August 2007

"We're in the second wave of the Internet. The companies that will win will be those that define this next phase. Open source will define it."

Jonathan Schwartz, Sun CEO

The telecommunications industry is moving away from building communications and data service networks using proprietary platforms of specialized hardware, closed interfaces, and proprietary technologies. Increasingly, the industry is assembling new networks on open platforms comprised of both commercial-off-the-shelf (COTS) software and open source components. Carrier Grade Linux (CGL) stands at the center of the move to open architectures.

This article addresses three questions. 1) What motivates companies to incorporate CGL specifications into their products? 2) How do companies adopting CGL create and appropriate value? 3) What roles do these companies play in the ecosystem anchored around the CGL Working Group initiative? These questions are of interest to top management teams facing pivotal decisions of whether or not to incorporate open platforms into their products, and how to compete in a world where those same platforms are available to competitors.

To answer these questions, publicly available information on members of the CGL Working Group was collected and analyzed. The following nine companies comprised the research sample:

  • Intel (Silicon provider)
  • MontaVista, Wind River, and Red Hat(Linux providers)
  • IBM, HP, and Sun (System suppliers)
  • Ericsson (Network equipment supplier)
  • NTT (Carrier)

The findings from this study provide new insights into the adoption of open platforms. This study is one component of an ongoing Carleton University research program investigating open platforms, open platform architectures, and open source ecosystems.

Carrier Grade Linux Working Group

Open Source Development Labs (OSDL) founded the Carrier Grade Linux (CGL) Working Group in 2002 to accelerate the adoption of Linux within the telecommunications industry. The CGL Working Group develops Linux specifications to satisfy carrier grade requirements. Members of the CGL Working Group include silicon providers, system suppliers, Linux distributors, telecom equipment manufacturers, network equipment providers, integration and service providers, application providers and carriers.

Companies that sell telecommunications products and services quickly adopted the specifications developed by the CGL Working Group. By 2006 when this study was conducted, the CGL Working Group had issued four major releases, seven companies had provided CGL 2.0 registered distributions, and dozens of companies had offered CGL products.

The CGL Working Group is a business ecosystem where member companies simultaneously cooperate and compete. They cooperate to increase the shared value that they mutually derive from the CGL initiative; they compete, sometimes fiercely, to increase the proportion of the total value that each can appropriate. In this business game of value creation and value appropriation, no single company owns the common platform that anchors the business ecosystem together.

Motives to Incorporate CGL

Analysis identified seven motives for incorporating CGL specifications into a company's products. Each company in the sample subscribed to one or more of the following motives:

  1. Increase value for customers
  2. Introduce differentiated products
  3. Increase market share
  4. Enter a new market
  5. Sell complementary products and services
  6. Reduce company's development or operating costs
  7. Eliminate supplier lock-in

The first five motives are related to growing the business by expanding product lines, addressable markets, and customer value. The sixth motive is about reducing costs. The seventh motive is about supply chain management.

Actions to Create and Appropriate Value

Companies took one or more of the following four actions to create value using the CGL open platform:

  1. Introduced new CGL products or incorporated CGL specifications in existing products
  2. Established partnerships with customers and complementors

Companies took the following five actions to appropriate value:

  1. Provided differentiated products
  2. Established partnerships with suppliers
  3. Established partnerships with companies that are not members of the CGL Working Group but provide complementary products and services for CGL products
  4. Provided migration programs for competitors' products
  5. Provided free CGL distribution

Company Roles in the CGL Ecosystem

According to previous research, companies in an ecosystem can take on one of three roles: keystone, dominator, or niche player.

Keystones are companies that actively improve the overall health of the ecosystem while maintaining a low physical presence. Keystones adopt strategies that create platforms and share the value with other players.

Dominators are companies that have physical presence and control a large part of their networks. Dominators take most of the value for themselves and leave little for other companies in the ecosystem.

Niche players are companies that specialize in capabilities differentiating themselves from others in the ecosystem. Niche players collectively create much of the value in a niche and capture the value they create.

Recommended Reading

  1. Iansiti, M., and Levien, R., Strategy as Ecology, Harvard Business Review, March 2004.
  2. Brandenburger, A.M., and Nalebuff, B.J., Co-opetition, New York: Doubleday, 1996.

The CGL ecosystem had three keystone companies: IBM, Intel and HP. These three companies developed the platforms on which other companies could develop products or provided solutions that benefit the entire ecosystem. No company had a dominator role. Sun, MontaVista, Wind River, Red Hat, Ericsson and NTT all took on the roles of niche players.

Insights

The CGL open platform enabled its two founders, Intel and MontaVista, to successfully enter the telecommunications market. Neither company had operated in the telecom market prior to founding the CGL Working Group. Intel transformed from a PC-centric chip maker to a versatile information technology company active in multiple industries including consumer electronics, wireless communication, and health care. It actively shaped the open platform based on the Intel architecture and Linux operating system with the aim to take the high-end server market away from Sun. To expand its market for Linux distributions, MontaVista worked closely with the leading telecommunications equipment makers to define the CGL specifications.

The two companies that were negatively affected by the CGL initiative, Sun and Wind River, subsequently adopted the CGL specifications. Prior to the formation of the CGL Working Group, Sun had dominated the telecommunications server market, but its position was weakened by the CGL initiative's Intel architecture and Linux operating system. Previously, Wind River had been a major supplier to the telecommunications industry providing the BSD-based VxWorks, a hard real-time operating system. Wind River later accepted the CGL specifications, and positions Linux as a complement to its VxWorks product lines.

The three keystone companies coexist in the CGL ecosystem. This is an unexpected finding. In much previous research on business ecosystems, the extended networks typically formed around a single central keystone company, such as Microsoft, Walmart, or eBay; the removal of a single keystone in these traditional business ecosystems would lead to the collapse of the entire system.

All keystone companies were system providers, but not all system providers were keystones. Sun, though a system provider, became a niche player in the CGL ecosystem. All three commercial Linux distributors, Red Hat, MontaVista and Wind River, were niche players. All three actively promoted CGL specifications; however, they lacked the capability to build platforms for other companies to develop their products on.

Summary

The CGL Working Group provides an example of the powerful effects of collaboration and open standards within an industry sector. In a sector which demands high quality and availability, open standards can decrease a company's costs while maintaining carrier class characteristics for mission critical applications. The resulting ecosystem is a powerful force which can act as a disruptor, forcing other companies to join the ecosystem or change their business strategy.

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