Two totally different news items have caught my eyes today:

Verizon to acquire AOL: “Verizon Communications Inc. (VZ) agreed to buy AOL Inc.  (AOL) in a $4.4 billion deal aimed at advancing the telecom giant’s growth ambitions in mobile video and advertising.” read more at WSJ And take a look also at the following pieces here and here which further give insights on the transaction.

Microsoft to invest in undersea Data Cables projects: “Microsoft (MSFT) knows this all too well, it seems, as it just poured money into three sub-sea fiber projects (Aqua Comms, Hibernia and New Cross Pacific Cable Network) that should speed up connections to Asia-Pacific and Europe. The Redmond crew sees this as a small investment that could pay off big in the future. As it explains, online products like the Azure computing platform and Office 365 are booming — it only makes sense to have those moneymakers running as smoothly as possible.” Read more at Engadget.

These news have probably raised a few eyebrows today, but I claim that it makes lots of sense and that we will see more and more disruptions like that as well as similar industry moves very soon. Any business transaction, organic or inorganic growth in the digital landscape can be explained by “Owning the Chasms" model.

In that model I broke down the ecosystem elements into: Services, Pipes, Interfaces and People. Then I discussed the chasms between those elements. I claimed that failing to handle these chasms (for the mid to long term) may result in one or more of the following:

• Competitive disadvantage to other Digital Service Provider who serve the same customers
• Loss of revenues (due to down time of a pipe, user distraction to a non connected scenario, etc)
• Loss of market share and of new markets to one of the existing or new digital service providers

I also argued that a potential industry disruption, if happens, will be like an earthquake that will make the chasms even bigger, and this can have significant impact on the digital service providers.

In “Owning the Chasms – So Now What?” I discussed the opportunities that are hidden in this model for new companies and startups, and in “IoT – Challenges and Opportunities” I have discussed the IoT ecosystem according to this model.

Let’s analyze the transactions above according to “Owning the Chasms”:

Verizon is a leading “Pipe” vendor, with an outreach to a large number of users however it lacks compelling services offering, until today.

AOL is a strong content and ad service provider, was a giant a long time ago, but could not compete with the richness and innovative services that Google, Facebook, Amazon, MSFT and Apple provide. Yet, it is reputable digital service provider that can gain more assets in this category.

By acquiring AOL, Verizon tries to become relevant in the digital services landscape and leverage its strong “Pipe” offering. It is too early to position the new Verizon/AOL offering in the same bucket with the giant digital service providers’ offering, but it puts them in a position to play in this playground and to have a say here. A missing piece is the interfaces, and I wonder if we will not see Verizon trying to offer a tailored interface device that will further enhance the User Experience related to the current and future AOL services. Unlike recent industry developments where a digital service provider made a move to own the Pipes (e,g, Google and its MVNO business), what we see here is a Pipe vendor acquiring a mid size digital service provider.

Microsoft is a strong digital service provider, with a very impressive and growing cloud services, as well as some interfaces offering; however it lacks control over the Pipes. In order to enable its current and future customers to enjoy the services, it needs also to take control over the Pipes, and avoid the chasms there. This explains the investment in the undersea data cables projects, even if it is not a huge move (yet). I believe it is only the beginning and that we will see more things happening in this domain as well.

So now what?

What we see here, I believe, is only the tip of the iceberg, we will see more investments by the giant digital service providers in literally owning the chasms, and we will see some more consolidations between Pipe vendors and mid size digital service providers. The pure interface vendors who are left behind will need to offer digital services to become relevant; however although it is essential for the short term, it is not sustainable for the long term and will just lead into more industry consolidations and mergers in the long run.

With that being said, there are so many opportunities for startups, and for collaboration between startups and these giants as innovation and disruptions are the catalysts for new compelling services that will better serve the most important element of the ecosystem: the People.

Would love to hear your comments and thoughts.