Comcast/Netflix Deal…what does it mean?

I am curious to learn the details around the Comcast/Netflix deal that is being widely reported this afternoon.  Having spent the better part of the past twenty-years selling equipment to service providers of all types on most continents and in a variety of regulated constructs, the subject of net-neutrality and OTT have been a prominent subject in my blogs over the past eight years.  SIWDT is coming up three years old and one benefit that content has to me is it is searchable and I can go back and critique my thoughts.  I did a search on “net neutrality” and it came back with four prior posts.  I carved out a relevant quote from each post:

May 2011: Do you want to own content? Reviewing thoughts from Sep 2006

Back in 2006 I defined content as “applications that provide services, entertainment broadcasts, videos on demand, music on demand, interactive gaming, real time broadcasts, collaborative productivity applications, and information that results in the completion of an economic transaction in which value is exchanged.”  I think that is accurate.  You want to own the application, the media content or the broadcast rights to a real time event.

October 2011: Data Center and Bandwidth Metering Thoughts

I am not a believer in the concept that bandwidth is free.  It costs money to build networks and the margin on broadband services is not great.  Service providers are trapped in a “bits R us” model and NFLX wants to use this network to deliver content from a centralized DC model.  I do not see OTT as a network problem – it is economic problem.  I am sure if NFLX wanted to work out a deal with a service provider in which there was some sort monetary exchange for each broadband sub accessing the service, we would not hear about the subject. 

November 2011: 2007 Thesis on P2P Video, Bandwidth and Broadband

  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.

December 2011: Are Cloud Providers the CLECs of the Twenty-Tens?

Another point to consider is on what basis will cloud providers compete?  I think the answer to that question is price and price is not really a good competitive dynamic for the industry as a whole.  Will public cloud providers become regulated?  Will states or municipalities create cloud provider utility commission boards to set rates and levy taxes?  If game is to get to Wal-Mart scale for cloud computing, then we are clearly assuming Wal-Mart margins.  That will be a problem for many people, but probably a boon to the average consumer…I think an important question to consider is how important is content ownership, content security and content control?  I think the answer is different across the spectrum from the individual to the F5K enterprise.  If you are an individual consumer most likely you have chosen to use Google Cloud, or Apple iCloud or some other cloud service for your personal data.  I would observe that hosting your content in the public cloud means you are comfortable or perhaps unaware of governmental requests to see your data and feel comfortable with security around potential hackers trying to steal your data.

The Comcast/Netflix deal tells me that content providers without a network with either (1) build a network or (2) pay to use the network.  This should be a surprise to anyone.  I wrote about this very point June 2012.  Google has been building and assembling together their network(s) for years and that should not be a surprise to anyone.  A few weeks ago I was speaking with a former colleague who worked for me more than ten years ago.  He is one of the smartest, most under utilized people in the tech world.  He had a string of amazing startup successes in 1990s.  I call him every year and offer him a job, which he never takes because he works in the CTO office of Dow 30 company.  I spoke to him a few weeks ago for the annual failed recruiting session and in the course of the conversation he mentioned David Isenberg’s “Rise of the Stupid Network” paper; a paper that I wrote about in SIWDT back in August 2011 in the following post: The Network is at Apogee.  My former colleague said the future laid out in that paper seventeen years ago is playing out.

If you want to understand the Comcast/Netflix deal, the future of networks, storage and compute, it was all written in 1997.  We are just living out the dream and everything in between are steps along the way to a world in which “…network design [is] based on another assumption – that computation and bandwidth were cheap and plentiful.”  When I first met Dave Husak, CEO and founder of Plexxi he told he believed in the world of plenty; plenty of bandwidth, plenty of compute and plenty of paths — which is the rise of Isenberg’s Stupid Network.  “Whatever we discover to be the new Stupid Network value proposition, my working hypothesis is that it will be based on intelligent end user devices, intelligent customers, employees whose intelligence is valued as a corporate asset, and companies that can learn.”

Days turn to minutes and minutes to memories
Life sweeps away the dreams we have planned
You are young and you are the future


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