Why Twilio Will Kill AT&T

Can AT&T remain the 20th century communications powerhouse we came to love (and hate)?  Or will they eventually relinquish their throne to an up-and-comer with a better grip of today’s communication technology needs?

This question can be heard reverberating around the business world like a never-ending echo throughout the grand canyon.  If there is one company that can displace the conglomerate with respects to providing a basic communication platform for the general public, I think it could be Twilio.

Twilio provides infrastructure APIs for businesses to build scalable, reliable voice and text messaging apps.  They provide all this so cost effectively they are seeing massive growth and are a powering a new class of startups, ones that extend their technology to touch almost every part of our society.

To realize my words aren’t mere blasphemy, it’s paramount to grasp the difference between two types of innovation: sustaining and disruptive, these types being best described in The Innovators Dilemma by author Clayton Christensen.  Sustaining innovations are improvements that make the product better, but do not threaten its market.  Disruptive innovation, conversely, threatens to displace a product altogether.  It’s the difference between the electronic typewriter, which improved the typewriter, or the word processor, which supplanted it.

AT&T is the Typewriter.  Twilio looks to be the Word Processor.

The history of AT&T is well documented in the book The Master Switch by Tim Wu.  He describes how the great telephony company, started by Alexander Graham Bell, navigates an incredible path towards dominating the communication wires for most of the 20th century.

What strikes me interesting when I read the great history of AT&T is the repugnance of anything innovative on top of their communications platform.  Was being protective and narrow minded regarding innovation just en vogue thinking of the times?  Or was this perspective so ingrained in the company culture led by visionary (and monopolist) Theodore Vail that it grew stronger as decades past?

They exhibited classic sustaining innovation characteristics.  According to Wu: “AT&T, as an innovator, bore a serious genetic flaw, it could not originate technologies that might, by the remotest possibility, threaten the Bell system.  Disrpuptive technologies, those that might even cast a shadow of uncertainty over the business model, were simply out of the question.”   

More interesting is to wonder if this still the case today?  AT&T is hard at work protecting their lot – cell phones, digital TV, Internet, and the traditional phone service.   So hard at work they are, they fought to acquire close competitor T-Mobile, just another chapter in the centuries long monopolistic story.  Losing the acquisition places AT&T at an interesting crossroads, where they must look in the mirror and choose what type of communications company they should be going forward.   They also seem to be backpedaling on data usage, specifically text messaging, at a time when messaging seems destined to become our main mode of communication.

The real question is are they embracing the new way of business, opening up and encouraging disruptive innovation, from themselves and also from others?  Or are they still about sustaining innovation and stifling anything would that attack their own den?

Twilio, on the other hand  was created to be built upon.  They have innovation running through their veins and pouring out their ears.  Why?  Because they understand the new rules of business – better in the long run to open up, provide basic communication technology to the masses and empower innovative ideas as a platform rather than remain closed and stifle anything that might attack their business model.  They understand technology moves faster than they do so the best position to be in is as a platform.  They understand they will touch more end users by encouraging innovation using their service.  An even better way to think about Twilio’s business model is it’s all about disruptive innovation.

How did Twilio get traction in such a challenging communications ecosystem dominated by the likes of AT&T?  According to  Quora:

One answer points to how developer friendly they are and how much they are ingrained  in the emerging startup culture. “Twilio’s API is beyond awesome. It’s light, it’s fast, and there is no shortage of documentation. They’ve built this from the ground up with developers in mind.  

Also, Danielle Morrill is everywhere, all the time, and doing everything. It seemed like every event I attended she would be there preaching the Twilio gospel. If she wasn’t speaking at the event she was probably in the crowd hacking with other attendees, giving out Twilio account credits, or showering people with Twilio merch (stickers, shirts, etc).  There’s no doubt in my mind that without her contribution to the company we would be looking at an entirely different Twilio today

Even investor Fred Wilson mentioned in early 2010 the unique nature to Twilio and why they have grown so quickly.  “We believe that one way to build a large network of web users is to build something that makes developers’ lives easier. And Twilio does exactly that. It masks all the complexity of telephony into a finite number of API calls that web developers can use to build apps quickly and easily.”  

