Summary: How is the strategic rationale for BT’s acquisition of Ribbit as their ‘Voice 2.0’ platform working out? We spoke with Crick Waters, Ribbit’s co-founder and EVP.
NB You can download a PDF copy of this Analyst Note here.
Overview
The main deployment of Ribbit in BT Business was all of two weeks old when we spoke to Crick Waters co-founder and EVP, Strategy and Business Development of Ribbit, so it is a little early to be definitive about the question of whether Ribbit has yet proved worth its $105 million cost to BT.
However, in addition to aiming to use Ribbit widely to provide ‘Voice 2.0′ applications for corporate customers and SMBs, and starting to use it in its core network, BT is following a key Telco 2.0 principle and using Ribbit applications internally to improve productivity and flexibility.
In this article, Crick says ‘Voice 2.0′ applications are critical for operators to remain relevant as providers of real-time communications in a multi-screen, multi-device environment, and argues that Ribbit’s core skills are “engagement, metrics, and monetisation”. We also highlight the learning that the benefits of business model innovation are not always just improved revenue growth, and in many cases include broader benefits to the overall business ecosystem.
Ribbit – Background
We’ve been following Ribbit and their efforts to create a platform for rapid development of voice & messaging applications for two-and-a-half years. The reasons why we were interested are articulated in this quote:
Further in the future, though, highly reconfigurable telephony is likely to lead to radically different product and business models for telcos. For example, civil engineers stamp out custom bridges off well-tested models based on span, load, and topography. Your telco consulting services arm will be building custom communications experiences, with the software equivalent of a flexible manufacturing system. Custom back-ends, process flows and user interfaces will be generated from tools and models. Each is created appropriate to the application and user context. Most devices will have a completely “soft” and re-configurable user interface.
When BT acquired Ribbit in the summer of 2008, Thomas Howe pointed out in a guest post that CEBP (Communications Enabled Business Processes) projects typically result in productivity gains of around 20%, and 20% uplift in productivity across the whole economy is a lot of money by anyone’s standards. We had a look at some different CEBP/Voice 2.0 business models in this analysts’ note, and discussed the technology strategy aspects here.
So, how’s the business coming on?
Many people felt BT had hugely overpaid for the company in laying out $105 million for “100 developers working on salesforce.com”, as one Oracle executive described it. As we pointed out here, though, it had within it the potential for a transformation of BT’s business – a strategy that would integrate developer APIs, open CRM systems, call centres, and broadband connectivity, across BT Retail, Wholesale, and Global Services.
That was the theory, but BT’s politics and economics didn’t quite work out like that. Ben Verwaayen’s departure from BT seemed, at least temporarily, to rob the initiative of top level support. The recession revealed the downside of BT Global Services’ (BT GS) rapid expansion, as the division turned out to be sitting on an impressive pile of bad contracts. The doomed NHS National Programme IT contracts were almost enough to add up to a major crisis in themselves, and the plummeting stock market caused BT’s pension fund to need a huge cash injection. BT shed some 35,000 jobs, and J. P. Rangaswami was transferred from BT Centre to take over Ribbit personally.
Despite all the drama at the corporate level, though, Ribbit has been quietly achieving. The launch of Ribbit Mobile, its first consumer (well, prosumer) product, got a lot of attention and favourable comparisons to Google Voice, like this CNET review, or this story on TechCrunch:
“Ribbit Mobile’s iPhone app is fine as far as it goes, but I kind of just want it to take over the entire phone function of the iPhone, which is the part of my iPhone I use the least anyway.”
Let’s repeat that: “I kind of just want it to take over the entire phone function of the iPhone…which is the part of my iPhone I use the least anyway“. One sentence sums up the potential of better voice and messaging, and the threat to the 66% of Vodafone’s revenues that consist of voice or SMS. Here’s an example: Caller ID 2.0, a feature for Ribbit Mobile that links your phone number, your address book, and LinkedIn’s API:
“Today, when a call comes in or when you make a call, Ribbit Mobile reaches into the social web and finds the recent LinkedIn updates, Facebook updates, Tweets, and Flickr photos of the person calling you. If more than one match is found, Ribbit Mobile will ask you to select the right person.”
Figure 1 – Ribbit Mobile Screenshot
Ribbit’s recent developer challenge shows some fascinating examples of the creativity open telephony enables – Sena Gbeckor-Kove integrated the open-source CRM system Sugar, the winner integrated telephony into an Augmented Reality application.
