Telco video crosses the chasm

Throughout 2004, the telco video phenomenon has transformed from experiment to reality. Now that many of us are enjoying the more relaxed pace of summer, it's a good time to take a deep breath and perhaps a more academic look at where we are.

A recent conversation with an industry colleague reminded me of one of the great conceptual models in marketing as a way to view the maturity of the telco video technology category. It's called the technology adoption life-cycle model, presented in Geoffrey Moore's 1991 book "Crossing the Chasm." Moore's book looks at the adoption of a new technology by plotting its life-cycle on an XY chart showing the passage of time along the X-axis and the propensity to buy along the Y-axis. The resulting chart looks like a bell curve: the fewest buyers at the beginning and the end; the most in the middle. Now, divide the bell curve into five segments, with each of them representing a phase of the overall lifecycle, each characterized by a different type of buyer.

The types of buyers, from left to right and early to late, are described as follows:

Innovators are technology buyers with a vision. They love to play in the lab and reduce latency for IGMP joins and leaves. When they turn to technology suppliers, they become frustrated with the lack of features and endlessly ask for more features. When they do buy, they are not overly concerned with the business case. Vendors love them because they provide the first sales references.

Early Adopters are buyers that prefer to understand the practical applications for a technology and that are motivated by market pressures. Unlike early adopters, they tend not to be technology people. In the case of telco video, they are motivated by ways to defend against line erosion, competition from cable and other real factors. However, they are also willing to accept the promise of the solution before that solution has been fully proven.

Early Majority buyers are the first mainstream buyers. They are pragmatic, more risk-averse than early adopters and prefer to buy a proven solution to a clearly articulated problem. They don't want to be the pioneers, but they also don't want to be left behind. Moore claims that about a third of buyers are in this category

Late Majority buyers are similar to early majority buyers except that they tend not to be technology buyers and also tend to wait until there are established standards. They too comprise about a third of all buyers, according to Moore.

Laggards avoid new technology whenever possible but eventually do buy if the technology is embedded or has become completely uncontroversial.  (I like to add my own sixth segment, called "Skeptics"--people that may never buy.  IPTV suppliers no longer pursue them.)

Everybody knows each of these kinds of buyers. But wait a minute--if we're talking about "Crossing the Chasm," then where's the chasm?  It's the gap between the innovators and early adopters on one side and the early majority on the other. In our world, it's that point at which the experimentation and faith stop; when everything works, business cases are proven and the production deployments begin. 

Moore asserts that effective marketing and positioning--based upon clear understanding and articulation of customer need, how the technology addresses it and a clear understanding of competition (to themselves and the competition being experienced by the customer)--are the keys for a technology to cross the chasm. Applying this reasoning to our own category, I believe we crossed the chasm sometime early this year. Most of the suppliers I am acquainted with, particularly those offering infrastructure products for IPTV, have figured out where their customers' pain lies and have learned how to address it while differentiating their offerings from those of others. They are capturing an increasing number of new customers each month. They are making more customer announcements and have increasing numbers in the pipeline. Several of the suppliers I have spoken with in recent weeks claim that more than a third or even as much as half of their entire customer universe is made up of unannounced customers that will close sometime before the end of 2004 or early in the coming year.

Now let's bolster our enthusiasm with some verifiable returns from the telco video world. Figures released in mid-August by Viodi LLC, a provider of video content acquisition services for telcos, show that from among a total of about 1,200 to 1,400 IOCs, between 100 and 140 IOCs in the United States are providing video services. (Click here for the details behind Viodi's conclusions.) My own estimates have it that these telcos have deployed between 110,000 and 140,000 lines of video services to residential subscribers. About a third of these lines are tied to a dozen or so service providers that have become well-known reference accounts in our industry. Mind you, these figures don't include the more recently announced multi-telco consortia and individual operators that together claim to be on track to double or more than double these figures over the next six to 12 months. 

If you're still skeptical as to telco video's progress, remember that the figures are for just the US IOCs. They don't include Qwest's 50,000 or so VDSL video lines. They do not include the major Canadian carriers, most of which are providing video services. They don't include Europe, where most major carriers are ramping up and making announcements, while independent carriers like Italy's FastWeb, with set-top box count approaching 100,000, are also going great guns. It also doesn't include Asia/Pacific, where a number of national and independent providers are offering services.

Many of us watching the telco video space last year at this time were beginning to scratch our heads over the state of the industry and were asking ourselves whether telco video would ever catch on and meet our expectations. Now, you can't avoid it; as a sign of the times, this fall's TelcoTV conference even has a "beginners" track and an "experienced" track. So now, truly, we can look back over the past year and to the future with confidence that we have indeed crossed the chasm.

Steve Hawley is principal consulting analyst of Advanced Media Strategies. He may be reached via his Web site, http://www.tvstrategies.com.