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I met up with my friend George who writes for a number of specialist telecoms publications covering everything from back-end systems to mobile services.

He has noticed a resurgence in the telecoms sector driven by large media companies like Google. This resurgence isn’t the hype blown version of the 1990s but a comeback none the same. There is no longer a surplus of capacity from an aggregated point-of-view and where there is, it is because the fibre was laid between the wrong destinations.

Telecoms providers do face a continued problem; how to monetise this new demand and there in lies the crunch.

Will customers accept prioritised packet delivery, tiered SLAs and delivery policies based on an application analysis?

The technology from the likes of Naurus, Cisco and TopLayer Networks is already available.

Businesses that did remind us of the alternative telcos of yore that were eventually swept away with debt and failed business models are the mobile services companies. They have a number of challenges to overcome:

  • A torturous road to market, by gaining space on a carrier’s portal page
  • Relatively expensive delivery mechanism
  • Relatively high content development costs (and possible brand licensing costs), particularly games development; especially if you contrast this with the ringtones of a few years ago
  • Little to no, consumer brand awareness or loyalty
  • Hard to translate a sale into further word-of-mouth buzz in the same way that happens with physical games media

Large existing games companies like Eidos or Infogames have an advantage in that they can leverage marketing campaigns and popular franchises if they can coordinate a product launch on console, PC, portable devices and phones at the same time.

Over at MicroPersuasion Steve Rubel is wondering whether the vibrant nightlife in San Francisco is sign of another bubble.

I’m not inclined to think so, at least not on the same scale anyway. I think that Rubel is right in that we will see a lot of failures. In fact, Silicon Valley has been built on the bones of failures and will continue to be, for instance General Magic, Be Inc., Xerox PARC, Digital Research and NeXT. I also agree that there will be a market correction, but I don’t think that it will be on the same kind of scale as the dot com bubble:

  • Sarbanes Oxley means that the IPO is no longer a realistic out for many businesses that it was. However the LSE AIM market may offer the option to European businesses and already there has been a mini-burst in the online gambling sector when US gaming law changed the dynamics of the market in favour of domestic offerings
  • Funding: most businesses don’t need a lot of it. LAMP (Linux, Apache, MySQL, PHP), development tools like Ruby and Amazon’s S3 service mean that a start-up can be funded by scraping around with a couple of credit cards and family loans. This also means a lower barrier to entry for competitors and a lower resale value. Hence VC money required is an order of magnitude less and the level of reward is substantially smaller
  • Fast-failure approach: take Bing as an example. This was a five-man start-up. After they did an alpha test of their product that was luke-warm and after some additional research, they shut up shop and returned the capital to their investors. Contrast that with web 1.0 where bad companies were merged to make them more of the sum of their parts and VCs not having to write their investment value off
  • The competitive advantage in many sites is not in the code but more in the art of community management. As media companies have proven, building a social media site is not hard, building a vibrant community is the challenge.
  • Hotter areas: green and healthcare are both more capital intensive sectors with the promise of a big pay-day for VCs (so they don’t have to refund the unspent money and their management fee to their investors)