Episode 3 of the Wireless Noodle zooms out to look at a macro-level technology trend, how separation of hardware from software/control layers is the key for unlocking innovation and triggering growth. In it we delve into the specifics of the telecommunications sector and subjects like network virtualisation. We also examine how Apple and Tesla might be ultimately on the wrong side of history.
The full transcript of the podcast is available below.
Separation, innovation, explosion. Those three words summarise a fantastically powerful trend that started with personal computing and is spreading to technology fields as diverse as automotive, robotics and telecommunications.
Back in June at Transforma Insights we published a report called ‘Separation, Innovation, Explosion: how splitting software from hardware is the ultimate tipping point for technology’. The report brought together a lot of thinking about the technology evolution across a wide range of different verticals from manufacturing to consumer electronics. The underlying hypothesis is this: to see true innovation in any given technology sector requires the separation of the hardware layer from software and control. This innovation then translates into an explosion of adoption of products and services. In today’s podcast I want to delve into that a little, including diving in to one sector which is particularly close to my heart: telecommunications.
The most prominent example of a sector or product line which has successfully moved from separation to innovation to explosion, is personal computing where hardware and software production were split in the 1980s. It took the separation for real innovation from the likes of Microsoft and, indeed, the hardware manufacturers such as Dell or Compaq. The result was an explosion of adoption, making the PC ubiquitous today. And it created a platform upon which a healthy slug of the world’s economy is now based. I wouldn’t be sitting here recording this podcast, and you wouldn’t be sitting there listening to it, if it hadn’t been for that change.
When we talk about separation it includes a bit of diversity. First off it includes what is termed ‘IT/OT convergence’ whereby back-end operational technology (OT) systems that are used for monitoring industrial equipment or buildings, for instance, are integrated with an organisation’s wider IT systems to allow for more flexibility of control and data gathering. While this is characterised as ‘convergence’ the reality is that it is a subsuming of OT systems within IT. Secondly it also involves the addition of software components to dumb devices. In many IoT applications the edge device is relatively simple and the ‘separation’ is more about the application of more complex software to managing basic devices.
The result of the separation of the two elements has been a higher degree of innovation in both. The fundamental underlying issue is that it is easier to innovate in one area than in more than one. What are the chances that the most innovative company in making the hardware will also be able to match that in software? Separate the two and it allows best-in-class from both. There is a scale issue too. Separation allows for the emergence of larger scale software development environments running across multiple hardware vendors. This simplifies the developer’s job and allows for competition to more readily establish winners (and losers) in both hardware and software categories. What is required for most of IoT to take off, for instance, is for companies making hardware to have access to common large scale software options. Increasingly we’re seeing this from the likes of Amazon Web Services with FreeRTOS and Microsoft with IoT Plug and Play. Most areas of IoT started from a position of separation, and to date the software element has lacked the scale necessary to take off.
Across all technology markets, from industrial machinery to consumer electronics, we expect the long-term trend is for greater technological innovation where there is a separation of the capabilities. We can see it to varying degrees within almost every sector. In industrial robots, for instance, we see a separation of the manufacturers of hardware (e.g. from companies like ABB and KUKA) from software (e.g. from MTEK or Bright Machines). In energy, the increasing complexity of managing the relationships between electricity generation, storage and consumption has necessitated the arrival of Virtual Power Plants, a software overlay to manage data, energy and financial flows. This is a fascinating topic in its own right and one that I’m sure we’ll come back to in future podcasts. In the automotive sector we’re also starting to see it, with car makers giving up some small control over the entertainment systems to third parties.
The pace at which different sectors are likely to see the separation of software and hardware layers varies dramatically. The personal computing sector has benefited for decades. Others, such as robotics and drones are just starting to realise the benefits. In some verticals, including energy and automotive, there are key triggers that are stimulating this change and promise radical transformation there. In others, such as TVs, there is little to indicate that there will be rapid progress.
The separation of the two elements is not without its challenges, of course. Integrated solutions tend to have intrinsically stronger security, for instance. One of the biggest challenges with IT/OT convergence is the opening up of additional security threat vectors for critical industrial systems. They’re also quicker to deploy. Thirdly it’s also generally easier in a converged system to guarantee user experience in systems where a single vendor controls both the hardware and software; Apple is a perfect example of this.
One of the counter-intuitive elements to this narrative – that tight integration of hardware and software is ‘bad’ for innovation – is that Apple should not be seen as an innovator. It is seemingly one of the most innovative technology companies. However, this is to confuse innovation with user experience (UX). Controlling both hardware and software creates an environment where the UX can be very tightly controlled, but this does not optimise for innovation, at least not in the long term. The other two great benefits of managing both hardware and software in an integrated way are security and time-to-market. It is harder to catalyse an ecosystem to work effectively to pump out products, and it is equally difficult to ensure the security of all the elements; a chain is only as strong as its weakest link. However, over the long term the ecosystem tends to emerge and the security challenges are identified and resolved. All this means that the short-term advantages of tightly integrated software and hardware are gradually eroded and the scale and innovation benefits of separate systems come to the fore.
The other prime example of an integrated player is Tesla. Currently it is riding the wave of benefit of integration with faster time-to-market and UX. It may be ahead of the game now, but we doubt that it can continue to be market leading in both hardware and software. Currently the Tesla platform is limited to a handful of devices. Liberated from its hardware platform (and, frankly, limited hardware volumes) and handed to innovative hardware developers at automotive OEMs we would likely see greater innovation. There has long been speculation that as all manufacturers shift to becoming majority electric that Tesla may want to shift its business model to licence its software to other manufacturers rather than making cars itself. The scale this would bring, both for hardware and software manufacturers would encourage further evolution.
