Using virtualization to reduce the business risks of launching new services
Launching a new service by the telecommunication industry (as in many other sectors) is not an easy task: it requires a lot of research and planning in order to make sure the huge investment is safe.
Profits come from taking business risks, but in front of a huge investment, corporations prefer to take calculated risks. The return of the investment can be measured differently, it could either bring additional revenues with the existing customer base (better customer profitability), attract new customers or simply create more loyal customers by reducing the churn rates through a better customer experience.
Launching any new service by an established telecom provider typically requires a multi-million ($ USD) investment with a payoff of multiple years and it is directly linked to the success of this service in the market. The dependency of telecom services to heavy network investments, limits the amount of innovation they bring in the portfolio, specifically when compared with the Over-the-top OTT providers.
The automotive industry, along their history, faced a similar problem: the cost of producing new cars was too expensive. Most car manufacturers used technologies such as the moving assembly line, platform sharing or computerized car design. The current format allows the automotive industry to offer a mass-customization experience to their customers (as I wrote in a previous blog)
Those Telecom Providers looking to reduce their investment risk wile keeping innovating in new services, should introduce the following technologies in their processes:
Virtualization in x86 compute platforms to reduce the dependency on dedicated infrastructure
The new culture helps Service Providers to innovate faster over a common platform and reduce the upfront costs in launching a new service. If it works, the key is to be prepared to commit to it and scale it, or cut your losses early if it doesn’t work, while you learn through all the process.
Where do we start?
A good place to start experimenting using the new techniques for service-creation is in areas of real potential revenue growth with high uncertainty.
Many service providers see the potential of the ICT services market for enterprises. The traditional approach requires sophisticated CPEs but the scope of services is too limited, expensive and inflexible. With infrastructure virtualization, carriers could build a modular platform with lots of options to the market. An enterprise customer would be able to personalize its services through a self-service portal with ‘instant’ activation.
After working with some customers in this area we have identified some key advantages:
Building an Open platform reduces the vendor lock-in risks
Each new service will be based in VM instances with no hardware dependencies.
Rapid time-to-market with simplified integration
The fixed cost of launching a new service is limited to the integration to the platform. Variable costs include compute, bandwidth usage and each individual software license.
Working on a common platform and variable costs model, allow service providers to maintain a large number of services portfolio with lower penetration ratios.
Service providers can fast-fail non profitable services with limited loss and use the learning to plan future services
It is true that the price/performance ratio for some services is better in physical infrastructure than virtual. Virtualization mitigates the risk by allowing carriers to experiment with new services, and if they are successful in the market, they can be transferred to a more scalable physical infrastructure, when it makes sense.
We’ve always heard that risk-averse people should avoid non-proven new technology, but as we can see, when it’s about profitability, a calculated technical risk can save a lot of money. Learn more in how virtualization will change carrier economics this excellent blog by Ben Baker.