Amazon.com, AOL, eBay, Expedia, Facebook, Google, IAC, LinkedIn, Monster Worldwide, Rackspace, salesforce.com, TripAdvisor, Yahoo and Zynga have formed The Internet Association, a trade association representing the interests of the application providers.
The organization says it is "dedicated to strengthening and protecting a free and innovative Internet," along with its decentralized architecture.
Wednesday, September 19, 2012
Amazon, eBay, Google, Yahoo, Others Form Internet Association
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
Australian National Broadband Plan Doesn't Have Much Room for Error
The latest update of the Australian National Broadband Plan might suggest the financial risks fiber to the home networks represent, even in a scenario where there is a monopoly national wholesale network that sells capacity to all the country’s retail service providers. The plan now envisions a seven percent internal rate of return.
In other words, it is worth doing, if the underlying assumptions are correct, and IRR winds up being a positive integer, not a negative number. In principle, one might ask whether the opportunity cost is too high (would a higher return be possible from an alternative investment), but that is another issue.
The obvious danger would arise if the underlying assumptions are mistaken, such as costs being underestimated, or revenue overestimated, and by what magnitude.
The NBN will build a single national wholesale fiber to the home network between now and 2020, allowing all retail service providers to buy wholesale broadband and voice services.
The latest version of the business plan does suggest that the actual direct financial return from a fiber to home access network, built on a continental scale, is relatively small, at about a seven percent internal rate of return, despite its societal and economic importance.
A reasonable observer might simply note that there is little room for error where it comes to the base assumptions. Lower takes rates, lower average revenue per user or unexpectedly higher operating costs are some of the dangers embodied in the three decade assumptions.
In other words, it is worth doing, if the underlying assumptions are correct, and IRR winds up being a positive integer, not a negative number. In principle, one might ask whether the opportunity cost is too high (would a higher return be possible from an alternative investment), but that is another issue.
The obvious danger would arise if the underlying assumptions are mistaken, such as costs being underestimated, or revenue overestimated, and by what magnitude.
The NBN will build a single national wholesale fiber to the home network between now and 2020, allowing all retail service providers to buy wholesale broadband and voice services.
The latest version of the business plan does suggest that the actual direct financial return from a fiber to home access network, built on a continental scale, is relatively small, at about a seven percent internal rate of return, despite its societal and economic importance.
A reasonable observer might simply note that there is little room for error where it comes to the base assumptions. Lower takes rates, lower average revenue per user or unexpectedly higher operating costs are some of the dangers embodied in the three decade assumptions.
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
“Pipe” Services Will “Always” Drive Most Service Provider Revenue
Communications service providers dislike the phrase “dumb pipe” for obvious reasons, since it implies–often falsely–that a telecom supplier is “just” a provider of low-value, commodity access services. The notion is partly accurate, but has nothing to do with profit margin on “dumb pipe” services.
What, after all, is “best effort” Internet access but a “dumb pipe” service? The access is one thing, while nearly all the content and services are provided by third party suppliers. But profit margins on U.S. high-speed access are in the 40-percent range, hardly a low-margin, commodity service.
There are potential issues in the future, if prices and consumption are not better aligned, but service providers already are moving on that front.
Nor are service providers "just" providers of "dumb pipe" access; they also make most of their money on "services" or "applications" delivered over those pipes. In the best example, they use the network and the access to create "voice" service or video entertainment services or messaging.
And that always will remain the key way to create yet other applications and services that use the network, and access to the network.
What, after all, is “best effort” Internet access but a “dumb pipe” service? The access is one thing, while nearly all the content and services are provided by third party suppliers. But profit margins on U.S. high-speed access are in the 40-percent range, hardly a low-margin, commodity service.
There are potential issues in the future, if prices and consumption are not better aligned, but service providers already are moving on that front.
Nor are service providers "just" providers of "dumb pipe" access; they also make most of their money on "services" or "applications" delivered over those pipes. In the best example, they use the network and the access to create "voice" service or video entertainment services or messaging.
