Alphabet, Meta, Microsoft and Amazon account for 71 percent of all used international capacity on undersea cables, up from less than 10 percent 10 years ago, according to TeleGeography researchers.
Some might find that shocking. Some observers might worry about market structures; economic impact or other social and political concerns.
But such statistics would not be surprising in any number of industries.
The "Rule of Three," for example, was developed by Bruce Henderson, the founder of the Boston Consulting Group (BCG). This rule suggests that in any mature industry, there will typically be three major competitors that dominate the market, while the rest struggle to maintain profitability.
Those top three companies often control 70 percent to 90 percent of the market, and, as a corollary, some would note, profitability also tends to track with market share. In many markets, profit margins for the number-one firm are double that of the number-two provider. Margins for the number-two provider are, in turn, double that of number three.
That pattern suggests a 40-20-10 market share and profit margin pattern, sometimes reaching a 50-25-12 structure.
Not all industries match the “Rule of Three” pattern, however. Industries where the Rule of Three tends to apply best are:
Capital-intensive
In consumer goods
In technology hardware or software
By definition, internet capacity businesses are capital intensive and in the technology space, but also are platforms to support internet app and service businesses that are heavily consumer oriented, mass market products.
The Rule of Three doesn't tend to work well in industries that are:
Highly fragmented
Regulated industries
Rapidly evolving markets
Niche markets
Geographically dispersed markets
The main point is that global capacity markets, like other forms of communications and computing infrastructure, are good candidates for “Rule of Three” market structures. The market is relatively mature; capital intensive; based on technology and highly leveraged to consumer demand.
Capacity demand also is asymmetrical, as suppliers are centered in North America and Northeast Asia, while users are disproportionately concentrated in North America; Europe and Northeast Asia, though global activity continues to spread.
The Rule of Three also illustrate why supplier scale--and consumer preferences--have become so important for app and service providers in the internet era, for app or service providers who operate in consumer markets globally.
Researchers tend to agree that some consumer apps get used more often than others, and therefore are the more-important drivers of capacity usage, as a result. Globally, a relative handful of apps are used by mobile and desktop users and the list of suppliers of those apps is a similar handful.
Consumer behavior in U.S. markets, in terms of minutes of daily usage, tend to confirm the concentration of app engagement, which is correlated with capacity demands to support that usage, especially since virtually all apps these days rely extensively on video content, which is the most-consumptive media format.
In the U.S. market, almost by definition, video streaming apps are bandwidth-heavy, with social media following. Other usage, such as messaging and search, tend to require less bandwidth or capacity.
source: financesonline, Hootsuite
One might note that internet apps and services are almost uniquely positioned to benefit from scale. As digital products, there are relatively few barriers (beyond government regulations) to global usage. Distance is not a major issue for product delivery and consumption.
Also, many internet-accessed apps benefit from network effects, where the value of the network grows with the numbers of users. If “most people” are using one particular social media app or messaging platform, that becomes a powerful reason to use it.
The point is that we ought not be shocked by the disproportionate amount of global traffic and capacity needs generated by relatively few firms. That corresponds to Rule of Three dynamics in the businesses that generate the need for connectivity.
Nor should we be surprised that app providers have themselves emerged in additional roles as leaders of the cloud computing, data center and transmission infrastructure functions. With scale, it becomes feasible to internalize formerly-external functions such as communications.
And we tend to see similar dynamics with respect to chipsets, servers and software (ranging from operating systems to large language models). With scale, it is increasingly valuable or efficient to shift former externally-procured assets to in-house production.
In the pre-internet era, global communications networks were primarily needed to support voice calls, so the suppliers were telcos who created and supplied the voice calling function. That has changed.
These days, the dominant media type is internet data, supporting every consumer and business app and service. And since cloud computing is the architecture, every app is supported by remote processing and storage. And that, in turn, creates the need for high-capacity connectivity networks.
The point is that different drivers for international connectivity should not come as a surprise. Internet-delivered apps and services have displaced voice calls as the driver of international connectivity.
And the primary or significant drivers of consumer app use are relatively few. Also, low-latency, high-bandwidth, reliable connectivity now is a fundamental business requirement. And do-it-yourself now is highly feasible for volume users of chipsets, servers, rack space and connectivity.
So should it come as a shock that a disproportionate share of international capacity is generated by just a few app and service suppliers, or that those users find they can afford to internalize connectivity functions?
Hardly.
No comments:
Post a Comment