Pipeline or Platform for MEC?

Can connectivity providers create an edge computing platform? And if so, what does such a platform entail?  It is a question with significant revenue implications. Early moves by mobile operators suggest they have not yet come up with a viable path forward, despite the use of the term “platform.”

Present mobile operator 5G strategies for edge computing, for the most part, avoid direct competition with the hyperscale cloud computing giants, operating instead as edge real estate partners (space, racks, security, cooling, power), 5G networking for system integrators or providing low-latency routing, though other roles supporting vertical industry applications are being pursued. 

None of those roles and revenue models constitute a platform. Rather, in the framework of business models, they are “pipelines” rather than “platforms.” A pipeline is the most common business model for any firm in any industry. It involves creating a product and then selling that product to a customer. 

Even some products sold by “platforms” such as Amazon Web Services actually have “pipeline” business models. When AWS sells computing or storage or “platform” as a service, it actually acts as a traditional pipeline supplier. AWS creates a product and then sells it directly to customers. AWS Wavelengths, one form of AWS edge computing products, remains a “pipeline” business, no matter how much we might characterize AWS overall as a “platform.”

So what characteristics might an edge computing platform feature?

A platform business model essentially involves becoming an exchange or marketplace, more than remaining a direct supplier of some essential input in the value chain. It is, in short, to function as a matchmaker. 

In a sense, a federated mobile operator edge computing platform would allow any edge computing supplier to connect with any edge computing services buyer, as well as allow any third party software supplier to connect with any edge computing supplier. 

The multi-service edge computing (MEC) platform would facilitate selling and buying and allow participants in the exchange to find each other. By definition, an edge computing platform offered by a mobile operator would not offer edge computing itself. It would allow all suppliers and partners to reach all potential customers in an ecosystem. 

The MEC would exist as an exchange; a marketplace; a transaction-enabling platform; necessarily in a full multi-cloud (every cloud) ecosystem. 

A MEC platform would be a resource orchestrator, not the “owner” of the computing services or application assets themselves. The value of the MEC would come largely from the contributions made by community members--not mobile service provider ownership or control of scarce inputs it vertically integrates.

By definition, a supplier of edge real estate or access does not become a platform by doing so. As a creator of an ecosystem of buyers and sellers, a MEC edge computing platform would create value by federating all relationships across the ecosystem. Ecosystem value creation is the key and distinguishing function. 

To ask and answer the question, can a “pipe” business model (connectivity or real estate) be a  platform? The simple answer is “no.” That is not a criticism of mobile operator skill. 

Few businesses, in any industry, can become a real platform. Most revenue models are built on creating a product and then selling that product to customers.

Though firms often are urged to become platforms, few actually can do so, and not for reasons of technology deployment, skill or type of product. Successful platforms are relatively rare because they require scale, and few businesses can afford to invest to scale.

Scale is necessary because profit margins for a platform typically are very low. The old adage about volume offsetting low marginal revenue does apply. 

Life as a platform would ultimately be based on very low per-unit prices. In fact, as many platforms feature zero marginal cost, they also tend towards near zero pricing. 

Virtually all platforms feature lower prices per unit than rival pipe businesses, for a number of reasons. Typically making extensive use of internet and computing resources to radically lower transaction and information discovery costs, etailing platforms inevitably push cost out of retail transactions. Platforms reduce friction. 

So most firms in the edge computing ecosystem--including mobile operators--will not be able to transform as platforms.

So are there other options? Sure. Firms might try to gain scale to lower unit costs, change the cost model in other ways to enhance profitability, exit the business or change the game being played. 

Moving “up the stack,” across the ecosystem or into new or adjacent roles within the value chain can “change the game.” That is the strategy behind Comcast and AT&T moving into the content ownership business, or moves by other tier-one service providers into new lines of business outside the connectivity core. 

In other words, being a more-robust pipeline, rather than trying to become a platform, is the path nearly all firms must take. It does not yet seem as though it will be any different for mobile operators in the edge computing ecosystem.