And that always will remain the key way to create yet other applications and services that use the network, and access to the network.
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
Tuesday, September 18, 2012
New Wave of Internet Arbitrage Coming?
The International Telecommunication Union (ITU) plans to hold a treaty conference, the World Conference on International Telecommunications, in December 2012, which will revise a 1988 treaty, the International Telecommunication Regulations (ITR). At stake are the ways communication network owners compensate each other for terminating international voice calls through the payment of settlements.
But there are wider implications. The ITU proposes to change the way the Internet is governed, in ways that will harm the Internet by raising the cost and complexity of exchanging traffic, Analysys Mason researchers argue. Basically, the ITU wants to create a new Internet traffic “settlements regime” modeled on voice precedents that will be difficult to administer and raise overhead costs.
But there could be other significant effects. First, operators might be induced to maintain their customers‘ websites abroad. One of the significant benefits of establishing an internet exchange point is to make it attractive for domestic websites to be hosted at home, in order to increase their performance and lower costs, Analysys Mason notes.
However, given that foreign websites will generate a source of incoming settlements, the incentive to keep them abroad would increase.
At the same time, foreign operators, in order to compensate for the settlements, would likely raise the price of hosting websites serving countries with high settlement rates, which might lead websites to develop less content targeted at a particular country in order to limit their costs.
While this could be seen to increase the incentives to locate content in the target country in order to avoid settlements, that is often not efficient, particularly for small or undeveloped markets from which access to a regional server may be sufficient, Analysys Mason argues.
In addition, it is likely that infrastructure investment decisions would be affected, as providers would be reluctant to invest in providing infrastructure to a particular country to which it is expensive to deliver traffic. In other words, there will be financial reasons not to build more undersea links to certain countries, for example.
Also, huge volumes of Internet traffic could be artificially generated in order to arbitrage a rate-regulated model, to generate inbound payments, alter traffic balances, or otherwise unfairly leverage any accounting rate regime that may be applied to the Internet.
Entities that believe they would be net recipients of settlements, based on current projections of traffic flows, might find themselves net payers as a result of the manipulation of traffic flows by other players.
In summary, aside from the intrinsic difficulties of successfully imposing regulations on international flows of Internet traffic, there could be unintended consequences that would harm the internet if such a system were imposed.
If history, human nature and self interest is any guide, some service providers to try and lower settlement payments, while others will attempt to grow their share of settlement payments.
Consider the flows of traffic. The notion of settlements is that a carrier that terminates traffic incurs costs to deliver that traffic. So a sending carrier pays the terminating carrier. In many cases, the traffic flows should largely balance each other, so the net payments are relatively small in magnitude.
But there are scenarios where traffic is unbalanced, and that causes problems. In the voice settlement regime, carriers that accept more traffic than they send wind up paying money. Carriers that send more traffic than they receive make money.
Some of you will remember, or even be able to point to, instances where revenue arbitrage was possible precisely because of such asymmetrical traffic flows. Server farms and “free conference calling services” in the United States provide examples.
In the proposed ITU framework, it is server farm traffic that could be troubling for some carriers.
Multimedia content, for example, might represent as much as 98 percent of Internet traffic. Right now, where those servers are located does not have implications for inter-carrier settlements.
For cost reasons, many of those servers are located in Africa. In 1999, 70 percent of international Internet bandwidth originating in Africa went to the United States. In 2011, less than five percent goes to the United States.
These days, content is stored at African server farms, for distribution largely to Africa, Analysys Mason notes. In some ways, that is helpful to African consumers, for quality and cost reasons. In other ways, high cross-border charges are unhelpful.
While it is true that IXPs are emerging to facilitate local exchange of traffic in Africa, the cost of cross-border connectivity between many African countries is still quite high, and this is hindering the emergence of regional IXPs to help exchange traffic and distribute content.
