There is a growing feeling that the measure of the success of 5G will be inextricably linked to how it helps to transform the capabilities of vertical industries. Every industry from manufacturing to health to automotive has intense activity underway on how it can best make use of 5G to drive its own industry transformation. And telcos are intimately engaged in these discussions. From manufacturing uses case to smart healthcare, telcos are engaging with vertical industries to see just where their particular bag of tricks can help these new use cases become viable.
Pretty much everyone also gets the general concept that these new services will only come to market through intelligent cooperation across wide ecosystems. The telcos bring one set of capabilities to this ecosystem, the cloud hyperscalers bring another set of capabilities (both complimentary and competing). Beyond this, there are a huge range of cross-industry specialists in everything from systems integration to digital twinning, to AI, to video analytics that have an important role to play in these new ecosystems.
But despite this growing clarity, two of the biggest issues I perceive are:
The lack of a clear shared understanding how to think about these new ecosystems and how they will be assembled and operated;A general lack of any initiative for an easy way to assemble the various ecosystem players in a cost-effective fashion within the structure of industry-specific platforms.
Understanding the Nature of these New Ecosystems
First let us discuss what exactly we mean when we say ‘ecosystem’. Not all transactions between inter-dependent companies are best achieved by trying to create a business ecosystem. Think of this along two axes: one representing the ‘level of coordination’ needed between the various parties that are cooperating in a transaction; and the other axis representing the ‘level of modularity’ present in the disparate elements that go to make up a complete transaction. Professor Michael Jacobides of London Business School has written extensively about this, and he uses this approach to represent four distinct types of interdependent company relationships.
Vertically Integrated Organization: If a high level of coordination is needed between the disparate elements in a transaction, and there is a corresponding low level of modularity in those elements then the most appropriate structure to adopt would be a vertically integrated organization. For example, in the early days of the telco industry (right up to the 1980’s) the telco world adopted this approach, choosing not only to create all of their own service offerings, but in many cases to manufacture their own phones, fax machines, cables, and so on.Hierarchical Supply Chain: In the scenario where the modularity of the disparate elements in a transaction or value chain is low, and the need for coordination between the various partners is also low, a hierarchical supply chain makes most sense, often controlled by one or more dominant producers or manufacturers. Many would argue that the strength of the major telco suppliers still relies on the relatively poor level of modularity in the telco world, where it is safer for the telco to buy from a one-stop-shop rather than risk the challenges of integrating multiple disparate components.Open Market: This scenario becomes possible when there is a high degree of modularity between the disparate components in a transactionvalue chain (in the high tech world think of this modularity in terms of clearly defined and open interface standards), and this is matched with no real need for coordination between the various parties. Manufacturers of commodity PC’s or servers sit in this open market world.Business Ecosystem: Finally, there is the scenario where the components display high levels of modularity, and where there is also a need for a high degree of coordination between the parties to make the most out of the business opportunities. This is where business ecosystems come into their own.
I tend to use 5G2B as an acronym for the transformation which vertical industries are trying to achieve through the use of 5G and other disruptive technologies such as cloud, edge, AI, and so on. And in most vertical industries at present it is fair to say that this is an ad hoc process facilitated by systems integrators. We can probably best describe ourselves as sitting in the bottom left-hand quadrant of the 2×2 matrix – in the hierarchical supply chain position. The level of modularity of the various cloud, communications and specialist components is patchy at best, and the level of coordination between the various parties in the ecosystem is low. In this scenario, the systems integrators play the crucial role in extracting some level of cohesion between the various components – which ultimately proves to be both costly & time-consuming.
Much of the work of the standards bodies that I have been involved with for decades is to try to get various parties to converge on agreed standards (defacto or de-jure). This allows the emergence of greater levels of modularity of the various component parts, and allows us to move up the vertical axis towards more of an open market model – allowing the vertical industry buyers to select best of breed components from a modularised market, and significantly reducing both the cost and time to market of creating solutions from disruptive components. In many cases these standards are slowly emerging – in the cloud world defacto standards dominate, driven by the hyperscalers, and in the communications world a mix of defacto standards and de-jure standards driven by the various established standards organisations. But this still does not by itself enable the creation of really effective business ecosystems.