USV partner Albert Wenger takes it a step farther,  “Twilio has accomplished even more. It has made telephony a bona fide citizen of the Internet, by working on the basis of URLs. This is a profound transformation. Not only does it mean that web development skills can now be applied to telephony. But more importantly, telephony is changing from a closed to an open system in which adding new capabilities now becomes as simple as chaining together web service requests.”

The stance about being developer friendly is exactly why I believe the future is shining brightly for Twilio and particularly cloudy for traditional communications companies like AT&T.

Imagine if AT&T would have realized it’s not enough to just provide people the ability to communicate, but the opportunity to build communication platforms on top of their own platform?  I can only imagine if they were empowering thousands of small and large companies to embrace and extend their technology for the sake of innovation.  Supporting such things as offering $20,000 cash prizes at Hackathons, like this one happening at the upcoming CES, helps get the ball rolling but AT&T’s reluctance to embrace the disruptive technologies and attitudes is classic innovators dilema in action.

New companies building on top of Twilio’s communication functionality have the opportunity to bring communications to the masses for incredibly low cost – if not free.  Seconds, the startup I co-founded last fall is offering messaging functionality to merchants so they can quickly communicate with customers and transact through their mobile device.  Merchants and businesses, the other half of society, have yet to experience the tremendous benefit of messing and quick text communications, and it’s ripe for disruption. I’m not seeing AT&T offering text messaging to local businesses the way the offer it to mobile subscribers.

Twilio even has a small investment fund to encourage startups to expand using their platform.   The startups receiving investment from the first fund include:

Magnolia Prime, which delivers voice messages to elderly patients, as configured by the patient’s clinician or caregiver. Callyo, also quite practical, aims to offer multifaceted crisis, emergency and tip line options for police departments. knockknock, targeted at businesses and consumers, routes phone systems to put consumers in touch with the customer service reps at the companies they want to speak with. FastCall411 aims to be the aide of the local salesman with call recording, analytics and lead scoring, while Volta serves as an A/B testing framework for outbound phone calls. And WorkersNow expedites the hiring process around contract construction gigs. Less practical, but more fun is applying Twilio’s texting capabilities to the sexting fancies of teens and young adults. Qwipd, for instance, can be used to convey flirtatious, albeit controlled, text messages with choose-your-own-ending flavor.

A major Twilio success recently came from GroupMe, born from TC disrupt in 2010 and purchased by Skype for a reported $85 million a year later.  They were powered by Twilio.

Twilio recently raised a $17 million Series C round of funding to maintain momentum after a big year, and continue hiring aggressively. The San Francisco-based company grew from 25 employees to nearly 100 in 2011, and increased its customer base by 400% to reach 75,000 developers.  Their usage has be nothing but astounding; notice the growth chart to the right.  After a few price drops in 2010 Twilio saw volume skyrocket and hasn’t looked back since.  They also recently announced an international expansion, to Canada and Europe so by no means will this trend slow down.

My question is:  What does Twilio look like in 5 years if they keep attracting young, innovating startups to leverage their communications platform for dirt cheap to bring radical change to our society?

The end goal for Twilio is to “open the black box of telecom, and move the world away from the legacy of Cisco and Microsoft’s big expensive [hardware] that you put in your closet and watch age. We’re reinventing with the cloud, and it gets better every time we deploy code.”

And what does AT&T look like in 5 years if they don’t do the same?  But what if they do?  Something is going to have to give…

@jnickhughes

About these ads

53 comments

  1. The thing that I think you’re missing about AT+T is that it’s anything but monolithic. Sure, there’s a business unit that is tasked with building “phone applications” for customers who are also using AT+T for other services like toll free numbers, local trunks, routing, long distance backhaul etc… the list goes on for miles.