The bandwidth from Latin America presents the same broad picture. Between 1999 and 2011, the percentage of bandwidth going to the United States fell from just under 90 percent to 85 percent, replaced by more intra-regional traffic.
The main similarities between Africa and Latin America are that over 80 percent of their Internet bandwidth is connected to another region (Europe and the US respectively). At the same time, little bandwidth goes between countries within the region. Intra-Latin American traffic is 15 percent of total, while intra-African traffic is two percent.
The amount of cost-increasing overhead under any new settlement regime could be significant.
A recent study by the Packet-Clearing House analyzed 142,210 peering agreements representing 86 percent of global Internet carriers and 96 countries.
Only 698 of the peering agreements were based on written contracts, representing just 0.49 percent of all the contracts.
In other words, the vast majority of current international and domestic peering agreements are not just commercially negotiated, but are not even formalized in writing. If Internet settlements mirror voice practices, overall costs will rise, even if traffic flows can be accurately captured most of the time, and some say that will be very difficult.
Analysys Mason argues market-based mechanisms work, and are a better alternative to creating a new settlement regime modeled on voice principles.
But there are wider implications. The ITU proposes to change the way the Internet is governed, in ways that will harm the Internet by raising the cost and complexity of exchanging traffic, Analysys Mason researchers argue. Basically, the ITU wants to create a new Internet traffic “settlements regime” modeled on voice precedents that will be difficult to administer and raise overhead costs.
But there could be other significant effects. First, operators might be induced to maintain their customers‘ websites abroad. One of the significant benefits of establishing an internet exchange point is to make it attractive for domestic websites to be hosted at home, in order to increase their performance and lower costs, Analysys Mason notes.
However, given that foreign websites will generate a source of incoming settlements, the incentive to keep them abroad would increase.
At the same time, foreign operators, in order to compensate for the settlements, would likely raise the price of hosting websites serving countries with high settlement rates, which might lead websites to develop less content targeted at a particular country in order to limit their costs.
While this could be seen to increase the incentives to locate content in the target country in order to avoid settlements, that is often not efficient, particularly for small or undeveloped markets from which access to a regional server may be sufficient, Analysys Mason argues.
In addition, it is likely that infrastructure investment decisions would be affected, as providers would be reluctant to invest in providing infrastructure to a particular country to which it is expensive to deliver traffic. In other words, there will be financial reasons not to build more undersea links to certain countries, for example.
Also, huge volumes of Internet traffic could be artificially generated in order to arbitrage a rate-regulated model, to generate inbound payments, alter traffic balances, or otherwise unfairly leverage any accounting rate regime that may be applied to the Internet.
Entities that believe they would be net recipients of settlements, based on current projections of traffic flows, might find themselves net payers as a result of the manipulation of traffic flows by other players.
In summary, aside from the intrinsic difficulties of successfully imposing regulations on international flows of Internet traffic, there could be unintended consequences that would harm the internet if such a system were imposed.
If history, human nature and self interest is any guide, some service providers to try and lower settlement payments, while others will attempt to grow their share of settlement payments.
Consider the flows of traffic. The notion of settlements is that a carrier that terminates traffic incurs costs to deliver that traffic. So a sending carrier pays the terminating carrier. In many cases, the traffic flows should largely balance each other, so the net payments are relatively small in magnitude.
But there are scenarios where traffic is unbalanced, and that causes problems. In the voice settlement regime, carriers that accept more traffic than they send wind up paying money. Carriers that send more traffic than they receive make money.
Some of you will remember, or even be able to point to, instances where revenue arbitrage was possible precisely because of such asymmetrical traffic flows. Server farms and “free conference calling services” in the United States provide examples.
In the proposed ITU framework, it is server farm traffic that could be troubling for some carriers.
Multimedia content, for example, might represent as much as 98 percent of Internet traffic. Right now, where those servers are located does not have implications for inter-carrier settlements.
