Category Archives: Exaflood

Exaflood Does Not Make Sense

. ADTN, CAPEX, CSCO, Exaflood, OTT . 2 Comments

Another nice weekend on the east coast of the US and there is so much to think about that happened over the past week.   CSCO spent five billon of their off shore pile of cash on a video company.  ADTN announced a terrible quarter to start the year.  These two events are part of the conundrum of the past 10-11 years that when I hear people telling me how the internet is going to break, the upcoming exaflood and video is a huge problem it makes little sense to me.  At first I was going to write a big post with all sorts of charts, but the weather is too nice and I am not going to bother with the details.  It might be better to just state my opinion and if you feel differently go ahead and put money to work.  Just remember:

Innovative, Alternative Technology Solutions = Velocity

Developed Technology = Spent Capital, Doctrine, Incrementalism and Creativity Fail 

  • Since 2001 mobile phone and now smartphone growth has been great.  We have more smartphones and now tablets that sales exceed a billion devices a year.  2G went to 3G and now 4G…all of it means more devices using more capacity.
  • Many of the local loop upgrades are done in the US.  DOCSIS 3.0, FTTx, xDSL…yes, we have solved the local loop bottleneck.  It took ten years, but we are on our way to universal broadband.
  • OTT video is everywhere and soon we will have 15 or more NFLX copy cats and that is because content, especially video is a DIY content solution
  • File sharing, Dropbox, Box.net, Megaupload, S3…yes we have storage in the cloud
  • State aware apps like Gmail are the norm

All of these drivers of bandwidth are ongoing in the ecosystem and yet service provider CAPEX is lumpy!  CSCO has to buy a software based STB/codec company and ADTN who is in the heart of the local loop upgrade market has a huge miss because service providers CAPEX is lumpy, spotty, insert word of your choice.  Go look at any 10-year weekly chart of a service provider communication equipment company and you will see that the trend is down.  If the traffic trend is up, why is the equity value chart trend down?  Enough said on my part on the subject.

The NYT reported that CSCO was supporting a spin-in startup called Insieme.  I have a lot of thoughts on this subject, but I am going to take a few days to collect and organize my thoughts on the subject.  It will be the topic of my next post.  I posted some additional thoughts over on the Plexxi blog as to what I am seeing in the DC market.

 

/wrk

* It is all about the network stupid, because it is all about compute. *

** Comments are always welcome in the comments section or in private. **

2007 Thesis on P2P Video, Bandwidth and Broadband

. Exaflood, Framing Exercise, Innovation, Networking . 3 Comments

I have been thinking a lot about bandwidth, telecom services and the traditional telecom equipment market of selling to service providers.  I posted a snippet of my thinking in my 11.23.11 Notebook post: “Telecom Equipment Markets: I sent the four charts to the left to a friend the other day.  Both of us had careers in networking in the 1990s.  He came back at me with following argument:  “Carrier traffic growth is 40-60% annually, carrier CAPEX growth is ~3% annually and carrier revenue growth is <10% annually.”  The only way to reconcile that construct is to drop the cost per bit.  Who will bear the burden of that cost reduction?  I think the most likely candidate is the equipment providers.  I have been Verizon FiOS customer since July 2006.  In 64 months my service cost has never changed – yet they have increased my bandwidth twice.  That is deflation.  I have covered all this before in various posts here (optical upgrade cycle), here (exaflood), here (Moore’s law) and here (data center).  My thinking here is that the people who tell you to buy stocks based on mobile traffic growth, or YT hits or software defined networking, blah, blah are lazy in their thesis construction.  Just because there are lot of mobile devices and tablets and China and India require billions of handsets is not a sufficient argument.  I would submit that the real investment thesis is to ride that wave of jubilation and sell the hype-cycle before it collapses.”

I was reading something I wrote back on March 1, 2007.  I stumbled on it through a Google search for a Mary Meeker quote and a post from my old blog came up on SeekingAlpha.com.  It is an interesting read because we are almost five years on from when it was written.  You can read the complete post below as it includes the whacky email I got from the Level(3) investor fanatics, but the part I want to focus on is the recycled thesis as to networks and demand.  I believe we recycle these assumptions because of doctrine.  Broadly defining the technology ecosystem to include the people and companies in technology, as well as private and public investors and analysts and consultants I believe we trapped in loops because of doctrine.

