Network-based services are hard to define precisely because of the diversity of networks and users. Some network-based services familiar to users of the Public Switched Telephone Network (PSTN) are basic voice services, such as transferring a call and speed dialing, and advanced services, such as voice mail and Automatic Call Distribution (ACD). Network-based services provided over the Internet include email and the name-to-address transla- tion that the Domain Name Server (DNS) provides, along with a plethora of Web-based applications and services. Some network services such as email and voice mail are visible to the network users. Others, such as circuit setup in the PSTN and hop-by-hop packet routing within the Internet, provide a basic infrastructure that is invisible to most users. The operative definition in this book is that a network service is any service provided within or over a network.
When a service becomes available on the market, it may or may not be possible to accurately predict how well its features will meet market demands. This happens because of market uncertainty (MU), which is the ability to predict the market for a particular feature set of a service. There are many examples illustrating high market uncertainty with network- based services, such as the prediction that video phones would be popular before 2000, AT&T’s predictions about the small potential size of the wire- less phone market1, or the predicted success of ATM to the desktop. Market uncertainty may also be low, such as in the case of basic email and basic voice features that are known to meet user needs well. Market uncertainty 16 Chapter 2
1Presented in class about network architecture by Scott Bradner 2/09/01.
is this ability to understand and predict what users will embrace, and what they will not.
Previous research from Clark [1] shows that when new technology is first introduced, users’ expectations evolve along with the technology.
Clark noted that when the first automobiles were built, users viewed them in the context of a horse-drawn carriage (hence the name “horseless car- riage”). Only later, as users began to understand the range of possibilities, did attributes such as reliability, comfort, and safety become important. A similar phenomenon is occurring with the Internet and the Web. The diver- sity of Web-based applications is beyond what pundits ever imagined.
Nobody predicted in the early 90s what the Web is today or its impact on society. The combination of new technology and users’ perceptions of their evolving needs creates market uncertainty.
One important question about market uncertainty is to whom does this market uncertainty apply. Is it the user of the service or the manager of ser- vices within a company? The answer may be very different depending on whether the usage is within a corporation or private. For example, consider email; for end users at home buying this service, the market uncertainty is relative to the service provider’s ability to meet the needs of the email user.
The corporate situation, though, is more complex. Typically, at a company, a network manager is responsible for providing telecommunication ser- vices. This manager pays the service provider for service and may bill dif- ferent departments for services provided by the networking group. The market uncertainty that this manager faces may have two components.
First, company policies may dictate what the network group can do. Con- cerns about security or preferences of upper management may constrain the choice of vendor and type of services the manager is allowed to pro- vide to company employees. Second, if company policies allow some dis- cretion, the manager is responsible for keeping the users happy. This shows that market uncertainty is complex because of its many dimensions.
Looking at how Harvard University provides services to its users illus- trates this better. Harvard is most concerned with meeting the needs of its academic and management populations. Management at Harvard has two basic choices for email: buy “raw” IP service and use it to provide mail servers owned and managed internally (the current solution), or outsource the service. By providing email in this distributed fashion, Harvard has control over its email system. Because the uncertainty of basic email is low and Harvard’s record for managing its email system is not perfect, I believe (by thinking along the lines of this book’s argument) that in the current email environment the needs of Harvard users can be met by outsourcing
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email. Harvard also provides telephone services to its users and has two choices: the distributed solution, where the university owns and manages its PBXs, or the centralized model of Centrex. With normal voice over the PSTN, Harvard uses the Centrex service. Market uncertainty is low in this area, and the needs of the users are well met. Harvard, however, is now experimenting with Voice-over IP, a new area with much market uncer- tainty about what features customers want. Harvard feels the needs of its users are better met in this particular case with the distributed solution of owning an IP-PBX. Leo Donnelly, the manager of this project at Harvard, knows that he does not understand what his users want from Voice-over IP, so he is allowing experimentation. This example shows that for Harvard, market uncertainty is focused on the end user of the service because of the diverse group of users with very different needs. If the net- work managers at Harvard do not keep their users happy, others who can provide good services will replace them.
Today Web-based applications are the rage, but how does one decide which Web-based application is best for a particular business need? Web- based applications are very diverse, from traditional Internet services, such as email, to a new breed of services enabled by the interactive nature of modern Web pages. From taxes to maps to banking, Web-based applica- tions are trying to find the right business models. Some useful services such as travel directions and maps (MapQuest) are popular and provide a tremendous service, as Scott Bradner pointed out in a Network Worldcol- umn [2]. It is unfortunate that these companies do not yet have a business model that can generate revenue for well-received services. At present, nobody knows what services will succeed from a business standpoint by providing sufficient value to those supplying the service. This book helps both the manager and investor by illustrating how market uncertainty affects the value of Web-based applications.
Companies such as Microsoft, with its .NET, and Sun, with J2EE, are betting that users want to use Web-based services. They believe that a big market exists for applications built with Web-based services. For now the market uncertainty in this area is huge. Not only are the services that busi- ness wants unknown, but the best architecture with which to build these services is unclear. Microsoft believes its .NET scheme is best, but other major players such as Sun and IBM believe in a pure Java environment.
While it is almost certain that Web-based services will be adopted by many businesses, what the services are and how they will work are cur- rently the source of much industry speculation, indicating high market uncertainty.
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There is much uncertainty about the adoption of these network-based services by businesses. Will companies build their own services, or will they use service providers? Furthermore, what will the management struc- ture of these services be? Outsourcing will allow businesses to focus on their core companies, while building their own services will allow more flexibility in meeting uncertain user needs. The jury is out; we now need to wait to see what happens.
In today’s IT environment, managers and investors who understand why particular network-based services have become successful over other services are in a better position to decide what type of network infrastruc- ture is best, given the degree of market uncertainty. Some network-based services, such as basic voice and email, have changed how we live and work and have created vast wealth. Other services, such as videophones, have never emerged as predicted. This way of thinking with an option point of view helps manage the uncertainty in the dot-com and telecom sectors, capturing the most value from these services by minimizing the risk associated with high market uncertainty.