For cost reasons, many of those servers are located in Africa. In 1999, 70 percent of international Internet bandwidth originating in Africa went to the United States. In 2011, less than five percent goes to the United States.
These days, content is stored at African server farms, for distribution largely to Africa, Analysys Mason notes. In some ways, that is helpful to African consumers, for quality and cost reasons. In other ways, high cross-border charges are unhelpful.
While it is true that IXPs are emerging to facilitate local exchange of traffic in Africa, the cost of cross-border connectivity between many African countries is still quite high, and this is hindering the emergence of regional IXPs to help exchange traffic and distribute content.
The bandwidth from Latin America presents the same broad picture. Between 1999 and 2011, the percentage of bandwidth going to the United States fell from just under 90 percent to 85 percent, replaced by more intra-regional traffic.
The main similarities between Africa and Latin America are that over 80 percent of their Internet bandwidth is connected to another region (Europe and the US respectively). At the same time, little bandwidth goes between countries within the region. Intra-Latin American traffic is 15 percent of total, while intra-African traffic is two percent.
The amount of cost-increasing overhead under any new settlement regime could be significant.
A recent study by the Packet-Clearing House analyzed 142,210 peering agreements representing 86 percent of global Internet carriers and 96 countries.
Only 698 of the peering agreements were based on written contracts, representing just 0.49 percent of all the contracts.
In other words, the vast majority of current international and domestic peering agreements are not just commercially negotiated, but are not even formalized in writing. If Internet settlements mirror voice practices, overall costs will rise, even if traffic flows can be accurately captured most of the time, and some say that will be very difficult.
Analysys Mason argues market-based mechanisms work, and are a better alternative to creating a new settlement regime modeled on voice principles.
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
Asia-Pacific Service Provider Revenue Will be Driven by Wireless
Telecom service provider retail revenue in the Asia–Pacific region is predicted to grow at a compound annual growth rate of seven percent between 2011 and 2016, according to Analysys Mason.
But compared to past growth patterns, that growth now is driven by mobile services.
Total telecom service revenue will grow by 29 percent from $229.7 billion in 2011 to $323.7 billion by 2016. But notice the revenue components.
The voice market in the region will continue to be heavily dominated by mobile during the forecast period, with 90 percent of the voice connections being mobile by 2016, up from 84 percent in 2011 and from 73 percent in 2008.
Overall, the number of voice connections in the region will increase by 45 percent, to 3.9 billion connections, with most of this growth coming from China and India.
But average revenue per user is clearly declining. Where ARPU was $10 per month in 2008, by 2011 it had dropped to to $7.40 in 2011, Analysys Mason says. In part, that decline is caused by wide adoption of mobile services by people who spend less than early adopters. In part, the decline is caused by users who carry and use more than a single subscriber information module. Mobile ARPU across emerging APAC markets will average $6.5 by 2016.
Perhaps the most significant implication of the Analysys Mason forecast is that revenue growth now will be driven in the Asia Pacific region by wireless and mobile services.
Over the next five years, the key drivers will be 3G and 4G services, which will account for 46 percent of mobile connections in the region by 2016 and the growing demand for Internet access, driving mobile broadband.
China and India together account for 68 percent of the region’s population, 64 percent of its active mobile SIMs and 75 percent of its total retail telecom revenue. Revenue is heavily skewed towards China, where overall telecom revenue will grow from $138 billion in 2011 to $194 billion in 2016.
Analysys Mason also predicts that active mobile penetration rates in the region will rise to 95
percent by 2016, a 32 percent increase over 2011 levels. The number of active SIMs will increase from 2.33 billion in 2011 to 3.7 billion by 2016 as well.
Mobile and fixed wireless will account for more than a third of broadband connections in the emerging APAC region in 2016, and for the vast majority of connections in rural areas where fixed-line infrastructure is unavailable.
But compared to past growth patterns, that growth now is driven by mobile services.