The thesis on the growth of IP and video has been showing up for 5-10 years or more in investor presentations.  In the conclusion of my March 2007 post I asked: “…should I conclude that companies that can own more of the end to end (i.e. fully vertically integrated) distribution chain of commerce for data (i.e. video, VoIP, etc) will realize higher profits? Or should I assume that bandwidth consumption with increase significantly that cost of the replacing the capacity will result in scarcity and drive bandwidth costs higher?”  Almost five years later, I am going to simply state the theses I am working on, but I think they require to be framed in the concept of doctrine.

The concept of doctrine enables technology people to make assumptions.  Assumptions are great as long as they hold.  When I refer to doctrine I am referring to procedures that ecosystem participants follow because they have been trained to reason and act in a certain manner within the command and control structure of their business and technology.  We design networks, manage companies; evaluate technology and markets according to a common set of doctrines that have been infused into the technology ecosystem culture over many decades.  I was thinking along this thought line in mid-October when I posted “I also believe we are all susceptible to diminished breadth in our creativity as we get older.  Diminished breadth in our creativity the root cause as to why history repeats itself and another reason why when we change companies we tend to take content and processes from our prior company and port them to our new company.  This is especially true in the technology industry.  We recycle people; hence we recycle ideas, content and value propositions from what worked before.  Why be creative when it is easier to cut and paste?  As a casual observation it seems to me that most people working in tech have a theta calculation as to their creativity.  I believe a strategy to guard against creativity decay is to look back on the past and critique the work.”  In mid October I had not fully fused the thesis of creativity fail or creativity theta with doctrine.  The idea to link the two concepts occurred to me last night as I was reading Shattered Sword for the second time.

  1. We have been waiting on the video tsunami for five years.  When does it start?  Bueller?  Bueller?  Has anyone seen the video tsunami?  Thesis: There will be no video Tsunami.
  1. Can we all agree that bandwidth is deflationary?  The trend for bandwidth is the same as the trend for storage and compute.  Thesis: Owning the compute point is far more valuable than owning the pipes between the compute points.
  1. Service providers consolidated to protect margins (i.e. ARPU) and to slow the rate of revenue decline, thus extending and lowering theta.  Thesis: COs become data centers.
  1. Now that the video tsunami thesis has become passé, the new thesis is the cloud.  The cloud is not a value creation engine for hardware.  It is enabled by hardware, but hardware trends are deflationary.  The value in the cloud will be enabled by software.  Thesis: Networking transitions to a virtual software function that runs in the server.

With that I send you back to 2007…

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March 1, 2007

The last few days have been full of interactions with people interested and passionate about networking and investing. The result of these interactions is I have either discovered a market discontinuity or an investor discontinuity. To present the discovery process I have created six perspective frames. Individually they can be considered interesting or meaningless. Considering the axiom that perception is reality, assembling the frames into a single view does reveal a market or investment discontinuity.

Frame 1: Investment Thesis of a Level 3 (LVLT) Shareholder

My post on Level 3 generated a significant response from the investor and telecom communities. A number of people who contacted me were bullish on the future of Level 3. One shareholder allowed me to reprint a portion of their investment rational anonymously. Here is a condensed version of their investment rational:

“CroweBonics is Silicon Economics applied to our communications business. It’s a fun reference to the phenomenon which Crowe has opined so often. It’s nothing more unless we get into the more complex Mini Max Model. I have never used their model due to the simplicity of my mindset when looking to apply investment thesis-when the company started, and some believe, will factually kick in with the tsunami of video traffic hitting all “networks.” It’s the price elasticity of demand concept. We are comfortable with 3:1 ratios where bit demand is growing three times price compression. If demand is growing at 75 percent and prices are dropping at 25 percent; we have a 32 percent GROWTH rate. The hangover in telecom killed the formula, as you know. Even traffic growth doubling each year would be revenue neutral to the top line while fifty percent year over year price degradation might occur. At last check, IP & Data traffic was growing at 40 percent according to my research. I believe we have begun and are heading into the HYPER GROWTH portion of the S curve…So William, we have a “healthy business” it appears again (CroweBonics), and a best of breed management team!”

