is next? I think a big part of this and Lee also talked about this, is sorting out the mobile mess. So in my view, mobility is the last anchor to the old way. It is an incredible innovation to be able to pick up your phone and take it with you. And as a result, it is the fastest growth telecom service today. But the spectrum scarcity and the other issues make it a perfect world garden. In a lot of ways, it is back to the future. It is the good old days again, closed networks, device lock in, phones with these numbers, these pesky numbers, geographically oriented contract, honor some contracts. Basically, the old world.

But maybe there is some hope here. And for many, many reasons, the flat rate pricing, the auction of 700 [Mhz] bands spectrum and where open platform conditions apply. Maybe a new game is beginning here. And, this is really one of the most exciting times in the communications, I think. There are still lots and lots of hurdles. We have to make sure that these guys do not do things to discriminate against applications, that the principals of that neutrality continue to apply and we are vigilant about that as a community. But maybe, a new game is here.

So for the next 10 years, I think that there is the possibility that we will enter the era of rich Internet communications. Again, the same list as before, but add to that new mash ups of fixed mobile convergence of web-based communication and voice and video and other real time communications perfectly mashed together in ways that developers can recreate and mix and match applications. We will have freedom to these applications on a new platform that includes mobility.

And finally, I think that we all agree, I hope, in this room that there is a natural segmentation of competencies that emerges from these, one that the industry has been fighting against for quite sometime. But that network infrastructure and pipes and the competencies associated with rolling that out are different than the competencies around application, innovation at the edge of the network. Let us let those competencies lie where they are. Let us let them blossom where they are and move forward in that way.

So I think I kept within the time. If there any questions maybe we can do that.

Jonathan:    David if you if you ask me that question I will repeat it.

Audience:    The question is, how is the Skype-eBay relationship going?

Jonathan:    Okay the question is how is the Skype-eBay relationship going? From my perspective very well, we recently got a new CEO who is a medium term eBay guy. So today, with 276 million registered users, I think that there is less focus at eBay today on finding the place where eBay and Skype intersect on the web and mash-up to create a new application paradigm for eBay or communications paradigm for eBay and more focused on Skype growing its business and eBay growing its business. So can I answer your question?

Audience:    At one point, Skype was really the future or the leading edge that went into eBay. So, what are Skype's future plans? How is Skype going to grow its business?

Jonathan:    If you did not hear it the question was, after being rolled into eBay and now, kind of looking at the landscape, what are the future plans for Skype--

Audience:    Tell us all your secrets?

(Voice overlapped)

Jonathan:    I think that in some ways, we stalled. We got wrapped into the M&A [Merger & Acquisition]. There is almost always a period of integration that a lot of weird things are tried and some work and some don't, and there is defocus. We obviously had some management turn over and what not. For me personally, this is the most exciting period for Skype going forward. The projects that I am leading in my team and that we are working on for the next 2 years or 3 years I think are ground-breaking projects. And that sense of innovation and hard work and startupness is very much alive in the company. I cannot really talk about the specifics, the things that we are going to be rolling out but I am really serious when I say that I am personally excited about what we are working on. Like almost no time before my career.

Chair:    That sounds terribly exciting. If it is okay, we have time for one or two more questions if Jonathan is good?

Audience:    Hi Jonathan. This is Irv Shapiro from IfByPhone. As a voice application provider, we would like to provide highly scaleable applications on the Skype network. At the current time, we find it complex to interconnect to the Skype network at a high volume level with hundreds or hundreds of thousands of users. What is in the works to make it easier for those end points to blossom in the Skype network infrastructure?

Jonathan:    This is a topic that is near and dear to me. I participate in the discussions internally about platform versus application and I guess it is early to make any definitive announcements or anything like that. We are still grappling with the issues there. But I would say that it is a very logical next step for us that Skype will enable these kinds of interfaces. I think that our API and developer story thus far has been sort of interesting but not in the realm of the scaleable applications that you are talking about. I and many of us in the company really recognize that. We think that there are easy solutions but they take shift in mindset to be able to get those out to the community.

And, we have to be very careful as well. The last thing that we want to happen is something that is detrimental to the health of the network.

Chair:    One last question for Jonathan please. Any last questions?

Jonathan:    This one over here.

Audience:    (Inaudible)

  Can you repeat the question?

Jonathan:    The question was about the network outage in December and what we have done to fix that. I am not involved in the core team work around the P2P network and I do'nt have specific knowledge of the fixes but I do know that they isolated the problem. They have put that patch out to the network and they are confident that things would continue to scale.

I do not know how much you have read in the blogosphere about it but it was a very interesting event. It was sort of an event at the leading edge of peer-to-peer networking and computer science in many ways. This anomaly that was caused by the restart of a lot of computer simultaneously created vulnerability in the way that the core infrastructure the network is supported. And, it was just sort of this spiral. Once that it started, it got worse and worse and worse. As far as I know, we have addressed those issues and that anomaly and would not be affected by future scenarios like that one.

Chair:    Jonathan, thank you very much for coming. Thank you very much for opening. And, thank you very much for fielding very difficult questions. Please thank Jonathan.


Jonathan:   Thank you.