The real power of the disruptive technologies to transform vertical industries will only be realized when the various different players within the ecosystem can coordinate their capabilities to maximise value as part of a business ecosystem. Much of this coordination will be around data/knowledge and how it is transferred and shared in a trusted fashion to iteratively maximise the economic effectiveness of each of the constituents within the ecosystem. For this to happen it will require the emergence of shared knowledge bases and data-trust frameworks such as GAIA-X and shared data spaces, as well as appropriate economic models that make it sensible for the various parties to collaborate.
This brings me on to the need for shared industry platforms1
Creating Easy to Use Shared Industry Platforms
Aside: A lot has already been written on the power of platforms and platform business models which I won’t replicate here. For anyone who wants a refresher on this topic I recommend they read ‘Platform Revolution’ by Parker, Van Alsyne, and Chowdery.
There are lots of people looking to create the platforms that will drive the transformation of vertical industries! Telcos are looking to generate significant ‘beyond connectivity’ revenue from 5G2B digital services, and have well publicized ambitions to create the platforms that will drive that change in vertical industries. Similarly, the powerful vertical industry players, are trying to develop their own dominant platforms that will try to capture the value for that enterprise, rather than surrendering it to a 3rd party / hyperscaler. And it doesn’t take much imagination to see that this is going to result in massive fragmentation of industry platforms, each attempting to establish some level of dominance.
To a certain extent this is already happening (e.g., in the manufacturing industry companies like Schneider, Dassault Systems and others have all launched industry platforms to meet their own business needs). Similarly, multiple telcos and their suppliers have been busy developing their own 5G2B platforms with the ambition to use these to drive overall 5G2B business. Over the coming years this will result in massive platform duplication, diverting investment away from true 5G2B innovation in the short to medium term. Ultimately, one of more of these industry platforms (or perhaps a hyperscaler variant) will outlast the rest, and will reap significant long-term value capture, while the investment in the rest of the platforms will be written off. The net result will be financial losses for many and substantial delay in 5G2B innovation for all!
The above scenario may be the most likely outcome for 5G2B, but there is another possible outcome, one where a number of the key industry players (vertical industry leaders, systems integrators, vertical solution specialists and communications & cloud players) cooperate to create a small number of shared 5G2B platforms that enable rapid innovation and monetization of 5G, avoiding the expensive duplication & delay that would otherwise occur.
If such industry platforms are to occur, they are likely to include some of the elements shown in the diagram below:
A number of shared platform functions, such as a marketplace to facilitate the efficient matching of sellers with buyers, as well as back-end functions, such as billing and E2E Customer Experience Management & SLA/QoS management. It will also contain functionality to maximize key platform business model characteristics (such as network effects), as well as facilitating capabilities such as smart contract management to enable efficient interaction between the participants. Key to such a shared industry platform will be some form of shared industry knowledge base. This will be the platform’s repository of shared learning that the various platform stakeholders can use, and which they agree to contribute to. Without a shared form of learning to create additional value-add over the marketplace aspects of the platform, the stickiness of the platform will be poor and the value that it delivers in terms of improved overall efficiency to the industry will be lessened. The ‘exhaust data’ from this knowledge base can potentially generate a future monetization opportunity increasing the overall value of the shared platform. Alongside this knowledge base they must be some trusted mechanism for sharing data so that the various parties are comfortable sharing information without exposing information they wish to keep private. Industry initiative such as GAIA-X and International Data Spaces (IDS) are trying to achieve this sort of industry common benefit.The communications, cloud and digital services ecosystem that the platform engages with, will comprise the disruptive technologies that will underpin the transformation of all vertical industries. This will certainly include: 5G public and private network offerings; Easy to use network slicing capabilities; Centralized and edge cloud offerings; Flexible IoT platforms suitable for different industry challenges; as well as tens (if not hundreds) of thousands of niche vertical solution players who have a specific expertise targeted at one or more verticals, and operating in one or more geographical regions. For example, in the case of smart manufacturing these vertical solutions could surround data sharing and optimization of specific manufacturing equipment, or come from a 3rd party AI or digital twin specialists.All layers of this platform will need to be underpinned by clear and open API’s between the different services and capabilities, such that the platform users can procure and instantiate simple capabilities without much technical expertise, while continuing to work with SI’s for more complex requirements.