Breaking some code words in this email, the term “CroweBonics” was this investor’s play on words with a historical reference to a network model called Mini-Max I that Level 3 asserted back in the 1999-2003 timeframe.

Frame 2: Level 3 Investor Presentation and the Silicon Economics Mini-Max Model

Back in 1999, Level 3 promoted network thesis and model that lower cost and network capacity would be driving factors in the evolution of the internet, the New Economy, the Digital Revolution and the telecom revolution that was fueling much of the underlying investment thesis of the 1990s. The concept was summarized in a November 3, 1999 issue of Converge! News Digest:

“Level 3 Communications is betting its business on the premise that bandwidth is strongly price elastic. Speaking at NGN 99, James Crowe, Level 3 President and CEO, said the tremendous bandwidth capacity of new fiber networks will stimulate the same hyper-elastic cost-demand phenomenon seen in the microprocessing field. The cheaper it becomes, the more you use. Crowe said Level 3 Communications will be built with a fully upgradeable design. Because new generations of networking equipment are up to 8 times more cost efficient to operate than preceding infrastructures, Level 3 anticipates a continuous cycle of rebuilding, including switches and routers, the optics of its transport network and even the fiber in its trans-continental conduits. Unlike other mega-carriers, Level 3 will pursue a horizontal business model, focusing on switching/transport service, not content aggregation. Crowe believes in technologies that demonstrate the best price/performance improvement ratios, namely, IP as the convergence layer and DWDM as the transport. Voice revenues dominate in the short term, so Level 3 will implement Lucent’s IP softswitch architecture along with VoIP gateways. The PSTN will provide overflow capacity. Looking ahead, Crowe envisions virtual “tele-presence” conferencing approximating the information gathering potential of the human optical nerve – a rough guess of 15 Tbps uncompressed for a simple, two-way tele-presence exchange. That’s enough data to fill one-sixth of the aggregate capacity of entire first generation Level 3 network, if every fiber in every conduit were lit with today’s optics.”

Using the benefit of hindsight, it is interesting to note that in 1999 Level 3 was “…focusing on switching/transport service, not content aggregation.” Seven years later, L3 is all about content delivery via Vyvx and the CDN network they acquired from Savvis. Level 3 does not promote the Mini-Max I model as they did in the past, but they clearly believe that video traffic is or will be a major driver of network capacity and video plays to their strength as company with their network cost metrics and fiber capacities.  I included an image of slide 7 of Kevin O’Hara’s, COO of Level 3, presentation at the Merrill Lynch Communications Forum on February 27, 2007:

I did download a version of the Mini-Max I model from the Internet Archive. You can search for it on the IA site or download the PC version of the Excel spreadsheet here: Download minimax.xls. Here is a link to a fun interview that James Crowe did with Wired Magazine in 1998.

Frame 3: Venture Capital Investments Thesis

When VCs read the Infinera (INFN) S-1 is their reaction positive or negative to the funding model? I am not critiquing the business plan or the company, I am strictly discussing the funding model divorced from the company. Do VCs think $300M or $400M funding plans are an investment thesis that works? Speaking with several VCs, I think the answer is no.

My observation is that $200-400M funding plans do not work over the long term. How many companies in the networking space could be supported by venture capital if they all required $300M and six years to achieve an IPO exit? Ciena (CIEN) raised ~$40M before their IPO. Cisco (CSCO) raised $2.5M of venture capital from Sequoia in 1988. Eighteen months later, Cisco went public. Nineteen years later, system level networking companies are filing for IPOs after funding plans of $100 to $400M. Recently I have been talking to VCs about startups in the networking space. Where are they? Why are so few? I think problem is the funding plans required to make these companies successful are enormous and the barriers to a successful IPO are daunting.

