The Money Cloud

March 22, 2010 - 1 Comment

Contributed by Sachin Sathaye, Marketing Manager, Service Provider Video Solutions Group

Call it the service provider cloud. Call it the network as a platform. Call it a two-sided market, or a “B2B2C” business architecture – consumers on one side, businesses on the other. In every way, this sustained push of Internet Protocol into the day-to-day activities of service providers is bringing with it substantial new revenue opportunities.

Which is good, because the one-sided business model – marketing services to consumers only – shows every sign of heading into a period of increasing costs, and flattening revenues.

My personal favorite, of the nomenclature above, is “two-sided market,” also sometimes called the “B2B2C” business architecture; because it illustrates that service providers can grow well beyond serving “just” consumers. Residential delivery of voice, video and broadband services are the bread and butter, no doubt – but the second side stands to be just as significant, over time.

business to business to consumer

What’s the second side? It’s a group, really, of entities that could benefit from business and technology arrangements with service providers. It’s content owners, content aggregators, application developers. It’s retailers and advertisers. It’s utilities and governments. Just like Amazon needed a nationwide mobile arrangement to move electronic books into Kindles, so will a whole range of new applications and services need that kind of managed middle-man connection.

One example: Third party application developers, who may need specific QoS parameters for the new video application they’ve developed. By hosting third parties on their network cloud, service providers stand to benefit in three ways: New revenues, service velocity, and enhanced consumer experiences.

What’s the attraction? Service providers are stocked with valuable assets. Monetizing QoS is but one. There’s also that billing relationship, already in place with millions of subscribers. Then there is also the security and authentication systems, already long in place to deliver secure services. And, there is also the notion of the video optimized content delivery network, built specifically to satisfy the growing need of video consumption.

And let us not forget the stockpiles of aggregated consumer data, for mining.

Consider this: Amazon’s wholesale cloud services contribute something along the lines of 5% to annual revenues – but 35% of operating income. That’s because it doesn’t have to deal with fulfillment, customer care, or product costs. Amazon leverages its user base (90+ million), its traffic, its payment system, and its product detail pages.

Certainly, all of this requires a different future mindset amongst service providers. One element is just the intestinal fortitude to allow third-party entities – who may bring a competing service – onto the plant. But that risk is logically counterbalanced with new business models and the time-to-market factor – meaning faster ways to add value to existing services.

One thing is clear: The deeper IP goes, the bigger the opportunities grow. The IP networks built by services providers are a great way to attract new business opportunities, from wholesale CDN to third party support.

So, service providers are in a prime position to adopt a mantra of “the network is the platform,” by putting in place a B2B2C business architecture. Two-sided business models are coming, and they’re sustainable. Amazon isn’t the only one with a cloud. Remember that. And stay tuned on this one – it has lots of angles, and our plan is to keep the dialog going.

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  1. Hi MuraliYou describe the network as a B2B2C business arcitecture. I can see that that is the order of the data flow and even electrons. But that does not match the order of money flow. And rightly or wrongly it is the money flow that drives the business architecture. Money flows from consumers to Product/Content retailers. From this flow various expenses such as network costs are paid. Companies such as CISCO have always relied on income from Product/Content retailers. Note also, that the upstream revenues (from Product/Content retailing) are orders of magnitude greater that the downstream revenues (e.g. network services). This is partly due to commoditisation of the network. I agree that for network providers such as CISCO, network inovation is the key to sustaining revenues, and possibly even increasing them. Taking the example of Amazon, downloading ebooks to the Kindle 2 and Kindle DX via mobile networks, took a long time to agree because the network service providers were in a better position to negotiate due to the fact that wireless is a limited resource, unlike wired networks. Generally however Product/Content retailers are in the driving seat. And regarding the profitability of Amazon Web Services, we all know how flexible accounting can be. Remember Amazon Web Services would not exist if was not for the success of Amazon’s Product/Content retailing business. I have been tracking the development of Amazon bestselling product, the Kindle, which can revolutionise consumer behaviour and change the business model for book reading. Check out my blog