That’s all very well, but it’s admittedly a little shiny and tech-newsy. That said, it’s absolutely essential for a business like Ribbit that it gets attention – a developer platform without developers is fairly pointless, and Ribbit has so far signed up 22,000 developer accounts. The previous time we checked in (about a year ago) the count stood at 600.
What about the strategy? Is BT still aiming to fix Global Services with open-source software and developer APIs, as J. P. Rangaswami said when Telco 2.0 visited BT’s open-source development shop? We had a chat with Crick Waters, co-founder and EVP, Strategy and Business Development of Ribbit to find out. Here are some of the key points.
[NB. As background on BT’s organisation, BT Global Services deals in key accounts and giant contracts – multinationals, global carrier services operations, and government contracts. By contrast, BT’s small and medium-sized business products sit within BT Retail, in a division called BT Business, parallel to the traditional residential operation in Consumer.]
Ribbit’s biggest current customer is BT
It is useful to understand Ribbit in the context of BT’s strategic objectives. At their 2010 investor day, BT executives said that the key strategic priorities at BT were as follows:
- executing on FTTX deployment;
- re-launching BT Vision IPTV;
- aggressively promoting networked IT products to SMBs;
- providing integrated IT solutions for Global Services’ customers among multinational companies and government.
The last two of these are very much what Ribbit is aimed at – BT wants to defend its market share by introducing advanced features that rival operators don’t have, and to replace declining voice margins and volume by up-selling its existing small business voice and IP customers to richer networked-IT/cloud computing services. Ribbit is crucial to this strategy as its fundamentally network-resident nature means that BT can deliver better voice and messaging services to any business that takes its service. (NB. To illustrate the importance of bolstering voice revenues, Amdocs forecast an average 3% annual decline in voice revenues globally at their June 2010 InTouch event,)
BT Global Services is already making heavy use of the platform to build applications for its clients, which allows Ribbit to leverage the BT sales force and customer base, while the BT GS consultants and developers get another powerful tool to work in parallel with Salesforce.com, Sugar CRM, Avaya, Microsoft OCS, Asterisk, and friends. The very simplest demonstration of this is on the main BT website for business customers in the UK – ask them for Salesforce.com and they’ll offer you the Ribbit plug-in and Ribbit Mobile.
Providing CEBP for businesses ranging from sole traders to FTSE250 enterprises (BT’s definition of SMBs) is a significant operational challenge. There are obvious costs to delivering on-premises or even traditionally hosted Asterisk or similar products to hundreds of thousands of SMBs. If BT can provide a platform with comparable features as a cloud service, it can provision Ribbit accounts in the same way as it currently provisions telephony, ISP, or wholesale carrier-services products. This avoids the need to build a huge network of systems administrators and minimises the additional truck-rolls required. They may even be able to use their existing online provisioning workflow and CRM systems.
Rather as Telenor Objects does for Machine-to-Machine applications, Ribbit is a platform that provides horizontal CEBP and unified communications for Person-to-Organisation applications and delivers them from the cloud. As this slide from Marie Austenaa, Telenor’s VP in charge of Objects, shows, Telenor is trying to integrate an open platform business model and technology architecture with the traditional telco strengths of managed service delivery, distribution channels, and universally recognised brands.
Figure 2 – Telenor Objects Provides a Horizontal M2M Platform
Source: Telenor presentation to 9th Telco 2.0 Brainstorm, April 2010
Last but not least, BT also uses Ribbit in its own internal voicemail systems to transcribe voicemails into emails and forward them to their intended recipients, speeding the process of message delivery and thereby ‘eating its own Ribbit food’.
Ribbit’s External Target Market
In terms of the space in the enterprise market that Ribbit is targeted at, we recently identified a gap between companies that are either large enough to pay for custom development and infrastructure, or tech-focused enough to have the skills in-house, and those ultra-simple businesses whose IT needs are met by Google Calendar and SMS. We think that Telcos’ ability to aggregate many small customers from their large customer bases, and to provide services in the cloud, may well fit them to compete in this zone of opportunity. The darker band on the chart below illustrates this opportunity zone.