If there is or will be an explosion of video, a video tsunami on internet, I would expect to see a number of startups in the video or internet infrastructure space. Where are they? Where is the next optical switch company? Where is the next Infinera 2? Where is the next long-haul or metro WDM startup? How about another router or switching company building products with the next level of integration, density and cost improvements? Here is a link to a collaborative story on whether New England will ever have a Cisco Systems. My point is that venture capitalists are paid to make risk investments and they are either (1) asleep while the video tsunami is approaching or (2) they do not see the approaching wave because the funding investment level does correlate with the external market hype.

Frame 4: Mary Meeker / Morgan-Stanley Research Reports

In the process of looking for collaborative data points regarding the impact of video on the internet infrastructure, I reviewed the recent presentations from Mary Meeker’s team at Morgan-Stanley. You find an index to their technical presentations here. I find value in the material from Mary and her team because of their consistent effort over a long period of time. The research material starts with The Internet Report from 1995 and spans the entire time period to today. Few analysts and technical people have such a long historical record available for comparison, review and critique. It is a point of quality in her team’s favor to make available a vast amount of material to frame historical perspectives. Here are three slides from their recent report on the state of the internet presented at the Web 2.0 Conference inSan Francisco in November 2006.

The first slide graphically illustrates the emergence of P2P traffic on the web, which Meeker cites in slide 20 as 62% video. The third slide is the question slide and I do not think we have a definitive answer. Clearly the companies that own long-haul fiber backbones (e.g. L3, AT&T, Verizon, Sprint) would like to see high value commercial video as a business driver. The P2P video traffic is a significant driver of bandwidth, but it is similar to the Napster event of the late 1990s – it is under monetized. P2P traffic that is non-monetized is the killer application for service provider in negative manner. The whole net neutrality debate is centered on paying for use of bandwidth. It is the toll road analogy. If I am running a P2P service and it is traveling over someone’s backbone that I accessed through a different local broadband provider, the backbone provider is not gaining income from the packets I sending which are a stream inside a fix service contract between the local bandwidth provider and the backbone provider.

This is the challenge presented by the uncoupling of pipes and services in the service provider model. Technical evolution now allows services to exist separate from the connectivity pipes, or in other terms services can exist outside of the network. When this uncoupling occurs, service providers are not monetizing the services running inside the pipes (i.e. circuits, wavelengths, etc). This is the challenge of P2P video. Who is gaining what percentage of the video revenue in a P2P service? There are monetization challenges in the current market construct for commercial video and P2P video. The chain of commerce for the monetization of video is not as simple as growth rates will drive top line revenues. The video chain of commerce must be considered in terms of the uncoupling of services and pipes. This is the heart of the new neutrality debate and the basis for the assumption that service providers might evolve towards being only connectivity providers.

Frame 5: Infinera S-1 and Internet Bandwidth Consumption as the Macro Event Driver

Infinera is not the only company to recently file for S-1 that is leveraging video as a business driver as well as challenging funding model. BigBand Networks filed for an IPO having raised $100M in venture capital and acquiring the CMTS business from ADC to fuel the revenue engine a few years ago. Here are some excerpts from the Infinera S-1 that illustrate the use of video and overall internet bandwidth consumption as the primary supporting element of the investment thesis:

-         Infinera S-1 pages 51-52: “Increased Demand for Network Capacity: The global market for optical communications equipment is estimated by Ovum-RHK, a third party industry analyst, to be nearly $12 billion in 2006. Our DTN System currently competes in the WDM segments of this market, which we estimate to be $3.7 billion in 2006.