Total telecom service revenue will grow by 29 percent from $229.7 billion in 2011 to $323.7 billion by 2016. But notice the revenue components.
The voice market in the region will continue to be heavily dominated by mobile during the forecast period, with 90 percent of the voice connections being mobile by 2016, up from 84 percent in 2011 and from 73 percent in 2008.
Overall, the number of voice connections in the region will increase by 45 percent, to 3.9 billion connections, with most of this growth coming from China and India.
But average revenue per user is clearly declining. Where ARPU was $10 per month in 2008, by 2011 it had dropped to to $7.40 in 2011, Analysys Mason says. In part, that decline is caused by wide adoption of mobile services by people who spend less than early adopters. In part, the decline is caused by users who carry and use more than a single subscriber information module. Mobile ARPU across emerging APAC markets will average $6.5 by 2016.
Perhaps the most significant implication of the Analysys Mason forecast is that revenue growth now will be driven in the Asia Pacific region by wireless and mobile services.
Over the next five years, the key drivers will be 3G and 4G services, which will account for 46 percent of mobile connections in the region by 2016 and the growing demand for Internet access, driving mobile broadband.
China and India together account for 68 percent of the region’s population, 64 percent of its active mobile SIMs and 75 percent of its total retail telecom revenue. Revenue is heavily skewed towards China, where overall telecom revenue will grow from $138 billion in 2011 to $194 billion in 2016.
Analysys Mason also predicts that active mobile penetration rates in the region will rise to 95
percent by 2016, a 32 percent increase over 2011 levels. The number of active SIMs will increase from 2.33 billion in 2011 to 3.7 billion by 2016 as well.
Mobile and fixed wireless will account for more than a third of broadband connections in the emerging APAC region in 2016, and for the vast majority of connections in rural areas where fixed-line infrastructure is unavailable.
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
Harris Interactive to Use Google Consumer Surveys
Market research firm Harris Interactive announced that it is partnering with Google’s recently Google Consumer Surveys to develop and bring to market a new product that allows businesses, both large and small, to compare themselves to industry benchmarks at a fraction of the cost of traditional market research.”
It appears to offer an expensive new way for smaller businesses to benchmark their business performance against broader norms.
It appears to offer an expensive new way for smaller businesses to benchmark their business performance against broader norms.
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
Is Cloud Computing Market Bigger Than We Thought?
It typically is difficult to estimate the size of a big a new market when that new market essentially cannibalizes existing businesses in the process. Unified communications has been that sort of market, since it logically includes or replaces many other ways of handling communications functions, ranging from fixed or mobile voice to email to messaging, voice mail, “presence” and call handling.
Something like that probably is going to happen with cloud computing. In a sense, cloud computing is part of the next generation of computing architecture. We don’t yet know what this next era will be called, but few question the assumption that cloud computing and mobility will be key foundations of the architecture.
Consider the notion of “business process as a service.” What’s a business process? Business process management is said by IBM to include such functions as:
Others might see other building blocks such as email management, communications management or shopping cart services or catalog processes as similar inputs to create whole business processes.
As those processes all move to cloud delivery mechanisms, the logical question is whether such “outsourced” processes, supported by cloud delivery architectures, are part of the cloud computing business or not.
At some level, the answer has to be “yes.” Think of cloud-supported advertising systems, or retail operations outsourced to Amazon, both key business processes already often supplied to business partners that use cloud computing.
Still, you can see the problem. What counts as a business process “as a service?” Is it only the value of the contract to use a retail checkout system, a catalog or a fulfillment process? Is it partly the value of the transactions, or the value of the products traded?
For any cloud-supported mobile or Internet advertising system, what should be counted? Is it the value of the advertising, or only the commissions an exchange might earn? The same question can be asked for any cloud-based payment system.
The point is that it is possible cloud services markets might be bigger than currently envisioned, only partly depending on “what” gets counted.
