Alcatel-Lucent’s (ALU) new CEO Ben Verwaayen in December announced a new focus for the company. A key part of that has to do with helping service providers find their way in the Web 2.0 world, which to date has seen over-the-top providers like Google ruling the roost. The idea, ALU says, is to help these network owners monetize their assets by creating ecosystems and positioning telcos and other network owners as the touchstones within those ecosystems. xchange Editor in Chief Paula Bernier recently spoke with Alcatel-Lucent CMO Tim Krause about this vision.

xchange: What did Alcatel-Lucent announce recently around helping carriers address over-the-top applications and application development?

Krause: “In short, it was basically an announcement that said we are going to direct our R&D efforts at our company toward four key technology areas. In terms of how you just asked the question, the heart of it is essentially bringing [together] the trusted services that you can get from a network to the creative innovation that comes out of the Web and over-the-top players so we can open up the value proposition to begin to connect billions of Web sites to millions of subscribers. I don’t know a shorter way, really, to say that.”

xchange: Did Alcatel-Lucent announce specific new gear or software around this application/ecosystem effort or is this purely a strategy announcement?

Krause: “We didn’t announce any new products or solutions on Friday, [Dec. 12]. We talked about products and application platforms that we already have or are coming out with over the next few weeks and months across our portfolio that apply to this strategy. So there are some proof points that exist for the company today, but it’s at the beginning. And [Ben] really was, as you said, announcing ‘This is the direction I’m taking the company.’”

xchange: What are those existing Alcatel-Lucent products that tie into this strategy?

Krause: “We have elements of capability across the portfolio. In our IP routing portfolio, we have programmability and flexibility around the assignment of quality and bandwidth and an awareness of the application or service that’s running over the network that applies to the strategy. And even all the way down to the optical domain, where you think it has nothing to do with anything, we have programmability there in terms of the assignment of bandwidth and the direction of capacity around the network that would allow an operator to very quickly and seamlessly allow bandwidth to be moved around to serve an application like this.”

xchange: What about products around service creation, like next-generation service development/delivery platforms (SDP)?

Krause: “Yes. In really the application space itself, one of the notable things that Ben has done to launch the strategy is he took our software businesses, which have been distributed around the company in the past, and put them together into one application software group. He puts all the assets together there. That’s our application platforms that we use in the service provider space where we have platforms that provide subscriber data management, micropayment, voice over IP, our entire IMS platform portfolio, together with application platforms that we’ve been building for enterprise where we do the unified communications enablement, where we have our Genesis contact center platform.

“So they’re all together now in one business, so we have some capability and enablement there through the call center platform and through exposing some of our IMS services delivery platforms to a Web environment that we’re already doing, which gives you content management, it gives you the ability to combine real-time communication services that you get from a network services provider with Web-enabled applications to develop new services.”

xchange: There was also mention of a third-party developer ecosystem. Are you putting that together for your service provider customers?

Krause: “On that one, that’s an important one in the whole portfolio. We, when you look at our industry and us together with our customers, we’ve always partnered as an exception rather than a rule. And, instead, we’re saying ‘We’re going to partner as a rule rather than an exception.’ When you watch the industry you know that opening up to a development ecosystem such as you see with the proof-point of the iPhone platform as just one example, also when Amazon opens up its platform in the EC2 environment and exposes its services to a cloud environment, they’re looking to leverage a really broad ecosystem of innovation around application development to get where they want to go. And I think service providers are starting to discover that and will discover it more.

“So our idea is we’re going to build platforms that virtualize our customer networks to the point that they can expose capabilities to the Web that have never been exposed before, in a very [manageable] way. And then you have the possibility for a broad ecosystem of application developers to come and use those capabilities in their own creation of applications and services.”

xchange: Right. But is Alcatel-Lucent now saying that it will put together those ecosystems for their service provider customers?

Krause: “Yes, we will do that.”

xchange: Is this new for Alcatel-Lucent or had you already been doing it?

Krause: “That’s new for us. We have not done that before — thought of it as a platform and then gone and put together the ecosystem, managed the ecosystem to do that. We believe that will help open up some of the value.”

xchange: So how many and which third-party types are in the ecosystem so far?

Krause: “We have not launched the ecosystem yet. This is a launch of the strategy from the CEO. It’s something we will do.

“But, while we haven’t necessarily called it an ecosystem, there are a number of companies we partner with already in this space who I’m sure will participate with us. We work with IBM, with HP, with Sun, with a number of major IT companies. As you may know, we have a partnership with Microsoft around IPTV, which is a good proof point of what happens when you Web-enable a service like TV using capabilities over the network. So there are lots of companies that we partner it, but I’m not sure I’d be able to give it a name and say ‘I’ve got 100 companies working on my platform right now.’”

xchange: Since you mentioned Microsoft, I thought it was surprising that Microsoft recently dropped development of its next-generation SDP platform, the Connected Services Framework. Did it surprise you?