-         Drivers of Increases in Demand for Network Capacity: We believe that a number of trends in the communications industry are driving growth in demand for network capacity and ultimately will increase demand for optical communications systems, including our DTN System. These trends include:

  1. Growth of Internet usage and IP traffic: Internet protocol, or IP, network traffic continues to grow significantly as bandwidth consumed per Internet user and the total number of Internet users increases;
  1. Increasing broadband penetration and high capacity services: Communications service providers are offering broadband internet access to an increasing number of subscribers to support voice, video and high speed data offerings. In addition, rapid adoption of new consumer applications such as video and music downloads and business applications such as videoconferencing necessitates an increase in network capacity to accommodate high-quality delivery of these bandwidth-intensive services; and
  1. Availability of more affordable bandwidth capacity: Competition among cable, satellite and telecommunications service providers in providing bundled services such as the “Triple Play” (voice, video and data) has caused a decline in consumer pricing for such offerings, which is encouraging greater consumption of bandwidth.”

Frame 6: The Quest for the Holy Grail: The Killer App!

In their famed Internet Report, Mary Meeker and Chris DePuy of Morgan-Stanley declared that “at a minimum, e-mail should become pervasive. So should Internet/Web access: Email is the “killer application of the Internet today, and browsing through information services the “killer app” of tomorrow,” [see, the Internet Report, Mary Meeker and Chris DuPuy, February 1996, page 1-2]. Now that we have transitioned enough of the Web 1.0 (i.e. dialup) infrastructure to the Web 2.0 (i.e. broadband) infrastructure, is video the killer application, the Holy Grail or the next great hope that the internet has been waiting for?

Anecdotally it appears that video and the affect that video is having on the internet is being used too loosely. It is almost taking on a life like that of the Worldcom fable that the internet is doubling every 100 days, which was a story that found itself in many a business plan presented to a venture capitalist back in the 1990s. Here is a link to an excellent paper on the history of the internet doubling every 100 days, myth and legend. The question is whether video is indeed the application that changes the infrastructure of the internet or is this a variation of the second derivative of growth applied to the internet using video? Here is another reference to the coming data tsunami and how the data overload assumption becomes propagated. I am not disputing that it can or will happen, I am stating that we are missing metrics to support the assertion.

I did some channel checking with people who sell optical networks. If there was a massive video tsunami on the way, I think the service providers who own long-haul optical networks are also missing the warning. People on the front lines of the optical wars tell me that metro networks are hot and growing, but the long-haul networks are just adding capacity. Qwest is in the midst of a rebuild of their first generation long-haul gear acquired from Nortel (which started the whole 10G bang, as in it was the first 10G gear deployed) and AT&T (T), Sprint (S) and Verizon (VZ) are fixing portions of their networks and adding capacity. What is not happen is there are no new overbuild backbones occurring. No service provider is pulling new fiber. The optical market is far healthier then it was two years ago, but we are not back in the days of the late 1990s when service providers were ordering optical equipment at $100M to $500M per purchase order every quarter.

Conclusion:

  • Google (GOOG) purchased YouTube.com because they believed they could monetize the video streams and/or monetize the advertising business that could be developed from the YouTube.com daily user base. If the video traffic in terms of transmission bits was the most valuable asset, then I would have expected Google to buy the pipes, but they bought the content and the users instead of the pipes.
  • How much traffic will Slingbox and DVRs produce in the network? Can service providers monetize this traffic greater than the connectivity of the pipe that connects to the box?
  • If video is indeed the explosive, killer application that internet has been waiting for, where are all the startups that are going to provide the next generation of infrastructure?
  • Have we reached a point in the service provider model to conclude that the horizontal integration model won over the vertical integration model? This is the inverse of the assertion Level 3 extolled back in the 1999-2001 time period that “Silicon Economics was Disrupting the Vertical Integration Model” of the service provider industry.

Today, the service provider market looks more like a fully integrated vertical market structure then a set of disparate horizontally focused entities. Andrew Schmittat Nyquist Capital introduced me to the Invisible Hand Services’ Metro New York Liquid Bandwidth Exchange. If I look at the flattening of the price curve, should I conclude that companies that can own more of the end to end (i.e. fully vertically integrated) distribution chain of commerce for data (i.e. video, VoIP, etc) will realize higher profits? Or should I assume that bandwidth consumption with increase significantly that cost of the replacing the capacity will result in scarcity and drive bandwidth costs higher?

