While Verizon fiddles with FIOS Strategy, Apple has triple-play
May 12, 2007Prof. Kevin Werbach on FIOS strategy:
Werbach suggests that Verizon use its network to rethink how video is delivered. “TV as we know it will be transformed over the next 10 years. Conventional broadcast and cable channels will still exist, but new distribution mechanisms and content forms will be an increasingly large portion of the video universe. If I were Verizon, I would focus not on duplicating cable TV, or on small changes like a la carte channels, but on the radical potential of vast increases in video capacity. Verizon should position itself as the world’s biggest, and most open, distributor, aggregator and originator of video content. It should invest in navigation and interface technologies to help users make sense of all that content. Otherwise, even with all the bandwidth, it will lose out to companies that can create better user experiences, like Apple, Cisco and whoever buys TiVo.
I don’t why the focus should be solely with video content, though I agree that Verizon should stop competing with cable firms, especially when consumers perceive little differentiation. Besides, FIOS’s lone selling point (high bandwidth) seems to possess a limited shelf life and cable firms are well on their way marketing the four-play.
Verizon needs to reassess its position in the market and determine the best way to beat cable – trumpeting a me-too strategy won’t work. Verizon owns infrastructure – cell, land-line, DSL, and, now, fiber – how about opening up their network for a thousand little Verizons that can out-battle Comcast better than a monolithic Verizon. In fact, the economics of this better too – lowered marketing (running close to a $1B now), better recurring revenue, and lower support costs. Apple is well on its way to actually having a three play (consider how well integrated Apple TV, iPhone, iChat, and iTunes is going to be in about a year); Verizon cannot compete with integrated bundles that third-parties are going to start offering, unless, of course, it successfully lobbies for restrictive legislation.
It’s is going to be far more economical and more profitable for Verizon to outsource its consumer marketing by ‘MVNO’ing” its entire infrastructure stack rather than using a losing strategy of cable catch-up. MVNOs are losing proposition for cellular services alone, but as bundled four play packages, maybe firms, such as Verizon partner Sonopia, have a better chance at sustained profitability.
Forget MVNO, open up the entire stack. Forget tiered consumer Internet service – tier infrastructure services to resellers. Why bother suing Vonage? Make them a reseller! Forget competing with Apple, give them ownership over the entire stack. If Apple can license the entire stack, integrate their mobile, TV, Internet, and VOIP services, and market it to consumers, Verizon wins just as much Apple does. Verizon is still under the impression that it is competing just with cable firms – it isn’t. It’s not entirely clear if Verizon (or AT&T for that matter) will ever realize that.
Verizon and Apple are not in competition. People need verizons bandwidth to operate their apple products. Apple does not have it’s own infrastructure. Consumers still need an ISP/cell network operator to use their apple products.
Think about what you post.
Tom,
Thank you for your note. Actually, Verizon and Apple are very much in competition. Verizon has its music efforts pinned against iTunes. Verizon’s TV services compete with iTunes video download services. The iPhone/AT&T partnership directly competes with Verizon’s offerings. One can presume that iChat competes with Verizon’s landline offerings. That’s why I noted Apple has a triple play while Verizon has a quadruple play – the only area that Apple doesn’t have control over is the Internet access. Maybe I should have explicilty stated in the post.
Regarding the other point: “People need verizons bandwidth to operate their apple products. Apple does not have it’s own infrastructure. Consumers still need an ISP/cell network operator to use their apple products.”
Yes, but, presumably, services like Apple’s are what makes the Internet valuable. So Verizon needs services much as firms need access. My question is what’s more valuable to Verizon – the infrastructure or the applications? If its the former than my post makes sense. If its the latter than Verizon’s strategy is spot on. Hope that clears the confusion.
FiOS is rolling out all over PA and everyone I know who has it loves it. I’m pretty sure I’m going to get it the day it’s available. Even when the cable companies demonstrate huge downstream bandwidth, the upstream bandwidth is paltry. When I upload my kids’ photo album for the family it feels like I’m on a modem. And Comcast television is expensive! Verizon has a great thing going with FiOS alone– they don’t have to “fiddle” with anything.
As for regulation, Verizon has been one of the primary people trying to get it eliminated, because it currently restricts many of the options they would have on the television side of things.
In terms of competing with Apple, certainly their cellphone services are in direct competition with AT&T, a partner of Apple. But they’re not in direct competition– at least not yet. And Apple’s offering of iChat and other internet-savvy applications just drives demand for Verizon services. I think Verizon realizes that Apple helps them more than hurts them.
Sam,
Thank you for your note.
“In terms of competing with Apple, certainly their cellphone services are in direct competition with AT&T, a partner of Apple. But they’re not in direct competition– at least not yet. And Apple’s offering of iChat and other internet-savvy applications just drives demand for Verizon services. I think Verizon realizes that Apple helps them more than hurts them.”
Yes! You made my point. Consider last quarter (from Ars Technica): Verizon added 141,000 FiOS TV subscribers and added a total of 416,000 new broadband connections.
So by 2:1 (assuming the 141k is included in 416k) users are eschewing Verizon’s TV services for alternatives. I wonder what they are.
I stick by main point, Verizon should forget about TV or cable-like services. They would be a more lucrative and profitable firm repositioned as a platform for bundled services (TV+landline+cell+infrastructure) than being a consumer quadruple play. Competing with Comcast in the quad-play market would mean competing on price. That does nothing for Verizon’s stockholders.
The only way for Verizon to avoid a price war is to differentiate its services and open up its infrastructure stack for third-party firms (who can always be trusted to out innovate a monolith).
“One can presume that iChat competes with Verizon’s landline offerings.”
Sure, if one is partial to making a patently ridiculous presumptions. The phrase ‘It’s a stretch’ doesn’t even begin to cover this nonsense.
However, I definitely agree that Apple/AT&T are in competition with Verizon, *so long as* the iPhone remains coupled with AT&T. As soon as that deal is expired, all bets are off, because otherwise, Tom is right.
[...] While Verizon fiddles with FIOS Strategy, Apple has triple-play Prof. Kevin Werbach on FIOS strategy: Werbach suggests that Verizon use its network to rethink how video is delivered. […] [...]
There is one statement in your responses that definately is inaccurate:
“Verizon added 141,000 FiOS TV subscribers and added a total of 416,000 new broadband connections.
So by 2:1 (assuming the 141k is included in 416k) users are eschewing Verizon’s TV services for alternatives. I wonder what they are.”
The fact is that in PA alone only about 25% of all the FiOS areas have video products avalable. In many other states the situation was the same for most of last year. Making you point moot. Much of your other points are debatable and speculative. Although I do agree that bundling is a viable and profitable avenue, I believe selling to the end user and not through a third party gives the most return on the investment. It sounds to me that you are suggesting they offer their services through a third party like a wholesale or resale situation. Verizon’s particular business situation as far as labor relations and experience in resale and wholesale of POTS(plain old telephone service) has given them countless years of specific experience in the area. Also Verizon does have some bundling with AOL, Yahoo, and MSN, they also offer some ties to Apple products and iTunes as part of the install package. You are just focusing on Apple being a “winning horse” and dismissing Yahoo, MSN, and AOL. Thank You