    What Twilio (and a slew of other startups now) make easier and cheaper is the construction of phone apps by using web technologies as compared to the old world of buying expensive hardware solutions for things like conferencing, PBXing etc…

    Twilio isn’t really poised to threaten the major breadwinning apps at AT+T, though. Nobody necessarily wants to get into a high volume, low margin business like international long distance when there are other, juicier fruits on the tree…

    1. Andrew,
      You are very correct about other juicier fruits. But I stand behind the monolithic, sustaining innovation position of AT&T – that is until we see a significant change from them.

  2. This makes little sense to me. Twilio, really? AT&T’s market cap is 180 BILLION dollars … Good for Twilio that they raised 17 MILLION. They’re not even in the same league. Twilio may have great features on top of a great product; but they won’t dethrown a company that they will rely on for delivery of their service. Telephony needs a pipeline… provided by ISPs in the form of Verizon, Comcast, TWC, and AT&T, etc.

    1. Yes, and AT&T’s history is also more than 100 years old. The main takeaway is what happens in 5 or 10 years… Twilio is looking pretty promising for such a young company.

    2. This is absolutely right. Until Twilio gets their own pipe for data transfer they are not a competition. AT&T is one layer below. We can think of AT&T as the network layer and Twilio as the application layer and I am sure AT&T is happy where they are.

      We are doing something similar in India(http://www.kookoo.in) and we run on top of the telco infrastructure. So we sort of complement them rather than be a competition for them.

      1. “We can think of AT&T as the network layer and Twilio as the application layer”

        Spot on definition. I’m sure plenty of telco people will have read this post and scratched their heads thinking: hang on a minute, why would AT&T see Twilio as a threat?

        That’s not to say that Twilio is not an amazing company doing great things to make voice a feature for everyone to access and use – and that’s exactly why the established carriers love them.

        Good luck with kookoo.in

  3. I think it was about 6 years ago that the telcos started to take the threat of becoming just a bit-pipe seriously…they’ve all failed to do anything about it.
    BT in the UK had a go with their 21CN but I don’t think there was any noticable effect.

  4. It’s the platform that changes and not the purpose. Ideally, as each platform changes it becomes ubiquitous, cheaper per unit of communication, and easier to use by the masses.

    The companies that forget that evolutionary aspect of technology fall behind and new companies take their place. But remember, AT&T has huge amounts of cash (think 4B set aside to settle with T-Mobile) and that buys a huge advantage both in time and infrastructure migrations. They may even have enough to get their head in the clouds.

  5. The part that I still don’t understand is that Twilio can’t even connect to any actual phones. They build apps, great. But they can’t actually make a call from a phone I have on my work desk. How can that even begin to compete with something like AT&T or Verizon, etc. ?

  6. I remember, back in the 90s, lots of people asserted the advent of VoIP spelt the death knell for telcos. I was working at an ISP that was paying the telco for line rental (it was 28.8k dial-up back in those days) and the leased line that connected us to our upstream bandwidth provider.

    Today, telcos continue to operate the infrastructure over which our data travels. Say what you like about innovation (and no offence to Twilio – I think they’re a great company) but the only companies that could “kill” AT&T are ones that operate an infrastructure that can carry data.

    1. That is a great point and the strongest so far in this discussion. The fact is no one knows what things will look like 5 to 10 years out…. but I look forward to seeing what happens.

      1. Nick,

        No offense, but I think you’re *way* off.

        Twilio is great. Great. I’ve had the pleasure of interacting with Twilio folks at their conference, as well as day-to-day for questions regarding their service (we integrate with them).

        But let’s not get ahead of ourselves. They have a great idea, sure, but there is no barrier to entry (Amazon AWS account? Check. Coders? Check. ILEC/CLEC termination agreements? Check). Anyone can do what Twilio does, and plenty others will get into the market. You shouldn’t be shocked if AT&T and other ILECs themselves start providing a similar telephony API service (although its more likely to come from someone like Level3 or Bandwidth.com before it comes from a slow mover like ATT), since they’re the pipes Twilio runs on.