I chose the title of this post because I can see either a market discontinuity or investment discontinuity in the effect that video is having on the internet. As always, thoughts and comments welcome, whether private or public.

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/wrk

* It is all about the network stupid, because it is all about compute. *

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. **

 

Content Delivery Networks (CDNs) 08.21.11

. AAPL, AKAM, Bandwidth Metering, CDNs, Chain of Commerce, Content, Exaflood, GOOG, JNPR, Networking, OTT . 4 Comments

I had an email question two weeks ago regarding CDNs and where they are going or not going and who will be the winner or loser.  I answered the question privately, but it gave me cause to think about content deep networking, CDNs and what is going on in the network because of the evolution to longer form data, or big data depending on what term you prefer.  There is no question that Web 1.0 (~1995-2000) built on small HTML files is much different than Web 2.0 (~2002-2008) and Web 3.0 (~2009-?) with streaming HD content, state aware apps and access points at the edge that have higher connection speeds and capacities; all that being said, I am still a bit of an OTT skeptic.  Here is a chart I produced over a year ago using data from AKAM and CDN pricing trends.  The chart is not updated, but I think it shows the conundrum of having to serve longer form data in a market of declining ASPs.  I noted on the chart the start of iTunes, which is the poster child for the old content consumption model in which the user had to own the rights locally for the content.  The new content model which iTunes is using too, the rights are licensed by the content provider (AAPL, NFLX, AMZN, etc) and the end-user rents usage rights, usually as a monthly fee.

When I wrote that I was an OTT skeptic, I meant that I find it hard to quantify the OTT problem and I find that service providers (SPs) find it hard to quantify the problem.  I think there is no shortage of emotion, but I am not sure everyone is talking about the same problem or maybe they are just using the perception of a problem to force a discussion about another subject matter, which is what I really believe.

To start, let us step back and ask what video/OTT problem are service providers and the infrastructure companies are trying to solve?  Is it a bandwidth problem (i.e. real capacity constraints), a revenue problem (i.e. SPs want a share of NFLX revenues) or a CAPEX problem (i.e. SPs do not want to spend)?  I talk to a lot of people on many sides of the debate; I talk to equipment companies and I read the industry and investment reports.  I am skeptic when smart people tell me that it is a well known and understood problem that video is clogging the network.  Is it?  Can someone show me some stats?  When I read puff pieces like this, I struggle to grasp the meaning.

If OTT video is growing 40-50% over the next four years it is somewhat meaningless to me because network technologies and network capacities are not static.  The whole OTT space is a bit of conundrum.  There is a lot of noise around it and that is good for selling, marketing and thought leadership, but it seems vastly under invested if there is such a problem on the scale it is made out to be.  I think the data center (compute) scaling (more VMs on a Romley MB and the virtualization of the I/O) into the network is a much, much bigger market.

What are CDNs really good at?  Distributed CDNs like AKAM are really good at distributed content hosting like big file upgrades and regional specific content distribution like day and date.  iTunes is hosted by AKAM and they do a good job of ensuring you cannot download content specific to the UK in the US.  AKAM also offers really good site acceleration services for web properties that have low to medium traffic demands, but might have a spike in traffic due to an unforeseen event.

Centralized CDNs like LLNW and LVLT do really well at serving up specific content events and they are much better at hosting content that requires that state be updated, think Gmail which likes to update state on a regular basis.  Before thinking about CDNs, think about NFLX or Youtube.com (YT).

A year ago most service providers (SPs) who thought they had an OTT video problem viewed YT as the biggest problem, but as a problem it was small.  NFLX has overtaken YT traffic.  From a SP perspective, there are several ways to handle the problem of OTT video or user requested real time traffic.  (i) SPs can ignore it, (ii) SPs can meter bandwidth and charge consumers more for exceeding traffic levels, (iii) SPs can block it or (iv) SPs can deploy variations on content deep networking strategies.

Content deep strategies use products from companies like BTI Systems and JNPR (Ankeena acquisition) to mention a couple.  These companies deploy a caching CDN product in the network around the 10-50k user stub point.  The device replicates popular content that it sees requested from sites like NFLX (it is a learning algorithm) and thus the 10-50k user group does not have to traverse the entire network topology for popular content from streaming sites.