The reason is that more and more business processes using software, processing and storage are shifting to cloud mechanisms, even though we traditionally have viewed software delivery, computing resources, storage and development environments are the primary cloud markets
Business process services (also known as business process as a service, or BPaaS, represents the largest segment of what analysts at Gartner now tabulate, accounting for about 77 percent of the total market, Gartner now argues.
BPaaS is the largest segment primarily because of the inclusion of cloud advertising as a subsegment. But you might also argue that BPaaS is so big because it basically represents a redefinition of the traditional outsourcing business. And that is a larger business than simple computing, storage and applications delivery.
“Businesses that leverage traditional outsourcing deals are looking to move off of inflexible contract and delivery structures,” says Robert McNeill, Saugatuck Technology VP. “Businesses are looking for more flexibility, innovation, and responsiveness from their outsourcers. BPaaS is providing that alternative.”
Something like that probably is going to happen with cloud computing. In a sense, cloud computing is part of the next generation of computing architecture. We don’t yet know what this next era will be called, but few question the assumption that cloud computing and mobility will be key foundations of the architecture.
Consider the notion of “business process as a service.” What’s a business process? Business process management is said by IBM to include such functions as:
- Web analytics
- Enterprise marketing management
- Business-to-business integration
- Supply-chain management
- Security governance, risk management and compliance
- Business service management
Others might see other building blocks such as email management, communications management or shopping cart services or catalog processes as similar inputs to create whole business processes.
As those processes all move to cloud delivery mechanisms, the logical question is whether such “outsourced” processes, supported by cloud delivery architectures, are part of the cloud computing business or not.
At some level, the answer has to be “yes.” Think of cloud-supported advertising systems, or retail operations outsourced to Amazon, both key business processes already often supplied to business partners that use cloud computing.
Still, you can see the problem. What counts as a business process “as a service?” Is it only the value of the contract to use a retail checkout system, a catalog or a fulfillment process? Is it partly the value of the transactions, or the value of the products traded?
For any cloud-supported mobile or Internet advertising system, what should be counted? Is it the value of the advertising, or only the commissions an exchange might earn? The same question can be asked for any cloud-based payment system.
The point is that it is possible cloud services markets might be bigger than currently envisioned, only partly depending on “what” gets counted.
The reason is that more and more business processes using software, processing and storage are shifting to cloud mechanisms, even though we traditionally have viewed software delivery, computing resources, storage and development environments are the primary cloud markets
Business process services (also known as business process as a service, or BPaaS, represents the largest segment of what analysts at Gartner now tabulate, accounting for about 77 percent of the total market, Gartner now argues.
BPaaS is the largest segment primarily because of the inclusion of cloud advertising as a subsegment. But you might also argue that BPaaS is so big because it basically represents a redefinition of the traditional outsourcing business. And that is a larger business than simple computing, storage and applications delivery.
“Businesses that leverage traditional outsourcing deals are looking to move off of inflexible contract and delivery structures,” says Robert McNeill, Saugatuck Technology VP. “Businesses are looking for more flexibility, innovation, and responsiveness from their outsourcers. BPaaS is providing that alternative.”
Gary Kim has been a digital infra analyst and journalist for more than 30 years, covering the business impact of technology, pre- and post-internet. He sees a similar evolution coming with AI. General-purpose technologies do not come along very often, but when they do, they change life, economies and industries.
Subscribe to:
Posts (Atom)
Zoom Wants to Become a "Digital Twin Equipped With Your Institutional Knowledge"
Perplexity and OpenAI hope to use artificial intelligence to challenge Google for search leadership. So Zoom says it will use AI to challen...
-
We have all repeatedly seen comparisons of equity value of hyperscale app providers compared to the value of connectivity providers, which s...
-
It really is surprising how often a Pareto distribution--the “80/20 rule--appears in business life, or in life, generally. Basically, the...
-
One recurring issue with forecasts of multi-access edge computing is that it is easier to make predictions about cost than revenue and infra...