Ultimately, the success of these industry specific platforms will depend on a combination of the ease of use of the platform and how well they integrate the various communications, cloud and vertical solutions being offered, the breadth of solutions being offered, and the ability of the shared knowledge base to continually grow and offer trustworthy added-value to each of the platform participants and users.
Employing tokenization in platform design to improve chances of success!
Over my career I have been involved in a number of initiatives to develop jointly owned vehicles to address new opportunities in the telco industry. Unfortunately, few of these succeeded as planned, and most of them failed! There are many challenges in making these cross-industry initiatives work – ranging from gaining technical & implementation agreement, to defining a legal framework for the initiative to operate within, to agreeing mechanisms for conflict resolution. These technical & governance challenges are substantial, but perhaps the thorniest challenge surrounds how to attribute ownership between the parties for the shared entity, how to evolve that ownership over time based on contributions to the entities’ success, and how to scale the entity to include other parties in an equitable manner.
In some parts of the world this might best be achieved by trusted government initiatives to assemble these sorts of industry specific platforms. A great example of how a government can drive this sort of initiative is currently emerging in China with the South China Big Bay project. This project is focused on smart manufacturing and is pulling together a wide community of machine tool manufacturers and ICT players to cooperate on a single platform, underpinned by a trusted data sharing framework.
In other parts of the world, the growing maturity of distributed ledger based tokenisation is perhaps pointing a way for how to address some of these challenges.
In her book The Token Economy, Shermin Voshmingr defines four generic types of tokens as shown below, along with their current levels of maturity:
Of these four generic types of tokens, asset tokens and purpose-driven tokens could play an important role in the creation and operation of the types of collaborative industry specific platforms which I can envisage for 5G2B.
Asset tokens allow the creation of a digital representation of a physical asset. In recent years we have seen everything from real estate to artwork to companies being divided into a set number tokens that can then be traded on an open market. In order to tokenize an asset, one needs to create a set of tokens with a smart contract and associate the value of the real asset to that group of tokens. This approach can prove to be valuable in 5G2B industry specific platforms. By tokenizing the value of the 5G2B Industry platform from the outset, each contributor to the platform can receive tokens, which grow in value as the 5G2B platform gains traction in the industry and becomes more successful. As the platform scales up to embrace new communities across the ecosystem, these new participants can receive tokens for investing in integration to the platform etc.. In this fashion, we may be able to equitably distribute ownership in the platform across the initial platform participants, while continuing to embrace future platform participants. Everyone involved in the industry platform will share in the success of the platform and be able to realise that success on an open market over time.The other type of token that may help drive 5G2B platform success is the purpose-driven tokens (or incentive tokens). These are designed to incentivise a certain behaviour among a community or ecosystem. An appropriately designed incentive-token could be granted to platform participants based on the amount of use they make of the platform. This encourages the participants to continue transactions on the platform and helps avoid the perennial issue of participants going “off-platform” for many of their engagements. The more use they make of the platform, the more tokens they earn. Additionally, incentive-based tokens could be made available to participants who contribute to growing the platform knowledge base or to the maintenance of one of the shared functions of the platform. These tokens could be realised financially or potentially be used as an efficient settlement mechanism between different platform participants enabling instant settlement and avoiding certain transactional costs.
The creation of industry specific 5G2B platforms will undoubtedly present significant technical challenges, but the proper business design of these platforms using disruptive technologies such as distributed ledger based tokens, with effective underlying governance could well prove to be the secret to their eventual success.
Can the wider industry ecosystem cooperate to create such shared platforms or will they emerge as defacto industry platforms produced and owned by the hyperscalers?Can tokens work as a shared ownership and incentive mechanism?Does the telco have a special role in bringing these new vertical industry platforms to fruition, beyond being the provider of advanced connectivity?
I’d love to hear your views on these and other questions and on the wider concept of the need for shared industry 5G2B platforms!
First published on Linked In