Scott McNealy Has Apparently Never Heard Of AOL Time Warner

from the bad-advice dept

At a conference last week, former Sun CEO Scott McNealy offered some unsolicited advice to telecommunications companies: "look into acquiring Internet destination sites that are heavily trafficked." The idea, apparently, is that Internet applications are where all the money is, and so telecom companies that merely transmit bits for their customers risk getting "marginalized." I don't really understand what he means by that, or why it would be a bad thing. As the market for Internet-based applications gets larger and more competitive, a connection to the Internet is going to become more and more valuable. "Marginalized" or not, telecom companies will be able to make a tidy profit charging for Internet access, especially given that there's still relatively limited competition in the broadband market. The way for broadband firms to increase their profits is to focus on providing faster and more reliable Internet connections, so their customers are willing to pay more for access to all the goodies the Internet has to offer.

Diversifying into application or content markets would divert the telcos' focus away from this core competence. Hybrid network/content companies don't exactly have a great track record. The most spectacular example is probably AOL Time Warner, which, um, didn't work out too well. And the examples McNealy cites don't really work either. He mentions eBay's Skype acquisition, but Skype is an application, not a network provider. Google's participation in the spectrum auction is a better example, but Google has made it pretty clear that its goal isn't to direct customers towards its own sites so much as to ensure that the existing telecom companies don't interfere with customers' access to Google properties. And in any event, Google hasn't even won the auction yet, to say nothing of actually building the network. If it does build its own network, it may turn out to be as big of a disaster as AOL Time Warner was. Telcos should stick to what they know best, and leave website development to companies like Google and Yahoo!

Filed Under: content providers, core competency, infrastructure, scott mcnealy