Similar to a cable node-splitting strategy, hosting popular content deeper in the network works well and seems to slow bandwidth consumption growth rates to very manageable levels.  CDNs win because they do not have to provision as much capacity and the SPs win because they have less money going to the CDN and less capacity issues in the network.

The user experience is better too.  When you see ATT and LVLT wanting to build a CDN service (GOOG too) it is really about content deep and putting content local to the user.  This is something I wrote about in my blog back in April.  Recently, there were reports of LVLT and LLNW combining CDNs and this makes sense to me as scale will matter in the business.

In terms of BTI, I listened to a webinar they produced about a month ago that was hosted on Dan Rayburn’s site.  BTI is claiming 10 content deep networking customers and in trials with a tier 1.  Specifically (if I heard the presentation correctly), they said that at the Tier 1 SP trial, OTT video traffic was growing at 3% per month.  311 days after insertion, video traffic is growing at 0% a month and that was during the rise of NFLX.  When BTI started their content deep solution it was all about YT, but this has changed in the last 9 months due to NFLX.

What I really think this entire debate is all about is money.  I put a chart in the April post that you can view here.  It is all about the chain of commerce.  Why did we pay $15 dollars for album in the 1980s and $9.99 for CDs in 1990s?  The answer is the chain of commerce could support that pricing model.  Today, the chain of commerce is shrinking and consumption habits have changed.  SPs do not want to be relegated to a “bits r us” business model.  They want a piece of the revenue stream from the content creator, to the content owner, to the content distributor, to the CDN, to the SPs and finally to the consumer.  I think the real issue is not the network, but the network is being used as a facility to broker a bigger discussion about the division of revenues.  I could be wrong too and the whole internet could collapse by 1996.

/wrk

* It is all about the network stupid, because it is all about compute. *

** Comments are always welcome in the comments section or in private.  Just hover over the Gravatar image and click for email. **

Waiting on the Exaflood

. CDNs, Chain of Commerce, Exaflood, Networking . 8 Comments

I was just down in my basement looking at the area around my FiOS FTTH equipment (pic below).  I have been expecting a flood of data any day now.  I have been so concerned about the impending exaflood that I have been considering a home defense.  What would it cost to build Petabyte Wall (1000 TBs) to handle in the incoming flood of data?  There have been plenty of warnings of the impending event.

If I wanted to build my PB Wall out of 32GB flash drives, I would need 31,250 sticks.  That would set me back ~$2M assuming I could get a volume discount.  There are some nice 12TB NAS systems, so I thought that 84 of those systems for $124k might be a better option.  Google is offering 16TB for $256 per year, so that would set me back $256k for my PB Wall, but the problem with this option is it is from Google’s personal storage product and I need a commercial class solution – not a digital locker for files.  Here are four options for my PB Wall assuming I could direct the flood bytes to the storage options:

Solution Price Per GB Price Per TB PB Wall Total Cost
32 GB Flash Drives $2.34 $2,340.00 $2.34M
12TB NAS (Seagate) $0.12 $124.91 $124k
Google Storage (Developers) $0.17 $170 $2.04M (1 Yr)
Amazon S3 $3.72 $3,726.49 $3.72M (1 Yr)

A few items to note in my high level quest to build a PB Wall.  Amazon and Google both have upload/download transactions costs.  I calculated the cost to fill a TB with the Amazon pricing tool; Google numbers do not include this cost.  Google charges $0.10 per GB for upload and $0.15 per GB for download for Americas and EMEA.  If you are in APAC make that $0.30 per GB for download.   Google and Amazon also charge $0.01 per 1000 PUT, POST, LIST, GET and HEAD requests.  Note those are transaction costs for compute, which is a reoccurring theme in my blog.  To upload a TB to Google per month it would cost me $100k or an additional $1.2M per year putting the total Google cost for my PB Wall from Google at $3.24M.  Throw in the some more charges and Google and Amazon are pretty close.  My total costs do not include power and cooling for my in home NAS and flash drive solutions, not mention the time it would take to figure out how to wire 31,250 flash drives together.