        While Twilio is the flashy new sports car, telcos still own the highways.

  7. I don’t think Twilio are competing with the likes of AT&T at all. Do they think/say that? I think they offer access to an excellent platform that enables web-centric developers to launch apps/services that can compete with those offered by what you might call traditional telephony application developers – a dying breed in one sense, but mitigated by the fact that many are recreating themselves in the environment that Twilio inhabits. Those developers, both old and new, are still selling products/services to businesses (primarily), providing those customers with functionalities they don’t get (never did?) from the AT&Ts of this world. You might’ve gotten your business’ PSTN connection as a T1 from AT&T, but you bought your PABX from e.g., Nortel or Mitel and your ACD or Dialler from Aspect or Rockwell. What Twilio and its competitors (kookoo is mentioned above and there are also Tropo, Aculab Cloud, 4PSA, and others, all offering innovative and exciting platforms for telephony-based application development) are offering is a cloud-based alternative to developers. Those guys – your entrepreneurs – are then able to disrupt the market(s) once served by the likes of Nortel or Aspect or Genesys or etc. However, it’s not as simple as that, because there have been, for some considerable time, other alternatives to the likes of those aforementioned megaliths. Look at pre-cloud, hosted service delivery providers, for example (Tropo as Voxeo, would’ve been in that category), and you’ve got a number of SIP Trunkers doing similar. Additionally, then and now, carriers, globally, bought/buy products from developers in order to deliver business or consumer services across their networks. As ever, there are more ways than one of skinning the cat. I guess a final point to make is that it’s probably the case that the lion’s share of the cents per minute call (or SMS) charges levied by Twilio is largely made up of carrier break-out costs (to deliver calls to PSTN-based phones – AT&T subscribers).

  8. Twilio is a service that relies on access to the Public Switch Telephone Network (PSTN), which a LEC/RBOC terminates – like an AT&T. As Twilio grows, so does their usage of the PSTN.

    Although I am not familiar with Twilio’s PSTN providers, other large VoIP providers like Vonage are charged per-minute rates that vary base on the location from which the call originates. (The details are disclosed in Vonage’s 10k reports). The location of the termination also makes a difference (e.g. intrastate calls cost more than interstate calls). Keep in mind, this arrangement is one-way; Vonage does not make money from inbound calls from LEC/RBOC customers.

    The relationship between Twilio and their PSTN providers is mutually beneficial. Why should AT&T search for gold when they are making tons of money selling picks and shovels to the Twilios and Vonages of the world?

  9. Nick,

    As others have pointed out, AT&T provides the pipleline so it’s a long way to go for anyone to kill it.

    You quoted The Master Switch by Tim Wu where he’s taking the stance that innovation was secondary for AT&T and nothing could threaten the Bell system. But it’s a basic necessity for any company to protect itself first and its existing business. If one doesn’t do that than you won’t survive. Look at Kodak who filed for bankruptcy this week, they invented the digital camera technology that cannibalized most of its existing business.

    AT&T might have a long way to go as far as innovating, but as long as it controls the last mile pipelines to the masses — it’s not going anywhere.

    Thanks for the article.

    Best,

    Nimitt

  10. I think a lot of the commenters here miss the point. In building apps that end users love, developers get leverage. And in being loved and relied upon by developers, Twilio gets leverage. This leverage comes at the expense of AT&T, which gets no customer ‘face time’ and is a pure, commoditized dumb pipe. This is less profitable: look at the revenue to AT&T from text messages — often 20c each — vs Kik/WhatsApp.

    AT&T becomes less like a highway with tolls and more like the corn provider to Kellogg’s Corn Flakes, where the cereal maker extracts most of the value.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s