Krause: “I can only comment on what I’ve read, and they said, rightly so — and I don’t want to put words in their mouth — that they might have underestimated or they at least decided that the level of complexity and customization required to do that didn’t justify their investment going forward.

“This is one of the areas where we can excel as a company because it is our business to do that for our customers. It takes a certain amount of scale and capability in the company; you can’t just do it as boutique operation, as one small line of business.

“So we have a very very large business in services and in integration. ... I’ve seen a couple of analyst reports that say we’re leading the market in the development and delivery of SDP platforms for service providers. So it’s a main business for us and we have long, long experience. And [Microsoft is] right, it’s very complicated and requires lots of customization today.”

xchange: How exactly does moving to open application development and embracing third-party developer partners help service providers like the telcos grow their revenues? I don’t think Apple is making much, if any, profit on its AppStore. I believe the strategy to develop applications there is more about driving adoption in the iPhone. So if that’s the model...

Krause: “Of course the Apple model, Apple being a hardware company as much as anything, they’re looking for ways to drive demand for the products that they make. And I would say it’s not terribly different for an application and equipment like Alcatel-Lucent where in the short term of this type of strategy you wouldn’t necessarily see us really getting rich off of the application itself.”

xchange: Right. But the goal for service providers is to make money on applications, and I’ve read that the AppStore, which some are calling the model here, is not making money. So how do you square that?

Krause: “If you want to look at it just from the service provider context, what we’re getting at here is basically the current problem they have, which is they are not in the Apple value chain or the Google one or the YouTube one or any other one from the over-the-top side. So they’re having to deploy massive amounts of bandwidth in their networks just to carry the data that they’re not getting paid for.

“Also, they have another problem in that their brand is not seen as the most relevant brand by an end user, whether it’s an enterprise or a consumer. I mean the BlackBerry that’s up to my ear has got a little tiny Orange at the bottom, but what everybody wants to see is on the screen, which is the BlackBerry. So this really the root cause of their problem.

“So what we’re doing here is returning them to the value chain and returning their brand to relevance. To me, that has a multiplying effect on other kinds of revenue possibilities, and what we’re doing brings them a broader potential customer base than what is the customer base of today. Today it’s just about access and connectivity. I’m buying phone service; I’m buying DSL service; I’m buying bandwidth through the network. That’s pretty much the end of the story as a service provider. I have small other things that I’m doing, but if I can get a new set of customers — whether it’s consumers, or enterprise or media companies, owners of brands that care about the way their brand looks — and you can add value to that, each one of those might not be a huge amount of revenue but all together it’s a lot.

“You brought up Apple. That’s a closed ecosystem; there’s a limited number of subscribers and a limited amount of content. In fact, I just was today reading in The Wall Street Journal that the music industry has decided to stop suing consumers over [piracy]. This is a poster child example, because the problem they have is they just want to get paid a little bit, whatever that is, and the Apple model doesn’t overcome their loss on selling CDs. ... The reason why that’s happening is you have this sort of closed ecosystem, which is very powerful. I have my own Apple TV; I love it. But it’s a bit exclusive because the devices are expensive. Why can’t we do something like that in the YouTube world? The reason that we can’t is because the owner of the content won’t allow their content on the site because, No. 1, they won’t be paid and, No. 2, it won’t get distributed with the right level of quality. A consumer won’t buy it from the YouTube Web site because not only is it not there, but also the quality is not that great. It’s great for what YouTube is used for, but that’s it. And there are all sorts of requirements that are regulatory and licensing that aren’t met by YouTube.

“Well, if you want to open that up you have to solve a DRM problem for the content owners and quality program, and you have to do the same thing for the subscribers. So if you can do it so they can put their content on that Web site and you can make sure that they get paid through a structure that gets them their digital rights payment no matter what kind of a screen that content terminates on, then they’re happy. They’ll probably accept less than the dollar that Apple charges today because they’re going to get access to many, many, many, many more kinds of screens. On the consumer side, if they can use the device they have to pay for and consumer the video or the song from a source like YouTube, the barrier to entry is much lower and if the quality is high then they’ll go for it.

xchange: So, what exactly is the role of the network operator and the related financial benefit?

Krause: “One, they guarantee to the content owner and the distributor ‘We will make sure that when valuable content is streamed from that site we’ll manipulate the quality settings of the network because we know when a video is being streamed, so we can step up the quality to that consumer. Secondly, we’ll make sure that you get paid because that consumer is my customer; we’ll just stick it on their bill. We’re secure, they trust us, they’ll pay us and then we’ll get you paid because we’re also going to put a thing in our network that manages the digital rights and transcodes the music or the video to the right format for the screen that it’s being consumed on, because we know who the consumer is.’ So you put all that together and you have now blown open the doors of consumption and connection to that content.”

Source:xchange