Don’t Deliver A Carload When The Customer’s Trying to Buy A Cupful…!
The place where new demand can be stimulated is in retail space. Retail sales require delivering real customer value. Without a differentiating retail offer, a product or service may end up offering only price reductions that erode the vendor’s ability to continue manufacturing and distributing it to the customer.
Today, telecom is not making much money on its capital or as a percentage of its operations expenditures. T-Mobile and Cingular do not see 10% annual returns on their CapEx or OpEx, where historically, telecoms CFOs seek 35% hurdle rates in their investment business cases.
They Are Selling Price, Not Technology: Every service is available from at least five indistinguishable service providers in the typical market.
They Are Selling Quantity, Not Quality: The only exception to some extent is Verizon Wireless. The company has had some success in retailing more expensive services than its competitors.
The concept of retail is important in many industries.
Some examples of how consumable inventory is managed to package and deliver retail value —
Sugar purveyors make 1000% more revenue when they can sell it by the box of cubes, rather than by the five- or ten-pound bag. The profit margin on a carload of sugar is much higher when retailed as cubes than when it is wholesaled as a carload of sugar.
Makers of Anacin and Tylenol generated an entirely new high-margin market opportunity when they packaged two pills of pain-reliever in a little vacuum-sealed envelope and delivered it in a point-of-sale display to 7-11 convenience stores and all night gas stations on virtually every corner. The profit per pill is higher when a gross of pills are sold in these two-pill packages than when a gross of pills is sold by a bottle at the drug store.
As with the telecom industry confronting the Internet, music executives confronted a massive consumer revolt when they discovered that hundreds of thousands of songs were being regularly downloaded and shared illegally for free through peer-to-peer network software on the Internet. The bundling of 20 “poor” songs with one or two “great” songs to sell an expensive album and monopolize the music consumer’s budget with a few artists was shattered. iTunes’ innovation was to sell a single song at a time for $1.00. This provided music in a desired increment so the customer could target its choice only. This new retailer, iTunes, has generated a successor music inventory management paradigm for the retail music market space by recasting the micro-economic music sales transaction, one song at a time. Open 24/7, the iTunes Store features more than 6 million 99¢ songs, 100,000 free podcasts, 30,000 audiobooks, 600 TV shows, 500 movies, and iPod games. You can download, play, and sync in a fraction of the time it takes to drive to any superstore. iTunes’ innovation sold more than one billion songs by the end of 2006.
We have long been able to buy various ‘quality’ grades of gasoline by the gallon.
Values Of The Data Call: Behind the retail scene most obvious to the lay person is a world that has solution software products only for those that can afford it. Software providers retail their products to manufacturers, distributors, and re-sellers.
However, these products are only affordable to organizations that have already grown large enough without the benefit of the product’s productivity so that the organization can afford buy and use the product. The small to medium-sized enterprise (“SME”) cannot avail itself of these productivity solutions until they have grown larger. Yet the accessibility of these very productivity solutions engenders the growth the SME seeks and has yet to achieve.
How do SMEs get at the solution software? If the SME can use a Data Call to invoke the application as a pay-on-use service, it can use these productivity solutions to generate its own growth.
The Data Call delivers dedicated and real-time bandwidth in support of productivity applications.
The Data Call is guaranteed to be secure and to work every time an order is accepted. What enforces this reliability and security is the fact that the service provider will be obliged to pay a large SLA penalty to the customer if a Data Call fails to assure performance.
Data Call bandwidth capacity is pre-specified. The customer pays only for bandwidth actually used.
The customer can employ a Data Call to any networked destination just as if he had a ‘temporary leased line’ to that destination.
Replacing Wholesale With Retail Inventory Management: The private leased line is the service provider’s [“SP’s”] value-based business model and historically it was the most profitable data service of all. SPs have expanded this market by selling cheaper Frame Relay and VPN ‘leased lines’.
In contrast, the private leased line is 24 hours by 7 days of always-on dedicated bandwidth. Yet a customer of the private leased line uses less than 5% of its bandwidth / time resource in any given month. Extensive Bell Labs research analysis has confirmed this finding. Thus, the leased line is delivering a “carload of sugar” when the customer needs to use only a cupful – this is wholesale inventory management, not retail inventory management.
The Data Call has better security (3 separate levels) and higher reliability (dual-stream < 50 millisecond automatic protection switching) than the private leased line (1 level of security, single-stream, 4 hours to repair). Unlike the leased line, the Data Call provides retail inventory management and the customer is charged only for the actual bandwidth used during the Data Call — not for security, not for the size of the pipe, and not for its reliability.
Less than 1% of the business market can afford a private leased line — and they only use it 5% of the time. Yet, 100% of the business and residential worlds can easily afford to use the Data Call regularly.
An Example of High Margin and Lowest Cost Solution: A British enterprise operates separate databases in London, Cambridge and Manchester. The db administrator uses database synchronization, highly reliable because data is copied at the disk level at both the satellites and the base, transaction by transaction. This alternative is bandwidth intensive — 30 Mbit/s to 45 Mbit/s in each direction for each site. The enterprise runs the application between 9:30am & 11:30am, then again from 1:30pm till 4:30pm. Each work session is broken up as 45 minutes at 30 Mbit/s then 15 minutes at 45 Mbit/s, then 45 minutes at 30 Mbit/s and so on. Monday through Friday the leased line costs are BPDS £ 20,080, while the data calls cost for these work sessions would amount to only BPDS £ 1,335 per week.
The 45 Mbit/s leased line network inventory not in use by the British firm’s data calls are freed up for sale to other customers. In addition to significant savings for the British firm (BPDS £ 18,745 / week), this network inventory resource left over from the unused leased line represents an additional Data Call revenue potential of BPDS £ 59,865 / week for the network. By matching the British firm’s actual requirement of 10,125 Mbit minutes for these Data Call work sessions, the network frees up 443,475 Mbit minutes for sale to other customers each week.
Thus, the revenue potential of a given increment of bandwidth is nearly 3 times higher when sold as Data Calls instead of leased lines (BPDS £ 59,865 / week of potential data call sales versus BPDS £ 20,080 / week at current leased line prices).
What is more, the data call pricing includes a minimum of 90% mark-up over its incremental resource costs. This markup will increase if the customer gives less of a reservation notice for the Data Call.
In Sum, Data Calls Return High Margin Profitability To Affordable Bandwidth Sales. Portable, Opportunistic Broadband Provisioning Will Be Readily Available And Easy To Use For The Small, Medium, As Well As The Largest Retail Broadband Customer.