Figure 3 – The Market Space for Voice 2.0 Applications Developers
Source: Telco 2.0
The concept of “barely repeatable processes” versus “easily repeatable processes” as introduced by Sigurd Rinde, CEO of Thingamy, is also relevant here, Easily repeatable processes are the roughly 30% of GDP that consists of industrialised processes, subject to automation and kaizen. Barely repeatable processes are the rest.
Customers in the gap usually have significant scale in one or more business processes that are currently “barely repeatable processes” with their level of technology. These processes typically rely on e-mail, telephone calls, and unstructured note taking or paper systems for workflow. The distinction between “barely repeatable processes” and “easily repeatable processes”, however, is defined by the available technology. If a service like Ribbit can make the kind of CEBP traditionally reserved for much bigger (or more tech-intensive) companies available to these smaller businesses, it can allow them to move more of their operations into the ERP sector and reap the productivity gains.
Since we spoke to Ribbit, BT has announced the full integration of Ribbit into its SMB VoIP product, One Voice – essentially, Ribbit is now BT’s premier offering to business in its home market. We also expect more announcements soon in this field. Arguably, transforming the supply of IT services to SMBs is the strategic goal for BT in acquiring and integrating Ribbit.
Staying Relevant: Injecting Innovation into the Core Network
It’s worth remembering that Ribbit’s assets weren’t limited to the code that implements the Flash API – it has a whole Class 5 softswitch underlying it all. Fascinatingly, BT is increasingly making use of Ribbit technology in its core network, as it begins to grapple with the question of what will replace the PSTN. According to Crick Waters, it’s a question of how operators remain relevant as providers of real-time communications in a multi-screen, multi-device environment, where “everything is a computer” and dial-tone is no longer enough.
For example, the increasing collective computing power of the devices at the edge of the network is rendering the network core less important. The recently announced edition of Skype for the iPhone, notably, is in fact a full Skype P2P node like the ones on PCs that make up the Skype cloud.
Apple’s attempted re-launch of video calling in iPhone 4 marks its own transition from being a device and software manufacturer to a provider of telecommunications services – powerful devices tend to bypass the network core, and Apple video calls will pass over Wi-Fi and directly between iPhones, not through the 3G video call channel.
He named convergence, multiple identities, single sign on, and switching between asychronous and synchronous modes of communication (for example, from e-mail or a ticketing application, to instant messaging, to voice, to video, collaborative editing, or telepresence, and back to update and file the ticket) as critical fields, where operators might be able to provide key enabling capabilities others could not
Ribbit co-founder Ted Griggs has been given the newly recreated title of CTO Voice in BT itself – readers with long memories may recall that BT once had a post of Head, Global Voice Technology, which was then abolished. Ribbit developers are working on BT-wide applications, and Griggs is apparently spending significant amounts of time on 21CN business – this would seem to show that there is again real commitment to better voice and messaging at BT
Click-to-Call, Better Signalling, Voice to Text
The biggest external Ribbit customers by sector are currently digital advertising agencies, heavy users of the click-to-call API, which lets them integrate real-time business processes with their ad campaigns and collect richer information about the potential customer and their interaction with the ad before the call begins, and then financial services companies. Financial Services firms are especially interested because of the Sarbanes-Oxley Act compliance requirements (which require accurate records of customer interactions to be kept), and also for productivity reasons – typically, in many parts of finance, much business is done on the phone in unstructured format.
Ribbit applications are useful in this context because they are used to capture calls, convert the voice stream to text, and archive it – this provides Sarbanes-Oxley compliance, and also a source of structured data about the business’s interactions with its customers. The key point here is that if you’ve got the metadata and you’ve got the conversation converted to text, not only can you pass more data about a call to the call taker, or the call originator, when it originates from a Web application, but you can also pass data about the call to an application for automated processing. Ribbit expects an arms race in voice-to-text applications.
Rolling Out with More Carriers
Ribbit is planning to expand rapidly by signing up more telcos to offer the service. Evidently, the signalling/control side of Ribbit is global – it’s a Web API. The voice side, however, isn’t. The answer is for new operator partners to hook up their networks to Ribbit’s through SIP peering – Ribbit calls this a “bring your own network” model. One advantage of the SIP interconnection model is that it permits very quick deployment.
They are also interested in integrating other Telco 2.0 capabilities such as location-based services and internal CDNs, so that developers working with Ribbit can get them through the Ribbit API. Location-based services has long since become a low value, “table stakes” business, but there is convenience value in being able to get all the dependencies for an application from the same API, without adding more potential points of failure and managing other passwords, keys, and the like.