Where is the Exabyte Flood?

I am not going to take the time to critique the various predictions from 2007-2008 about the impending exaflood and the internet breaking.  These types of hyperbole always lack hubris and neglect to correct for black swans and human adaptation.  That is what networks do.  Networks adapt because they are managed by humans.  Humans adapt.  Not a lot of people where talking about broadband usage caps back in 2007-2008.  Not many people thought that service providers would throttle bandwidth connections.  Verizon FiOS offers storage with their internet service for $0.07 per GB per month or $0.95 cents per year.  My PB Wall from Verizon using my FiOS service would cost me an additional $950k per year.

If I was provide a short answer to the complicated question of the exaflood, I would really say the answer lies in Shannon-Hartley theorem and that this law from 1927 will have more to do with network design and build-out over the next decade than life before or after television.  In the past, it was easier to deploy more bandwidth to obtain more capacity.  Buy another T1, upgrade to a DS3 and get me a GbE or more.  Today we are approaching the upper end of spectral efficiency and this is going to force networks to be built differently.  As I stated in a prior post I think that transmission distances decline, more compute (i.e. data centers) are put into the network and bandwidth limiting devices like ROADMs and routers/switches that have an OEO conversion will go away probably on the same time line as the TDM to packet evolution.  This means the adoption rate is slower than first predicted and just when despair at the slow adoption takes hold the adoption rate rapidly increases and continues to gain momentum as the new network models are proved in.

The Network Always Adapts

The other assumption missed by the exaflood papers was that the network adapts.  It just does.  People who run networks put more capacity in the network for less money, because the people who build the network infrastructure are always working to improve their products.

One market effect I know is that when discrete systems in the network become harmonized or balanced, there is a lot of money to be made.  Look at the fibre channel market.  When adapters, drives and fabrics converge around a performance level like 2GB or 4GB, the market becomes white hot.  The same goes for the 1G and 10G optical transmission markets.  Today we are a maturing 10G market, there is a transition market called 40G, but the real magic is going to happen at 100G.  At 100G huge efficiencies start to occur in the network as it relates to I/O, compute process, storage, etc.  With the building of huge datacenters, how much bandwidth is required to service 100k servers?  These large datacenters are being built for many reasons such as power, cooling, security, but the one reason that is often not quoted is processing and compute.  There have been really innovating solutions to the compute problem that I wrote about before such as RVBD and AKAM.  I look at what the Vudu team did for meshed, stub storage of content on a community of systems.  Is this a model for future wherein numerous smaller data centers look like a community of Vudu devices?

Analytics Matter

Going forward in a network world of usage caps, distributed storage and parallel processing I know what element that will need to solved and that is service levels.  Commercial and consumer end-users want to get what they are paying for and service providers do not want to be taken advantage of in the services they are offering.  Security and defined service level agreements will push down to the individual user just as search and content is being optimized and directed to the group of one from broader demographic groups.  Why are their wireless broadband usage caps?  Because there is a spectrum problem and that same problem and solution set is coming to your FTTH connection sooner than you think.  Why do you think Google and Amazon are charging for compute transactions?  Anyone who used a mainframe in the days when you had to sign up for processing time is having flash back and wonder what happened to all the punch cards.

The reason Google and Amazon charge for compute is because transactions cost money.  The whole digital content revolution, disintermediation, OTT video, music downloads, YT, blah, blah, whatever you want to call it goes back to one force and that is transaction economics.  The profit margin that can be derived from selling content has and continues to decline.  Distribution is easier; hence the transaction cost is smaller, resulting in a lower profit margin thus supporting fewer intermediaries.  It does not mean the cost is zero, it just means less.  What is the cost to store, compute and transmit content?  Answer that, add some profit margin at each step and you know the future.

The companies who are providing the tools and systems that provide the analytics around the economic transaction of store, compute and transmit (SCT) are going to be big winners.

/wrk

** It is all about the network stupid, because it is all about compute. **