The New New Telco

Alexander_graham_bell There has been a lot of debate as a result of recent announcements about Goldman Sachs investing $450m in Facebook at a valuation of $50bn, and planning to raise another $1.5bn at the same valuation, apparently by attracting wealthy private investors into a special purpose vehicle at high speed.

Much of the debate is about the valuation, with talk of Bubble 2.0 (and even 3.0, I lose count nowadays).

The valuation doesn’t surprise me, however dark the art of valuation may have become. Why? Because Facebook is the new new telco.

What do I mean? Let’s start with the original telco, which comprised of the following components:

  • A population of subscribers, aggregated into a directory, with relevant personal contact information (addresses, telephone numbers)
  • Reduced search costs within those directories as a result of classifications and groupings: alphabetical (A-D, E-H and so on) geographical (London, Birmingham and so on) and functional (white, yellow and so on)
  • Multiple modalities of communication between the subscribers (post, telegraph, telephone)
  • A record of changes, published regularly as errata and addenda

Original telcos provided services via fixed devices and spent vast amounts of money on infrastructure. They sought to justify monopoly positions by pointing to the infrastructural expenditure required.

For over a hundred years, all we had was original telcos.

Then, just over two decades ago, came the new telco. The best-known member of this class is Microsoft. And the new telco extended the componentry:

  • Personal contact information now included e-mail and IM addresses
  • Directories became online, searchable and downloadable (personal and public address books)
  • Modalities of communication now included email and IM
  • Changes were now applied continuously to the directories, but were not published.
  • And some new components were added: it became possible for subscribers to schedule meetings between each other, and to use general-purpose devices like computers and smartphones to do all this.

New telcos provided services via fixed and mobile devices, delivered principally to corporates, and everyone spent vast amounts of money on infrastructure, much of it on-premise. Personal customers were nibbled at via email and IM, but the thrust of the new telco was at the corporate.

For a few decades now, all we had was original telcos and new telcos.

Then, six years ago, Facebook arrived, the leader in a new class of telco, the new new telco. Again, the componentry was extended:

  • Personal contact information became enriched to form profiles, user-editable
  • Classifications and groupings of people within directories were enriched as well, user-creatable networks and groups emerged
  • Modalities of communication now included, or will soon include synchronous and asynchronous audio and video
  • Scheduling of meetings now became more pub-sub in structure, via the use of open and closed events
  • Changes weren’t just applied continuously, they were published continuously. This record of changes was called a News Feed.
  • All this was done on a user-creatable, user-editable, personalised-access-and-view basis
  • And the whole shebang was then carefully bundled and exposed as a platform upon which other people could build services, viral, social, mobile

New new telcos provided multimedia services across multiple types of device using multiple modalities of communication. And they did everything “over the top”. No infrastructure costs. No on-premise software.

And to top it all new new telcos had new new assets, information about relationships and flows. What Facebook call the Friend Graph.

So let me see. Facebook has more customers than most original telcos put together, more customers than most new telcos put together. It offers more modalities of communication with lower transaction costs, higher end-user empowerment, personalisation and customisation. It does not have to invest in communications infrastructure, in customer premises equipment, in devices, in on-premise software.

600 million active users. A “subscriber base” larger than any country bar China or India. Revenues growing from $777m to $1.2bn between 2009 and 2010, with net income up from $200m to $355m.

The new new telco. Now think of the valuations of old telcos and new telcos, then look at the difference in costs, in scalability and globalness, in revenue and profit opportunity.

Let’s put this into context.

I have a lot of time for a Boston professor I’ve known since the nineties, N. Venkatraman, Venkat to his friends. Around a decade ago, across a number of conversations, Venkat convinced me of a critical change that was taking place in business as a whole:

He said that businesses used to be hierarchies of business units whose assets were called customers and products; that they are changing into networks of business units whose assets were called relationships and capabilities.

New new assets. Relationships and capabilities. Social capital. Human capital. Assets we have carefully avoided learning how to value. Assets we have refused to value, however much we speak of the importance of talent and knowledge and collaboration.

That’s where the new new value is.

New new telcos are not just for consumers, there is immense value to be created by and for businesses as well, from the sole trader through to the megalith. And with the continuing growth of consumerisation, the distinction is blurring more and more anyway, there’s a singularity approaching in this context.

Facebook is concentrating on the pure consumer play, and that’s fine. They can afford to experiment with their market and learn from their experiments: the profile, the news feed, Beacon, the privacy settings, there’s been a powerful suck-it-and-see mentality, coupled with an excellent responsiveness and adaptiveness to feedback.

Businesses are social as well. Markets are Conversations. As Doc Searls immortalised in The Cluetrain Manifesto (Disclosure: I count all four authors as my friends, and contributed a chapter to the 10th Anniversary Edition of the book).

So companies need better ways of evolving, enhancing and exposing their capabilities and relationships, making it easier for their customers to do business with them.

The Rolodex was the tool of the trade in the times of the original telco.

The on-premise customer information system was the tool of the trade in the times of the new telco.

What I could see was the potential for Chatter to be CRM on steroids, cloud-based, community-driven, multimedia, both synchronous as well as asynchronous, extending beyond the enterprise and supply chain to the customer.

What’s happening is that the stuff we called CRM is blending subtly with the stuff we called knowledge management, accelerated by the publish-subscribe mechanism of collaboration tools like Chatter, enriched further by the multimedia mobile, social, viral aspects of all this and delivered at speeds and price points made possible by cloud technologies.

All just in time for a generation who cannot remember a time before the web, a time before the mobile phone.
All just in time for a generation for whom “rent” means more than “buy”, for whom “share” means more than “own”.

All just in time for a generation who have rediscovered community.

That’s why the Facebook valuation does not surprise me.
That’s why I jumped at the chance when Marc Benioff asked me to join Salesforce.

New new times.

Exciting times.

[Incidentally, I continue to post on my site "Confused of Calcutta."]