More interestingly, operators may have a strategic advantage in their extensive property footprints, all of which are of course well networked. As applications become more video- and data-intensive, and more of them have real-time features highly sensitive to latency, the importance of CDNs and also what might be called “ADNs” for Applications Delivery Networks will only grow. Deploying applications to hosting close to users saves bandwidth, reduces latency, and also provides geographical distribution and therefore resilience; Amazon Web Services will let you choose where in the world your code runs, but only to within continental scale.
BT, for example, could provide a similar service but with city-level granularity and it could do so through the Ribbit API.
Crick Waters argues that Ribbit’s core skills are “engagement, metrics, and monetisation”, and that they are working with a number of operators on their API strategy. Smaller operators are the focus of their deployment push – these are unlikely to create their own voice applications platform, and stand to benefit from joining an alliance with global reach. There is an analogy with the roaming hubs and alliances that helped to achieve universal GSM roaming and interconnection in the 1990s and 2000s.
Some Further Thoughts on Ribbit and BT’s Innovation
It’s notable that, as well as cross-selling Ribbit into the UK business customer base, BT is also cross-selling BT Global Services products into the Ribbit customer base – for example, the Ribbit Web site is currently advertising hosted contact centre services, a key BTGS line of business. Overall, BT’s strategy will tend to spread the profits from better voice and messaging and their integration with Web applications across BTGS’s activities with contact centres, multinational companies, and government, and also across the BT Business element of the BT Retail division – Ribbit’s relationship with BT is in this context that of an internalised supplier of technology.
Successful execution of this strategy will be very important for BT in the future and for Voice 2.0 in general. BT is thinking about the future again, after the organisation went through a wave of introspection and loss of confidence; one sign of this is that they are considering what kind of customer premises equipment might be the future gateway for operators into the home. At the 2010 investor day, they demonstrated an iPad-like tablet device as a potential replacement for the fixed phone. Others might think a femtocell, a Google TV, or a media-server device providing content and home-automation interfaces to mobile devices around it a more plausible future. What matters is that BT is experimenting, rather than retreating into denial or getting stuck in option paralysis.
Long before that, they are clearly aiming to use Ribbit’s technology and developer community model to become the primary supplier of IT services for UK small businesses.
Conclusion – BT eats its own Ribbit food
The main deployment of Ribbit in BT Business was all of two weeks old when we spoke to Crick Waters, so it is a little early to be definitive about the question of whether Ribbit has yet proved worth its $105 million cost to BT.
However, in addition to aiming to use Ribbit widely to provide ‘Voice 2.0′ applications for corporate customers and SMBs, and starting to use it in its core network, BT is following a key Telco 2.0 principle and using Ribbit applications internally to improve productivity and flexibility. There are a lot of telephone calls going on within a company the size of BT, so a productivity tool based on voice and messaging has obvious relevance for their internal business processes.
In our view, an essential part of the ‘Roadmap’ to new Telco 2.0 style business models is to ensure that synergies with existing business models are maximised. These synergies may not simply be additional revenues from the new line of business, but also beneficial effects on any of the five components of the existing business model as illustrated below.
Figure 4 – Five Components of a Business Model
Source: Telco 2.0
While Ribbit is intended primarily to differentiate BT from its competitors in the SMB market, and to a lesser extent in its consumer and contact centre businesses, it also gives BT some new technical capabilities and opportunities to recruit new partners into its value network.
We think that BT’s approach to Ribbit embodies an important lesson in the development of the business case for new telco business models, which is that the cases will often be based on a combination of expected direct revenues from the new line of business, and incremental improvements to the existing lines of business. These can include:
- direct revenue enhancements, such as driving minutes of use through the core BT voice network and up-selling existing SMB customers for voice and Internet service to richer networked IT products;
- indirect but equally valid top-line benefits such as improved competitiveness, customer loyalty, and reduced churn, for example, by buttressing customer retention with eye-catching new features;cost and productivity improvements, such as better personal productivity tools and contact centre systems within BT internally;
- and more difficult-to-quantify enhancements to capabilities and technologies which potentially enable further opportunities, such as future developments of Ribbit and the BT technology platform, and upgrades to the capability BT Global Services can offer its enterprise customers.
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