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:

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Exaflood Does Not Make Sense

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,, 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.



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

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

October 2011 Earnings 1.1: RIMM, RVBD, ERIC, ATT, CSCO

A few reactions to reports from yesterday, this morning and other news:

RIMM: I got an email last night asking me if I was following the activists who are posturing for changes at RIMM and one of their proposals was to break up the company into three companies: devices, networks and patents?  I have no idea how or why you would want to separate networks from devices, this is not NOK or ERIC with large independent business units.  RIMM’s devices are directly tied to their NOC operations.  I do not think that separation is even possible.  It is beyond me why people with a poor understanding of the company’s technical operations are promoted by various media outlets when all they are doing is talking their book.

RVBD: The numbers look fine.  I was thinking about a theory on RVBD that if there is a slowing trend of spending in enterprises, that RVBD should do better in that environment as they provide a lower cost solution that extends the life of the current network and enables enterprises to put off upgrades which is what is really needed to solve network performance issues.  In time, I think RVBD’s WAN acceleration will go the way of the distributed CDN, but this is probably a few years out.

ERIC: Wow…those margins suck, but I would say that mid-30s is going to be the new normal over the LT and some companies will need to adjust to that trend.

ATT: The CAPEX number is out and it is $5,220B for Q3.  Waves of relief emails are pouring into my inbox.  I have been bearish on ATT CAPEX, as noted in prior posts, and I still think something is amiss based on APKT, PWAV and JNPR commentary.  I would say that I modeled ATT CAPEX to be a little ahead of this number and if ATT still plans to spend to $20B in CAPEX, then the Q4 number should come in around $5,300-5,340B.  In all, that still tells me that multiples are going to be finishing their correction, contraction process.  The CFO will probably make a statement on CAPEX later this morning on their call.  I have updated the charts I posted in July and added a simple chart of ATT CAPEX back to 2002.  The wireless revenue miss is going to cause all sorts of questions to be asked.  Does this mean they have made enough investment in wireless or not enough?  I will wait to make a final call on ATT CAPEX until I hear from CSCO in November and CIEN in December.

CSCO: Acquired private company in which they had previously made an investment.  This is just further evidence of a content deep networking trend and that CDNs can easily be built by service providers.  I covered all this is prior posts.


* 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) #2

This is a small add-on to the post I had on CDNs a few weeks ago.  GigaOm had a post on Cotendo using Equinix data centers to scale their CDN business.  What I find interesting about this strategy is it provides another method for service providers and in this example a startup CDN to leverage network infrastructure to build-out and scale up a CDN service.  In my prior post I focused on companies using new network appliances to deploy a content deep strategy which mimics the capabilities of larger CDNs.  I think that is one of big differences in the world of Web 3.0 from Web 1.0 and I summarized that difference by stating that “….content deep networking strategies, increased fiber penetration and software based network controls (e.g. ADCs in virtual form, cloud based SLA controllers, etc) that enable the end-user to control the network access point in a world of state aware apps and real time content is not the best environment for companies that provide solutions intended to improve the inefficiencies of the network.  In other words, companies that created value by improving or fixing the network may see less applicability if the network requires less fixing and less improving.”  I would add to that the ability to scale up a service in vast amount of cloud based infrastructure deployed in the last ~5 years has an adverse effect on the value of the service.  Just a thought heading into the weekend, I could be easily incorrect.


* 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

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 (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.


* 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. **

Over the Top (OTT) Video Problem is Urban Myth

I have been writing about bandwidth metering and exafloods for awhile.  Last week I read this article on Bloomberg.  It had been tweeted and shared a few times.  The article is about Time-Warner Cable considering putting usage caps on their broadband customer connections.  It has an interesting quote from CEO Glen Britt who said “Moving from a flat fee to consumption-based billing will likely allow consumers who use the Internet for just e-mail and basic searches to pay less.”

Here is a link to article in which News Corp CEO Chase Carey advocates for an additional charge to programmers for iPad streaming “I think the consumer is willing to pay fair value for a good experience…

I am not sure there is an over the top (OTT) video problem.  Blasphemy!  I just wrote it and I am now awaiting the hate mail.  I must be a crazy person because everyone knows there is a huge OTT video problem.  It is so obvious.  No brain power required.  Even a sixth grader using an iPad knows what pixelization is and that is clearly a symptom of OTT video congestion.  Correct?  We are all sufferers of the OTT curse on a daily basis.  Correct?  I am not so sure.  If there is such a huge OTT problem, why is the silence deafening when it comes to complaints?

