Business Implications of the Digital Revolution from Alexandre Hoffmann Mc Kinsey and L. Downes and

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Business Implicationsof the Digital
Revolutionfrom Alexandre Hoffmann (Mc Kinsey)
and L. Downes and C. Mui (Unleashing the Killer
App., Harvard Business School Press)
Questions spéciales dElectricité Introduction
aux télécommunications
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Companies affected by the digital revolution
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The vision of digital convergence
Media
Cable, Satellite
Multimedia
Internet
Computing
Telephony
Networking
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Business implications of the digital revolution

• Technology drivers of the digital revolution
• Impact of the digital revolution
• the Networking space
• the Devices Content spaces
• Electronic commerce
• Spin-offs and killer application the TELEMIS case

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Technology driver Moores law
Cost of computing power becomes negligible
Source Intel
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Technology driver Pervasive networks
The Network offers huge bandwith

• Telephone
• Cable TV
• Satellite
• ATM (Frame Relay)

• Fiber optic rings
• SDH and SONET
• ATM (Frame Relay)

• Ethernet
• Fast Ethernet
• Gigabit Ethernet

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Technology driver IP on everything
The Network is the computer

• The Metcalfe law the utility of a network
  depends on the square of the amount of its
  subscribers
• IP Internet Protocol
• Universal IP address
• Datagram transmission (simple common base)
• Virtual network (independent from physical
• connection)
• IP on everything!

Utility
Subscribers
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Technology driver Data compression
Uncompressed CCIR-601
Bandwidth is cheap, content is expensive
216 Mbits/sec
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Technlogy driver the World Wide Web
Internet Domain Names
World Wide Web Population Millions
Information at your fingertips
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Business implications of the digital revolution

• Technology drivers of the digital revolution
• Impact of the digital revolution
• the Networking space
• the Devices Content spaces
• Electronic commerce
• Spin-offs and killer application the TELEMIS case

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The Digital Universe
Content
Networking
Devices

• TV / Movies / Music
• Software
• Services

• Voice
• Data

• Television
• Computer
• PDA, ...

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The Digital Universe - Networking
Content
Networking
Devices

• TV / Movies / Music
• Software
• Services

• Voice
• Data

• Television
• Computer

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Telephone deregulation in Europe
Before 98

• National regulatory frameworks
• Typical situation
• monopoly for voice
• competition for data and equipment

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Main remaining telephony regulatory issues
Issues
Situation in Belgium

• Prices
• Price cap
• Price rebalancing
• Universal service
• Structure of competition
• Number of competitors
• Number portability

• Prices
• 1 decrease each year
• Increase in subscription fee, decrease in long
  distance calls
• Minimum service, social rates, payphones
• Structure of competition
• Unlimited number of licenses
• Mandatory portability starting in 2000

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Serving different consumer needs
Residential Customers
Needs

• Almost exclusively basic telephony

Offering

• New services (call waiting,)

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Sources of competition for Belgacom
Telcos
Utilities
Cable TV
Data

• Mobistar
• British Telecom
• KPN / Orange
• ...

• SNCB / Hermes
• ...

• Telenet
• ...

• Worldcom / Coditel
• ...

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Responses of telecom incumbents to deregulation

• Germany flotation of Deutsche Telekom on stock
  exchange (1996)
• France flotation of stake in France Telecom
  (1997)
• Belgium Transformation of RTT into Belgacom
  (1992) sale of 49 stake to Ameritech-TeleDanmark
  -Singapore Telecom (1995)

Privatization
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Mobile telephony
Industry Trends

• Continued penetration
• Low-cost protocols (e.g. UMTS)
• Integration fixed-mobile (e.g. Belgacom Duet)
• Integration with data

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Broadband technologies xDSL vs. Cable modems
xDSL

• Telephone operator
• Dedicated connection
• Low fixed cost
• High per subscriber variable cost

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Integration of data and voice
Voice Network

• Circuit switching
• Standard low bandwidth protocol
• Real-time guarantee
• Per-minute pricing

"Universal" Network

• Packet-switched
• Standard IP protocol
• Optional real-time guarantee
• Pricing ???

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Implications for equipment providers
Circuit Networks
Packet Networks
Mobile Networks

• Telephony switches
• Multiplexers
• Cross-connects
• ...

• Routers
• LAN switches
• Ethernet hubs and NICs
• ...

• Mobile switches
• Base stations
• Cellular phones

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The Digital Universe - Content Devices
Content
Networking
Devices

• TV / Movies / Music
• Software
• Services

• Voice
• Data

• Television
• Computer

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The battle for content

• Number 1 pay-TV channel in France, Belgium and
  Spain
• New digital satellite channels in France and Spain

• 22 TV channels in 9 countries, including all the
  RTLs
• Number 1 advertising-financed channel in Germany,
  France (cable), Belgium and the Netherlands
• New digital satellite channels in Germany, in
  collaboration with Kirch

-UFA

• Number 1 in satellite TV in the UK
• Part of the Murdoch empire, a worldwide media
  conglomerate

BSkyB
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The battle for the decoder

• The decoder is at the heart of digital TV
• "Gateway to the consumer"
• Will integrate smartcard functionalities
• Value-added hardware device
• EU guidelines mandate a "standard" decoder

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Horizontalization lessons from the PC Industry
Vertical Industry
Network OS applications
Client applications
Client OS
Hardware
Microprocessor
IBM
DEC
Apple
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The browser Java wars
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The future of Microsoft
From...

