Proprietary design also requires substantial vendor investment. Fixed costs include the need to maintain a significant hardware design team as well as manufacturing capacity, supply chain management, etc. Variable costs include parts inventory for both manufacturing and customer support as well as prototyping and testing costs during the design phase.

Reducing Opportunity Cost
Proprietary design also entails a significant opportunity cost due to its long time to market. Development of a new telecommunications system from scratch can take as long as 36 months, including hardware design, prototyping and debugging, and software development. Integrating standards-based modules from third-party suppliers rather than designing from scratch allows developers to cut 12 months from that timeline, adding many thousands of dollars to gross margin (See Figure 2). Adopting a fully-developed and certified system platform can cut another year from time-to-market and further increase margins by eliminating hardware design and integration, allowing in-house resources to focus on application software creation. If the application software simply needs porting to the new platform, product development can reduce to less than a year.

Figure 2 - A lifecycle cost analysis shows that, despite the initial outlay, purchasing a system platform results in a greater return on investment than proprietary design.

Figure 2. A lifecycle cost analysis shows that, despite the initial outlay, purchasing a system platform results in a greater return on investment than proprietary design..

The main argument in favor of proprietary design is the opportunity it provides for hardware innovation. This places the development team in a miss-matched competition with the standards-based supplier ecosystem, however. Individual company R&D expenditures cannot match the large cumulative investment of the supplier ecosystem, either in dollars or man-hours. Further, a proprietary design approach has the development team working in isolation rather than leveraging the collective experiences and accomplishments of others. With a standards-based design approach, on the other hand, a system vendor is free to concentrate its development resources on its main opportunity to add value: the applications software.

The other argument in favor of proprietary design " maximizing profit through vertical integration " is now being proven false. While the initial purchase of system hardware can seem intimidating, the payback in time to market (and hence market share) can offset much of that cost through increased revenue over the life of the project. In addition, the standards-based design approach reduces on-going cost throughout the product's lifecycle.

Leveraging the Ecosystem
One on-going cost the standards-based design approach minimizes is the cost of keeping pace with technology improvements. Intel, for instance, releases a higher-performing processor every 6 to 12 months. Thus, it doesn't take long before the performance level of a system in the field falls significantly below that of new equipment. To keep existing customers satisfied, system developers must provide regular upgrade opportunities. If the system is standards based, the upgrade can be as simple as purchasing a new module. This approach works because of the interoperability assurance guidelines that organizations such as CP-TA provide.

This ability to readily keep pace with performance improvements not only reduces product support costs, it adds to product longevity. The pace of innovation in telecommunications has become so fast that proprietary designs run the risk of becoming obsolete before the development investment has been fully recovered. The extended market life that ready upgrades allow virtually eliminates that risk, however. The developer's return on investment (ROI) is thus improved by purchasing rather than designing from scratch.

Utilizing purchased components and platforms also allows telecommunications system providers to more readily keep pace with technology and feature evolution. The recent history of technology evolution shows that there is no way of knowing where in the system the next significant improvement will be required. It is virtually impossible, not to mention extremely expensive, for a vendor to maintain expertise in every aspect of telecommunications system design so that its products can maintain leadership or even parity in the market. Basing the system on purchased modules and platforms, however, gives the vendor access to the entire supplier ecosystem, which ensures the needed expertise is available. Vendors also gain access to the ecosystem's development efforts, allowing rapid acquisition of new features as they become popular.

Clearly, then, the telecommunications equipment market has changed dramatically. It is now hyper-competitive and fast-paced, placing significant burdens on development teams. Fortunately, the advent of robust standards, equipment based on those standards, and multi-vendor interoperability among products from the ecosystem now provide system developers with a compelling "buy" alternative. In the face of rapid market changes and the time and cost advantages of purchased system components and platforms, proprietary hardware design is no longer a sustainable approach for telecommunications equipment manufacturers.

About the Author
Brian Wood is marketing work group chair of the Communications Platforms Trade Association and Vice President of Continuous Computing.