At first I thought I was ignorant because I have been reading and hearing about the OTT problem for what seems like years.  There are all sorts of corporate white papers and research reports on the OTT problem.  Sell side research on Wall Street is full of OTT reports and references as the basis for buying all sorts of video, media and networking stock baskets.  If this is such a well known problem, why is no one complaining?  If it is such a threat to everyone’s business, where are the complaints?  If the internet is breaking due to OTT congestion, where are the complaints?

I used Google and Bing, but choose any search you want and just run a bunch searches on “OTT video,” “OTT video complaints, “over the top video” any term you like and you will find the problem is clearly identified and articulated by the analysts, but not so well be the service providers and users.  I know, it is strange, it is weird, but that does not preclude the existence of the problem.

I think the problem that OTT video is causing has very little to do with the network and all the networkers lining up to solve the OTT problem are going to find there is not much a of problem to solve.  My hypothesis is the problem is (1) access to content and (2) the chain of commerce.  Those are the real problems and I am not yet convinced that a bunch of network infrastructure companies are going to benefit as if this was some sort of DOCSIS 2.0 / xDSL / FTTH broadband build out redux from the last decade.

There are clearly long form/big data content stresses in the network, but I do not think that there is a lot of value to be had in thinking that this is a network problem.  I think those stresses are a data center (DC) problem with the two most important elements being the compute point and storage point.

When I read all the comments about bandwidth metering and up selling higher connection rates for high traffic consumers it tells me the network is not going to break, but rather service providers want to find ways to boost ARPU.  When I think about the all the content migrating from old form media to digital, I read storage and compute – not networking.  The evolution to digital media is really the shortening of the chain of commerce.  I wrote about that a few weeks ago, but if you want to start at the beginning you must start with Braudel.   If you do not want to read volume two, The Wheels of Commerce, then here are three quotes that frame what the internet and digital media revolution has produced, except Braudel wrote these quotes about long distance sea trade:

One’s impression then…is that there were always sectors in economic life where high profits could be made but that these sectors varied.  Every time one of these shifts occurred, under the pressure of economic developments, capital was quick to seek them out, to move into the new sector and prosper…” [see Braudel, The Wheels of Commerce, page 432].

Long-distance trade provides an interesting base for contrasting the evolution from a push to a pull economic model or what many call the digital disintermediation revolution.  “Long distance trade certainly made super profits [like the music industry in the 1970s and 1980s]: it was after all based on the price difference between two markets very far apart, with supply and demand in complete ignorance of each other and brought into contact only by the activities of middleman.  There could only have been a competitive market if there had been plenty of separate and independent middlemen.  If, in the fullness of time competition did appear, if super-profits vanished from one line, it was always possible to find them again on another route with different commodities.” [see Braudel, The Wheels of Commerce, page 405].  Braudel’s observation that super profits between supply and demand occurring over a great distance was the product of information ignorance, implies that the internet and emerging pull model will couple geographic markets and thus shorten the information gap.  Supply and demand will be closely linked and large variations of price will be limited as global consumers will have relevant, if not near real time, market data.

One’s impression then (since in view of paucity of evidence, impressions are all we have) is that there were always sectors in economic life where high profits could be made but that these sectors varied.  Every time one of these shifts occurred, under the pressure of economic developments, capital was quick to seek them out, to move into the new sector and prosper.  Note as a rule it had not precipitated such shifts,  This differential geography of profit is key to short-term fluctuations of capitalism, as it veered between the Levant, America, the East Indes, China the slave trade, etc., or between trade, banking, industry or land.” [see Braudel, The Wheels of Commerce, page 432].

It seems everyday there is another news article about how service providers are monetizing the pipe.  That hyperlink leads to a blog post about new pricing plans for VZ Wireless in which there is a surcharge for tethering.  I think if there was a real OTT problem, then we would be hearing the complaints.  The complaints I am reading and hearing are about people wanting to get paid.  That is a very different argument than the video killed the network song.

From an access point perspective, I think the evolution from the STB to some sort of hybrid femto cell / network access point with localized meshed wifi is far more interesting conversation than a Netflix problem.


* 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. **