• Operating systems
• Office applications

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TV-computer convergence
Problem

• Computers are expensive and complex to operate
• Everybody has a TV

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Business implications of the digital revolution

• Technology drivers of the digital revolution
• Impact of the digital revolution
• the Networking space
• the Devices Content spaces
• Electronic commerce
• Spin-offs and killer application the TELEMIS
  case

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Electronic commerce
What people do on-line of time spent
What people buy on-line

• Financial services
• on-line banking
• on-line stock trading
• Sex (!)
• Travel
• Travelocity
• MS Expedia
• Music
• CDNow
• Books
• Amazon.com
• Software
• Netscape

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The concept of "electronic advantage"
Look for the "Electronic Advantage" - searching
capabilities for books and CDs - instant,
ubiquitous access for financial services - ...
Physical Distribution
Books, CDs
Cars
Complexity of logistics
Electronic Distribution
Financial services
Software
Transparent / Commodity
Opaque / Specialized
Complexity of product
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Building virtual communities
Attracting and retaining people with common
interests
Building personalized actions among community
members
Generating interesting content
Source adapted from Hagel Armstrong, "Net Gain"
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Electronic commerce business models
Advertising Model
Subscription Model
Transaction Model

• Charge advertisers for putting ads targeted at
  community members

• Charge a fee or a commission for each
  "transaction", e.g. buying a good or service on
  the community

• Charge a monthly/annual membership to access the
  community or parts of it

Model

• Yahoo!
• AdValvas

• Amazon.com
• FNAC

• Wall Street Journal
• Tijdnet

Examples
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The most successful portal (so far) Yahoo!
FutureModel ?
CurrentModel

• Additional services building on customer
  franchise
• Telephony
• Travel agency
• ...

InitialModel

• Personalization services
• e-mail address
• My Yahoo!
• Targeted advertising
• Deals with e-commerce sites (e.g. Amazon)

• Search engine
• General advertising

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Business-to-business e-commerce
An example Eurotrans - an Internet-based
European freight exchange

• Manufacturing companies
• Post requests for transportation capacity
• Set up private exchanges with partner trucking
  companies

• Trucking companies
• Post offers of transport capacity
• Consult requests for transportation

• Access to Eurotrans through terminals in service
  stations
• Additional community-building services weather,
  maps, e-mail etc.

Eurotrans is developed by
, a company launched by recent UCL Civil
Engineering graduates
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Business implications of the digital revolution

• Technology drivers of the digital revolution
• Impact of the digital revolution
• the Networking space
• the Devices Content spaces
• Electronic commerce
• Spin-offs and killer application the TELEMIS
  case

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www.telemis.com
Damien De Greef Stéphane Ketelaer Benoît
Macq Bruno Piscaglia Patrice Roulive
14 Décembre 1998
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Plan

• 1. Lentreprise Telemis s.a.
• 2. Premier produit TM - Radiologie
• 3. Le futur
• 4. Plan financier
• 5. Conclusion

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1. L entreprise Telemis s.a.

• 1. Origine du projet
• 2. Notre technologie
• 3. Notre équipe

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1. Origine du projet

• Laboratoire de Télécommunications Télédétection
  - Pr. B. Macq

• 20 ingénieurs en RD

• acteurs au niveau universitaire, national,
  européen et internationnal

• en transmission, image et sécurité

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1. L entreprise Telemis s.a.

• 1. Origine du projet
• 2. Notre technologie
• 3. Notre équipe

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2. Notre technologie
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1. L entreprise Telemis s.a.

• 1. Origine du projet
• 2. Notre technologie
• 3. Notre équipe

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3. Notre équipe

• Damien De Greef commercialisation et
• marketing
• Stéphane Ketelaer direction générale
• Bruno Piscaglia services et support à
• la vente
• Patrice Roulive développement

 
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1. Spécificité du produit

• Système de télémédecine spécialisé dans la
  transmission sécurisée dimages médicales intra-
  et inter-hospitalière

• Ensemble doutils intégrés et intégrables

• Actuellement, plus spécifiquement décliné dans sa
  version  téléradiologie 

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1. Spécificité du produit
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2. Premier produit TM - Radiologie
1. Spécificité du produit 2. Marché 3.
Concurrence 4. Stratégie marketing
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To probe further...

• Interesting books
• Negroponte, "Being Digital". Talks about the
  digital revolution
• Armstrong Hagel, "Net Gain". Talks about
  virtual communities
• Moore, "Inside the Tornado". Talks about the
  stages of a high-tech firm
• Interesting websites
• http//www.news.com - daily high-tech news,
  direct from Silicon Valley
• http//www.redherring.com - monthly magazine,
  very good to understand the "hottest" trends and
  companies. Also exists as paper magazine
• http//www.advalvas.be - Belgian portal