Opening the app flow

Carriers are upgrading and converging their networks while deploying technologies to simplify the deployment of applications and services across wireline and wireless networks. While these foundational investments enable faster deployment of internally developed applications, they also enable carriers to open their networks to services developed by third parties.

Internally developed applications are the standard operating procedure for carriers. The internal approach holds the promise of differentiation, and for major services, such as video service or voice, this is entirely appropriate. However, carriers have largely failed to innovate. Most really successful applications in the market today have been launched by start-ups, online companies and other non-carriers.

Some carriers believe that partnerships with these innovative companies are the best way to offer new services. Under the current product development model, each time a carrier enables a third-party application, it begins a lengthy business development process to assess customer demand, financial issues, partners, legal and other issues. Spreadsheets are manipulated. Internal lobbying takes place. Staff and consulting hours add up.

Perhaps there is a better model that places the decision in the hands of the customer, costs the carrier less, gets applications to market faster and still enables carriers to capture value. Imagine a world where a carrier's voice-over-IP core product is enhanced with an advanced call routing plug-in made by a small online software company or where a carrier's digital video recorder includes a third-party application enabling recommendation sharing between friends.

The approach is known as an open-application development platform. Here's how it works: The carrier's business development team creates a set of rules for getting applications on the network and then gets out of the way. Application developers invest to customize their innovative applications to the network. Customers get access to a plethora of applications, choosing the winners themselves through subscription and usage. Application revenues are shared with the network provider in exchange for superior access to bandwidth, presence, customer identity, location and other network resources.

Under this model, the carrier markets the network. The application developers market their apps and, as required by the carrier's rules, market the network, too. If an application is successful, the carrier can promote it, license it and launch it under its own brand — or just acquire it.

There are several implementation challenges associated with this model. The carrier must determine what types of products and applications are permissible, effectively carving out applications that it seeks to develop internally or that are especially sensitive. The carrier must also establish a framework for dealing with third-party product developers, including rules on appropriate and safe access to customer information and the wholesale pricing structure associated with each of these network elements. The carrier must establish what types of partners it is willing to accept and how these rules should vary by product category.

This isn't an approach for services that require large infrastructure investments, such as a telco's or a cable company's core video product. However, for carriers struggling to differentiate themselves, especially smaller carriers with insufficient scale to fund innovative product development, this model may offer a lower-cost approach to greater revenue, faster time to market and, ultimately, more customers.

Rory Altman is director and co-founder of Altman Vilandrie & Co. in Boston.