I’m a telecoms guy. My Masters degree is in Telecoms, I’ve worked at a mobile operator. I’ve covered telecoms throughout much of my analyst career.
Naturally the sector that I’m most interested in is that one. And it is right in the middle of the separation process right now, making it a fascinating one to watch. And a great example to use to illustrate what I’m talking about.
Historically telecoms software and hardware were quite deeply integrated. However, recently, there have been initiatives to separate those elements. Things like:
Software Defined Networking (SDN) abstracts the management of the network away from the individual components into a control layer with a centralised SDN controller that manages the whole network.
Software Defined WAN (SD-WAN) is an extension into wide area networking, decoupling the management from the data. This allows the data user more flexibility in managing routing, policy, security and access to cloud-based services.
Network Function Virtualisation (NFV) involves shifting core network functions from specific hardware onto virtual machines running on generic hardware. These network node functions can then be combined to create communications services.
The final area is open RAN, which needs a little picking apart because of overlapping terminology. The concept of Open RAN (radio access network) generically is also about disaggregating hardware and software in the Radio Access Network for 2G, 3G, 4G and 5G networks. This is slightly more complex than NFV because RAN hardware is more technology specific. There is also working group in the Telecom Infra Project called ‘Open RAN’ which aims to develop an architecture based on general purpose hardware managed with separate software. Finally O-RAN is the Open RAN Alliance which is aimed at developing open, virtualised and interoperable RAN equipment.
All of these initiatives push in the same direction: the ‘IT-isation’ of telecoms network infrastructure, with the old Operational Technology (OT) environment of an integrated telecoms hardware and software moving into an IT world where those two elements are separated. This should bring a much higher degree of flexibility in developing new networking functionality and potentially upsets the old order in terms of neatly defined roles of telecoms equipment vendors, network operators, communications service providers and application providers. New entrants will be able to develop innovative new software-based telecoms services completely independently of the need to operate the infrastructure upon which the service runs.
As a result of these developments, the established roles in telecoms will change. The position of the traditional technology vendors such as Ericsson, Huawei and Nokia, might change into a market for undifferentiated hardware supported by a much more competitive market for telecoms software. These lower barriers to entry and greater flexibility to design new services might create much greater competition and innovation at the software level. In June 2020 Nokia was the first of the major vendors to make a move into Open RAN when it announced that its virtualised RAN portfolio would be compatible with O-RAN, making it deliverable using hardware from other vendors.
The question is, of course, who will benefit from this seismic shift? The network operators are hopeful. They have been active in initiatives such as the Telecom Infra Project. It is almost inevitable that a successful separation of network hardware from software will result in lower prices for both elements. As a result, telcos see a bright future where they can cut costs and potentially differentiate their services through software. They expect to be more of a driving force in telecoms software development than they have been in the last decade. Vodafone, for instance, is bringing back in-house the software development expertise that it outsourced 10-15 years ago. Meanwhile India’s Reliance Jio in June 2020 requested permission from Indian authorities to lab-test its own 5G technology. Japan’s Rakuten Mobile has also been actively driving new capabilities, as outlined in the report ‘The Network New Normal: how web-scalers are gearing up to take advantage of 5G, edge computing and network disaggregation’. In other recent news, NTT took a 5% stake in telecommunications equipment manufacturer NEC specifically justified by a desire to develop more innovative 5G capabilities.
It is hard to escape the conclusion, however, that web-scale companies such as AWS, Facebook, Google and Microsoft will see an opportunity to establish their own innovative software-based capabilities. This may involve a full software stack, but more likely niche areas built on capabilities from other vendors. This might be partly aimed at providing a set of services to communication service providers, but that is a minor consideration. Most of the focus will be on developing functionality to support their core customers and value proposition.
If you’re interested in this topic, we’ve published a report called ‘The move to ‘Network New Normal’: how 5G, edge computing and network disaggregation are creating radical disruption’ that looks at it and other related telecoms subjects. I expect the topic of 5G will also come up in a future podcast.
One thing is certain in the technology world: being overwhelming market leader is a transient thing. Just ask IBM or Nokia. Neither Apple nor Tesla can guarantee their positions as, respectively, the world’s most valuable company and the world’s most valuable car manufacturer. The long-term technological trend is surely towards more separation of hardware and software and the innovation it brings. Superior UX, security and time-to-market are ephemeral differentiators. Failing to ride that change could be the thing that ultimately brings them down.
In next week’s podcast I will share the findings of some research we’ve been doing at Transforma Insights. Based on analysing hundreds of real-world examples of deployments of transformational technologies like AI, IoT, distributed ledger and so forth we can identify some key trends and best practice in project prioritisation, vendor selection and more.
Links to some of the research that I’ve refered to in this week’s show, as well as a transcript of the recording, will be available on the podcast website at WirelessNoodle.com
Thank you for listening to The Wireless Noodle. If you would like to learn more about the research that I do on IoT, AI and more, you can follow me on Twitter at MattyHatton and you can check out TransformaInsights.com.
Thanks for joining me. I’ve been Matt Hatton and you’ve been listening to the Wireless Noodle.